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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22654
Experience:  Taxes, Immigration, Labor Relations
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my son got a refund of a portion of the excessive fees charged

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my son got a refund of a portion of the excessive fees charged by the CALIFORNIA CULINARY ACADEMY (CCA) subsequent to a class action court decision,based on misrepresentation and fraud. I paid all these bloated fees with my after-tax dollars to get him out of the massive debt of over $50,000. The refund he received was $12,760 under a SECTION 998 OFFER TO COMPROMISE.He ,foolishly,went to H&R BLOCK to get his 2012 Tax Return completed and was told ,in no uncertain terms that he had to pay taxes on this $12,670" REFUND" ! It appears that CCA was crafty again and sent my son a MISC 1099 for this REFUND of fraudlent charges,leading my son to pay an additional $4,750 in Federal taxes. I have talked to a number of legal and financial advisors who" suggest " that the advice he got was erroneous (from BLOCK) and that he should never had to pay taxes on "THIS TYPE OF REFUND",especially after a court decision ! Please give your opinion on how he should proceed--appeal with supporting data and a amended return etc..thank you,XXXXX XXXXX
Submitted: 11 months ago.
Category: Tax
Expert:  Lev replied 11 months ago.

Lev :

Hi George and welcome to Just Answer!
Refund of a previously paid amount would be taxable as long as that amount was not deducted on the tax return in the year it was originally paid.
In this case - reporting such refund on form 1099MISC seems incorrect - and that was the reason of following treatment.
Based on your information - the tax preparer simply followed reporting and did not object the fact of issuing the form 1099MISC.
So - if you plan corrective actions - the first step would be to contact the payer and request a correction for the form 1099MISC.

Lev :

Here are recommendations provided by the IRS - see instructions - http://www.irs.gov/pub/irs-pdf/f1099msc.pdf
page 5 - Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
So - after contacting the payer - you would need to amend to amend the tax return.
If the payer will agree to correct form 1099MICS - you may simply attach a corrected form to your tax return and provide a short explanation on form 1040X.
If the payer will not correct form 1099MICS - you will attach a separate note with explanation and may also attach additional documents to support your position.
Please be sure to amend a state tax return as well.

Expert:  Lev replied 11 months ago.
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Expert:  Lev replied 11 months ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

Hi George and welcome to Just Answer!
Refund of a previously paid amount would be taxable as long as that amount was not deducted on the tax return in the year it was originally paid.
In this case - reporting such refund on form 1099MISC seems incorrect - and that was the reason of following treatment.
Based on your information - the tax preparer simply followed reporting and did not object the fact of issuing the form 1099MISC.
So - if you plan corrective actions - the first step would be to contact the payer and request a correction for the form 1099MISC.

Here are recommendations provided by the IRS - see instructions - http://www.irs.gov/pub/irs-pdf/f1099msc.pdf
page 5 - Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.

So - after contacting the payer - you would need to amend to amend the tax return.
If the payer will agree to correct form 1099MICS - you may simply attach a corrected form to your tax return and provide a short explanation on form 1040X.
If the payer will not correct form 1099MICS - you will attach a separate note with explanation and may also attach additional documents to support your position.
Please be sure to amend a state tax return as well.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22654
Experience: Taxes, Immigration, Labor Relations
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