Hello-

I am a self-employed individual who just received a CP2000 letter from the IRS regarding a Form 1099-Misc.

Apparently, one of my clients who sent me a Form 1099-Misc in 2012 reported my self-employed income in box 3 instead of box 7. This generated an automatic letter, etc. since I did not report any income on line 21 of my Form 1040 (I included it on line 12, from Schedule C).

What is the best way to explain this to the IRS? The individual who erroneously reported the income on Form 1099-Misc is not willing to correct the 1099-Misc (since his return has already been filed and doesn't want to raise any red flags). Should I just explain that the income was reported on line 12?

Thanks in advance for any help you can provide.

Michael

What is the best way to explain this to the IRS?====>Aslongas you filed your tax 2012 return incorrectly by depending upon bad information on the Form 1099, you have no recourse. You can ask the IRS to waive the penalties but you alone are responsible for the taxes and any interest. Basically, income on 1099 MISC Box 3 is not subject to self employment tax ;this would be Form 1040 Line 21 other income ( i.e., prizes, spiffs, etc.) while income on1099 MISC box 7 IS subject to self employment tax and is usually reported on Sch C/SE with expenses to offset some of this income. The 1099-MISC is a reporting form used to reconcile the payer's and your records. You still report the income no matter whether the payer's records are screwed up or not.So as the payer reported the income on box 3, you did not pay self employment tax to the irs on Sch C/SE. you need to include a Sch C and Sch SE for the year you are amending, in this case 2012 return. The Sch C amount will be added to your AGI which is line 1 of the 1040X. The Sch SE amount will go in other taxes. You should pay interest/penalties on the 1099misc not properly reported to IRS/your state. .







The individual who erroneously reported the income on Form 1099-Misc is not willing to correct the 1099-Misc (since his return has already been filed and doesn't want to raise any red flags). Should I just explain that the income was reported on line 12?=======>>> The client must complete and file a copy of Form 1099/1096 with the IRS; your state tax office if your state has income tax, and you. As the payer filed a return with the IRS and later discover he made an error on it, he must correct it as soon as possible and file Copy A and Form 1096 with the IRS and should Identify the correction needed based on Error Type 1 or 2 and furnish statements to you showing the correction.As there is a mistake, you must call the client immediately and request a corrected Form 1099. I guess since the 1099 has been filed with the IRS, ask the client to send the IRS a corrected 1099/1096. As you find a mistake in the form, no matter what year it's from, you must follow the exact IRS procedures to correct it and soon. The IRS demands taxpayers correct errors as soon as possible. The 1099-MISC form has a special box that should be checked to show that the it is correcting a prior 1099 form. if the issuer won’t cooperate, then, there’s no good answer as you are responsible for contacting your customer and getting that corrected. I Guess youmay try this. if you explain the situation to the irs and can submit documentary evidential proof that the income was misreported while the payer issued Form 1099-Misc for the income that had to be reported in box 7, and will not correct the error appears to be an indication of filing a frivolous information return as well as a negligent willful intentional disregard for the Internal Revenue Code and underlying Treasury Regulations as bthe payer also must submit correct 1099/1096 with the irs/you/your state.If you do not get anywhere with the normal customary communication process, there is a Taxpayer Advocate that ensures problems and issues may be resolved promptly and impartially handled when the "normal" communication process fails.
Note; the law requires you to keep accurate business records and use those records to prepare your tax returns. Assuming that your books reflect the correct amount that you were paid the IRS will accept your documentation if the customer refuses to file a corrected 1099.

Thanks for the quick reply!

But let me make sure I've explained myself completely, and that we are on the same page. The income in question was reported on my 1040 as self-employment income (schedule C), and all applicable taxes were paid. But when the IRS received the Forms 1096/1099-MISC it is seeing the income in Box 3 instead of Box 7.

So if I understand you correctly you are saying that I must now include the income in question on line 21 of my Form 1040 IN ADDITION to line 12? How can that be? Just because the income was reported incorrectly on the Form 1099-MISC & subsequent Form 1096?

Thanks for your help....M

#1; OK I see very good.


#2;I guess so as i said ULESS the payer corrected the 1099. as you said, the pyaer reported the income that needed to be reported in box 7 in box 3.A 1096 form acts much like a summary cover page for 1099 forms;A 1096 requires the payer to identify his name, the total amount of payment on the 1099 misc given to you.

#3;no, i did not mean that. Then, yu are ok. As we know, the income reported in Box 3 was the self employer income that had to be reported in Box 7 and was subject to seca tax.Basically, income on 1099 MISC Box 3 is NOT subject to self employment tax ;this would be Form 1040 Line 21 other income ( i.e., prizes, spiffs, etc.) while income on1099 MISC box 7 IS subject to self employment tax and is usually reported on Sch C/SE with expenses to offset some of this income.

In general aslongas the payer filed a return with the IRS and later discovered/(or you let him know) he made an error on it, he must correct it as soon as possible and file Copy A and Form 1096 with the IRS and should Identify the correction needed based on Error Type 1 or 2 and furnish statements to you showing the correction.

note; sincethe income is from a biz, you must report the amount on Sch C /SE. The net profit calculated on SchCaslongas the amount on Sch C line 29/31 is $400 or more) transfers to Form 1040, Line 12 and to Sch SE for purposes of calculating self-employment taxes. The SE tax is reported on Form 1040, Line 56. You can also deduct one-half of your self-employment tax when figuring adjusted gross income. This deduction is made on Form 1040, Line 27