How to report 1099 NEC in a C-Copr

[revetaxes]

We have a client who is a sales person and owns a c-corp with his partner.  He receives sales commissions every month and then transfer the amount to his c-corp then pay himself salary.  The problem is some of his commissions are under his ss# not the c-corp EIN.  How should we handle the amounts reported under his ss#?   The amounts already reported in the 1120.

[Just-Lisa-Now-]

what kind of salesman? Why is he a C-Corp?  Sounds more like hes self employed and is investing money into his own C-Corp, it's not Corp income.

[revetaxes]

Independent pharmaceutical sales.  He informed all the representing companies that he owns a c-corp and the commissions should be paid under the EIN.  Some company changed the record but some don't.

[itonewbie · Accepted solution]

Sounds like he submitted the W-9 with his personal details to his clients, hence, the 1099-NEC's.  I'd also find out how the contracts were structured, how he invoiced his clients, into what accounts the clients were directed to pay, etc.

Assuming everything is consistent with what it should be for a C corp but it's his clients who made a mistake, your client should formally write to each of those clients and explain the technicalities to request a corrected 1099-NEC.

If the only mistake was him incorrectly furnishing his personal details on a W-9, he may write to explain that the W-9 filed previously had incorrect details, provide a new W-9 with the correct data, and request a corrected 1099-NEC on account that it should reflect the legal and actual structure of the contract and payment.  I'm not sure, however, that the payors are obliged to "correct" a 1099-NEC for a prior year when they had reasonably relied on a previously submitted W-9 and the 1099-NEC did not trigger any IRS notice for TIN mismatch (with the correct name and SSN of your client).

Your last resort is to report the full amounts on the 1040 and back out the same amounts with a statement to explain the technicalities but just don't expect anyone at the IRS to read it.  The same amounts would then be reported on the 1120 instead.

[revetaxes]

Thank you so much and thank Lisa for the help.  That helps.

[revetaxes]

Thank you, Lisa.  Appreciate your response.

[BobKamman]

They had to raise taxes on someone in order to cut corporate taxes for the wealthy, so they did it by eliminating the deduction for employee business expenses.  So it's not surprising that this work-around is being used.  But at what point did he notice that the monthly checks still had his name, and not the name of his company?  

[TaxGuyBill]

Who are these payments made to?  If they are made to him personally, he can't accept the payment if the corporation was doing the work.  And he is not allowed to 'assign' he personal income to the corporation.

Personally, I think if he was cashing checks that were made out to him personally, he was accepting that as self employment income, and that would be how it would need to be reported.

[BobKamman]

But see analyses like this one:

Despite the significant authority that Sec. 269A grants to the IRS, there is little evidence of the IRS or the courts using this statute. In a 1987 private letter ruling, the IRS held that a one-owner, one-employee medical corporation did not violate the statute, even though it retained only nominal amounts of taxable income, and the corporate structure allowed the individual to achieve a significant pension plan deduction. These facts were not sufficient to establish a principal purpose of tax avoidance (IRS Letter Ruling 8737001). In Sargent, 929 F.2d 1252 (8th Cir. 1991), the Eighth Circuit indicated a lack of interest in applying Sec. 269A because, in that case, the court felt the PSC had been set up for other legitimate reasons. 

https://www.thetaxadviser.com/issues/2019/jan/recognizing-when-irs-reallocate-income.html