1099 Over Reporting

[AnmarieA]

Hello Community and hope everyone is getting through the season........

I have an Partnership client who does Graphic Design for various companies. The client files a separate return for this business on Form 1065. The client uses a third party billing service (Honeybook, Inc) where all the clients services are billed and collected through. Honeybook issued the client a 1099-K for all the billing in 2023 but the actual clients also issued the client a 1099-NEC for the services. When I added up the 1099s (1099-K and 1099-NEC) they added up to double the client's gross receipts. I explained to the client the IRS received all these 1099s which indicates their taxable income for the year. The client has proven to me that they only received the Honeybook deposits where their customers remit payment to and not from the client direct. I have never seen this before and asked the client to contact Honeybook directly to further investigate this duplication. How would I show this on the tax return if the billing company will not correct the 1099-K issued? I am presuming showing it as a contra sale? Any advice on how I should handle in the return? Thanks! 

[IRonMaN]

Report the amount of sales actually collected.  Don't puff up income just because you are afraid they might receive a notice down the road.

[AnmarieA]

Based on your answer you do not believe the client should have the 1099 corrected? I presumed the IRS matches track documents with filings?? As a side note the Billing service and one of the 1099 clients issued the documents in the taxpayers SSN vs Business EIN. I have reminded the business that these need to be in the business EIN NOT her personal SSN. Hope this does not come back to haunt me or the client on their personal or business returns.............

Thanks as I will not gross up Sales and will just report the correct figures. 

[IRonMaN]

"As a side note the Billing service and one of the 1099 clients issued the documents in the taxpayers SSN vs Business EIN"

Sometimes our clients are their own worst enemies.  Just alert your client that there could be some notices somewhere down the road.  You could attach a note to both returns noting the 1099 issues -------- maybe the client will get lucky and by chance someone at the IRS may read them.

[qbteachmt · Accepted solution]

"you do not believe the client should have the 1099 corrected?"

There is nothing wrong here. Why should anything be changed?

You don't have duplicates. You don't have overreporting. You have people that are subject to different requirements.

"Honeybook issued the client a 1099-K for all the billing in 2023"

If Honeybrook is a Payment Settlement Entity (PSE), they are required to do this based on thresholds of number of transactions and/or total $ handled. Read here:

https://www.irs.gov/forms-pubs/about-form-1099-k

"but the actual clients also issued the client a 1099-NEC for the services."

The clients are required to do this based on the total of services reaching $600 or more in total. What these clients don't know is that Honeybrook is a PSE. A client paying through credit card or PayPal, for instance, doesn't need to send a 1099-NEC. They don't know about Honeybrook. Sending a 1099-NEC anyway is not an error. It's an option. Read here:

https://www.irs.gov/pub/irs-pdf/i1099mec.pdf

"When I added up the 1099s (1099-K and 1099-NEC) they added up to double the client's gross receipts."

You don't add them together. That's adding apples and kittens. Neither of these is your client's business income. Each of these is a type of reporting. Think of them as two different Subsets of Gross Revenue. They might overlap, like a Venn diagram. They might not. Your taxpayer might have one and not the other.

If they have 100 clients in the year who pay $500 wach, there is no 1099-NEC required from any of those clients. Your taxpayer client still reports $50,000 of revenue on taxes. If that was paid by cash, there is no PSE. Your client still reports $50,000 of revenue on taxes. And if there is one sale only in the year, say $10,000, paid through Honeybrook or any other PSE, there is no 1099-K reporting requirement for Honeybrook or the PSE (at this time). Your client still reports that $10,000 of revenue on taxes.

What you are stating doesn't apply to what you are supposed to be doing.

[AnmarieA]

Thank you for the thorough response.