Discussion:Proprietor does not want to issue 1099's

And The Tax Code makes the employer liable for withholding, FICA, and penalties that can total more than 50% of the unreported income/wages ect...

Will

I would not walk away from the client from preparing income tax returns and or preparation of their accounting as the client is not underreporting his income or overstating his expenses on his t/r's by not filing 1099's. I would not allow a t/p to deduct cash payments to an IC and there are many other reasons I might walk but this is not one of them. But again, I'd get it writing so they could not come back against you.

Will - and others - If you really want to protect yourself - Inform the client in writing that failure to file an information return (Form 1099's) results in a penalty of $50 per return up to $250,000 per year. Ask the client to initial your letter and return it that they acknowledge you have told them of this requirement and that they are accepting full responsibility for not wanting to issue 1099's.

I've run into a similiar situation with a new client that came to me the other day. See Funniest Tax Story of the Day. This guy doesn't issue 1099s or W2s. His former preparer buried the 'wages' under line 38 Materials and Supplies. This was not small amount - around 60K.

Needless to say, for that reason and several others that reiked of tax cheat, I did not engage and politely showed this character to the door.

Now, from a reporting standpoint, those expenses are still a legal deduction on the tax return and I would still take them. I would just make sure the client is fully aware of the consequences.

It is the same thing with an aggressive tax strategy. The return may be audited and the position may need to be defended. If the client wishes to be aggressive and I feel that I could defend the position, even with the possibility of losing, then I would agree to do the tax return that way.

The only client that makes me more nervious is the one that "did a little work on the side" and isn't going to claim it because they both agreed that payer was not going to issue a 1099!!

Chase... This is where you visit with the client about continued service.

Also, is the IC, the t/p's girlfriend? If so - that changes this even more........ I had one of those clients once and I forced them to report it all as back payroll - got very expensive but contractors are scared of audits because they just do not understand the big picture. I still believe you have a workable situation here unless you find out just the "not" filing of the 1099's is not all your dealing with.

They do well to get the name on the checks. I tell them they need to do 1099's, but they never do. We list contract labor under other expenses.

Somebody earlier mentioned that the Federal penalty for not filing 1099's is that the taxpayer would be subject to the unpaid income taxes & Social Security taxes of the contractor. I know about the Federal $50/1099 fine, but I have never heard of this fine for an unfiled 1099.

I think the person posting this was confusing the penalty for paying a common-law employee as an independent contractor. If you get caught in this situation, you, as the "employer" are subject for all the withholdings and employer taxes that you should have been paying.

For example, what if the payment is capital, or the taxpayer has a loss and the deduction doesn't save him any taxes? He still is required to issue the forms 1099-Misc.

Although the penalty for not filing the form 1099-Misc is only $50, as Death&Taxes pointed out however, the IRS can also assert that you are aiding and abetting tax fraud.

Therefore, with my clients, I don't put it in terms of their losing the deduction, I put it in terms of the IRS thinking that they are aiding in a crime, participating in the underground economy, etc.

On the other hand, if the client doesn't want to hire me to prepare the forms 1099-Misc, it's not my job to make sure that it gets done, it's just my job to advise them of the requirement. I put in my engagement letter that they are required to issue the forms and I will perform that task if requested, similar to what Will was saying.

I'm very careful not to let the client think I am approving in any way of their not issuing the forms (after all, that's what they are trying to get out of me). Sometimes when they realize that they are totally responsible for the omission, as is confirmed in writing, they change their views.

Now that my schedule is full, I have the luxury of looking at resigning from clients who I sense are not straightforward, or who are just so sloppy in their business practices that there is a danger of some sort of blowup I could get dragged into.

In fact, I recently was pleased to decline taking on the tax work for a home health care provider who was of the opinion that all of the workers were independent contractors (in conflict with all of the other accountant's she had asked before meeting with me). Taxpayers in this area have lost on this issue consistently and it can ruin the life of the business owner, not to mention their families, since the personal liability is huge.

Great discussion - it feels so good to vent!

I love this topic and I have learned quite a few ways to communicate what could happen with my clients!

Consequently, I had the payee sign an independent contractor agreement with my client that included wording that they understand that they are responsible for paying taxes on all of the payments for services they receive. Next time I'll make the wording even stronger - such as "the law requires you to report all income and there can be severe consequences . . ."

Tax evasion in the form of not reporting income is a serious business - ask Richard Hatch, the "Survivor" TV show winner who is now doing 5 years prison time for not reporting the prize income. You don't want any part it. In the course of the criminal proceedings, Hatch blamed CBS, asserted that he actually should have been treated as an employee, and that it was all CBS' fault for not withholding taxes from his prize winnings.

Good luck!

