It is that time of year when taxpayers are gathering information for their income tax returns for 2017. An important part of this process – and one which is just not a good way to handle things – is the delivery of what is called a Form 1099. This form is sent to both taxpayer and the IRS so that, in theory at least, the IRS can compare what the taxpayer reports with what has been reported by the entity paying the taxpayer. This should help ensure the government is getting the taxes it should. What could possibly go wrong?
Apparently anything you could conceive of – and things you could not – can and will go wrong. Payers fail to create and issue forms 1099, even when required. Payers fail to send the forms timely or to the recipient’s last known address. The values shown on the form do not match the statements, generated and sent over the course of the year by the payer to the recipient. Minor and unimportant details such as cost basis are omitted. Incorrect or nonexistent tax IDs for recipients appear on the forms. The forms are sent piecemeal and one payer may send two or more forms at different times, making it difficult for the recipient to know when they actually have everything in hand and are ready to prepare their tax returns. This problem may be exacerbated by mistitling of the forms such as calling a 1099 DIV a composite Form 1099 which it is clearly not.
You get the picture. Fortunately, these problems – all of which I have experienced – do not affect all or nearly all of these forms that are issued. That is a good thing because otherwise the whole income tax season would be a mess instead of only part of it. What should you be doing? Review every one of these forms you receive to make sure they are accurate based on what you know and have been provided separately from the forms. Have a comprehensive list of all the payers who should be sending you one or more Forms 1099. Call the payer if there is a question and don’t delay since everything is slow. Remember that we are not really important to the payers and they rely on humans and computers to do things without being certain that they are being done correctly. Good luck!