Hello,

So I worked as an independent contractor in 2010 for a company. I invoiced each month the following month after service. I sent in my 12/2010 invoice on 01/05/2011 and was paid on 01/15/2011. When I got my 1099-MISC for 2010 I noticed it had that payment included as part of my income for 2010. Considering I didn't get it until 2011 that didn't seem right. I looked around and it looks like as a contractor i have the option of choosing my accounting method, Accrual or Cash.

I talked to the head of accounting and explained this to him, that I don't want this income recorded in 2010 since I didnt invoice or get paid until well into 2011. He then explained well we wrote in our books as we paid you on 12/30/2010, and we cant change it.

Now that doesn't seem right, is it? Theres plenty of evidence to show when i was actually payed and when I invoiced, can they get away with writing whatever day they want as payment? And I worked on 12/31/10 so what about that day? lol.

Basically I just want to find a legal way to get my 1099-MISC form to reflect my income of what was actually paid in 2010 (and not the invoice paid on 01/15/11). I see the correction box on the 1099 i just hate to write in a correction there and then get automatically flagged and audited and have to spend weeks gathering receipts and records for everything, i'd almost sooner just not mention it then take that chance.


Thanks everyone!

“I looked around and it looks like as a contractor i have the option of choosing my accounting method, Accrual or Cash.”--> I guess so; as a cash basis taxpayer, you need to report 1099MISC income on your 2010 return; as a cash basis taxpayer, as you got actually paid in2011,it is reported on your 2011 return.
“I talked to the head of accounting and explained this to him, that I don't want this income recorded in 2010 since I didnt invoice or get paid until well into 2011.”-->Correct; in this case th e1099MISC income is subject to 2011 tax return.
“He then explained well we wrote in our books as we paid you on 12/30/2010, and we cant change it.Now that doesn't seem right, is it?”----> No, I don’t think so; as long as he recorded it as he paid you on 12/30/2010, the income’d be reported on your 2010 return,NOT on your 2011 return.
“Theres plenty of evidence to show when i was actually payed and when I invoiced, can they get away with writing whatever day they want as payment? And I worked on 12/31/10 so what about that day? lol.”-->However, as you said, you worked as an independent contractor for your employer, the company, in 2010 and you MUST be subject to Constructive receipt determined by when you, as the recipient of the income, had control over it. An individual or company is considered to have control over income when it is credited to that person or company. In this case, Dec 2010.For example,you , as an independent contractor, performing your work for the company received a 1099MISC From in payment from a customer on December 30, but don't deposit that 1099MISC until January 1. Since you had control over the 1099MISC in December, it is considered to have received the funds in December, and you NEED to report the 1099MISC income on your 2010 return, NOT 2011 return.
“Basically I just want to find a legal way to get my 1099-MISC form to reflect my income of what was actually paid in 2010 (and not the invoice paid on 01/15/11). I see the correction box on the 1099 i just hate to write in a correction there and then get automatically flagged and audited and have to spend weeks gathering receipts and records for everything, i'd almost sooner just not mention it then take that chance.”--->As said above, I guess it depends on the situation.

Thanks! So as i understand it: since they didn't write or hand me the check, nor was the funds "made available" to me in any form until January 2011 - as a cash basis accounting I would claim that check as 2011 income.

I guess my question is then: What do i do on my returns now that they wont correct it? How can I represent that i received the proper amount of money, since my 1099 shows different? Should I just put in the correct amount instead of whats on my 1099? Should I put in whats on my 1099 then take a deduction out for the difference of the check that wasnt on there? Is there a way to file an official discrepancy?

What is the best way to represent this and not get flagged/audited?

Thanks!

