1099- misc. box 7 payer made direct sales

[MGC94]

Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale. Should I add $5,000 in income to line 1a on schedule c? Or what should I do? Taxpayer has poor record keeping for income. They also received a 1099-nec for $1,222 which is on line 1b. Thank you

[Just-Lisa-Now-]

No, that 5000 isnt income, they bought over $5000 worth of product for resale.

But since they only sold for 1222, they must have some inventory left.

[dkh]

Wouldn't the 1099-NEC of $1222 be the commission received on selling the $5000 worth of product

Doesn't necessarily mean they sold $1222 of the $5000 product

[Just-Lisa-Now-]

maybe so, I dunno how these MLMs work

So whats the purpose of the 1099M box 7 if the recipient isnt showing purchase products for resale and the sale of said products?

[qbteachmt]

Yes, it would be a Cost of products for the payee.

"Beginning in 2020, box 7 will be used to indicate the payer made direct sales of $5,000 or more of consumer products to a buyer. These products are generally direct sales of a product intended to be resold. There are numerous situations this applies to but the best illustration of using box 7 is multi-level marketing companies. These companies generally sell products to their sellers at a wholesale price and may also pay the sellers some form of compensation in the form of bonuses, commissions, or prizes. In the past, all this information was reported on the 1099-MISC. With the recent change, MLM companies will be providing the 1099-MISC with box 7 checked and a Form 1099-NEC.

From a tax reporting perspective, this box is for informational purposes only as the buyer will be including the purchase price of these items on their tax return – typically as an inventory expense.

In previous years, this information was reported on the 1099-MSIC in box 9. Nothing has changed aside from which box is used to provide this information to the buyer."

[qbteachmt]

"Taxpayer has poor record keeping for income."

Obviously, no one can create their records for them. Neither this reporting of Product Cost or NEC revenue is the only data to use for the tax filing. For one thing, the reporting threshold of $5k doesn't mean they bought products of only $5k and doesn't indicate what they sold nor their profit nor what still is on hand as inventory.