To 1099 or NOT to 1099

[Skylane]

And so it's tax season day 2.......... the client has owned several vacation units at a VT ski resort for a number of years which she dutifully reports on Sch E. 

The resort/rental/management company has always provided a 1099 showing the (net) rental income that they paid her (they keep a 60% commission/management fee). 

In 2020 a new management company stepped in.... and while the deal remains the same they are now sending a 1099 for 100% of the rental income generated by the properties while they remit 40% (she still gets to pay RE tax, repairs and a few other charges.

Not a big deal to expense off the management fees as I did last year......  but she's annoyed and keeps calling them liars, thieves, and crooks.

My pot stirring genes say we'll send them a 1099-NEC but she doesn't actually sent them any payments.....  

So, I'll defer to the Brain Trust and settle in for a long long season...........

[BobKamman]

I think the real question is whether you can deduct her psychiatrist as a business expense, and if so whether the psychiatrist must be sent a 1099-MISC, Box 6.

[IRonMaN]

Yeah, I would send one to the shrink before I wasted any time sending one to the management company.

[abctax55 · Accepted solution]

IMHO... just cuz the cash didn't physically move, she still paid them.

Send the F 1099 if only to piss 'em off.

60% is highway robbery !

[IRonMaN]

Do you think they really care if they get a 1099?

[abctax55]

Maybe, maybe not...

[Skylane]

<< Do you think they really care if they get a 1099? >>    

Probably not.... unless one fat fingered a few extra zeros

[qbteachmt]

"Exceptions

Some payments do not have to be reported on Form 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-NEC is not required include all of the following.

• Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). However, see Reportable payments to corporations, earlier.

• Payments for merchandise, telegrams, telephone, freight, storage, and similar items.

• Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations section 1.6041-3(d); Regulations section 1.6041-1(e)(5), Example 5; and the instructions for box 1."

I don't know why she calls them liars. She still reports gross income and lists her expenses, even if no one ever sends a 1099. If she managed the units herself, nothing would change except, perhaps, her blood pressure.

[BobKamman]

What was your reason for only reporting the net income on prior-year Schedules E?  

The tax is on income, not on pieces of paper.

If IRS looks at ten other owners in the neighborhood and finds them reporting $5,000 a week during the season, what are they going to think about your client reporting only $2,000 ?

And how do they know the "management" expenses aren't being paid to her boyfriend?  

Is she claiming a loss on these units?  A $10,000 loss looks less suspicious when gross is $100,000, not $40,000.

But the bottom line is still, she's a mental case.  Probably abused as a child.