Faulty 1099s and the IRS

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
Arthur Rubin
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Joined: Fri May 30, 2003 12:02 am
Location: Brea, CA

Faulty 1099s and the IRS

Post by Arthur Rubin » Fri Sep 12, 2008 1:46 am

OK, this is a spinoff of a tax protester thread, but it may still have some interest here. In my (fortunately short-lived) time as a contract programmer, I reported less on my Schedule C than was noted on my 1099-MISC.

Case 1. I was supposed to receive my schedule payments monthly. The treasurer wrote (my, at least) check late in December, but told the contractors that it wouldn't be ready until January. The contractee (is that a word?) has since disappeared without a trace.

(I reported it properly the next year.)

Case 2. Yet another company. They first told me that the "final" payment for a task wouldn't be available until at least January 5, but they wrote the check on December 31, and then didn't mail it until January 9.

Case 3. The same company as case 2, a couple years later, but now in bankruptcy. They agreed they owed me $1000 in November, but, after the bankruptcy trustee claimed the person with the company who signed my contract didn't have authority to do so, and considering some of the papers the CFO had submitted to bankruptcy court, I settled (in April) for the de minimus amount (according to the proposed settlement) of $400. (If I hadn't settled, I might have gotten as much as $600, but probably a couple years later.) They had sent a 1099 covering the $1000.

In each case, I put added an attachment referencing line 1 of Schedule C in which I explained the situation.

No IRS audit ensued.

Although these were all in the 1980s, I don't know why the result would be different in the case of a fraudulent 1099-MISC. It might be a little different if I had been a TP, though.
Arthur Rubin, unemployed tax preparer and aerospace engineer
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Re: Faulty 1099s and the IRS

Post by Nikki » Fri Sep 12, 2008 2:01 am

Constructive receipt.

Since (I presume) you were a cash basis taxpayer, you didn't receive the income until you received the check.

If there were a discrepancy as to the few dollars the company reported in 19xx, but you reported in 19x1, it may have been intentionally ignored or slipped through the cracks.

In any case, were there have to been audits or examinations, your testimony, supported by deposit dates for the checks would probably have been sufficient to overcome any doubt as to your testimony. Especially if those were the only items questioned.

On the other hand, if you were to have claimed that you never received any income because the unsubstantiated claims of the companies issuing the 1099s were refuted by your sworn statements on your tax return and supporting 50-page document, you might have had a more difficult time with the examiner.