Don't have the Contractor Information for 1099-MISC Reporting


#1

Hello fellow tax practitioners,

I have a client who paid a contractor more than $600 and
he doesn’t have the contractor information at all.
The contractor asked to write a check to his ex-wife and my client have no idea
about the contractor’s legal name, the address, SSN, his ex’s address, SSN, etc.
How can we report the 1099-MISC?
I’ve been doing research and posting questions on LinkedIn Groups, etc,
but nobody responded. I don’t believe this is the extraordinary situation.
Please share your experience with me. Thanks.


#2

What I have done in the past is to tell the Taxpayer that if he/she is unable to get the W9 form, they have 2 options: 1) They must check the boxes on the Return where it asks Did you file all required 1099’s as “NO” and then they will have to face the music if the IRS disallows the deduction or gives them a penalty; or 2) they can remove the deducted expense, change it to an owner draw and pay taxes themselves on that income. I’m not sure the latter is exactly the way to go because technically you’re allowing someone else to evade taxable income disclosure, but at least the owner is paying the tax. I used this argument today with a client who was waffling about getting a W9 and a copy of the SS card and it did the trick. She doesn’t want to pay taxes on that income! Good luck!


#3

Cindy summarized the issue well. I would add, however, if the return preparer is aware of a client’s noncompliance in the information filing and does not report this appropriately on the tax return, not only is the client at risk for penalties, so is the preparer. With Cindy’s option #1 – Required to file 1099 “yes” did you file 1099 “no” – it may indeed result in an inquiry from IRS but at that point you can use a reasonable cause, facts and circumstances response and in this situation probably will not be penalized.

There is option 3 which I generally recommend. File a 1099 in the name of the person the check was cut to and the amount of payment. All the other info boxes should be “not provided”. While your client is ultimately responsible for obtaining this information to be in full compliance, this is saying “I did my best” and you can check Sch C or E boxes “yes”. Will need to paper file the red 1099-A since incomplete 1099s cannot be efiled.


#4

Well said Glenn and Cindy.

This is a common issue. I always wonder why someone would willing contract for services and pay without obtaining the legal name/address. If I pay someone for a service I want to know I can get the deduction.

Especially with Joy’s client - they didn’t suspect something was up when the contractor asked to receive payment by check to an ex???

First, document the Q&A with your client to CYA. Then ask your client for a completed W-9 from his contractor (even if your client’s contractor refuses, it’s documented).