Best practice

[ILLMAS]

Would you suggest this to another tax preparer?  TP received an incorrect amount 1099, the issuer requested I speak to his accountant, which I did, the accountant suggested I prepare the return with the corrected amount and to write-in a note to the IRS to clear up the discrepancies.  Sounds very easy on his part, but wouldn't a corrected 1099 be the proper solution or does the IRS really accept notes?

[Lynn EA USTCP in Louisiana]

The issuer of the incorrect 1099 should prepare and file a corrected 1099; I do not hold much hope that the 'note' will be effective 

lynn 

[Lee B]

If the issuer won't ask his accountant to correct the 1099, then all you can do is wait for the IRS Notice.

About 10 years ago I had a Appliance Repairman receive a 1099 for $ 60,000 when it should have been $ 6,000.

When we received the IRS Notice, I attached a copy of the 1099 with a letter of explanation which the IRS accepted.

I didn't try to get this 1099 corrected because it was from a very large corporation.

Ideally you would explain the potential tax impact to your client and he would go to the issuer who would ask his accountant to fix the problem.

If that doesn't happen, then I would ask your client to get a signed letter from the issuer explaining the discrepancy.

This should be on your client to pursue. Your job is to explain to your client what will happen if the 1099 isn't corrected.

[DANRVAN]

You have three choices.

1.  Write a  letter to the issuer and point out the penalties under section 6721 for failure to file a correct 1099.

2.  Follow the accountant's advice and wait for your client to receive a CP 2000 for you to respond to.

3.  Report the incorrect amount and back it out of the tax return.  For example, if the client is an independent contractor, report the correct amount on his schedule C.  Then open up a second schedule C where you report the incorrect amount as income and as an other expense to zero it out.

Option 1 will not only add cost to your client, but possibly ill will to one of his clients. Option 2 also adds extra cost and the potential coronary by your client when he receives the CP 2000.

Option 3 allows you to file a correct tax return and disclose the incorrect 1099.

 

 

 

[RitaB]

12 hours ago, ILLMAS said:

Would you suggest this to another tax preparer?  TP received an incorrect amount 1099, the issuer requested I speak to his accountant, which I did, the accountant suggested I prepare the return with the corrected amount and to write-in a note to the IRS to clear up the discrepancies. 

If I prepared an incorrect 1099, I would correct it.  I'm not sure if the issuer prepared the 1099, or his accountant prepared it.  Since issuer is having you call me, the accountant, I'd fix the thing.  No way would I suggest a work around if I have been asked to fix something.  I can't get over the aversion some people have to correcting things.  If my client told me wrong, I'd charge an appropriate fee.  If my client prepared the 1099 himself, I'd charge a really appropriate fee.

If I'm handed an incorrect form and it's time to fish or cut bait, I use DANRVAN's option #3.  Cause people are lazy, apparently, and I don't have time to dink around with begging for forms to be corrected.  If my client has not been able to get that done before he gets here, let's move on.