Discussion:Form 1099 reporting - Cash basis or Accrual
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Discussion Forum Index --> Tax Questions --> Form 1099 reporting - Cash basis or Accrual
Michaelstar (talk|edits) said: | 5 October 2006 |
| I have just had a client receive a 2005 Form 1099-MISC for rents and the reporting corporation is reporting rents on the accrual method. I believe the instructions are very clear that Form 1099 reporting is to be done on the cash method and NOT on the accrual method. Is the required reporting method for 1099's on the cash basis of accounting or accrual or does it matter? | |
Death&Taxes (talk|edits) said: | 5 October 2006 |
| "File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:" is from the instructions for Form 1099-MISC. It does not say "to whom you have accrued." To me this sounds like one of those "Print a report to see who gets a 1099" but they did not change the accounting basis to cash to create this report. | |
Michaelstar (talk|edits) said: | 5 October 2006 |
| Death&Taxes - you are correct on the reporting corp and how they determined what amounts were to be included on the 1099's. They have told me - they are correct and it should be on the accrual method because that is their method of accounting and they (as of now) have no intentions of correcting the 1099 because it is not wrong - thus the reason for my post. In my mind - they have issued an incorrect 1099 and should file a corrected one - for all of their vendors. I was also told "it would be to expensive for them as a corporation to change their reporting method to cash basis when preparing 1099's". It is my desire to use this post as an educational tool. Thanks Death&Taxes
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| 5 October 2006 | |
| My understanding is that you report actual payments made, NOT accrued amounts. There is an example on page 53 of the IRS Publication - Instructions for Form 1099 - which clearly states that you include only actual payments made NOT amounts accrued. Here is a link to the publication (the link may not go to page 53 - please scroll down). | |
| 5 October 2006 | |
| 1099's are reportable on cash basis, i.e., amounts paid. The payor's accounting method has nothing to do with it, since the object is to report income to the IRS relative to the payee. No different than W-2's. Bonuses accrued in year 1 paid in year 2 do not get reported on the W-2 until year 2, regardless of whether or not they have been expensed in year 1 by the employer. | |
| 6 October 2006 | |
| Absolutely cash basis reporting for 1099's is proper method, regardless of payer or payees method of accounting. | |
| 6 October 2006 | |
| Show 1099 amount on tax return and then deduct the excess as a deduction. | |
Death&Taxes (talk|edits) said: | 6 October 2006 |
| Michael, there are two chances of you, I or your client getting a bigger outfit to issue a correction, and Slim just left. When clients ask me to talk to their customer, employer etc. I almost always turn them down because it's usually fruitless. Why should they believe me, just because I am quoting from some book called the Internal Revenue Code, or Regulation etc etc. I would eliminate the difference on Line 2, Schedule C and provide an explanation, probably a sarcastic one like 'to convert 1099 issued by Idiocy Corp to the cash basis.' | |
Michaelstar (talk|edits) said: | 6 October 2006 |
| The reason I actually called them was because I could not really believe the letter they sent to the client. Needed to be sure they were serious about what it stated because, if they were not going to amend the 1099 (as they should), I certainly need to include the incorrect 1099 amount and add a line item in the deductions so as not to receive a CP-2000 letter. The guy was certainly nice about it but also insistent that they were not incorrect in issuing the 1099's on the accrual basis. Crazy but true. I'll send him the instructions and a link to this post for him to read. Maybe for 2006 once they realize that their reporting methods are incorrect, they will make the need changes and correctly prepare the 1099's on the cash basis. Thank you again for everybody's posts. | |
Bottom Line (talk|edits) said: | 6 October 2006 |
| Another reason they don't want to make the correction is that they might wind up correcting two years if they have paid anyone for work not yet completed. Did you talk with someone in house and/or do you have any way of finding out who their external accountant is? You may get somewhere there. | |
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