I wrote copy for two catalogs for this business and am reporting over $5000 in income on my 2007 returns. Since I didn't have a 1099 when I e-filed my federal return, I just totaled my invoices (all two of them) and reported the income as usual. The tax program I used didn't ask for a identification number, just a name of the client. Great.

So then, when I went to file my Ohio return, I found that it asks for a withholding account number. By this time it was the second week of February so I sent an email asking when I should expect my 1099. Their response was that they "don't issue 1099s to casual labor."

So, now what? I sent a reply letting them know that I was claiming the income and that I needed a Ohio withholding number but honestly, I don't expect a reply.

This is the same company who held my last payment over 3 months until I reduced my invoice by $1200. They came up with their own rate that I "should have" been billing them. If I hadn't been counting on the money to carry me through my maternity leave, maybe I would have pursued them in court but ugh. It was a mess and I was a thousand weeks pregnant.

ANYWAY, what do I do if I can't get the withholding number from them? Will I be in trouble for reporting income since I don't have a 1099 to back it up?

Thanks for any help! Jen

I have a question related to whether or not 1099s are required for the purchase of merchandise. For my new corporation, I buy lots of used computers on CraigsList with cash, and sell them elsewhere. My accountant has informed me that, for merchandise purchases over $600, and especially for suppliers I deal with multiple times, I need to send out a 1099. This was startling to me, because I thought 1099s were specifically for contractors and not merchandise, and also because most people I deal with, while they know they are working with a company, have no idea that a 1099 may be coming and are going to fall over if they get one. I have a couple suppliers who I have bought over $20K through, so especially for them, it would be a huge blow to get a 1099 (although of course in a perfect world they should be expecting to pay tax, and should be reporting it themselves).

I have looked at the 1099 instruction form, and in the top-right it seems to specifically exclude purchases of merchandise, and others I've discussed this with seem to agree as well, but I wanted to open this up for discussion on this forum. While will absolutely follow the law to the letter and will submit 1099s if I have to, I am hoping that they are simply not necessary for my situation. I am basically just wondering if I have obligations to send 1099s, or otherwise report this activity above and beyond receipts and how it shows up in my normal bookkeeping.

I know there is a form that my suppliers are supposed to send to ME, however since these are cash purchases, I suspect they will not be doing that. And I'm a reseller, so if they submit this form, that's fine, because my business is 100% above board and I pay my taxes.

Anyway, thanks in advance! If it matters at all, I'm in Illinois in Cook county.

John

Otherwise it's over $600.

That said, in my practice, I have it clearly stated in the engagement letter that the client MUST provide the amounts, name and ID for 1099's. I am sort of a "word processor". Reason....Many of my clients are larger, use various software and a search by me would be futile. Also, if you use QB's and it isn't set up well, the amounts will be wrong. Same vendor with name mispelled etc.....

I agree with DT, the IRS is beginning to disallow the deductions. I can't find support for this in the code but they are doing it.

1. Fine of $50 per 1099 not filed with IRS. 2. Fine of $50 per 1099 not provided to the recipient. 3. File Form 1099's for past three years. 4. For recipient who does not poney up the tax (if any), IRS goes back to the client for back-up withholding (now that could be a huge number).

FYI

But as a matter of avoiding a malpractice claim, I strongly urge those of you who continue working for the client to have a written CYO letter signed by the client proving that (2) you advised the client to file the 1099s, (2) they declined, and (3) you advised what the penalties might be if the 1099s were not filed. Keep that letter in your file. This letter retention should be standard operating procedure. Someday it will save your bacon because the kind of client who doesn't file 1099s is the precisely kind of client that will somehow blame you when the brown stuff hits the fans. These kind of people never accept responsibility for their actions.

Of course, you will have actually have prepared the 1099s and have your copy in the file so that when your client makes all kind of silly accusations you can show that the 1099s were in fact prepared and the only reason why they were not filed is because the client decided not to file them.

Done properly, letting the client make their own decisions, however wrongful, need not be a career limiting move.

IRS.gov > forms & publications > prior year forms

will get it for you. I would think that the warning about not using Copy A could be ignored if the alternative is pen and ink on a 2007 form. At least I would try.

For other points of view on profiles, check out this discussion (which is only the most recent among numerous similar discussions).

EZTAX - thanks for the nice response.

http://www.irs.gov/formspubs/article/0,,id=108660,00.html

Strictly speaking, you are paying for something (forms, instructions, publications, etc.) that you can get for free from the IRS website or by phone from the IRS. I just find that the CD comes in handy, especially since I am able to copy its contents onto my office computer, my laptop, and my home computer so that the contents are available on each system. I'm just in the habit of ordering it each year.

As a side note, I wonder why we can print W-2's on plain paper but not 1099's - I hope that changes soon.