Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

Is necessary to file CA amended s-corp if tax change is zero?

b_plante
Level 1

Bank of America issued a 1099-k with the incorrect TIN of 33-0908383 (this entity) in the amount of $95,000 Multiple attempts to have them correct this error were unsuccessful. The amount is correctly reported on the tax return of 83-1075832. Adding this to line 1A for computer matching. The $95,000 is then subtracted on line 19.

 

So above is the federal amended info needed so total income matching is satisfied. For both federal and ca the net result is ZERO of course. As I look at the Lacerte directions for a CA 100x I don't see where it is even necessary to file. I don't think they duplicate the federal total income matching. They "piggyback" on the federal. Any thoughts? Thanks.

0 Cheers
11 Replies 11
qbteachmt
Level 15

The point of filing tax returns is to provide all info that matters. If you already did this, there is nothing to amend.

What doesn't matter is 1099-Misc, NEC or K. These are Informational reporting. They are not the Source Data for what is reported on the tax form. Example:

You might make sales to someone of $40,000 and unless they pay by a "settlement agent" you won't see a 1099-K. That doesn't mean not reporting the $40,000 as part of the entire operation.

And the 1099-K might be settlement for something as Liability and not as income. It's only the reporting of the movement of money. It's not by definition a reporting of Revenue or even for operations. You could have sold a company vehicle and gotten paid through PayPal, for instance. You could have made a deposit on some equipment and gotten it refunded, and it gets reported on a 1099-K because it qualifies for the reporting thresholds; the Purpose is not why it gets reported.

A 1099-K is no reason to amend, unless you "accidentally overlooked" all that info as part of everything you should have reported, already.

It's the same as people who only report what is on the 1099-NEC(s) they get. The IRS realizes your real operations are not reflected on all the information reporting forms. What this does is give them a heads up to expect filings from the entities that have been reported as having something to file, because of the activity reported by that reporting entity. It tells them to "be watching for tax forms."

*******************************
"Level Up" is a gaming function, not a real life function.
b_plante
Level 1

Thanks, very thorough & I think I understand. If you don't mind one follow up. So the added together total of 1099's for this entity (in this case merchant reporting sales income by way of credit card sales) is going to be overstating the sales income by about 100k. You are saying the IRS will not care that the tax return is (correctly) reporting 100k LESS in sales. They will not issue a letter asking anything about the discrepancy between 1099 sales income on 1099s and 1120-s line 1a (gross receipts or sales).

Is that correct what you are saying?

Thank you. 

I know for sure if a w-2 is left off, the TP hears about it. Apples & oranges, but still.

🙂

0 Cheers
qbteachmt
Level 15

"I know for sure if a w-2 is left off, the TP hears about it. Apples & oranges, but still."

The reporting verification and matching for payroll is quite different. These are not simply informational, but tax-related. I think people's understand of 1099-K would be a lot different if it involved withholding! Look at all the info that relates to W2: employer tax, employee withholding, SS, Medicare, and even retirement, health and other benefits. There is no matching done to 1099-NEC or Misc or K, other than, it runs up a flag of notification. Not of amounts. It tells the IRS who had some reportable activity, so they will be expecting tax filings.

"So the added together total of 1099's for this entity"

Adding together? You use them to Confirm, not to File with. You don't add 1099-NEC together and use that as if that is the gross to report. You don't don't rely on only 1099-Misc for rental income reporting. All 1099-K is not a reflection of the Entity. It's a reflection of the money passed through that settlement agent. It might not even be gross sales; it could have been 50% advance deposits that got canceled and refunded for 2020 due to covid closures. That was part of what I was trying to clarify. You don't "add 1099s." You confirm the data the taxpayer had provided is at least representative of what others state happened for that entity and they stated it by reporting it on 1099 forms. If a roofer taxpayer states they did $10,000 of business, and they give you 1099-NEC totaling $150,000, that's a problem. If they tell you they did $150,000 of business, and they only have $10,000 for 1099-NEC, that's fine. I can do $6million of business, but perhaps no one paid me a total of $600 or more this year = no informational reporting. But you know I should be filing a tax return on $6m. There would be no 1099s to add together.

"(in this case merchant reporting sales income by way of credit card sales)"

It always helps to get more details. Example: Are you the person doing the filing for both of these entities? Is one of them using the other's Merchant Terminal to process their credit card payments (not sales)? Otherwise, what explains the FEIN mix up? Is this a successor entity? A wholly owned sub-entity? What would the IRS and FTB find, if they came looking for more information?

Let me ask this: If this/these entities are subject to sales taxes, don't you also have a problem here? Or, were sales reported properly for each entity, regardless of Payment Settlement method? Or, did the one entity include this $100k of sales in their sales tax reporting, as would be required? Who reported which parts for this purpose?

