We receive a lot of refund checks from vendors for various reasons. I know we have to adjust the 1099 reportable amount for the refund checks.

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Q. (cont.)

My question is, we receive checks from various government agencies or companies that pertain to a specific invoice we paid to a 1099-reportable vendor.

Example 1: We received a check from a sherriff’s office for $14,201.27 for a refund of rent on behalf of a real estate company. Do we need to reduce the amount on the real estate company’s 1099?

Example 2: We received a check from a company for $5,255.00 for reimbursement of legal fees but we didn’t pay them, we paid the law firm. Do we need to reduce the law firm's 1099 even though they aren’t the ones that returned the funds?

I have been reducing the 1099-reportable vendor for the refund checks even if they are not the ones sending them to us. Now I am second-guessing myself. I cannot find any articles about refund checks. If there is an article out there can you tell me where it is located.

 

A.

We spoke with IRS information agent Ms. Lewis (ID #1003078897), who said that if the refund comes back to you from the same party you paid, you would subtract that amount from the 1099. However, in these two cases, the refunds came back from another source, not the original payees, and therefore these amounts should not be deducted from the 1099s.

I asked how those refunds should then be handled, and she stated that they would need to be reconciled on your business's tax return, but could not offer particulars, as that is outside her area of expertise. You may want to consult with your tax department or tax practitioner.

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