John Bullis: Save all 1099 forms you receive

Mr. Shankar received a form 1099-MISC that reported “other income” of $668 from Citibank but did not report it on his 2009 income tax return.

He thought when he used the award of “Thank You” points to buy an airline ticket, it was not taxable income like other frequent flyer miles attributable to business travel.

At the trial, he testified he knew nothing about any thank you points and he received no award (as far as he knew).

In fact, the award was for opening a bank account. A premium for making a deposit into, or maintaining a balance in a bank account is taxable, sort of like interest paid to the depositor for use of the money by the bank.

The IRS provided the bank information and records on Sept. 9, 2013. The trial was held Dec. 2, 2013. It is not clear why it took IRS so long to provide the records and information. However, when that information was received, it would have been better for the taxpayer to just agree it was taxable income and pay the tax on the $668.

It sounds like the original form 1099 was lost or misplaced when the original income tax return was prepared. Or Mr. Shankar just ignored it and did not ask for an explanation.

If you receive a form 1099 and you don’t understand why it was sent to you, contact the bank or other issuer of the form and get the details and explanation. If it is a mistake, the issuer is to issue a corrected form, sending a copy to IRS as well as to you.

Sometimes it is a “business decision” whether or not to proceed to a trial over a small amount.

This sounds like another instance where the taxpayer did not talk with IRS to clearly understand why IRS felt the item was taxable income. Since IRS was providing the details and copies of the records only less than three months before the trial, it could be the taxpayer was not trying to understand the details and the reasons IRS felt the item was taxable income. Don’t hesitate to ask for details.

This also shows the importance of keeping a file of all items you receive that might have importance in the preparation of your return. Maybe even two files would be helpful. One for income items and the other file for deductions.

The other lesson from this case is don’t waste your time and money by going to trial over items that are clear.

Ask for professional advice to see if you have a reasonable chance of winning or not. It is OK to accept the fact that IRS is correct and your argument or understanding is wrong.

Did you hear? “There are always signs. A rotting tree leans long before it falls,” by Finnish Proverb.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.