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purpose of 1099s

I'm back after a long, difficult several months of not being here on this group. Long story short, I've had two non-weight bearing splints, one non-weight bearing cast, one weight bearing cast, one Aircast, been in a wheelchair for six weeks, on crutches for four weeks and have had surgery. I now qualify for status of Queen of the Klutz Tribe. Anyway, the topic of conversation at work yesterday was

1099s and their purpose. Is the purpose so that the payor can legitimately take the deduction for the expense? Or is the purpose so that the IRS is aware of the income to the recipient? Would the IRS disallow an expense paid by a payor to a subcontractor purely on the basis of no 1099 being issued to the recipient? My question centers around payments to incorporated subcontractors. In this particular case, it is a real estate agency paying commissions to real estate agents who operate as shareholders in corporations. We all know that issuing a 1099 to a corporation, except for certain businesses, is not required. Our question is, especially in view of the amount of commissions this agency pays, could the IRS disallow the deduction for commissions paid to incorporated agents who were NOT issued 1099s if the agency was ever audited? Thanks for all the help. You guys rock!

Carol (is it April 18 yet?)

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Reply to
clj1219
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" snipped-for-privacy@bellsouth.net" wrote

The purpose of 1099's is not to legitimize a deduction, but to tattle to the IRS about the income of the recipient.

Nope. Never have, and probably never will. Nor will an expense where a 1099 was issued make that expense an allowable deduction. Think about it, the junkie 1099'ing their dealer.

As long as the payments can be tied back to the closing statements and the agent/agency agreement, they're deductible.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Reply to
Paul Thomas, CPA

Dear Queen of Klutz,

Sorry to hear of your predicament. Get well soon!

Primary purpose of all 1099's is to inform IRS of income they should be looking for. And yes, they have used that during audit to deny deductions, although in the event of no

1099's to obvious employees, it's a moot point. Other issues are present then. It irks me to see corporations bring me 1099's issued to them from payors who don't know the rules. Now, as for the case of real estate agents who incoporate themselves, usually as S corporation to get rid of SE tax, that's another thing. We're discussing and cussing this trend among realtors elsewhere, and some day, IRS is going to start an "initiative" to check up on these. ChEAr$, Harlan

Reply to
Harlan Lunsford

Primarily the latter.

They would have no basis for doing so if the expense was legitimate. They have been known to do 1099 compliance checks and assert penalties for failure to file required ones, and I presume they'd do such a check in an audit.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

That has been pretty much my take on it. I can't imagine the IRS disallowing a legitimate deduction because a 1099 wasn't issued if one was not required. Even if we're talking about the dollar amounts related to real estate, I can't imagine the deduction not being allowed if it was legitimate. We just want to make sure that deductions which are legitimate and necessary are allowed. The bad part of this is by not doing the 1099s for the incorporated agents, it gets into our pocketbook.

Reply to
clj1219

Thanks for the good wishes. I'm back on my feet, so to speak, and actually doing better than I have in several years. I'm just glad all that bad stuff happened between July and November and not during tax season. Thanks, too, for the weigh in on the 1099 issue. Yeah, I'm with you on the issue of real estate agents incorporating to get rid of SE tax. That, IMO, is the next hot button for the IRS to take up. Five years ago, we rarely saw an agent who was incorporated, maybe one out of every 20 for this one agency. This year, about 20% of this agencies agents were incorporated. We used to only see brokers who were incorporated. Not anymore.

Reply to
clj1219

Thanks Phil.

Reply to
clj1219

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