Contending with 1099-MISC Copies Is Not Much Like Reporting Your Wages …

Suppose that the IRS receives a form stating that someone, a client of yours, paid some stated amount to you last year. Does the IRS learn from this that the payment was made to you for services in particular, and was demonstrably in the amount cited on the form? Probably and not necessarily, respectively.

It is true that the instructions for form 1099-MISC include the following caution: “Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.” (Box 7, for “nonemployee compensation,” is what is meant by “the proper box” here.)

The caution does serve to highlight the fact that the responsibility for reporting your income rests fundamentally with you. That you must be given a copy of the 1099-MISC sent by your client to the IRS is something you can put to highly practical use if the stated number should happen to be overstated.

In its document titled “General Instructions for Certain Information Returns,” the IRS points out the following:

“If you filed a return with the IRS and later discover you made an error on it, you must: Correct it as soon as possible and file Copy A and Form 1096 with your Internal Revenue Service Center[, also furnishing] statements to recipients showing the correction.”

It goes on to issue another caution (again, expressly though not exclusively addressing 1099 and some like filers rather than their payees):

"If you fail to file correct information returns or furnish a correct payee statement, you may be subject to a penalty.”

So, if some client of yours has overstated, you needn’t hesitate to try to persuade them to correct the amount or, at worst, to take it upon yourself to inform the IRS about the erroneous figure. A client may in theory have a deductibility-related incentive to be slow to correct such overstatements, but in general honesty should prevail.

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