I have some small office property rentals that are organized under different LLCs.
I use the cash method of accounting.
I received the rental check for Jan 2020 in Jan 2020. However the company issued the check in Dec of 2019 (dated in Dec 2019) and added it to their 1099 that they sent me for 2019.
So my income for 2019 is less than what the Company's 1099 for 2019 says.
What should I do in this case?
I am not a tax professional, just a taxpayer. My advice is to keep
it simple and just use your management company's figures in this
case. Your total taxes for 2019 and 2020 will be the same either
way, so does it really matter much if you pay a part of them
Here's what I found at
"Report rental income on your return for the year you actually or
constructively receive it, if you are a cash basis taxpayer. ...
For more information about when you constructively receive income,
see Publication 538."
And from Pub. 538:
"Income is constructively received when an amount is credited to
your account or made available to you without restriction. You do
not need to have possession of it. If you authorize someone to be
your agent and receive income for you, you are considered to have
received it when your agent receives it. ..."
That sure looks to me like you should count that income in 2019.
As a matter of practicality, remember that the IRS has that 1099,
and its computers will match up amounts. Even if the law is on
your side (which it may very well not be), is it worth your time
and effort to attach a statement to your return this year
explaining why the 1099 is too high, and then remembering to
attach anther statement to your return next year explaining why
that one is too low? Aside from the possibility of inviting an
audit,(*) you complicate your own accounting without actually
saving any money. At current interest rates the float on the money
is not really significant, and you don't even need to pay 2019's
income tax till July 2020.
(*) "The IRS monitors tax returns with Schedule E more closely
than those without it."
I have done so in the past. And I have done the opposite in the past.
Your total taxes for 2019 and 2020 will be the same either
You don't know this for a fact.
He received the check in January. He did not constructively receive it
I believe the law says this to be treated as 2020 income.
is it worth your time
I have not bothered to do so in the past, no problems resulted.
Aside from the possibility of inviting an
The audit will be a letter audit, not a huge problem to reply to.
you complicate your own accounting
You don't know that to be a fact.
At current interest rates the float on the money
Bottom line: do as you wish. If you put it in 2019 income, the IRS
won't question it. If you put it in 2020 income, the IRS is not
guaranteed to question it, and if it does, you have an answer which is
completely satisfactory under the law.
Assuming that you actually received it in 2020 and didn't just wait
to pick it up in your mailbox when you could have gotten it in 2019,
then it's 2020 income to you, but a 2019 deduction for the people who
The first thing you should do is to keep the envelope you received
payment in (or however you received it) so you can document when it
was actually received. Then treat the income as 2020 income, and be
prepared to show your proof to the IRS if they come knocking.
I agree with Stan. All due respect, a 1099 mismatch is an invitation to
an audit, which, if nothing else, may be time consuming. Why invite that?
To your last point, if the difference from 19/20 is significant, that's
a choice OP needs to make. I've learned over the years not to be
dismissive over what I think is a small sum (say $100) that required a
lot of effort to capture (a year's worth of accumulated medical
receipts). In my opinion, that becomes the choice, $XX vs YY risk. Keep
in mind, the IRS, at audit time, may just demand that OP follow the
dates the 1099 stated. The success is not a given.
Thanks Joe. Reality and pragmatism is more important than theory.
Under the law OP should recognize the income in 2020. However if
there's a significant chance for audit and that an auditor may require
that it be recognized in 2019, discretion is the greater part of valor.
I agree with Mr. Bronstein about what you should do (income received by
a cash basis taxpayer in 2020 is 2020 income even if the 1099 for 2019
says otherwise - but document the situation the best you can).
My belief is any resulting 1099 mismatch is very unlikely to cause you
problems. Income and Expense timing issues during the end of year
between businesses have existed for eons. If the IRS was to follow up on
off-by-one month 1099 mismatches they would spend a lot of resources and
find many false positives (both businesses handled thing correctly), the
actual mistakes would average no net revenue, and they would piss off a
lot of people in the politically influential small business community.
The IRS simply doesn't have the excess resources to waste on activities
that unproductive. An annoying number of renters get behind in rent and
pay multiple months in late December as much to get the deduction as to
get you off their case. I suspect the actual IRS 1099 mismatch algorithm
has learned to tolerate much larger mismatches than just off by one
month - probably more like off by 3 or 4 months. If you have other
audit triggers in your returns, the mismatch may be enough to push you
over the audit threshold but I just don't see it as being much of a
problem on it's own.
If you do hear from the IRS about this problem, there is a good chance
they are looking more at your renter than you. Respond to the IRS with a
letter telling them what you told us. Unless your renter can prove
they mailed you the check in 2019, they may end up with a 2020
deduction. If the renter can show the check was mailed but it was late
in the month, that can also support your contention you didn't receive
payment until 2020. After all this time and effort, the IRS will on
average receive $0 more in revenue - it is hard to see them pursuing
this very hard.