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T. R. Miller, The SunTaxMan
T. R. Miller, The SunTaxMan, Public Accountant , Tax Preparer
Category: Tax
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Experience:  30+ years in Public Accounting and Tax Preparation
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ExpertAsk 1099 question...

This answer was rated:

Hi everyone!


Seeing the recent post about independent contractors reminded me of a question I have about 1099's for ExpertAsk's Experts... I was planning on collecting SS#'s and appropriate details from experts as they pass the $600 of income in a year mark. Then, sending out 1099's to all of these experts each year.


However, I was recently thinking of a simpler way of doing this and would love your opinions on its legality, fairness, etc... I'm no accountant, so if this is out of the question, just say so! Back to plan A.


Here's the question: Is it possible to set ExpertAsk up as more of an "escrow" type company and put the burden of 1099's on the payers? i.e. ExpertAsk isn't paying you $1000 in 2003, a collection of 100 customers each paid you about $10. So, no 1099 needed? In this situation, 1099's would almost never be needed.


Just to be clear, I am not trying to avoid taxes here. Just trying to avoid unecessary paperwork. As ExpertAsk grows, it could be a lot of work to send out all those 1099's! But, if the above doesn't work, I'm happy to do it.


Thanks for helping! $5 to each solid answer.


Andy

Sorry Andy

Since the income is received by the site and you are the one in charge, the 1099s become your responsibility.

You will report the total income and take the amount paid to Experts as a deduction.
Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
Satisfied Customers: 1257
Experience: I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
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I must disagree with SkyHawks.

Based on my understanding of the way the system works, the deposit that the users make is not income. ExpertAsk earns 50% of the value of each accepted answer and that 50% represents ExpertAsk's income.

Just as making a deposit into a PayPal account does not generate income to PayPal - this is not any different.

I would advise you to set up your recordkeeping to properly reflect the situation - i.e. EA does not record "income" until it collects its half. The other half was never EA's to begin with and, therefore, is not EA's expense nor is it subject to 1099 reporting.

If you would like further discussion on this issue, please send PM.
[email protected]
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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Customer: replied 12 years ago.

I like this answer better, but want to make sure I'm doing the right thing... Any other opinions on this?


Andy

Greetings Jonacpa:


Your response is very interesting. I have a question though...based on curiosity... If you would be so kind to answer.


Even though 50% of the monies are paid to Expert Ask (for value of the question)....the experts are not paid until their account reaches $20.00...therefore, all monies from paying customers are sent directly to Expert Ask and held until such time one reaches the account limit- Thus, Expert Ask has accumulated all monies (for a period of time, of course). Would your response still apply in this case?


Thank you kindly.


Bright Blessings.


Peace, Love & Happiness,


The Mystic Wave

I can appreciate that you like the second answer better ( much, much less paperwork for ExpertAsk), but I seriously doubt IRS would accept the Joanacpa's answer.

My account with ExpertAsk represents a payment that will come from ExpertAsk, not a payment that will come from a variety of payers (a variety of sources, yes), but ExpertAsk is receiving funds from these sources and depositing them in an ExpertAsk account (correct?). At this point ExpertAsk has complete possession and control over these funds. Correct? It is ExpertAsk who will disburse these funds, subject to the instructions of the various participants (instructions established by ExpertAsk). The participant does not make the payment to the expert, ExpertAsk does!

My perspective. Funds paid to ExpertAsk are Gross Revenue of ExpertAsk. Payments to experts are sub-contracting expenses of ExpertAsk, subject to 1099 guidelines.

Further, it is not reasonable for IRS to expect that various participants to obtain SS# XXXXX various experts and track payments. ExpertAsk is in a position to obtain this SS# XXXXX track payments. It is EASIER for IRS to enforce 1099 requirements at the ExpertAsk level than at the participant level.

Andy, if I were your tax advisor, with an interest in protecting your best interest, I would advise you to track the payments and issue 1099s for them. It is SAFER for you!

AND, I would be hesitant to give my SS# XXXXX a multitude of participants who MAY need to issue me a 1099. If participant issuance of 1099s would be the correct avenue, part of the expert registration would be to provide SS# XXXXX have that number given to any participant who wanted to "accept" an answer. This is too wide a scope of SS# XXXXX To provide ExpertAsk with SS# XXXXX XXXXX a problem at all.
T. R. Miller, The SunTaxMan, Public Accountant , Tax Preparer
Category: Tax
Satisfied Customers: 148
Experience: 30+ years in Public Accounting and Tax Preparation
T. R. Miller, The SunTaxMan and other Tax Specialists are ready to help you
Customer: replied 12 years ago.

Certainly, the WORST case scenario would be that I would not collect SS#'s and not issue 1099's... only to have the IRS force me to collect and issue these things retroactively. So, I'd have to feel pretty comfortable with the Plan B scenario before I'd do it. Is there any way to get an IRS opinion on it in advance, without a ton of hassle?


By the way, I would be happy to collect 1099 info for the rare cases where an individual customer pays one individual expert over $600. I can't imagine that happening a lot!


Andy

TO Mystic Wave:

My answer still applies under your scenario - much like attorney monies paid into the "trust account" is not income to the attorney until can has use of it - exact same scenario.


TO: SunTaxMan

I would be more than willing to represent this issue in an IRS audit.

With respect to the SS# XXXXX question - the only time that would occur is if a BUSINESS questioner paid ONE EXPERT $600 or more. I don't know about you, but I have not seen any $600 questions nor anything that looked like it was going to add up to that. However, if one business did pay me $600 or more, I would certainly furnish them with all of the tax identification information they needed.

TO: ANDY

There is absolutely no doubt in my mind that the method I presented is the proper method. I have dealt with similar issues many times and would be happy to assist you in setting things up properly to assure that you are in compliance.
[email protected]
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
Jon Andrews and other Tax Specialists are ready to help you
Andy,

IRS would not "force you to retroactively issue 1099 Forms." They would assess, to ExpertAsk, a $50.00 penalty for each 1099 that SHOULD HAVE BEEN ISSUED.


Getting an IRS opinion? To call and talk with taxpayer assistance would produce about the same result as posting the question here - a variety of answers depending on the person who is answering the question - the same IRS response the average taxpayer gets when they call IRS with a question.

You COULD request a "letter ruling" from IRS, with a price tag, but how they answer would require a very specifically worded question from your Accountant. This could cost more than the IRS fee. And the answer would have direct relevance to how the question is worded.

My advise:

1. Seek a multitude of opinion (there is wisdom in a multitude of counselors.),

2. Review the law yourself (or a review by someone you trust and can rely on for an answer in your best interest) (and an answer that comes from a person who can/will suffer consequences if they are wrong - your CPA firm and attorney are collecting a fee from you with the anticipation that if they are wrong there are legal and monetary consequences for their error.)

3. Make you decision based on #s 1 and 2.

One other thought. You say "I cannot imagine that happening a lot." Perhaps not at this point, BUT, what is the growth potential for ExpertAsk? I have counseled SMALL business to function and think like BIG business. Only in this way, is small business prepared for big - when it happens. And if they are not already doing what is required of the bigger business, the threshhold from small to big can be crossed unawares and the absence of 1099 compliance could "bite you" because you were not prepared and anticipating its requirements.
T. R. Miller, The SunTaxMan, Public Accountant , Tax Preparer
Category: Tax
Satisfied Customers: 148
Experience: 30+ years in Public Accounting and Tax Preparation
T. R. Miller, The SunTaxMan and other Tax Specialists are ready to help you

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