Discussion:New 1099 question on tax returns

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Discussion Forum Index --> Tax Questions --> New 1099 question on tax returns


Emott (talk|edits) said:

17 February 2012
I have a client that doesn't want to pay me to do W-2's and 1099's. I ask her for a copy of the 1099s she has filed and her response was that most of the people don't work for her anymore so she is "going to forget it this year." I will obviously explain the rules, penalties, etc to her. My question is: can I have her sign a statement to the effect that she "has filed or will file all necessary 1099's for 2011" and still sign the return, checking the box Yes to the new 1099 question? Or do I need to see the 1099's before signing the return or sign the return with the question checked "No." Appreciate all input as to how you would handle this.

Death&Taxes (talk|edits) said:

17 February 2012
I don't see how you can ask her to perjure herself by signing a statement the two of you know is not true.

Emott (talk|edits) said:

17 February 2012
Heavy emphasis on the "will file all required Forms 1099" and I give her the blank forms to fill out? Still not a good idea, huh? Thanks for your prompt reply.

Death&Taxes (talk|edits) said:

17 February 2012
The problem is that she opened her big mouth. If you give her the forms with a cover letter, and answer 'yes,' I am afraid it will be wishful thinking on your part.....you are sort of thinking like this Irene Dunne song from Love Affair:

http://www.youtube.com/watch?v=CRrxmcoAAzs&feature=related

Death&Taxes (talk|edits) said:

17 February 2012
But others may have a different opinion, so wait for others to chime in.

Ricky (talk|edits) said:

17 February 2012
This new 1099 question really left a lot of us off balance with our clients - especially rentals.

I'd like to see the IRS give us a "pass" for one year, in order to get clients up to speed.

Somehow we have become the cops........when does the IRS start paying us?

Ricky

Emott (talk|edits) said:

17 February 2012
Good point, Ricky. How are you handling it?

Trillium (talk|edits) said:

17 February 2012
Prior discussions about these new questions are listed below. Ricky posted to at least two of these, so you can jump to his name with your find command and probably get some insight about that, or he may post back here again, too.

Emott (talk|edits) said:

17 February 2012
Very helpful, Trillium. Thank you.

Ricky (talk|edits) said:

17 February 2012
I was at a meeting recently at the Society of La. CPAs Roundtable.

It is pretty much accepted that real estate professionals will be considered a trade or business for this purpose.

Past that, we are "on our own" to figure out who is a trade or business. There is no objective rule.

For non-RE professionals, most likely, the more properties one owns, commercial property ownership, materiality of rents, and level of management, and time spent are all factors to look at.

When an owner has one or two subcontractors on call, that would probably be the biggest issue that 1099's are required. There's no way to get around that.

At this point, I am primarily concerned for the R.E professionals. I believe they are at the greatest risk on an audit.

Death&Taxes (talk|edits) said:

17 February 2012
The poster's question is not one of rental properties, but from the description, sounds like a business. The client has admitted that 1099s are required. I don't see how you can 'handle' this except to insist that they be filed and to take steps that if she lies to you, you have yourself covered. (e.g., if she gives copies of the 1096 and 1099s, then I think you must assume she filed them, though from her statement I would have cause to wonder).

It isn't like this snuck up on us; I read my notice I sent to client early in 2011 regarding 1099 requirements for both rental properties and businesses. What has confused matter is the pussyfooting by Congress in repealing the rental 1099 requirement but not really explaining what they mean.

Ricky (talk|edits) said:

17 February 2012
D&T -- many are handling this matter using either engagement letters or questionaires.

Uing engagement letters to state in clear terms that it is their responsibility to file 1099's and the accountant will help if needed. Otherwise, it is the client's responsibility.

Many CPAs are asking the question on their questionaire. Something like,

"Have you NOT filed all necessary 1099's required for your business"

The instructions for the questionnaire state that any unanswered question will be treated as a "NO."

(A somewhat tricky approach).

Death&Taxes (talk|edits) said:

17 February 2012
I agree with everything you say, Ricky.....but 'handling it' in this particular case is a different matter. Emott's question is "... can I have her sign a statement to the effect that she "has filed or will file all necessary 1099's for 2011" and still sign the return, checking the box Yes to the new 1099 question?" This after the woman has told her she is blowing off the 1099s for this year.

Ricky (talk|edits) said:

17 February 2012
As a practical matter, can she file one or two of the 1099's for 2011?

I think most accountants will take some risk in 2011, since this is a new item on the return. We cannot "fire" our clients and stay in business ourselves. Just a fact...

