Information returns usually arrive in January or February and consist of either Form 1099 or Form 1098. For some, they seem as ubiquitous as their holiday mail in December. Form 1099s are especially likely to populate your mailbox, being used to report a whole array of income other than wages, salaries and tips. While a Form 1099 is not needed to record every taxable transaction, one Form 1099 can record multiple transactions; for example, from your broker for dividends and stock trades. The payer will send a Form 1099 to you by the end of January and will file the form with the IRS by the end of February. Typical forms are sent out for dividend and interest income, self-employment or independent contractor's income, student loan interest and mortgage interest statements.

If you happen to receive an incorrect information return, there is no need to panic. However, you do need to act quickly to prevent a bigger problem; namely, having your tax return not match what your information returns say. Therefore, the first step to take when receiving any Form 1099 or 1098 is to open it immediately and take a look at whether it reflects the amount that you think should be reported. If the Forms just sit unopened in your shoe box until you bring it for return preparation, valuable time has been lost.

Should you determine that you have received an incorrect information return, first contact the entity providing the form and ask for a corrected form. Use the number the sender provides on the form. You should receive a revised form that has "corrected" marked on it. Sometimes the information provider itself catches a mistake and sends you a corrected form without your having to ask.

Sometimes, the discrepancy on an information return may be the result of a difference of opinion in interpreting the tax law. This can occur, for example, when determining in which tax year a transaction falls, or whether forgiveness of indebtedness income exists on a contested loan. In those cases, it is best to first try to persuade the information return provider to change its mind rather than just reporting the transaction on your return based on your interpretation. Once the IRS becomes aware of a difference of opinion, the issue usually will take a lot more effort to resolve.

If all else fails in your trying to correct an information return with the return provider, after February 15, 2005 you should contact the IRS at (800) 829-1040. An IRS agent will assist in filing a complaint by sending Form 4598 to the payer requesting that a corrected form be sent out. If no corrected Form is issued, you will have to file a Form 4852 which will allow for you to claim the true amount on your tax return. If you have already filed and have received a form not reported or forget to report income, you are obligated to file a Form 1040X to report income that was not previously reported.

Penalties do exist for payers who fail to provide you with the correct payee statements when they cannot show reasonable cause for the failure. However, if you operate a business and also wear the hat of an information provider, you'll be glad to know that inconsequential error or omission will not be considered a failure to include the correct information.

Nevertheless, both the party who provides and who receives an information return have obligations under the tax law that must be met in good faith and with reasonable efforts to comply. Otherwise, the IRS will not hesitate to use its penalty powers. Please feel free to contact this office if you have any concerns over an incorrect information return over this coming tax season.