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<< As a psychologist who is employed, I also earn Schedule C income. One of the insurers I deal with has been having difficulty attributing monies for services I rendered for my employer as if it was mine. Throughout 1999 my employer has been attempting to correct the problem and thought, in fact, that it was corrected - until recently.

Last week I was sent a 1099 for 1999 for income that was erroneously attributed to my SS# as opposed to my employer's federal tax number. When I called, this issuer told me according to their records the bill for services in question was associated with my number. It may have been, but they have been making this mistake all year. They were reluctant to have me send the 1099 back. >>

I'll bet they were. Aside from banks, I'm hard pressed to think of more bureaucratic organizations than insurance companies. There's also the hassle of their having to keep their records straight, and the matter of a corrected 1099, which can wind up with their being penalized by IRS.

The best solution is a corrected 1099. If you can't get that, it would be nice if you could get an itemized statement from both the insurer and your employer for the services in question. Then you have two options.

Option one is to include the erroneous receipts on your Schedule C and then back them out with a corresponding explanation. Option two is to leave the erroneous receipts off your Schedule C entirely.

My preference is option two, even though it might result in an inquiry from the IRS. My reason is that if IRS comes a callin' and you tell them the 1099 is erroneous, THEY have the responsibility to verify the 1099. Under option one, the preference of most tax advisors that I've seen take a stand, YOU have the responsibility to prove the deduction, if the IRS person dealing with the issue wants to get picky about it.

Note to lurkers: THIS is why we keep harping about keeping your own records and not relying on 1099's.

Phil Marti
Tax Preparer
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