Discussion:CMA procedure for new 1099 questions on Sch C/F?

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Business Growth Community --> CMA procedure for new 1099 questions on Sch C/F?


Lukepccpa (talk|edits) said:

8 December 2011
Has anybody come up with an idea for a CMA (cover my a$$) procedure regarding the Form 1099 questions on the 2011 Schedule C/E/F?

I was thinking of having a form that explained the 1099 filing requirements, then had these questions on it that the client would answer the questions, then sign it. Then the answers to the questions would be answered on the Schedule C/E/F according to what the client put on the form. The form would then be kept in their client file in case any questions or problems arose in the future.

It seems to me that if you answer the filing requirement as "yes", but the compliance requirement as "no", you are inviting a letter from the IRS.

I can also see the situation where the filing requirement is answered "no", and then later an issue arises and the client claims they never said "no" or claims ignorance.

Seaside CPA (talk|edits) said:

8 December 2011
Maybe include the questions in the client questionnaire, if you send one out. These questions will also be on the 2011 business returns. CPE instructor said in one of my classes, that if you answer that all required 1099's have been filed, you had better make sure they sent you a 1099 if they were required to.

CathysTaxes (talk|edits) said:

8 December 2011
I can't even get my clients to keep a check register, I doubt if I could get them to sign off on the 1099 requirement. I had an argument with one yesterday. I gave him a list of his 1099 vendors that didn't have a FEIN and address and asked for it. Two of the vendors, he pays rent to. He tells me that one of them says that he's an accountant and that I'm wrong. Client asks why, and I said the IRS is getting tougher on 1099s and we have to do it. I also gave him a copy of the 2011 1099 form and the instructions that pertain to rents paid. Let's see what he says about seeing it in black and white.

I know these two rent vendors aren't claiming the income which is why the one came up with that lame excuse.

I'm assuming that if you leave this question blank, efile returns will be rejected.

Lukepccpa (talk|edits) said:

8 December 2011
My year end letter explains the 1099 filing requirements and clearly states that we don't prepare 1099's unless the client specifically requests us to. Our engagement letter also clearly states that we don't prepare 1099's unless the client specifically requests us to.

I'm looking for a way to document the answers in the file in a way that the client can't backpedal on me for the exact reasons CathysTaxes stated.

TTMM (talk|edits) said:

8 December 2011
The question is not just on the Schedule C and E. Its also on the 1065. http://www.irs.gov/pub/irs-pdf/f1065.pdf.

CathysTaxes (talk|edits) said:

9 December 2011
I just looked for the 1120S and for 2011, they still have the 2010 version. Instructions for 2011 aren't up yet either. Only Schedule D and K1.

CathysTaxes (talk|edits) said:

10 December 2011
Any ideas that protect us and are ethical at the same time? For my clients, I do the bookkeeping and the 1099's, so I know if they are all filed. I've been talking to my husband about this. One client pays rent to two different people who will drop him if he issues them a 1099. I told hubby, I would have to mark the second question with a 'No'.

I feel my options are:

1) mark first question yes, and the second question no. - or - 2) I don't prepare the tax return and if the client chooses to lie to the preparer (I won't tell the client that he could do that), that's his choice, but the new preparer may have the client sign a form stating that all 1099's were issued. 3) drop him for bookkeeping, payroll, and tax preparation.

TTMM (talk|edits) said:

10 December 2011
Cathy, I've been having the same conversation with my husband. Since he's not a tax person I know I sound like a raving lunatic (he loves me anyway for some reason). Ever since I found out about the check boxes I have been getting information for 1099s like mad. I've been explaining to my clients that they are now required to make an affirmative declaration that they have filed 1099s and that the IRS could make their life miserable if they "lie" on their tax return. If your client does not want to issue the 1099s you can not jeopardize your business for one client. If this client engages you to prepare the 1099s you should prepare all of them, not just the ones he wants. If you don't have the information and you can't get it from him, prepare it without the id#, point it out to the client when he signs the 1096 and he mails the recipient copies and then take it from there.

JR1 (talk|edits) said:

December 10, 2011
I think we're overthinkng it. Of course no one will fill in, yes, we had people who should have got them and no, we didn't send them! Look at this as an opportunity to either get some to do (for money, of course) or help the client finally get it! Long overdue, I don't object to it. Other than now having to ask everyone with a business of any kind....and perhaps landlords down the line.

Lukepccpa (talk|edits) said:

10 December 2011
You're right in that we may be overthinking it. The only times I have run into issues with not filing 1099's has been during an audit, and then it seems to be up to the auditor whether it is an issue or not. If the taxpayer has been issuing 1099's and a few slip through the cracks, the auditor has tended to punt on the issue. It has only been a issue when the taxpayer hasn't made any attempt to file any 1099's, and even whether that is an issue has depended on the mood of the auditor. Anybody else have similar experiences?

However, at the CPE seminars that I have brought this up at, the instructors have been saying that the IRS is going to get more aggressive on this issue than they have in the past.

Nevertheless, I'm working on a form that the client has to sign for my file on this issue.

