Your Tax Questions Answered
When There's No 1099 to be Had
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
By Kevin McCormally, Editorial Director, Kiplinger.com
February 4, 2010
QUESTION:
I have been self employed for the past five years as a real estate agent. The past three years I have been doing work for a few banks doing price evaluations for foreclousures. I incorporated as a P.A a few years ago and use my employer information number (EIN) to contract with these banks.
My question is this: These banks have never issued at 1099 for payments made to me under my EIN. It makes it difficult at tax time and in the past I have estimated the income. This year I am getting worried as that income has risen into the six figures and still no 1099.
Is this income being reported to the IRS or am I considered just an expense to these banks as I am not actually employed by them?
KEVIN (AND PETER) ANSWER:
Good question, and I had to turn to my colleague Peter Blank for the answer. Here’s what he told me:
"Sounds as if he formed a corporation (a P.A.). I think the bank is entitled to treat his firm as a corporation for 1099 purposes because of the P.A. in the company name. There's no 1099-MISC reporting requirement for payments to corporations, except for
-- Medical and health care payments reported in box
-- Fish purchases for cash reported in box 7.
-- Attorneys' fees reported in box 7.
-- Gross proceeds paid to an attorney reported in box 14.
-- Substitute payments in lieu of dividends or tax-exempt interest reported in box 8.
-- Payments by a federal executive agency for services (vendors) reported in box 7.
This would explain why the banks didn’t issue 1099s on the income. In that case, it’s up to you to keep track of your income. You may want to ask someone at the bank. Good luck.
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Reader Comments (3)
Posted by: cecil at 02/04/2010 08:50:14 PM
I need to know if a wife who is separated and probably will go for the divorce, can buy another home and get the new tax credit for $6500.00 if her and the husband owned a home jointly for 10 years? The husband is buying her out of the old home.
Posted by: Steve Odem at 02/05/2010 06:48:34 AM
The law requires that taxpayers keep adequate records of their income and deductions. Corporations may be held to a higher standard than, say, an individual. A W-2 or 1099 is not a substitute for adequate records, and may be successfully challenged as inaccurate but such a challenge requires adequate records. Taxpayers, especially corporations, should not rely on W-2 or 1099 as a substitute for keeping records.
Posted by: Leonard Karl Heether MBA MST at 02/05/2010 10:41:11 AM
Fairly good advice, Kevin (and Peter). As a former IRS Revenue Agent, I had often encountered the Incorporated Entity Exception to the Information Return Reporting Mandate of 26 USC Section 6041A (in the Internal Revenue Code). There is no Exception to 26 USC Section 6001, though, which requires every Taxpayer to maintain sufficient Books and Records to Determine any Tax, Deduction, or Credit. A Real Estate Agent is Self-Employed by Statute (26 USC Section 3508). Your Questioner would have already been required by Section 6001 to have had an Accounting Systems in place for the past 5 years. Upon Incorporation, the Questioner (if not Electing to be a Disregarded Entity) would need to establish an Accounting System for the Corporation AND establish Payroll Tax Reporting for Wages, as a Corporate Officer is an Employee by Statute under 26 USC Section 3121(d)(1).