How to report 1099-K error in TurboTax following new IRS Guidance

[Juser]

Hi All,

I’m wondering how to appropriately report a 1099K error using TurboTax, based on the new IRS guidance for 1099K errors recently issued here: https://www.irs.gov/businesses/understanding-your-form-1099-k

Additional Background: 

I recently received a 1099K from Venmo for an early 2022 transaction of $2,000 which was incorrectly marked as a payment for goods and services. I have previously communicated with Venmo, and corrected the classification. I still received a 1099K.

My initial understanding was that this transaction should be non-taxable, and so is not required to be reported. (ie this post: https://ttlc.intuit.com/community/taxes/discussion/1099-k-issued-in-error/00/2634236/amp)

But, after reading the new TurboTax resources and IRS guidance, my understanding is that we should be using the following:

“Part I - Line 8 - Other Income - Form 1099-K Received in Error

and

Part II - Line 24z - Other Adjustments - Form 1099-K Received in Error”

On schedule 1 to report and subsequently reverse the income on our returns. 

How should we present the transaction through TurboTax? 

Right now I have the transaction flowing as follows:

Receipt: Other Income > 1099K > Other > Other (can include any taxable income not reported elsewhere on your return) of $2k

Offset: Less Common Income > Miscellaneous Income, 1099-A, 1099-C > Other Reportable Income > Description “Form 1099-K Received in Error” of -$2k

Alternatively, should we consider presenting both receipt and offset under Less Common Income > Miscellaneous Income, 1099-A, 1099-C > Other Reportable Income > Description “Form 1099-K Received in Error” for receipt and offset of $2k and -$2k, respectively. Noting that we’re not prompted to attach the 1099K using the alternative method. 

Thank you!

[Bsch4477]

Either way would work. 

[PattiF · Accepted solution]

Both entries should be reported as Other Reportable Income. Follow these steps to record the incorrect 1099-K:

1. Add more income by scrolling down to the last option, Less Common Income, and Show more
2. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C, and Start
3. Choose the last option, Other reportable income and Start and Yes
4. Enter the applicable description and amount and Continue
   • First, enter Form 1099-K as received. 
     • For a description, include Form 1099-K and Form 1099-K Received in Error
   • Next, in other reportable income also,  enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
     • For the cost description, include Form 1099-K and Form 1099-K Received in Error

@Juser

[Juser]

This is very helpful, thank you! Confirming - based on your response this follows the “alternative approach” noted above?

[PattiF]

Yes. That is correct.

@Juser

[ssdc1]

This is completely contrary to IRS guidance which explicitly instructs using line 24z. When will TurboTax be fixing their software to align with IRS guidance so users can comply with tax laws?

@PattiF 

[freekiffin]

I have the exact same question

[fanfare]

If TurboTax does not support your tax situation, you need to use other tax software that does.

OR

Use override and mail in your tax return.

TurboTax Online does not allow override.

[DaveF1006]

Thus far, Turbo Tax has not suffered any reprimands from the IRS for reporting the offset on line 8Z and representing this as a negative number. Turbo Tax stands by its handling of this offset.  If you are negatively impacted by this reporting and incur penalties and interest as a result, Turbo Tax will pay your penalties and interest if you file a claim.

@freekiffin @ssdc1