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New 1099 questions on 2011 tax returns are a cause for concern

February 13, 2012  |  1099 business contractors
Larry F. Warner Jr CPA - Stephenson & Warner Inc.,

The IRS is on a mission to find those individuals and businesses who are not reporting all of the income they receive.  To increase their odds of finding the under-reporters, they are employing two techniques.  First, they posted two new questions on every business or rental tax return/schedule that must be answered.  The first question asks “Did you make any payments in 2011 that would require you to file Form(s) 1099?”  The next question asks “If "Yes," did you or will you file all required Forms 1099?  The second technique they are employing involves a dramatic increase in the number of audits they are performing on individuals and business owners.

You generally have to file Form 1099 information returns for certain payments of fees and other non-employee compensation (service providers) that are in excess of $ 600 in total over the course of a calendar year.  1099’s are most commonly issued to individuals who are not incorporated and provide services to a business or rental property owner.

Why is this important to you?  Failing to answer these questions constitutes an incomplete tax return and the IRS can treat your return as never being filed.  If your return was never filed, the statute of limitations never runs and the return itself could be subject to audit for an indefinite time period instead of the customary 3 years.  If you answer the first question yes, that you did make payments to individuals or unincorporated businesses for services, and then answer no to the second question, the IRS can fine you for not filing the 1099’s and will most likely deny the deduction for the amounts you paid to the service provider.

If you did pay a service provider over $ 600 in 2011, we strongly suggest you file the 1099’s by the due date of 2/29/11 with the IRS.  The recipient of the 1099 should have received their copy by 1/31/12 so time is of the essence.  You will need the name, address and social security number or EIN of the service provider and it is best to obtain this by giving the service a provider a form W-9 for them to fill out and send back to you that will provide this information.  We can prepare these 1099’s for you if you need assistance.  Please contact us with any questions or concerns you may have