1099MISC Quesdtion

[Terry D EA]

A new business owner who started his business in September of 2016 that doesn't understand the rules of employee vs sub contractor, had a person working for him that he paid 2k. He does not have the person's SS# or a good address. This guy supposedly is a convict and left the area for some reason. The new business owner is trying to do the right thing. How do we issue a 1099 to someone who we have no information on? In order to deduct the expense a 1099 has to be issued correct? Re-classify?

[Pacun]

It is up to the agent during an audit. The agent has the option to charge $50 for failing to issue a 1099 or disallow the deduction.

If the $50 penalty exists, I believe it is because if you have proof that you paid the money, you can take the deduction.

[rfassett]

I would give the client a few W-9s and tell him it needs to be filled out BEFORE he pays a subcontractor.  The one that is done and gone is done and gone.  There is no requirement that a 1099 be issued to take a deduction.  But your client better have some other means by which to justify the expense should the IRS come knocking.

 

[Lion EA]

I've told clients to send out W-9 requests and keep the envelope with the yellow USPS sticker re the address being no longer good.  Done same with recipient 1099-MISC with Refused in the SSN box, keeping the returned envelope.  And/or the return receipt requested route, and keep the documentation.  Can also request tracking and emailed progress, so client can print out results from email or USPS online.  That only shows you tried, and tried after the fact.  I've sent the government copy in with Refused, but long ago.  Client never got the $50 penalty I warned him about.  Probably different now.  If the client convinces me he paid and it was for business, I explain the risks and include the deduction if client chooses.  The mood of the auditor will be the ultimate judge!

[Terry D EA]

I am doing as Lion has stated with this. Creating the 1099 Misc with refused and am educating my client on the need for the W-9 form as well. The IRS may still issue a penalty for the 1099. Better this way than trying to re-classify the expense when there are no supporting documents.