Incorrectly reported 1099Misc

[quicksam]

I brought this up last year and still have not come up with a solution. The Bank refuses to change the way they are reporting the income on 1099misc. The IRS agreed with me at the forum in Atlanta but said the best route would be to get bank to correct 1099misc.

Here is the situation:

Have a client who was on the board of a bank for many years. He received 1099misc for this and we always reported it on Schedule C as directors fees. His health has recently went down hill and he retired from the board. Upon his retirement the bank decided to purchase an annuity for him that would supply him a $20,000 income for the next 10 years. The bank owns the annuity but it is payable to my client. He no longer performs any services what so ever for the bank.

The bank continues to issue him a 1099misc with $20,000 listed in box 7 nonemployee compensation. They refuse to issue it in box 3.

Am I right to think that we should be paying federal and state taxes only and not SE tax on this money?

If so how do I claim this income without causing a red flag? Is there a way to get the IRS to give us an answer in writing so no problems will arise later?

Thanks

[JG EA]

I hesitate to answer - I was so off base on my last answer, but:

Maybe the bank views as this category in the directions for 1099-MISC

"Directors' fees. You must report directors' fees and other remuneration, including payments made after retirement, on Form 1099-MISC in the year paid. Report them in box 7".

Maybe they view it not as an annuity, but as payment by the bank. If it was an annuity for your client then it should be taxed as an annuity, but if the bank is paying him as a retired director then maybe not.

I don't know how retired directors are taxed, and I couldn't find something on it quickly. A clue is the IRS wants it on 1099 - Misc line 7?

[quicksam]

Thanks for your thoughts!

Anybody else have an opinion on this?

[Bees Knees]

If the bank purchased the annuity and the annuity is owned by the bank, it is a form of a non-qualified deferred compensation plan. The bank is simply using the annuity for its own purposes in paying one of its retired board members.

And as to where to report director’s fees, the instructions for Form 1099-Misc seem clear:

Directors’ fees. You must report directors’ fees and other
remuneration, including payments made after retirement, on
Form 1099-MISC in the year paid. Report them in box 7.