I set up an internet business that provides a service for my family members where they can sell used books. I would charge them all a flat fee of 7% of whatever they sold because they got to use my web site and all of its services and sell under my account. Since it was my account all of the money they made would go through my bank and I would take 7% for the services and then issue them their money to their account. I was told I should send them a 1099 for taxes
Now one of my family members has gotten a letter saying that he needs to pay taxes on the money he earned in Colorado and he lived and worked in Texas (and still does) for the tax year in question. Based off of a lawyer we were instructed that all he should send them is proof that he lived in Texas and not Colorado and that should be the end of it. However, now they sent him a letter saying that I need to write a letter showing where the work was performed and the nature of the work. They gave us 2 options that we can send them:
1.) Federal Form 10 and 10X (as applicable) and explanations with supporting documentation from your records validating the amount and where the work was performed for the income in question
2.) A letter from C. Whitten (which is me) on letterhead stating the nature of the work and where the work was performed.
Would it be alright for me to just write them a letter with 2 sentences:
“J. Soto is a contractor. Jesus Soto’s work was done in Texas where he lives.”
Do you think I need to go into further detail as to what he did? I have a feeling they are doing this to open up the door to harass the rest of my family members who sold on my site and to harass me.
Should I get a lawyer if I am getting inquiries like this?