Going forward, she'll have to comply in the future. Most tax accountants are going to tell her the same thing.

Ricky (talk|edits) said:

17 February 2012
D&T - to answer your specific question, I'd have her sign an overall engagement letter or answer a questionnaire. No specific statements, so my answer is "no."

Szptax (talk|edits) said:

17 February 2012
I think this is a re-education period. I have a few former clients for this very reason - their unwillingness to comply and my unwillingness to say "yes" when the answer is "no". I believe that all they have really learned is what not to say to the next preparer.

RBruce (talk|edits) said:

17 February 2012
Have you ever thought of leaving the answer to the question blank?

Captcook (talk|edits) said:

17 February 2012
Have you ever thought of leaving the answer to the question blank?

There is some precedent (a 990 form, for example) that this would constitute an incomplete return. An extreme stance, perhaps, but not without legs.

Riki EA (talk|edits) said:

17 February 2012
What about answering the questions on her tax return truthfully?

Did you make any payments in 2011 that would require you to file Form(s) 1099? Yes

If "Yes", did you or will you file all required Forms 1099? No

PirateCPA (talk|edits) said:

17 February 2012
Riki, I'm not sure what the solution is, but I don't think you want to do that.

RBruce (talk|edits) said:

17 February 2012
Obviously, that is the right thing to do. If you are sure she had a requirement to file and did not meet it, you can't very well sign under penalties of perjury to a matter that you are certain is untrue.

So I guess your choices are 1) answer the question "no" and then complete the late forms 1099 and request a penalty abatement on the grounds that she did not even know that she was required to file them until the question came up; 2) extend and file the 1099s, so that she can truthfully answer the question, "yes"; 3) Decline to answer, and expect that the return will be kicked back as incomplete; or 4) Tell her you cannot prepare her return and advise her to get another preparer.

HowardS (talk|edits) said:

17 February 2012
I agree with Riki, but I would tell the client I was going to answer the question using the information she provided to me and that she will be getting a letter from the IRS. I bet she changes her answer, then you can check yes..yes based on the client who just found religion. You don't need to put up with client B.S.

Death&Taxes (talk|edits) said:

17 February 2012
How much you wanna guess many of these 'subcontractors' got out of town before she could get their SSNs?

Bottom Line (talk|edits) said:

18 February 2012
Absolutely, that's why I track them during the year whenever I'm doing book work.

CathysTaxes (talk|edits) said:

18 February 2012
I worked very hard to get a client compliant. The one hold out, went out without a FEIN (client said he called several times and never got a response).

Ricky (talk|edits) said:

18 February 2012
I'd love to know how H&R Block and other tax services will handle this question.

HowardS (talk|edits) said:

18 February 2012
I have 2 general contractors who always nod their heads and grin when I ask if they have sent out 1099's. (I believe they hire illegals, pay cash and want to deduct the contract labor) I now have them sign a statement that they are aware of the 1099 requirement and are in compliance. If they won't sign, I tell them to go elsewhere. Not my job to audit them, just to attempt to ensure the information they provide is accurate.

Death&Taxes (talk|edits) said:

18 February 2012
This is turning into a matter of due diligence; are you supposed to go extra steps if you know the statement is half true (they are aware of the requirement, they just don't comply)? This is a nod nod, wink wink situation, and I wonder how much protection we have when we hide behind such a statement. What would worry me in a situation like you describe is the contractors tossing you under the bus, like saying, "the guy's been out to our job sites, he sees what's going on."

HowardS (talk|edits) said:

19 February 2012
I don't KNOW my contractors are not in compliance, I just SUSPECT it. Big difference. These contractors simply claim they paid many subs less than $600 each. I'm not concerned with the job site visit. I haven't been and it's he said/she said. If the IRS audited every person involved in the construction industry we could pay off the national debt.

Emott (talk|edits) said:

22 February 2012
Thanks to everyone for such a lively discussion. It is so important for a sole proprieter to have such a forum. To bring closure to this particular case, I visited the client, laid out the options AND I showed her the page of the return with the 2 questions. Her face turned white and she said "I didn't know it was this serious." She then asked me how to do the 1099s and if I had any forms she could use. I asked her to answer the questions and initial beside them. Told her I would keep this for my files. Today I got a 1099 from her! What I learned from this is I can talk until I'm blue in the face and it doesn't sink in, but show a client an IRS form and it has a different impact. Thanks again for all your input!

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