Friday, March 4, 2011

Incorrect Forms

Q.  I'm helping my grand-dad with his tax return, and I think I found a mistake. The person he leases his land to reported the rents on a 1099-R form. I think it should have been a 1099-Misc form. In any case, the software we're using refuses to put it on a Schedule E. Now what?  FR, Oklahoma

A.  You are correct in finding a mistake. The rents paid should have been reported on a 1099-Misc. Your best option is to contact the lessee and ask them to please void the 1099-R and reissue a 1099-Misc. That, however, is easier said than done. Barring getting a timely corrected form, these are the choices you have:

  • Ignore the 1099-R and just enter the correct amount on Schedule E
  • If the lessee says they will correct the form, ignore the 1099-R and wait until the corrected form arrives. You may need to put your grand-dad's return on extension pending arrival of the new form.
  • Enter the 1099-R on line 16b where the computer normally puts it, and then make an adjusting entry on line 21 as a negative amount to zero it out, and then enter the correct amount as above, on Schedule E.
Sometimes there are no good answers to a situation as this. I'm grappling with a similar situation now. Always be prepared to justify your actions by keeping excellent records and documenting whatever you do. Be prepared to receive a notice from the IRS inquiring about the missing 1099-R form if you choose to omit it and/or can't obtain a corrected form. As long as the total correct income is reported, you shouldn't incur any trouble from the IRS other than the inconvenience of having to explain the situation.  Good luck!

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