"is going to be overstating the sales income by about 100k. You are saying the IRS will not care that the tax return is (correctly) reporting 100k LESS in sales. They will not issue a letter asking anything about the discrepancy between 1099 sales income on 1099s and 1120-s line 1a (gross receipts or sales)."

I start with putting the difference into perspective. If a $40,000 gross retail operation let someone else use their CC terminal, resulting in the additional $100,000 of activity, then, Yep; that would appear to be a problem if someone selects their return for examination. If an entity with $350,000 in reported sales doesn't include $100k that isn't theirs, it isn't even relevant, because they already reported their true data and it is more than this information being reported as theirs in error.

Nothing promises the IRS won't send a letter. And only you can determine if what was done originally warrants amendment now. Did this 1099-K get overlooked before the two businesses' filings, and just now came to light, and does that light make a material change to any filings?

The IRS has instructions for what you are asking (can't answer for FTB):

https://www.irs.gov/businesses/understanding-your-form-1099-k

This is part of what is there: "What should I do when the total gross payment amount shown on Form 1099-K does not belong to me?" Also, what to do if you share the terminal. Also:

https://www.irs.gov/payments/general-faqs-on-new-payment-card-reporting-requirements

 

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
b_plante
Level 1

Hi,

It's really pretty simple, not all the what if this/that. Please if you don't mind. I do the accounting so I know most all the facts. The entity changed it's character from retail sales to a rental of the building where retail sales used to take place.

So a new entity was formed (the why is not material). The old cc machine with the original ein was used for the rents.

The original entity still had other business going on so it filed a return with the correct sales, but, because of this cc machine with it's ein "attached" all the rents are now reported on the old ein.

So totals of 1099's with the old ein add up to 100k higher than what is the true/correct income.

If what you say is true that IRS doesn't "add up" the 1099's and look to see at least that much in sales is reported than there is no problem.

But the IRS is always updating how it processes return. Example the 1099-misc used to be for sales (box 7 IIRC) and now it's the 1099-k. I like to "look ahead" and IMO that's so the IRS can now easily add these up to see all that is on the TOTAL of 1099k is also on the return. Am I overthinking, maybe, but maybe not.

My plan is just to make sure the line 1 sales is at least that much & back the "wrong" sales out.

Gross sales are about 1m and this adj is 100k.

Really appreciate you discussing with me  🙂

If I do this easy amend, nothing changes except maybe I avoid a protracted q&a with IRS over the different sales.

Thoughts?

For CA I looked at the amend data required & IMO I don't need to do anything.

FROM YOU LINK THAT YOU ATTACHED:

This is why I am concerned *** BELOW

The IRS will use the data from the Form 1099-K to develop:

  • Taxpayer education and outreach products and services.
  • New examination and collection approaches.  
0 Cheers
qbteachmt
Level 15

Let me help with this part:

"But the IRS is always updating how it processes return. Example the 1099-misc used to be for sales (box 7 IIRC) and now it's the 1099-k."

The 1099-Misc, -NEC, and -K do not Replace each other. They meet different requirements. A landlord gets a 1099-Misc from their business tenant for rent in Box 1 if that business tenant has paid $600 or more that year. If the landlord accepts rent paid through a PayPal portal, and the landlord gets $20,000 and 200 transactions, then they will also get a 1099-K (from PayPal).

This has nothing to do with Sales. It has to do with Funds. I don't need to send a 1099-NEC to a corporation for services, which might still get a 1099-K because of how they get paid by customers. I don't need to send a 1099-NEC to a service provider who I paid through my VISA card, either, because VISA will be reporting that, even if I paid $600 or more. VISA carries the 1099-K requirement, but not my 1099-NEC requirement. If I pay the service provider, who is not a corporation, with cash, I will be issuing a 1099-NEC. Notice the differences are Entity Type and type of Funds. If I pay a corporation with cash, they will not get a 1099-NEC from me and they don't get a 1099-K from anyone. They still report this as part of revenue.

1099-Misc used to have box 7 for Non-employee compensation (NEC = payment from a business, to a business or person, providing Services, not Products, threshold for reporting is $600 or more). That NEC was moved back to an older retired form 1099: the 1099-NEC.

1099-Misc Box 7 has been repurposed and is used for direct sales made to you. Example: multi-level marketing, which has a threshold of $5,000 and allows the Seller to "inform" the IRS that this person is acting as a reseller and now the IRS knows to be expecting a tax return filed by the person buying and then reselling products. From a tax reporting perspective, this box is for informational purposes only, as the buyer will be including the purchase price of these items on their tax return, typically as an inventory expense. Not Income. This only changed in 2020. This is another example of informational.

