1099 From Police

Today TaxMama® hears from Ted in the TaxQuips Forum with this story. “A police car was at fault in an accident and the city repaired the taxpayer’s car. The taxpayer got a 1099-misc for the amount of the repairs. The municipality insists it is correct and will not re-issue anything. The question is how to report this? I did a bit of looking around and found several related questions, mostly related to home casualty reimbursements from insurance companies generating a 1099-MISC to the homeowner. While it doesn’t appear that the reimbursement would be taxable, not reporting the 1099-MISC would probably just generate more confusion and IRS questions. It seems that attaching Form 4684 would be appropriate, though would it require a separate statement to clarify that this is where the 1099 is reported? I can’t find any IRS guidance on non-taxable income that is reported on a 1099-MISC.” 

Ask TaxMama 

 Hi Ted, 

Sheesh, everyone is going 1099-crazy!  

OK, so there’s a 1099-MISC for the repairs. Yes, definitely report the income on line 21 as other income. Now, deduct it right back out as the cost to repair the vehicle. Show a statement – SEE Attached and file on paper with an explanation.  

OR…you can use the personal casualty loss form – Form 4684 page 1, as you suggest. Be sure to fill it out so it zeroes out the income. In fact, you might end up with a little bit of casualty loss deduction – once you deduct $100 and 10% of AGI from any unreimbursed damages. (doubtful)  

There isn’t really any IRS guidance – which is why you can’t find it. But your instincts are good. If you don’t report it, the IRS computer will notice the discrepancy and the correspondence will start. No! No! Anything but that!!!!

And remember, you can find answers to all kinds of questions about weird 1099s and other tax issues, free. Where? Where else? At www.TaxMama.com.

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