A 1099misc was incorrectly issued to my SS# instead of my S Corp FEIN. Issuer refuses to amend 1099.. How can I transfer this income back to the corp without a Sch C?

[SGedajlovic1]

A large Federal agency issued me (2) 1099 Misc (box 6).  Part of the year was assigned to my S-Corp FEIN.  The remaining 8 months was assigned to my name and SS#.  They are REFUSING to amend this.  I know I need to report the income on my personal tax return, then create a nominee 1099 misc from my personal tax return issuing the revenues from my SS#  back to the S Corp's FEIN.  When I enter the 1099 misc. on my personal tax form, Turbo tax wants to set up an Schedule C.  (I normally complete Form 1120S and issue myself a K-1).  Do I need to set up a business under my name/SS# in order to complete the Nominee 1099 misc  returning these funds back to the S Corp?  Can this be done without setting up a business return (Schedule C) for an entity I did not run in any sense of the word?

[TomYoung]

You have a few different ways of going here, in my opinion

1.Forget about entering the 4-month 1099-MISC on your own income tax return and simply include that income with the S-Corp's Form 1120S revenue number.  The IRS might put 2 and 2 together and realize what you did and let it go, the IRS might never pick up on the "missing" 1099-MISC or, if they do, figure it's not worth their time to follow up, and let it go, or they might contact you about the missing 1099-MISC.  If they do contact you then a letter from you explaining the situation - the 1099-MISC issued to you by mistake, the income properly reported on your S-Corp's income tax return - should put the matter to bed.

2.Enter the 1099-MISC into TurboTax using the 1099-MISC interview, creating a Schedule C, then enter an offsetting expense on line 27a of the Schedule C with a Part V expense of "1099-MISC issued in error to me personally instead of S-Corp (FEIN)."  Then you need to "dispose" of the business at no gain or loss so the Schedule C doesn't show up the next year.

3.Enter the 1099-MISC on line 21 as other income and then reverse it off.  Start the "Miscellaneous Income, 1099-A, 1099-C" interview down at the bottom of the "Your 2016 Income Summary" page.  Start the "Other reportable income" interview.  On the page "Any Other Taxable Income?"  click YES.  On the page "Other Taxable Income" ignore the "Do NOT enter income reported on Form 1099-MISC" warning enter a description and amount, e.g., "1099-MISC issued to me personally".  Go back and start the "Miscellaneous Income, 1099-A, 1099-C" interview again, following the same path, and enter a description and a NEGATIVE amount, e.g., "1099-MISC nomineed to S-Corp (FEIN)".

Tom Young

[mhouse]

I had the same issue and used Option 3 above and now turbo tax is giving me a credit on Self Employment tax that was calculated on the 1099-Misc that was issued in error.  How do I get rid of this credit?

[TomYoung]

All I can say is that you did something wrong.  I just tried the process reporting $5,000 of income and reversing it as described and it worked fine with no net change in tax from before I started the process and no Self Employment Tax credit.  If you're seeing Self Employment tax being created on the 1099-MISC issued in error it's clear to you entered the 1099-MISC, with an amount in Box 7, AS a 1099-MISC.

[sgedajlovic]

I opted to use option #2 after consulting with the IRS.  I indicated the error and included the FEIN of the S-Corp the income was assigned to.  How do I now dispose of the business?   Also, the Schedule C combined with a 6 figure income (and reversal) put me in a HIGH audit risk category.

[mhouse]

TomYoung - RE: Using Option 3 above.  I fixed my error and the credit is gone. HOWEVER, I tried to Transmit Returns NOW and TurboTax keeps looping saying "We Need To Make One More Check", then they want me to Check the Entry.  "Wages, Salaries, & Tips: Line 9 amount for the spouse-4 shouldn't be less than zero."  MY QUESTION --How do I Transmit Returns with a Negative Number here?

[sgedajlovic]

How do I dispose of the Schedule C entity after having used OPTION 2 to nominee the 1099misc income from my social to the S-Corp's FEIN?

[TomYoung]

The next year you dispose of the "business" for no gain or loss.  You could simply delete the Schedule C.

[SGedajlovic1]

Thank you for the response. TurboTax rated my return HIGH RISK for Audit due to the Schedule C referenced above. The 1099 nomineed is greater than 100K. Other factors were cited for that risk level, all of which I have used in past years - always getting a low risk rating.  Should I be concerned? Is there anything I can do to be proactive? Would using another one of the options be advisable?

[TomYoung]

I'm not sure how accurate that audit risk feature really is but I do know that if your taxable income is properly stated you're pretty much bullet-proof and there's really not anything the IRS can do to you.

There's always the option of simply omitting the 1099-MISC all together on your own income tax return.  If the IRS picks up on the missing 1099-MISC then their first course of action should be one of those computer-generated "letters" alerting you to this and suggesting an amount that the IRS figure should be added to your taxes.  You would hope that a well-written letter stating the facts of the situation and showing that the dollars were correctly reported on your S-Corp income tax return and in turn "passed through" to you to be included on your own Form 1040 would settle the matter.  But one never knows.

[sgedajlovic]

Thanks again...I will leave things as they are, perhaps adding a bit of clarifying information to Part V of the Schedule C.  It already states that the 1099 was issued in error and nomineed to the S-Corp's FEIN.  I might add that a K-1 was issued to me reflecting the addition of this amount to corporate income.  My personal taxes reflect S-Corp employee (officer) compensation, plus the Schedule K-1.  Hopefully, the situation will be self-evident, but, as you say, one never knows.  I half expect to get one of those computer generated letters anyway.  Appreciate the advice!