strange 1099 question

GOVERNMENT! I have a county drainage ditch going through my farm. Maintenance is paid for by assessment to every landowner with farmland that has tile or surface drainage that ends up in this ditch. The county board of supervisors have control of the situation. The drainage ditch is in a farmable right of way easement that for some reason varies from 60-100 feet total width. Why it varies, I don't know.

Last summer the board of supervisors wanted to make the right of way easement a consistent 100 fee so after it was surveyed some extra easement land was purchased from the adjacent land owner in the areas where the existing right of way easement was less than 100 feet. It's farmable so any part of the right of way easement adjacent to the drainage ditch can be farmed but the county can drive on that right of way any time they want to control weeds or whatever which is rare.

Anyway, some easement right of way was purchased from me and the check came last summer but it was stamped in red ink INSUFFICIENT FUNDS!!!!!! They will pay interest until a good check can be issued. Fast forward to yesterday. We got a 1099 from the county FOR THAT PAYMENT THAT WAS ISSUED TO ME WITH A CHECK STAMPED INSUFFICIENT FUNDS!!!! I'm taking this to my tax man to figure out, but have any of you guys and gals been in a situation like this? A government agency sends you a check stamped INSUFFICIENT FUNDS and then they send you a 1099 for money they can't pay you? Why can't we do the same thing? Pay our bills with an insufficient funds check and tell our debtor we will pay interest until the check is good. We would land in jail. Hmmm, that gives me an idea! Well, no!

I think the reason for the insufficient funds is the county is waiting for assessment money to come in for some ditch cleaning they did a year ago and they don't have any money laid away to pay bills in the meantime. Maybe they can't lay taxpayer money away by law, I don't know. When that money starts coming in the checks will be made good. I could rant on but the post is getting too long already. Jim

I just hope they don't tax you double when (and if) you get a good check.
That should be capital gains anyway,not regular income,shouldn't it?

I would have sent the check back and cancelled the deal!!!

I thought it was illegal to right a check if funds were not
available,I know people who have gone to jail for it! But I
guess if you're the government that must not apply.

Now there's a scam, tax you for income you never
recieved???? I would call them up and say the
deal is off, not "giving" them anything without
cash in hand.

Treat it as if you just sold some of your land and have not yet been paid. It is not income but just the private sale of your property.

They are wrong, 1099 should not be issued. Even using the "doctrine of constructive receipt", you have not been paid nor do you have the option of getting paid. Problem is that by February 28 the 1099 copies for the IRS will have been filed. Once the IRS has it, you better show it on your tax return. I would not ask them to correct it, because you will never know if they did it or not or did it correctly.

Where you show it is going to depend on what kind of 1099 it is...and there are several kinds. IF you were a client here, I can tell you that I would listen to the story and give you two options. One is that you pay any tax due now, two is that you pay tax in the year you get the money. Option one is self explanatory. Option two will require a deduction of some sort to reduce the 1099 amount to zero. This can be done with an expense write off or with a basis adjustment, depending on the 1099. Your preparer can legally do this if they have a sound rationale for the action...and I just gave you one. In the year you collect the funds, add the taxable amount onto your tax return in the appropriate place. This is how I would handle it. Easiest and simplest route though....option one.

Dave H, CPA

If that is a county wide problem, your local accountants and tax attorneys are probably very familiar with how to handle it.

There is a procedure for dealing with improperly issued 1099's (which is what your situation is). Your tax preparer should be aware of it. Turbo Tax software handles it properly. If anything comes of it, a copy of the NSF check should take care of it.

I got a lump from a guy ($20,000, IIRC) some years back, to settle claims against him by a number of my clients. Part of the money was mine for legal fees (which I accounted for), but it was mostly for other people. They guy sent me a 1099 saying "non-employee compensation", instead of putting it in the proper box. I decided to just ignore it- and was prepared to explain it if IRS contacted me. They never did.

If the county issued you a bad check why didn't you take them to court to make them pay it?

I'm wracking my brain here. The IRS has a procedure for this? Wouldn't be the first time I missed a ruling. Help me out here.

Previous post....is all the salt on the roads an environmental issue?

This post the government made a deal to buy something, didn't pay for it and
wants income tax on the money they agreed to pay me but didn't

What's in common....the government can do about anything they want to and
the law doesn't apply to them.

How do they get away with it? We keep electing incompetent individuals to
represent our interests that don't.

Part of it is our fault. A few years ago the newly elected governor of
Wisconsin proposed legislation that would curtail the collective bargaining
rights of government employees. The unions closed down the schools because
all the teachers were protesting at the state capital, when that crowd
wasn't big enough they hired and bused in people from Chicago to man the
protest. Didn't work but they got a lot of media attention.

Used to be Tennessee didn't have a state lottery or income tax. To get the
lottery would require convening a constitutional convention. They did so
under the guise of getting the lottery. Someone at the convention mentioned
"state Income Tax", from what I hear within hours protesters were on the
capital lawn and recall petitions were being drawn up. The good people of
Tennessee got there lottery and didn't get an income tax.

The price of freedom include vigilance, without it someone will take your
freedom.

What state are you in?

What you received was not really a check even if they used a piece of paper printed up like a check. You got a badly bungled warrant - which is a promise to pay.

We all know they made a mess of the situation, but since you haven't been paid, you should not have been issued a 1099.

Well that's what I've been thinking. I haven't seen the money yet.

Come to think of it, lets compare this to dividends from the local co-op. There is the deferred part and the cash payment. I'm so tired tonight I can't think straight, but I'm thinking I do pay income taxes on the deferred part of the dividend even though I don't see the money for a few years. Am I right? Maybe that's how they can get away with sending me a bad check promising to eventually make it good with interest, and then send me a 1099. They can call it a deferred payment. Right or wrong?

re the co-op dividend payment: here the co-op is required by law to pay something like 25% in cash cuz the recipient is required to report 100% of the div as income, and pay tax on it. The 25% is about enough to cover the income tax liability.

When the balance of the dividend is received, it is not reported as income. The MN Farm Account Book has a page for dividends...columns for total, cash portion, equity portion, and old equity received. Easy to keep track of when the tax summary page is filled out.

The 1099 was sent in error, weather the check was good or
not. 1099 is for "non-employee compensation", meaning
wages. You performed no work for them. They paid (or didn't)
for an item you sold them. Can you send a 1099 to Walmart
after buying gallon of milk? Same thing. 1099 can not be
issued for a purchase. This has happened to me on several
occasions when I sold automotive equipment, and mostly with
government shops. My accountant told me to throw them
away. I was already claiming income on the sale, and then
have to claim the total sale price also?? No, it doesn't work
that way. Make them fix it.