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Fee vs. reimbursement from a tax standpoint

February 02, 2011 12:06AM
I just received a 1099 from a mystery shop company, where the fee was $200 and reimbursement was $600. However, the 1099 says $800, with no explanation. Is this correct? I was not even counting on this company sending a 1099 at all.
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More About Reimbursements
February 02, 2011 12:26AM
Nope. I would contact the company immediately. The $600 was NOT income you earned!
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February 05, 2011 02:20AM
I did contact them. They claim that according to their accountant, it must be reported as income. I was also informed according to their accountant, that I can claim these expenses on schedule C.

The following is the response I received.

Thank you for the conversation this morning as we work to assist you with your 1099 question.

In speaking with our Finance team, although you were presented with a 1099 that included a total figure, you should only be taxed on the $210 amount of services, and not the $653.14 in receivables contributing to your reimbursement, as long as you have receipts for your reimbursements. If you have any questions as to how to complete your taxes, please seek the advice of a tax account as we cannot provide any tax advice.

In the event that you cannot find all those receipts, please let me know the dates and locations of those receipts in question and I will work with our team to try to recover any lost receipts.
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February 05, 2011 02:48AM
They are just flat wrong, but I don't know what you can do about it other than attach a note to IRS with your return. It is certainly not the way that the industry handles it either. I have in hand 4 1099s that I can reconcile to fees + bonuses based on exactly what was paid during calendar 2010 and they do NOT include reimbursements (except in one case where they throw mileage into the bonus category but other reimbursements are not included). Of course these will never match my return as I am an accrual taxpayer rather than a cash taxpayer, but I do go through the exercise to try to figure out what the heck they have done.

There are all qualities of CPAs and tax advisors and tax preparers out there. Back in my financial planning days I used to send clients back to their CPAs when the guys got it wrong in how they handled capital gains, management fees, margin interest, limited partnerships, etc. on tax returns.
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