Q I just received an IRS deficiency notice about “other income” in 2005. Looking back, the firm should have listed this amount on the 1099 as “nonemployee compensation,” which is how I reported it on my return. Do I have a problem? K.R., Manahawkin, NJ
A Probably not. We’re assuming you earned fees from this particular firm as an independent contractor. If you properly included the fees as self-employment income on Line 1 of Schedule C, you should not owe any additional taxes or penalties. Explain the situation to the IRS in a response letter and provide documentation to support your position. But make sure you respond to the IRS inquiry within the allotted time period.
Tip: If the IRS requests it, you may have to obtain a revised Form 1099 from the firm that reported the income in the wrong box.
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