How to correct a tax return if the 1099-K was not under their tax ID?

[sjrglobaltax]

A 1099-K was issued under previous owner tax ID but the new owner filed taxes using that 1099-K. So therefore, the previous owner received a letter from the IRS stating they owe "x" amount when they're no longer the owner of the company. How can this tax situation be solved? 

[IRonMaN]

Did the new owner keep using the prior owner's bank account or how did the new owner get paid?

[George4Tacks]

Contact the issuer of the 1099-K and correct it and any future occurrences. Get a new W-9 signed by the new owner and submit it to move the account. Definitely bill the client for this advice.

Alternatively submit evidence that the new owner did report this income - give the full name and ID number of the entity that reported the income. 

[judys3]

Definitely get the credit card company the correct information for 2026.

A Simple solution would be to amend the tax return of the taxpayer that sold the business.  Put the 1099K on as income and then write a very descriptive explanation for an other expense category for the same amount of money.  It zeros the 1099K

Very doubtful the credit card company will amend and fix the 1099K. 

[sjrglobaltax]

They got a new cc terminal but apparently it wasn’t changed over with the bank on new info on ownership. But they got paid through the new owners account. 

[sjrglobaltax]

They contacted the bank to get corrected 1099-k but since it was for 2021, bank said they couldn’t issue a correction. 

[sjrglobaltax]

So they should amend the original owner whose tax ID it’s under, and then put an expense for said same amount explaining it was for new owner? So what if new owner filed tax under the 1099k as their income? 

[rbynaker]

IRS letters are usually pretty good about telling you what to do if you don't agree with the proposed changes.  What does the letter tell you to do?

Problem is, often the clients like to just send us page 1 of 6 and ignore pages 2-6.  I once had a client fax me pages 1, 3 and 5.  I had to call them and tell them to flip the stack over and fax it again.  Or worse, they ignore the first 3 letters and only send us the letter that says Statutory Notice of Deficiency or Intent to Levy (often insisting that this is the first they're hearing about it).

To answer the question "How can this tax situation be solved?" we need to know which party is your client and what letter you're responding to.

[judys3]

That is what I would do especially since it is from 2021 and will not be able to get a corrected 1099K.  You are putting the income on and taking it off just to pacify the IRS.  You can write numerous letters back and forth probably with no resolve.

I'm not sure why the new owner did not see the error with the social or EIN and have it corrected at that time

[IRonMaN]

Unless you are the tax preparer for the old owner, I don't think this is your problem.  If I was the old owner's tax preparer, I wouldn't be playing switcheroo on a schedule C to report income and then "unincome" it with an expense.  Sometimes the best way to deal with the problem is to lay out all of the facts to the IRS including telling them that your client wasn't bright enough to know that you can't just start taking people's credit card payments unless you have actually have an account of your own.  Using someone else's account never works out well.  And as a side note, if this was for 2021, expect the old owner to receive a few more notices in the future.

[sjrglobaltax]

The old owner is my client and he received an intent to levy letter. 

[sjrglobaltax]

I was wondering if I could amend his tax adding in the 1099K and turnaround giving the new owner a 1099 MISC for it? Or should we just write a letter to the IRS stating the issue since the new owner never updated the cc terminal with their correct info. 

[IRonMaN]

Write the letter and provide the new owner's tax ID to prove that it was reported.  

[BobKamman · Accepted solution]

It is WAY too late to be filing amended returns.  Now you have to be careful not to miss the IRS notice allowing 30 days to request a CDP hearing.  Assuming the new owner is cooperating, get a letter from them (with complete name and EIN) explaining that they had bought the business by 2021 (had they?  You don't say when the transaction occurred) and that they reported the proceeds on their return.  

As @rbynaker describes, a lot of IRS mail would have gone to the old owner before this tax was assessed and then billed.  Maybe there was a change of address and the mail was never delivered.  At this point you can request an audit reconsideration (learn about those procedures) but the likely outcome will be to explain what happened in a CDP hearing.  If it's not too late for that.  

[Accountant-Man]

Damage control-determine how much tax your client should have paid by reporting the income(less expenses). Let's say $10,000 federal.

Determine how much extra the old owner paid due to his own error by reporting your income. Pretend $11,000.

You pay him $10,000, which should have been your tax. He loses $1,000 due to his own error; that's not your problem.

The IRS can not put the income on your return, but you end up in the correct place.

(If his tax cost was only $9,000 instead of $11,000, reimburse him $9,000, saving YOU $1,000, again due to his error. Not your problem. He loses nothing due to his own error.)

[BobKamman]

@Accountant-Man  His client is the former owner, not the new owner.  

[dd4vols]

and as a side-side note...."filed taxes using that 1099-K", scares me even more.  So many people think that all they have to report is/are the amount they get a 1099-? for. The new owner did not have any cash receipts? checks receipts?

are both clients of yours?.......