I need to attach a statement to the 1040 which will be e-filed to the IRS. I know this is possible, because I've done it before in other software packages. It would really surprise me if ProSeries doesn't have this option. How do I find said form?
What is the statement for?
There are a few sections that the commonly used statement can be typed into the program to be sent. But other than those few things, there isn't a 'generic' statement form. Except for those specialized statement sections, only the "Preparer Notes" get sent with the return. Unless it fits one of those specialized sections that allow a statement, I would attach a PDF.
First, I found out there IS a miscellaneous statement. From the drop-down menus, Forms > Select Forms, then click "MISCELLANEOUS" and click OK, and then it takes you to a long list of possible forms, and about half-way down that list, Part II Item 3, 4, or 5 would work. Pretty cool, huh?
Second, to answer your question, it's a long story...
The taxpayer received a Form 1099-MISC from a company in error. She purchased some materials for this company, and then got reimbursed for the items. She did not receive any "income." It was just getting reimbursed for something.
The company issued a 1099-MISC with the amount in Box 7, "non-employee compensation." My client said she's willing to pay the tax on it just to get it over with, but the only way to report a 1099-MISC with an amount in Box 7 is to create a Schedule C, and then you have to pay Self-Employment tax on it! And either way, she shouldn't have to pay tax on money that wasn't income!
So the correct way to deal with this, according to the IRC, is to contact the company and ask them to issue a corrected form. She did that, but the company flat out refused. She gave me the number, and I called, and they refused, hung up on me, and called her, and told her not to contact them again.
Now, if we just ignore it and don't report it at all, and the IRS actually looks at her return, they'll see this income from a company that she didn't report, and they'll expect her to pay back taxes, plus back self-employment taxes, plus penalties and interest. I've actually had that happen in another case, where the clients got a form (in that case it was a 1099-R) that they assumed was in error because they'd never heard of the company, so they just threw it away and didn't report it. 3 years later the IRS audits them, and they call me for help. I tried to tell the IRS that the form was in error. They explained that it is on the taxpayer to contact the company and get a corrected form issued. I asked, "What if they've never heard of the company?" The IRS said, "That doesn't matter. They still need to contact the company." They wouldn't budge. The taxpayers ended up having to pay all the back taxes and penalties and interest, because the IRS refused to believe that the taxpayers didn't receive the money. They figured it was more likely (and in fairness, they're right) that the taxpayers received the money but forgot about it. Especially with 1099-Rs, where it could be a TPA doing the retirement fund for an employer, and the employee may not have remembered the name of the company (or all the various different names the pension plan goes by).
So, I want to prevent that from happening in this case, by notifying the IRS that we are aware of this form, and we have contacted the employer, and the employer refused to change it and told us we aren't allowed to contact them.
These kinds of things I throw on Sch C and back out the the same amount as an expense titled Reimbursement of expenses, 1099MISC issued in error. Done deal, no dinking around with the company to change it (you know they won't do it), no CP2000 for forgetting the 1099MISC (who needs that hassle).
First, I found out there IS a miscellaneous statement.
But is that actually sent with the e-file? I know a number of years back the Moderator looked into what was sent with the return, and the results were only the specialized statements and the "Preparer Notes".
So unless you know otherwise, based on what we were told before, I would assume that statement is NOT sent with the return. I recommend attaching a PDF of anything you want.
However, from what I've heard from many sources is that the IRS isn't going to read that statement anyways. If fthey want to look into the tax return, they are going to do the audit or correspondence regardless if there is an explanation statement or not. So from that viewpoint, I wouldn't bother doing it.
I do what Lisa does too ... report it on Schedule C, then "back it out" with an equal deduction as an "other expense" and titled with the brief explanation of the situation (such as "payment was nontaxable reimbursement").