Taxable Talk

Like most tax professionals, I send out a newsletter for my clients. In my most recent newsletter, I included the following:

Under federal law, a business owner (this includes those of you who file a Schedule C — a sole proprietorship) must send a Form 1099-MISC to any non-corporation from which they’ve purchased $600 or more from (excluding merchandise).

The IRS has become quite strict about enforcing the penalties when you fail to send out 1099s when required or when you fail to submit the 1099s and the associated 1096 to the IRS in a timely manner. Here [is an example] in which you must send out a Form 1099-MISC:

– You are a professional gambler, and file a Schedule C for your gambling business. You hire John Doe to coach you and improve your play, paying him a total of $650 during 2009. You must send Mr. Doe a 1099-MISC.

The first email I received was from a poker coach (not my client). He stated that he didn’t want to complete the Form W-9 as he didn’t want anyone to know his social security number. I replied that he can apply online with the IRS at no cost for an Employer Identification Number to use in place of his social security number.

He then replied that he didn’t want to receive the 1099, and that he wouldn’t complete it no matter what. I replied that under the law he’s required to complete the W-9 or he could be fined by the IRS.

I’m certain that the individual likes the idea of being paid under the table, thus avoiding income tax. Unfortunately, he’ll likely be caught sooner or later he’ll likely be caught, through an audit of himself, an audit of one of his clients when the IRS follows-up an unsent 1099-MISC, or through some other method (i.e. a suspicious activity report, a currency transaction report, etc.)

Meanwhile, I received an email from a client letting me know that he didn’t like the idea of sending out 1099-MISCs. He saw no reason to anger his poker coach and didn’t like the idea of completing worthless paperwork.

Whether 1099s are “worthless paperwork” or not, they’re required to be sent when a business pays a non-corporation $600 (or more) for services. Poker coaching is a service. A professional gambler (such as a professional poker player) runs a business. The IRS expects proper business conduct, including the filing of required information returns such as Form 1099-MISCs. Legally, there is no option but to send out 1099s where required.

I’ve represented a few businesses in audits this year. In every case, the IRS Revenue Officer reviewed the 1099s sent by the business. It’s becoming a point of emphasis for the IRS (if it has not already been one).

Most individuals comply with the law. Most poker coaches declare their coaching income on their tax returns, so receiving a Form 1099-MISC isn’t an issue. For those who aren’t claiming all their income, it’s time to start. Sooner or later every transaction will require a 1099; it’s clear that’s the direction Congress is heading.

Tags: 1099s

This entry was posted on Thursday, December 3rd, 2009 at 12:12 am and is filed under Gambling, Tax Preparation. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.