How to handle a Form 1099 issued to an individual instead of a corporation
This was really great! It is very easy to understand and will be a great reference as this is something that comes up fairly often. Plus it will be a nice link to share with others who have yet to see the error of their ways. :-)
Excellent ! There is so much confusion about this messy area of taxes. You have laid out all the guidance here so clearly. As you always do. I am fatigued on the 1099 discussion with fellow tax professionals and clients. Your article is refreshing
First, thanks for addressing this situation.
But I must, respectfully, disagree with you.
First, I fail to see any evolutionary progress between “who earned the income?” and “who controlled the earning of the income?” There is still only one person in the room, unless you have a black book that talks.
And I will admit that I have seen a persistent resistance to the large companies (Allstate Insurance, Keyes Realty, for example) naming the agencies as opposed to the individuals in their contracts. None-the-less, there is nothing arbitrary about reassigning the income from one person to the person’s company when the money has been received by and reported by the person’s company. So, the subsequent 1099 could solve the issue, but it would almost always be late. I don’t like paying for other peoples’ mistakes, and it probably wouldn’t prevent any additional correspondence over mismatched information.
(Note: It’s pretty clear to me that Lucas and Earl were NOT dealing with S-corps in 1930.)
But the fact is that the IRS computer has already been “deceived” by the false 1099-NEC. And the computer is about to (with, dare I say, its artificial intelligence) create that “false” Schedule C – and bill my client accordingly. None of us need that.
So, I submit that creating a Schedule C myself is not “false”, because it doesn’t report anything – any more than your in-and-out adjustment on Schedule 1 reports anything. Furthermore, the in-and-out on Schedule 1 is not going to dis-associate the 1099-NEC from the self-employment tax that IRS is now looking for, especially with that bare-bones explanation.
So, you say that if the 1099-NEC is correct (because the individual is named in the contract), one should NOT use the Options 1 2 or 3, but then you created a Q2 where you went into detail about the use of Option 3 if one thinks the 1099-C is incorrect. (Maybe get a better proof-reader).
Speaking of proof-reading: there is no company going to issue you a corrected 1099-K for ½ the cost of airline tickets you bought just because your friend paid you back for ½. $2500 would actually be correct, for one thing, but how do you “deceive” the IRS computer into thinking that is unrelated to a trade or business?
I propose that my solution, matching the IRS false schedule C with my own, clears up the problem with minimal impact to everyone, while continuing to try to convince the payer that they have contracted with the business, because the business received the income and uses it to pay rent, utilities, OTHER SALARIES in addition to the shareholder’s salary, and other expenses of the business. And it has worked perfectly well for over 20 years.