1099 Misc ?

[Eli]

Taxpayer owns a delivery service. Has had it for the past 4 years. This year he decided to open another delivery service along with a cousin. The cousin was supposed to be the main partner. No formal partnership paperwork was drawn up. Taxpayer set up the bank account under his name. The W-9's were set under his name as well. He received all the 1099's from the payers. He stated they were going to change it, but they never got around to it. He was supposed to only receive 18000+ from his cousin. Instead the 1099's total 81,000+. Can he turn around & issue the cousin a 1099 for the difference (81,000 - 18,000) or should he issue a 1099 for the full amount? This is a mess :-(

Thanks for any suggestions!!

Eli

[BulldogTom]

I am not sure I understand what happened. Is there a partnership or not? If not, your client has another sch C to complete. If he made payments to his cousin for the services the partner provided, then it would be appropriate to issue a 1099 to the cousin for the "independent contractor" services the cousin provided.

Are they fighting? How do they want the taxes to be completed? You need to make sure you know all the facts before you start putting the tax return together or start issuing 1099's.

Send me an e-mail tonight if you want to discuss in more detail.

Tom

Lodi, CA

[OldJack]

>>Is there a partnership or not?<<

Of course there was a partnership and the partnership should file a tax return. The client should file a 1040 Sch-C for the gross and issue a 1099Misc to zero the Sch-C and transfer the income from himself to the partnership. The 1099's probably are not all the income that needs to be reported.

[MAMalody]

I'm curious. If there was a partnership, wouldn't there be a 1065 somewhere?

[BulldogTom]

>>Is there a partnership or not?<<

Of course there was a partnership and the partnership should file a tax return. The client should file a 1040 Sch-C for the gross and issue a 1099Misc to zero the Sch-C and transfer the income from himself to the partnership. The 1099's probably are not all the income that needs to be reported.

You could get a tax id number for the partnership. What I don't know is the rules for the state of Texas. Can they get everything set up retroactively? And will it cause issues with the Texas Franchise tax? Would they be better off as an LLC taxed as a partnership or S-corp?

They need to set this up the right way. Applying for a tax id number and filing a partnership return can be done, but is it the best thing for them to do? I don't know, because I don't know enough about the state laws. And I don't know if they have time to do it?

Tom

Lodi, CA

[Pacun]

One person already got nailed with a big 1099misc. No matter what you guys do, you have to deal with it since the IRS will do its income matching down the road. I would issue a 1099misc for the other person and file scheduce C for both.

For the future, they should open an LLC or form a partnership and ask the issuer of the 1099misc to issue it to the partnership or company for 2010.

[Terry D EA]

Eli,

I like Old Jack's approach. However, there is another thing to consider. If he transfers the 1099 MISC to the Partnership, then you still have the problems of who gets what percentage when you complete the 1065. Pacun's reply is interesting but I would think the paper trail regarding the 1099 MISC is covered.

[David1980]

You could get a tax id number for the partnership. What I don't know is the rules for the state of Texas. Can they get everything set up retroactively?

If there's a partnership there's a partnership. Two people go into business together with no formal agreement it's a partnership. Just like how you don't have to apply for anything to have a Schedule C, you just start doing the work for money as a sole proprietor and you have a Schedule C.

If they wanted to go LLC or S-Corp, etc... then they would have to worry about whether it can be done retroactively. But a partnership just is.

[Eli]

Thanks to all for the replies. Whew..I don't know what I would do without all of you :-)

Eli

[kcjenkins]

I agree with both Tom and Pacun. A partnership does not have to be in writing to be legal. But given that they did not get an EIN for the partnership, and then they used his personal SSN [or EIN?] with the vendors, so now he has all the 1099s coming to him, he needs to either give the cousin a 1099 for the cousin's share, or get an EIN for the partnership, then give a 1099 to the partnership. Doesn't really matter which you do, although the 1065 would be the cleanest way, either way their shares are going to end up on each partner's 1040 and SE.

[Gail in Virginia]

And remember, a new year has started and if this is still a going concern, he will have the same problem next year if they don't get and EIN for the business and use it for everything.