Tax season has started and by now (February 6) we should have our 1099s and W-2s and perhaps a few other reporting forms. We need to review them for accuracy, even forms from the IRS, such as Letter 6419 on the advance Child Tax Credit (see IRS Fact Sheet (FS-2022-5) on possible errors).
Some forms, such as Form 1099-C on cancellation of debt might be correct from the issuer’s tax requirements, but not correct for the recipient. For this 1099-C issue, I’ve blogged on it before (4/13/13 and 6/21/21). The 1099-C instructions also remind the recipient that their debt might not have really been discharged and they should not report the income until the year it has truly been discharged. The IRS doesn’t tell the recipient what to do with the 1099-C that isn’t reportable. That’s too bad because when the recipient figures out it isn’t reportable for the year printed on the 1099-C, the IRS doesn’t know.
I’m working on a paper for a longstanding activity of the Tax Section of the California Lawyers Association to propose that the IRS create a new form to allow taxpayers to reconcile erroneous reporting forms. Beyond the 1099-C issue, I have the following examples of why a form would help.
Form 1099-K that is way out of line with the recipient’s business receipts. Also, starting for this year, there will be more of these forms issued due to the change in the de minimis filing threshold for third party settlement organizations.
Form 1099-INT when the account is owned by more than one taxpayer but only one form was issued.
Form 1099-R for a qualified charitable distribution. While QCD gets noted on the 1040, an explanation on a form might help too.
Form 1098 where the mortgage debt belongs to more than one taxpayer.
What do you think? Any examples you’d like to share with me to support the need for a tax form for reconciling information reports to avoid or hopefully at least lessen the number of notices issued by the IRS asking why the form wasn’t fully reported.