Separately, a new form came about a few years ago, and that is 1099-K. It is for Settlement Processors to use, when you run money through them, such as Credit Card Merchant Account providers. The reporting on a 1099-NEC is not needed if you paid that service provider using, for instance, VISA card, PayPal, or MasterCard. These are Payment Card and Third Party Network Transactions. A PSE (payment settlement entity) that handles your alternative to traditional Banking, in other words, and they have the requirement to report to the IRS the amount of activity when an account holder or merchant card terminal holder has $20,000 and 200 transactions.

https://www.irs.gov/instructions/i1099k

And it's informational to the IRS. Not tax return info. I've never seen "matching" and don't see how it would even work.

Example:

You are a wedding planner and get VISA payments and as deposits. You got over 200 payments last year; some of them were events that worked (revenue); and many payments were Deposits against events that did not happen, which total $25,000. Everything here is now reportable by VISA to the IRS and to you on 1099-K.

You had a gross revenue of over $50,000.

The 1099-K will show $75,000.

But you had to return all $25,000 of the Deposits, which are not seen on the 1099-K as netted against gross.

"If what you say is true that IRS doesn't "add up" the 1099's and look to see at least that much in sales is reported than there is no problem."

Functionally, you never just "add up" 1099s at all. That is not a "thing" for taxes. I explained this.

As I stated, nothing prevents the IRS from sending a letter and asking for some clarification or more details. That doesn't mean there is a problem, as long as the tax return has the details that apply to that entity. If they come looking or need an explanation, there should be "nothing to see here" that is any different than what got reported.

 

And this is why it's never good to commingle funds. You should always be prepared to prove you reported them separated properly, because commingling is frowned upon, for the reasons you now face.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
qbteachmt
Level 15

Oh:

"Gross sales are about 1m and this adj is 100k."

Then it's not really an issue.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
qbteachmt
Level 15

I'd like to respond to this:

"The IRS will use the data from the Form 1099-K to develop:

  • Taxpayer education and outreach products and services.
  • New examination and collection approaches."

Nothing about Matching.

Specifically, the 1099-K came about with a bill in 2008 and had to do with Online Sellers, for the Feds to have clarity for the movement of funds. It helps detect fraud, laundering, and terrorism support. It's similar to the reporting requirement for Banks, for individual transactions:

"Federal law requires financial institutions to report currency (cash or coin) transactions over $10,000 conducted by, or on behalf of, one person, as well as multiple currency transactions that aggregate to be over $10,000 in a single day. These transactions are reported on Currency Transaction Reports (CTRs)"

As a result of the research I've done today to help you, I've learned that Venmo and Zelle are examples of non-1099-K issuers, because they do not track the payee by social security number.

I know PayPal uses it. Uber issues 1099-K for rider transactions; 1099-NEC for nonrider revenue (referrals, trip promotions); and 1099-Misc for awards and legal settlements.

These things get intertwined, but it is important to keep up with the purposes, the differences, and the changes.

 

Hope that helps.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
b_plante
Level 1

Thanks so much.  Bob

0 Cheers
b_plante
Level 1

You have been more than just helpful, thanks for the time you took on this.

I slept on it, I think I will do the "amended return" simply to attach a statement that the TP knew about this, tried to correct it (with BofA) and was unsuccessful. I know this is not the purpose of amending but I just want it on the record. Sending a letter to who knows where to the IRS IMO would only cause confusion as, in my experience, the lower levels of folks there barely know what they are tasked with doing and that is scary.

This way, if it every comes up (matching) I have it covered.

I imagine you think this unnessary, but I don't think any harm can come this way.

Bob

 

 

0 Cheers
qbteachmt
Level 15

"simply to attach a statement that the TP knew about this"

The IRS tells you what to do at the link I gave.

"So a new entity was formed (the why is not material). The old cc machine with the original ein was used for the rents."

Did you read that info?

"If you shared your credit card terminal with another person or business:

If you shared your credit card terminal with another person or business, your Form 1099-K will include payment card transactions belonging to the person or business that shared your terminal, in addition to your own payments. Where required, you should file and furnish the appropriate information return (e.g., Form 1099-K or 1099-MISC) for each person or business with whom you shared a card terminal. The information return should include the total payment card transaction amount in addition to any other income belonging to the other person or business. You should retain records of payments issued to each person or business sharing your terminal, including but not limited to shared terminal written agreements and cancelled checks."

As I noted, 1099-Misc Box 1 is for Rents. That means your old entity, the owner of the Terminal, would issue a 1099-Misc to the landlord entity, because I am assuming the old entity paid over the funds from the terminal processing to the new entity, since it was their Rent.

And now the old entity has money In and money Out, and has done the required reporting.

It's not just a statement, in this case, if that is what you intend to do.

 

 

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
b_plante
Level 1

Hi,

I did see that section, but the "position" I am taking is that it is (strictly) a bank error, not an intentional (or unintentional) sharing of a cc machine. Banks are famously known for their mistakes (you would like to hope not but such is the case) and their insistence on refusing to admit such, getting off topic granted. So long as you don't think more harm than good will ensue, I'll proceed as I planned. If you can think of an unintended consequence, please share.

🙂  Bob

0 Cheers