My husband used his SS# to create a paypal acct for our youth basketball league. He rec'd a 1099K from PP for $22K. The $ was deposited to our Bball assoc.'s bank acct.

[lana1]

We will be stuck paying taxes on this money that we never actually received? Or is there a way to offset the $22,000 as an expense or something?

[Opus 17]

Does the league have any particular status, such as registration as a non-profit corporation or registration with the state even if not registered with the IRS?  Does the league have a tax ID number and pay employees?  Does it have its own bank accounts, treasurer, etc.?

[lana1]

They do have a tax id # and are in the process of filing paperwork to obtain a 501C status - but don't have it yet - and definitely didn't have it for 2016 (the year in question). They have no employees, only volunteers (my husband is one of them). They do have a President, VP, Treasurer, Secretary. My husband is in charge of youth registrations and just set up the paypal account the same way his predecessor did. But at the time, they were only taking paper registration forms with checks from parents. Now, with the threshold of $20,000 of gross receipts and 200 separate online transactions, that registration process triggers the 1099K from Paypal. We probably should have known better than to put our own SS# but didn't have any precedent for the amount of online transactions we would be doing and didn't think it through. Ugh.

Thanks for any help you can give us. We definitely don't want to get on the wrong side of the IRS - but also don't want to pay taxes on money that we never received.

[Opus 17]

You need to change the PayPal account immediately to the organization's tax ID number, if you didn't already.

There's no good answer here.  I think the simplest thing to do is to leave the 1099-K off of your personal tax return entirely.  You may get a letter suggesting that the money is taxable and proposing a tax assessment.  You would reply by explaining the situation, and including proof such as deposits and transfer records, that all the money in the PayPal account was deposited in the league's bank account.

There are some other possibilities, like reporting a business with $20,000 of income, a matching $$ of expenses and zero net profit.  While this would avoid the automatic computer generated "you forgot a 1099" letter, it could lead to more questions if a human ever saw it.

[Opus 17]

@TaxGuyBill @DoninGA any other ideas?

[TaxGuyBill]

I agree with your assessment.  Personally, I would use the second option (report it on Schedule C and then a corresponding expense).  Using the first option you are pretty much guaranteed to get an IRS notice, and then need to explain it, while the second option would likely avoid any IRS notices.