Hammock (talk|edits) said:

11 December 2011
You might say I am paranoid, but combine this enforcement provision by the Service, along with the introduction of Form 14157: Complaint: Tax Return Preparer and I think we are heading into a smelly year.

I was considering having the organizer and engagement letter specifically refer to the IRS pub on the filing requirements, with an explanation of what the return questions will entail. All that will do is lead them to asking for explanations, with me saying I don't have time for that in tax season, and then .... A friend tells them about a complaint form, and It all blows up.

CathysTaxes (talk|edits) said:

11 December 2011
Dana, I've thought of just issuing the 1099's to those vendors the clients refuse to get the info from. Unfortunately, all I have is the name on the check (I don't cut the checks, the client does), there is no address available and he isn't withholding taxes on those vendors without valid FEINs. But if that's the only way to protect myself, I'd gladly do it.

I know we've been lax with some of the vendors. I know I report all of my income, so I never created the 1099 for me (seems kinda silly, here's the 1099 I prepared for me, I'm charging you $xx.xx for creating it).

I knew there would be ramifications even if Congress repealed the bill to require 1099's for all. Without changing the law, the IRS is able to tighten the rules.

Now, I'm surprised this client has never been audited. When he first came to us, the IRS was after him for not filing and paying payroll taxes (he was in a coma for 6 months and then in serious shape several months after that, so he was in no condition to do this, his wife was the one who called my husband), then several years later, when family issues got the best of him, he fell behind again. Both times, the IRS were freezing his accounts. The second time, he went to the IRS office and scared the revenue agent with his attitude (I told her he was all bark, nothing to fear, but she told me to tell him that he's not to set foot in the office without an appointment). When he doesn't have enough funds in his checking account, he pays his taxes late (sometimes, he won't mail the returns because he doesn't have the money, I told him to mail the returns even if he can't pay). So, he's just asking to be audited.

Captcook (talk|edits) said:

12 December 2011
Cathy, if these people own real estate, you can go to the county assessor website to find the address and name of the owner(s).

CathysTaxes (talk|edits) said:

12 December 2011
Captcook, thanks for the great suggestion, but at this point, the client isn't going to give me enough information to get this. I don't have the address of the two properties that he rents and I don't have the full names of the owners. One person, he just uses the last name. The 1099 instructions say information has to be complete on the return. Of course, client didn't do the required backup withholding for vendors who don't give their information.

What would happen if I suggested that he use one of his credit card checks to pay them? Would these payments then be reported by the bank on the 1099-K or is that for credit card usage only?

Joanmcq (talk|edits) said:

13 December 2011
Cathy, I've issued 1099s to myself when paid more than $600 from a biz client.

Other than checking 'yes' to have you made payments that require a 1099 and 'no' to the following question, I don't know what else you could do if he refuses to file them. I know you can file without and FEIN with proof of requesting the FEIN; send the W-9 by certified mail. I have had to do that for a client whose landlord refused to give their EIN.

Joanmcq (talk|edits) said:

13 December 2011
Cathy, I've issued 1099s to myself when paid more than $600 from a biz client.

Other than checking 'yes' to have you made payments that require a 1099 and 'no' to the following question, I don't know what else you could do if he refuses to file them. I know you can file without and FEIN with proof of requesting the FEIN; send the W-9 by certified mail. I have had to do that for a client whose landlord refused to give their EIN.

Kerryfreemanea (talk|edits) said:

13 December 2011
I do not see an issue and this is much ado about nothing. Look, Due delgence ask us to ask the extra question and to answer the next question. The taxpayer is reposncable for the information(Unless you prepare the 1099, that might be another issue). Example< my schedule C contractor comes in. I review my engagement letter and go to interview. I ask about subcontractor, He tell me yes. I ask about filing 1099's and he tells me that he did not file any. I explain the risk, document in my file and go on. I still claim the deduction, it was money spent, and the taxpayer is responsable.

If later they get a audit, I will use every tool to protect him.

If later he talks with the bartender and finally listens to some tax advise and files 14157 for some sort of CMA on his side. Well what proof that he has that i did not use dilgence and what does my engagement letter or notes tell.

We all should already have sysytems in place, and tweeking them every so often to improve them. But Paranoid? That is going to far.

EatonCPA (talk|edits) said:

13 December 2011
I mentioned this under the thread re: licenses and lack of S Corp officer salary but it's probably more pertinent here.

In CPE yesterday, the instructor mentioned a CPA in MO who got smacked with $90k in preparer penalties on audit specifically because of 1099s. In that case, the agent asked if 1099s were filed, asked to see them, and then asked the taxpayer to explain the relationship of each 1099 recipient (what they did, how they did it, etc etc). Auditor decided 3 out of 10 1099 recipients were in fact employees, and since the CPA had filed 1099s instead of W2s (based on the fact the client held these individuals out to be subcontractors), he got nailed (what triggered the real penalties was the service going back an additional 2 years and seeing 1099s in both years to the same 3 people).

I don't think it's a far stretch to think if they'd hold one CPA responsible for not making sure people were classified properly they would hold tax preparers responsible if the appropriate forms aren't filed period. Be interesting to know if any of our insurers have a grasp on how we need to handle this situation.

To join in on this discussion, you must first log in.
Personal tools