It’s the time of the year when taxpayers may be receiving 1099 forms in the mail. If you have any income that is not salary, you will probably get a form 1099 showing the income. You should save your forms for the time when you fill out your income tax return. What should you do if a form you are looking for doesn’t show up? Tax attorney Rob Wood talks about the problem in this report, and he also discussed the subject in his article, “IRS Forms 1099 Impact Your Taxes, But Don't Ask For Missing 1099s.”
Wood points out that the IRS loves these forms – and other, similar forms – because the forms contain a taxpayer’s social security number, allowing an easy cross-check by the IRS to see if payments on 1099s show up on tax returns when they are filed. There are a number of types of 1099s to report different types of income: interest, dividends, and retirement income. There is also, Wood says, a form 1099-misc. This is the form used to report payments made to contractors. The threshold where the reporting requirement kicks in is $600. Wood also notes that the requirement to file a 1099-misc applies to businesses, not to individuals.
For an individual taxpayer, ignoring forms 1099 is not an option. Taxpayers need to collect and save these forms when they are received. What sometimes happens, Wood says, is that taxpayers start receiving these forms in late January or early February, then stick them in drawers and forget about them. There can also be problems where a taxpayer is looking in the mail for 1099s that don’t arrive. This could happen because there is a problem with the taxpayer’s address. One good solution to this is to keep records of payments when they arrive, so that payments can be reported on the tax return even if the 1099 doesn’t arrive.
But what if a taxpayer simply forgets to report some 1099 income. “In a way,” Wood says, “it’s not such a big deal.” What will almost certainly happen is that the taxpayer will get a computer-generated letter from the IRS noting the payment and asking the taxpayer to confirm the receipt so that it can be taxed. The IRS might also simply send a bill for the taxes due on the unreported income. Usually, an event such as this does not trigger further action, such as an audit.
Wood has a suggestion regarding a 1099-misc that doesn’t arrive: don’t ask for it. Here’s why: A taxpayer who inquires of a business about the missing 1099 already knows about the payment, otherwise there would be no inquiry. Wood’s suggestion is simply to report the income on your form 1040 and pay tax on it. A problem can occur, however, when there was a 1099 sent to the wrong address, causing the business to issue a new 1099 with the correct address on it. However, this might cause IRS to think you’ve been paid twice as much as you in fact were paid, since there are two 1099s on the record. Wood’s advice: don’t ask!
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.