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Unfortunately, in this situation you would have a penalty for each 1099 that was not sent out. It's not really something you can go in two years later and file, because the people who received the 1099 have already done their tax returns.
The best thing that you can do in this situation is just be honest with the auditor about your findings, and work with your tax professional for an abatement of penalties for due cause.
If the auditor wants you to file the forms, then you should just prepare them and give them to the auditor.
Please reply to me and let me know if you have further questions.