Hi, I'm new here because I am so desperate for advice!

It is Aug 2009 now. My husband has a small business, self-employed, sole proprietor.
Back in 2007 I worked in the small business and my husband paid me. He didn't file this, and I did not file it either. I made a little over $100k. We both didn't think we needed to file it since it was my husband paying me. The book keeper is going to issue 1099 for this income.
The 2007 tax return was filed "Married, jointly".
I am going to file a 2007 amended tax return.
I am pretty sure there will be penalties, but how much??
Because it is a lot of income, how do I explain this to the IRS on the amended form?
Will my husband be fined for not filing the 1099 for 2007?
How will the business be affected???
Will this trigger an audit for the business??
How long after filing can the IRS come for an audit??

What are the consequences for me and the business??

Please help, I am panicking here!!

Your husband paid you money for working in his business, but did your husband take a deduction for amounts paid to you? If he didn't, then perhaps you need to discuss with a CPA the merits of whether or not you need to file an amended tax return and report a 1099-Misc income to you.

If on the other hand, your husband took a deduction for amounts paid to you, then of course you have reportable income in the form of a 1099-Misc that needed to be reported to the IRS. The penalties that you would be subjected to are underpayment of taxes and an accuracy penalty both of which are assessed at 10%. Then of course you could also be subject to the statutory interest on the tax liability that you have not paid on a timely basis.

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Hi thanks for the reply.

No my husband did not take this income as a deduction.

Can you please answer the rest of the questions in my original post??

Thank you!