1099-MISC for SCRA

[jasonlerner92]

I received a 1099-MISC from my bank. They conducted an audit of my accounts under the THE SERVICEMEMBERS CIVIL RELIEF ACT (SCRA). Since it was reported to the IRS as "other income" I am forced to claim it as income on my taxes. I do not understand WHY? This is not "free money" or "additional income" given to me by the bank. This money is a REFUND of fees, interest and other charges the bank charged me and then REFUNDED me under the SCRA. In essence they are giving me money I paid them back to me. It is not NEW income or ADDITIONAL income, it is income that is already part of the income reported as wages in my taxes. If I add this 1099-MISC money into my income then I am being taxed twice on the same money. What documentation do I need to show this so I can not report this money and prevent an audit from the IRS.

[ThomasM125]

If you are sure the income is not taxable, you need to report the form 1099-MISC as income on your tax return, then enter an adjustment to Other Income as a negative amount to cancel it out.

- Go to the Wages and Income section of TurboTax

 - Choose  Less Common Income

 - Choose Miscellaneous Income, 1099-A, 1099-C

 - Choose Other reportable Income

 - Enter a description for the adjustment and enter the amount as a negative number

[jasonlerner92]

Yes, this is the result of an SCRA audit the bank did.  I assume it was for many years, perhaps over the course of how long I have had the accounts open.  It applies to my personal banking, most likely just to my various credit cards as the fees and interest rates are capped by the SCRA.  The bank confirmed for me that this money was a "refund" and not any forgiveness of loans or interest.  I asked them for a copy of the audit showing the details of the audit.

Just to be clear, you are saying enter the 1099-MISC as INCOME and then enter a second 1099-MISC for the same amount essentially as "negative" INCOME to zero it out?  That is allowed under the tax code to put in a negative number to "zero" the non-taxable amount out?

There is not away to put in the 1099 and indicate that it is non-taxable?

Is there some tax rule or documentation that shows that SCRA refunds are not taxable that I can keep for my records?

Thank you for your quick reply.

[name removed]

[KrisD15 · Accepted solution]

If it is a refund from over-charged interest, it would not be considered as income. 

You could just not enter the 1099, but following the steps above offered by @ThomasM125 you will be letting the IRS know what the 1099-MISC was for and why you are not claiming it as taxable income.

Follow the steps carefully so that the income is not considered as earned or Self-Employment. 

"Under most circumstances, a forgiveness of the principal of a debt is taxable income to the debtor whose debt was forgiven, but a reduction in the rate of interest does not result in taxable income to the debtor."

Law Review

SCRA LINK

 Go to Wages & Income section

Scroll down to the VERY LAST option "Less Common Income" and click Show more

On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click Start

Now scroll down to the VERY LAST option "Other reportable income" and click Start

Select YES on the "Any Other Taxable Income?" screen 

Type "SCRA 1099-MISC" and the amount

Repeat and enter "Tax Exempt SCRA refund" and the NEGATIVE amount.

 TO CHECK IN TURBOTAX ONLINE:

Click "Tax Tools" on the LEFT SIDE BAR then click "Tools" that open below 

Click "View Tax Summary" on the screen

Click "Preview my 1040" which now appears on the LEFT SIDE BAR

Look over Schedule 1 and your 1040. 

[jasonlerner92]

Thank you Kris.  That makes sense and matches up with what the other Tax Experts wrote back with.  I double checked the letter I got from my bank with the check and it was for credit card interest remediation which matches what the bank told me.  It was then giving me back overcharges on interest, not any forgiveness of loans, etc.  They laws on reporting must have change because AMEX did the same on my accounts many years ago and I never got a 1099.

Regardless thank you for your information and I will follow the steps.

Jason

[jasonlerner92]

Talk to a tax advisor at the military tax center.  She said to not file the 1099 at all and to use a Form 8275 to explain the situation, but I don't see that in TT.  Thoughts?  Will the 1099 and negative 1099 you recommend show the "notes" to explain why I put in a negative transaction?

Thanks.

Jason