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  • too_far_in_the_red too_far_in_the_red Dec 30, 2007 1:52 PM Flag

    Can someone answer a tax question for me?

    I am concerned that the 1099 I receive for 2007 won�t match the amount of money I actually received. - moorelindaellen

    The IRS computer matches 1099 information it receives from your payers with the information you reported on the return. In your case report the gross receipts reported on the 1099MISC as gross receipts. Then report the excess amount (if any) as a bad debt. To substantiate the deduction you need to be able to show you are unlikely to receive payment. The announcement the company has closed it's doors can show the debt is noncollectable. If you do not receive a 1099MISC from the client, then just report the gross receipts shown on your books.
    At least one other person who worked for the company is in the same position with regard to their W-2 - moorelindaellen

    The IRS will go after the individuals responsible for filing and making sure the payroll taxes are paid. Your acquaintance's W-2 should only reflect wages actually received. Many states will actively pursue companies that short pay their employees. Have the employee contact the state wage department for back wages.

    Sorry to hear you're having these problems.

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    • "Then report the excess amount (if any) as a bad debt." (to far in the red)

      If I remember correctly, reporting the excess amount as bad debt will only work if the taxpayer has selected accrual basis for this business; if this is the first (and presumably also last) year for this business, then selecting accrual instead of cash basis for this business should not be a problem, but if this is not the first year and cash was previously selected as the accounting method, then the bad debt deduction option will not be available unless the taxpayer goes through the rigamarole of requesting permission from the IRS to change accounting methods for this tax year.

      I recall that it is allowable to make a negative adjustment on line 21 of the 1040 for incorrect information documents, but making this change will not also reduce SE tax.

      Can anyone think of an effective and legal workaround for this situation if the taxpayer is cash basis in this business?

      • 1 Reply to anunknownelement
      • "Can anyone think of an effective and legal workaround for this situation if the taxpayer is cash basis in this business?" (anunknownelement)


        (1) Get the payer to issue a corrected 1099 if the first one is incorrect. This is the best solution, but is not always possible.

        (2) Include the full amount shown on the 1099-MISC as income on Schedule C and enter a correcting amount on an "other expense" line, labeled something like "incorrect 1099 correction." Attach a statement (which will probably be ignored) explaining the situation.

        Or: (3) Include only the amount actually received as income on Schedule C. Attach a statement (again, which will probably be ignored) explaining the situation.

        This assumes that the taxpayer is using the cash basis. I would favor Too_far's method for an accrual basis taxpayer.
        In any case, be preparered for IRS correspondence if the difference is more than a few hundred dollars.
        In the "old days," the IRS always assumed that any information documents were 100% correct; it was generally necessary to get corrected documents from the issuer to convince them there was a problem. The good news is that the IRS now officially recognizes that sometimes the issuers muck up the reporting.

    • That wasn't the answer I wanted to hear, and I hope it doesn't happen, but at least now I'm prepared.

      Thanks for your help!


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