ANY SUGGESTION? Overtated 1099-Misc / Employee Status

[komtax]

Taxpayer worked for Taxi and Limousine company. Was paid by non-payroll checks accompanied with taxes witholding statements. Taxpayer received 1099-Misc with almost double the amount of payment he actually received. From bank records the amounts he deposited ( received ) is much less than stated on 1099-misc. Also, in two of the "deductions statement" that accompanied his pays for Feb2012 ( the only two he could find), the company was witholding payroll taxes; thus the company seems to have considered him an employee. At issue: do I file sch C with corrected amount of income ( the actual as per client records ) or a regular return with forms 4852 and SS-8 and paper file? or .... ? Anyone with experience with this issue? Thanks for any suggestion.

[Guest Taxed]

Was the taxpayer a statutory employee? Did he work for the same company in 2011? What document did they provide him then.

It is highly unlikely that taxes would have been witheld unless he requested them on a 1099??

If you file a return using your client's records alone without having the 1099 corrected at some point in time a CP2000 will be issued? It may get sorted out then with actual records but I would insist that the 1099 be corrected.

[komtax]

Taxed...I left out something. The company is out of business. ; taxpayer unable to reach any contact. I tried to reach them on his behalf too, no result. The address has another company in the line of business--but they say no relation to the previous business. I've reached a road block

[michaelmars]

Usually the taxi company takes commissions, rental fees, radio fees, maybe their are loan payments etc, then the driver gets a net check

[Catherine]

Report total as on 1099-MISC, back it off on "other expenses" area, and attach a disclosure statement explaining what you did and why.

[BulldogTom]

Does the 1099 show withholding? If it shows "PR Taxes" on his deduction statements, I would investigate very thoroughly before proceeding. Can you extrapolate what the numbers would be based on the two deduction statements? Was his income steady (silly question, but hey, you never know).

I hate these situations.

Tom

Hollister, CA

[joanmcq]

And boo on him for losing the payroll statements. But he can get a deposit record from his bank with a copy of the check he deposited.

[MsTabbyKats]

I'd do a C...with the full amount reported. And then deduct "the excess" as "overstatement of income".

As far as "taxes"....sounds like a sleazy company. Can the client call IRS..or fill out the form...so you can call and see what was reported? (although it's probably too early for them to have the data)

My bet is "nothing"

[Guest Taxed]

Taxed...I left out something. The company is out of business. ; taxpayer unable to reach any contact. I tried to reach them on his behalf too, no result. The address has another company in the line of business--but they say no relation to the previous business. I've reached a road block

In that case if the company is out of business and no contact possible I would ask the taxpayer to bring all his bank deposit or other records that will show the receipts from the limo company and use that as a basis to file I will also suggest keep good notes and have the taxpayer sign a document that has the explanation of what you are doing. Most important pepare the taxpayer for a CP2000.

Also would the taxpayer know which accounting firm handled the payroll or books of the Taxicompany?? That would be a place to start. Hopefully he has some payment stubs that could shed some light.

Also I thought Taxi companies have "medallions" and that is registered with the taxi commission. If the fellow knows the medallion # he could track who took over the business and if any records were transferred or which attorny was involved in the sale etc. I guess your guy has to do some detective work BUT I would NOT get involved in that because I am NOT a detective!

[Jack from Ohio]

Get 2848 and 8821 signed. Have the client in the room with you. Call Practitioner Priority Line and ask for a wage and income transcript. It will show any monies reported to his account.

[Pacun]

Get 2848 and 8821 signed. Have the client in the room with you. Call Practitioner Priority Line and ask for a wage and income transcript. It will show any monies reported to his account.

You can only get income transcript after August 1st.

[jainen]

>>Any suggestions?<<

I suggest you file an extension and decline the rest of the engagement. Too many parts of this story don't add up.

[michaelmars]

• when you say withholding p/r taxes do you mean fica or fwt/swt?

[komtax]

Michael ...I mean typical box 2, 4, 6 withholding plus NY states / NYC.

TOM...I tried to extrapolate ...based on the deposits; I am not confident of the result , because of it assumes proper withholding on the part of the company.

Pacun...my first action was calling practitioner hotline...unfortunately I got a person who was probably too stressed for the day; got very impatient with taxpayer whose English is well...needs improvement; got disconnected; when I tried again with other client waiting ( I do taxes on the spot---I have HRB and JH not far from me )

Jainem...this a third year client, I don't want to abandon him. I fully believe him, once I sent him to get bank printout which he brought.

MsTabbyKats .... your approach seems more appropriate, more defensible for this case, as the taxpayer has bank deposits to show actual payments received, and the company seems sleazy, more likely reported no payments; hence the 1099-MISC with box 7 income. Hadn't occurred to me. I'll follow your take... Thanks everybody!

[jainen]

>>I fully believe him, once I sent him to get bank printout which he brought.<<

If you want to do some heavy lifting, that's fine. I wouldn't base the relationship on a bank statement, though.

Many years ago IRS published an audit guide for taxI drivers. http://www.taxi-library.org/irsaudit.htm#Cashflow. It can help you determine some key issues, such as employment status and gross income. Naturally it had a suspicious tone, but I think it was spot on observing that "Most taxi operators pay their taxi expenditures and personal living expenditures in cash prior to depositing their monies."

Okay, in fairness the modern version changed "pay" to "may pay." http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Cash-Intensive-Businesses-Audit-Techniques-Guide---Chapter-17

[michaelmars]

could the diferrence be imputed tips? toll reimbursements etc. His deposits may just be what the taxi co paid him because the customers used credit cards and the 1099 includes cash fees as per the meter?