“ So as i understand it: since they didn't write or hand me the check, nor was the funds "made available" to me in any form until January 2011 - as a cash basis accounting I would claim that check as 2011 income.”--->In general, yes. If this is the case, then you, as a cash basis taxpayer, need to report your income on your 2011 return , NOT as 2010 income( Since you ACTUALLY received the income in 2011). However, as said previously, REMEMER the concept of “ Constructive receipt”. You said that you worked as an independent contractor for your employer, the company, in 2010 and you MUST be subject to Constructive receipt determined by when you( regardless of your accounting method, cash or accrual method), as the recipient of the income, had control over it. You are considered to have control over income when it is credited to you( I mean you are actually subject to the income). In this case,you need to report it as your 2010 income( on your 2010 return) even though they didn’t write or hand you the check in 2010.For example, assume that you performed your work for your client and received a 1099MISC Form in payment from the client on December 30,2010, but don't deposit that 1099MISC until January 1. Since you had control over the 1099MISC in December,2010, it is considered to have received the funds in December,2010 and you NEED to report the 1099MISC income on your 2010 return, NOT 2011 return. Constructive receipt of income prevents you or your client from deferring tax on your income or compensation you have not yet utilized or spent.You neeed to report the income on your 2010 return as 2010 income as long as your client could pay you in 2010 even though they actually paid you in 2011.
“When I got my 1099-MISC for 2010 I noticed it had that payment included as part of my income for 2010.”--> Correct; regardless of your accounting method, you actually received the income in 2010 for your service provided them in 2010; you actually had control over the income in 2010.
“I talked to the head of accounting and explained this to him, that I don't want this income recorded in 2010 since I didnt invoice or get paid until well into 2011. He then explained well we wrote in our books as we paid you on 12/30/2010, and we cant change it.”---> I guess he was right and you were wrong due to the Constructive receipt concept as said above; you ACTUALLY had control over the income in 2010 AILRAEDY, NOT in 2011.
“ Considering I didn't get it until 2011 that didn't seem right.”--->As long as you had control over the income in 2010, you still NEED to report the income on your 2010 return as your 2010 income though you actually received in 2011.
“I guess my question is then: What do i do on my returns now that they wont correct it?”---->As said above, I guess it depends on the situation. In my opinion, you, as a cash basis taxpayer, actually had control over the income in 2010( though you received the check in Jan. 2011), so you NEED to report the income on your 2010 return, NOT 2011 return. However, reporting the income on your 2010 or 2011 return is up to you. Nobody can force you to report it on 2010 or 2011 return.
“ How can I represent that i received the proper amount of money, since my 1099 shows different? “--->I guess they are correct.

I guess I see what you're saying - but if one interprets constructive receipt like that then it would be a fairly large loophole. It would also seem to do away with the difference of cash/accrual accounting since constructive receipt would be when you performed services (accrual). I mean honestly shy of physically threatening people i do not believe there was any way possible to get my paycheck on the 30th. Nor was it possible on the 31st as it was a corporate holiday(office closed) and i was working almost up until Midnight on the 31st so they wouldve had to had the funds available to me then.

I don't know, while I'm not challenging your knowledge as its obviously far superior in this subject then mine is, in my other research online the constructive receipt doctrine just seemed to be followed not quite as strictly. Even going as far it wasn't until the check was actually put in the persons mailbox or handed to them unitl they considered to have it available (court case ruled on that - mainly because they were going to claim constructive receipt when the mailman first tried to deliver the letter but the person wasnt home). In that case they ended up rulling against constructive receipt because the person wasnt expecting the check for like another month so it wasnt held against him for not being available to receive it. Also in my situation i wasnt expecting the check into 01/15/11 because I always have gotten them on the 15th. They are only cut once a month on the 15 or the Friday before it - no matter what.

I would like to quote this:
“Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.”

I guess if i was trying to find loopholes in this loophole i could argue with the IRS: Money was not credited to my account, was not set aside for me, and it was not made available so i could draw upon it at any time (see above). I would say i was restricted from taking receipt of that check until the following year (although it seems they are strict on substantial limitations or restriction claims).

I dont know what to do! Law is a strange beast, and tax law is even scarier :-). I do appreciate your time and assistance though!

“It would also seem to do away with the difference of cash/accrual accounting since constructive receipt would be when you performed services (accrual).”--->Actually, as you can see, “Constructive receipt” is an issue ONLY under cash accounting.Constructive receipt is one of those fundamental tax concepts that can have an impact across a variety of tax fields. Under the constructive receipt doctrine, a taxpayer has income when he has an unqualified, vested right to receive immediate payment.The constructive receipt doctrine prevents a taxpayer from deliberately disregarding income that is available to him.
I would like to quote this:
“Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.”--> Correct.
“However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.”--> Absolutely correct; agreed. However, I guess this is not the situation for you UNLESS your client was ACTUALLY NOT capable of paying you the income due to( maybe) his negative financial situation.
“I guess if i was trying to find loopholes in this loophole i could argue with the IRS”--> Agreed again.The ball is in your court; I guess in most cases, the party initiating a case has the burden of convincing the court that he or she is correct with respect to the issue. In most civil cases, the IRC placed the burden of proof on the taxpayer, whether or not h eor she initiated the case, except in cases involving such items as hobby losses, fraud with intent to evade or etc.
“: Money was not credited to my account, was not set aside for me, and it was not made available so i could draw upon it at any time (see above). I would say i was restricted from taking receipt of that check until the following year (although it seems they are strict on substantial limitations or restriction claims).”---->Right. I know want you mean; what I mean is that as long as your client WAS capable of paying you at that time, then you are ALREADY subject to Doctrine of Constructive receipt; the doctrine of constructive receipt , in general, stipulates that receipt of funds by an agent is considered to be received by the principal at that time as well.Unlike actual receipt, constructive receipt does not NECESSARILY require physical possession of the item of income in question.
“I dont know what to do! Law is a strange beast, and tax law is even scarier :-). I do appreciate your time and assistance though!”-->You are very welcome; good luck.