1099-K but personal repayment

Forum|Forum|6 years ago
February 1, 2020
1 reply
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I created a PayPal account with my SSN so that friends could pay their share for taking multiple ski trips. The money goes from PayPal directly to another volunteer's banking account and she paid all the bills. I never receive the money and it does not go to my accounts. This is not a business. Friends put money in. All money goes out for the bus, caterer, etc. I received a 1099-K from PayPal for $25,000 of funds collected because I agreed to call PayPal and set up the relationship. I have read that I need to file Schedule C even though I never received a penny in any of my accounts. 1) Can I be waived from doing that? 2) Will the IRS accept the proof of payments from someone else's account? We plan to apply for recognition as a social club in the future.

Best answer by GiseleD

According to IRS 1099-K guidance, you should report items that qualify as trade or business income on the appropriate line item of Schedules C, E and F. But based on your explanation, this is not income. You are just being reimbursed by your friends for leisure activities, and there is no net profit/loss.

1) You do not need to report this income on your return at all, especially on a Schedule C, as long as it was just reimbursement (not income).

2) Maybe; that is at their discretion. There is a chance that you will receive some correspondence from taxing authorities when you file your return without reporting this income. Keep good records of the transactions and respond promptly to any correspondence you may receive from taxing authorities.

GiseleDAnswer

Level 14

1) You do not need to report this income on your return at all, especially on a Schedule C, as long as it was just reimbursement (not income).

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JEK-SBKAuthor

Level 2

Another tax preparer suggested that we report the income and then report the payments even though neither receipts nor disbursements passed through our hands. The PayPal payments went into the group's bank account and the expenses were paid from that account. We would then send an explanation along with our return and copies of the bank statements showing the receipts from PayPal and the checks written to vendors. Would you agree with that approach?

DavidS127

Level 13

You were not engaged in a trade or business, so you are not required to file a Schedule C for the payments reported on 1099-K.

You can disregard the 1099-K for purposes of preparing your personal tax return, but you should keep good records of the money received and paid for the club, in case the IRS contacts you about the payments on the 1099K.

I recommend that you print and mail your personal tax return, and attach a statement of explanation about the 1099K to the front of the tax return. This may prevent subsequent contact from the IRS.

This IRS web page on Social Clubs will help guide you through the process of establishing a social club for IRS purposes.

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