Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
I know a few investors that have never filed 1099s with contractors. They claim to either play dumb (thought it was a C-corp) or just never file. One guy has never filed in over 10 years and never a peep from the IRS. I'm wondering what real life experience people have had with the IRS? Anyone get called out, fines, etc?
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
I had filed 1099 that was lacking the tax ID of the contractor, due to failure to get it. IRS sends a letter saying don't do that again, and that you must send a letter to that contractor telling them if they do future business with you that you must have that tax ID or be subject to backup witholding.
So it does get checked by somebody at the IRS if you actually issue a 1099.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
My *guess* is that this isn't something that would likely be noticed by the IRS unless/until there is an audit of a business...at that point, I'm guessing a review of 1099 filings is pretty standard...
So, as long as you don't plan to get audited, you're probably okay... :-)
Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
15y
Thanks J! New to the forum, investor in central AZ for 2 years now. I just stumbled upon your vault and the spreadsheets and contractor agreements are very helpful.
Regarding the 1099s, I'm just curious to hear some real world fines that have been slapped by the IRS upon smaller investors. I know a lot of people here use labor that may or may not be legal and its not easy getting contractors to fill out a W9. One contractor even told me he would file a W9 with bunk information. Guessing at that point its not the owner's responsibility to verify information?
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
15y
Originally posted by J Scott:
My *guess* is that this isn't something that would likely be noticed by the IRS unless/until there is an audit of a business....
Spot on J Scott. If a business tax return is audited a review of 1099 filings is standard. Currently, the 1099 is required if you pay an independent contractor $600 or more. HOWEVER, starting in 2012, the 1099 will function as a tax form for ALL business to business transactions. In a nutshell, you will have to issue 1099s whenever you do more than $600 of business with another entity in a year. This includes payments to corporations, which are exempt under current filing requirements.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
I had filed 1099 that was lacking the tax ID of the contractor, due to failure to get it. IRS sends a letter saying don't do that again, and that you must send a letter to that contractor telling them if they do future business with you that you must have that tax ID or be subject to backup witholding.
So it does get checked by somebody at the IRS if you actually issue a 1099.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
Originally posted by Steve Babiak:
I had filed 1099 that was lacking the tax ID of the contractor, due to failure to get it. IRS sends a letter saying don't do that again, and that you must send a letter to that contractor telling them if they do future business with you that you must have that tax ID or be subject to backup witholding.
Good info, Steve...
We've had a couple instances where my project manager has forgotten to get a 1099 filled out by a contractor, we end up not using them again, and then we have trouble contacting them at the end of the year. I always wondered what would happen if I filed a 1099 without their Tax ID...
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Serge, I'm involved in audits quite regularly both state and federal. It is quite common for these government agencies to ask about w-2s and 1099s. The typical fine is $250 for each unfiled return which can add up quickly.
People get away with not fling returns all of the time. Once you get caught though a history of non compliance, fraud or gross negligence can lead to substantial penalties with interest. If your new to business you can probably make a plausible argument and get the penalties abated, but if your business has been around awhile it gets more difficult.
It is quite common when audited that the IRS will want to look at several years of tax returns and documents.