How do you know the 1099 is supposed to be for services? On occasion I've seen parents give office equipment to their children, and lease it back, so they could do exactly this. It allows the parent to give more money to the kids because they are in a lower tax bracket than the parent.
First I'd check with the parent and ask exactly what this is all about. Then I'd ask the parent to pay the child's additional costs of tax preparation and tax.
Option 1: They ignore the 1099's when preparing their returns. When the IRS inquires about the missing income they tell IRS the truth, that Daddy's committing fraud. They prepare to fund the rest of their education themselves.
Option 2: They ignore the 1099's when preparing their returns. They tell Daddy that they're going to do so, and he probably wants to clear things up on his end so he doesn't get accused of fraud. They prepare to fund the rest of their education themselves.
I think it's pretty obvious from OP's message what happened here, and that is that the father is trying to manufacturer a tax deduction. The children should try to make father see the light and rescind the erroneous 1099's (after all, OP said they did NO work) . Failing that, on the childrens tax return, attach a statement to paper returns (of course) and explain why the income is not being reported. of course they run the risk of never getting any more... !!!!
But the bit about giving office equipment to children and then leasing it back is a out and out sham, and will be disallowed/disregarded by IRS upon audit when the cat's out of the bag.
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