Non-Filer Part II

[Koss]

My non-filer who received substitute returns prepared by the IRS for 2003 and 2004 has substantial self-employment income that was reported to the IRS on Form 1099-MISC.

He paid significant amounts to subcontractors, and should have issued Forms 1099-MISC to them, but never did so.

If we now file returns with a signficant figure on Schedule C in the field labelled contract labor, is the IRS going to expect him to file the Forms 1099-MISC for each subcontractor?

Should they be sent with the 1040?

Or is the failure to file information returns handled by a totally different division of the IRS?

Maybe this is naive, but perhaps these two areas within the IRS don't talk to each other very much. Maybe we should just do nothing except present an individual tax return, and just hold our breath...

[ED SMITH]

We have had a few cases recently that needed 1099's for past years. We told the client to file them for the corresponding year. The penalty to file information documents is $50 and it may not even be assessed.

[Black Bart]

The "Contract labor" slot.

My non-filer...paid significant amounts to subcontractors...should have issued Forms 1099-MISC...never did so. If we now file returns with a signficant figure on Schedule C in the field labelled contract labor, is the IRS going to expect him to file the Forms 1099-MISC for each subcontractor? Should they be sent with the 1040?

Burton, I'm going to say essentially the same thing you did last month about another subject (stimulus tax form): This is an educated opinion based on 30-something years of experience/ I don't have specific information to support this/ I believe what I am about to say:

The answer to both the above questions is "no."

I've filed several hundred Schedule Cs and I have never yet seen or heard of IRS requesting 1099s based on C "labor" entries. Whichever department handles it; there seems to be no matching at all. As you know, there wasn't any "Contract labor" field on C until around...um,...'03/'04 I think; before that it was either buried in COGS as "Cost of labor" on the back of C or written in as an "other expense." To my knowledge IRS has never contacted any of my clients about this -- while they don't, of course, tell us everything, 95% bring IRS notices straight to us. You may think your returns are under intense scrutiny, being late-filed and all, but I've thought that too and nothing's ever come of it -- actually they seem so relieved when you catch someone up that they do no detective work, period. All the "old stuff" I file sails right through without a hitch and is never heard from again.

As for sending 1099s with the return, I would not. We are meticulous people -- we want to explain, but many people checking our work are not; they don't want explanations -- they want your junk off their desks. We can't really know what their procedures are, but experience tells us that most government clerks won't check anything unless you make it easy -- why give them the rope to hang you?

Or is the failure to file information returns handled by a totally different division of the IRS?

I believe so, but either way they aren't too efficient. My clients are fined for late 1099 filing only about 50% of the time (one late-filed over 40 and was never contacted).

Maybe this is naive, but perhaps these two areas within the IRS don't talk to each other very much. Maybe we should just do nothing except present an individual tax return, and just hold our breath...

It's not naive at all and I believe "do nothing except present an individual tax return" is the safest, prudent approach.

P.S. Your "stimulus" post was helpful and reassuring. Thanks.

[JohnH]

I'm in 100% agreement with Bart. I NEVER furnish information beyond what is required by the form on any tax return I prepare. Why wave a red flag in front of the bull? After all, if IRS needs more info, they have your client's address - they know how to get in touch.

[Koss]

Non-filer

Thanks to all for your help!