Contract labor deduction

May 17, 2010 3 Replies
J

Hi all,



Does any of you know any previous case about contract labor expense deduction without issuing 1099?



My client who prepared his own taxes in 2007 is being audited. He paid $30K to contractors but did not issued any 1099. (He is a schedule C filer.) His payments was more than $600 to each individual he had paid. The IRS is questioning this deduction.



He has the canceled checks as proof of payment. However, he doesn't have the contractor's SSN's or their contact info anymore.



The closest similar case I found is Deputy v DuPont, but it doesn't answer my question clearly.



If you have any insight to share or know any similar cases, I would be glad to listen.



Thanks,



John


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B

Did he pay individuals or companies? Current law does not require

1099-MISC to be issued to companies that perform services for your business, although I believe there is a measure in the health care bill that changes that.
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B

Filing the 1099's late would not normally be a huge deal, but if you don't have a TIN, then wouldn't the payouts be subject to backup withholding? It looks to me you have to weigh the consequences of filing late and incomplete 1099's versus losing a $30,000 deduction. Expensive lesson on having those who work for you fill out a W-9 (and keeping copies).

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