Mar 4, 2010

The 1099 Problem

Social Security is now sending out 1099s to attorneys and others who have received direct payment of fees for representing Social Security claimants. These 1099s show the gross amount of the fees paid before the user fee which is charged by Social Security.

Attorneys and others who represent Social Security claimants keep accounting records. We record income as it arrives in our offices. At the time we receive a payment of a fee we record what we receive rather than some theoretical fee as it might have been before the user fee.

Eventually, when the 1099s show all fees paid, the totals reported by Social Security on the 1099s will be higher than the totals shown on attorney financial records and that will cause tax problems for those who represent Social Security claimants.

It seems to me that there are two good solutions for this problem. One would be for Social Security to report on the 1099s the net fees actually paid to those who represent Social Security claimants. The other would be for Social Security to provide an annual statement of user fees withheld to each entity receiving a 1099. The entity could then make two offsetting entries in its financial records, one to show the user fees as income and the other to show the user fees as an expense. The accounting records would then match up with the 1099s and everyone would be happy.

I hope that Social Security does not take a third approach to this problem, which would be, "It's your problem. You figure out a solution."

1 comment:

Anonymous said...

SSA is not your private accountant; the IRS is not clueless.

As long as you keep careful records of your net, your Schedule C will probably pass muster with the IRS.

I'd reckon that SSA accounts for the user fees to the IRS. Everything will match up when the IRS takes a look.

Ask Enron and Arthur Andersen: Creating two offsetting entries for income you never actually received is also called "cooking the books."