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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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W9 form on money paid to fix my car from a grocery store

Customer Question

A grocery store worker banged a cargo cart into my car. First mistake I made was not going through my auto insurance. Anyway the grocery store agreed to pay the damages to my auto body shop to fix my car. Problem. They want me to fill out a W9 form for the money they are paying to my auto body shop under Sorbane and Oxley's Law (I think this is what she referred to)? Am I liable for taxes on this money? What is this law? I'll be pissed if I get a 1099 from the grocery store or the IRS holds me liable for taxes on the money paid. This isn't income, it's to fix my car. The check is being made out to the auto body shop and me jointly which also seems weird.
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

Any receipt of funds or other accessions to wealth received by you is generally presumed to be gross income unless you can demonstrate that the funds or accessions fit into one of the exclusions provided by other sections of the tax code.


However, a payment constituting a return of basis (i.e. constitutes a repayment of funds to repair your vehicle) is generally not classified as income within the meaning of section 61 because it is not an increase to your wealth. For payments received in settlement of a lawsuit, payments by the one causing a loss that do no more than restore you to the position you were in before the loss was incurred, are not includible in gross income because there is no economic gain to you. If a recovery is treated as a replacement of capital, the damages received from the lawsuit/settlement are treated as a return of capital and are taxable only to the extent that the damages exceed your cost basis in the vehicle.


The botXXXXX XXXXXne here is that the proceeds you receive will not be taxable unless it is in excess of your cost basis in the vehicle (i.e. what you paid for it). I would recommend you fill out the W-9 if that is a condition of receiving the payment. I would also make sure you get something in writing indicating that the proceeds paid to you or on your behalf were to reimburse you for damages to your vehicle. Also, retain a copy of the auto body shop invoice as additional proof.


if they issue you a 1099 I would first try to get them to rescind it. If that does not work report it as miscellaneous income (i.e. line 21 of the1040) and then deduct it directly on the same line as a "return of basis".

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank you for your response. At least I know there is a recourse if I get a 1099. I am curious what the claims lady was referring to when she said they were following the Sardane and Oxley Law. From what I read it has something to do with coporate disclosure of accounting practices (I just did a quick google search). I got the distinct impression this was an intimidation tactic. Originally they had said the check would be made out to me to go fix my car. Then it was to be made out to the auto body shop directly. But the auto body refused to accept their check saying it would be a third party check so the check is to be written in both my name and the auto body's. I get the distinct impression the grocery store is trying to control where and how I spend the money. Of course I want to fix my car but is it any of their business if I do? From prior experience with friends and family who have been in accidents, the checks were always written out in their names to do with as they wished. We are not talking big bucks here, just around $1200 which I admit is a chunk of change. Can they coerce me like this by trying to control where the money is spent. They are treating me like a thief.
Expert:  Christopher Phelps replied 11 years ago.

Sarbanes Oxley generally only applies to publically traded enitites. It requires certain practices be followed with respect to financial reporting disclosures. It also requires that affected companies adopt rigorous internal control procedures to assure that all laws are being complied with.


In your situation (assuming the grocery store is part of a chain of a company that is publically traded) the tax law generally requires a company to issue a 1099 to all non-corporate payees, including for payments for potentially taxable, non-physical damage claims, to whom the company makes payments in excess of $600 during the calendar year. The person may have overstated his/her authority, but they are doing it because they have to.


They will likely issue a 1099-MISC reporting the payment in box 3, "other income" as they are required to do (see 1099-MISC instructions page 4, http://www.irs.gov/pub/irs-pdf/i1099msc.pdf). If the check is going directly to the auto body shop you might ask why they need your I.D. no. if the payment was not made payable to you. They should be asking for the auto body shop I.D. if its not an incorporated business.


The worst case however, is that you have a strategy to report the 1099 if it gets issued to you.


Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.


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