For a US company using the accrual method of accounting, if they receive a bill in January 2016 for work done in 2015, I expect they are supposed to report the 1099 income to the biller as part of the 2015 tax year in which they will take the accrued expense. (Perhaps this is incorrect and it is 1099ed in 2016 tax year, but being so, a similar issue can still arise.)

However, if the billing company uses the cash method of accounting, they receive payment in 2016 and will not include the income until the 2016 tax year. How does the IRS deal with this and not end up wasting time auditing the billing company for not having their return's income match the reported 1099 for 2015? Does the cash filer have to somehow clue the IRS in to say why their income does not match the reported 1099s as part of their return?

2 Answers 2


The short answer is that the IRS knows this is an issue, so they are prepared to deal with the "discrepancies." The filer does not need to something special to call it to their attention. Keep good records and consistently report according to your accounting processes.

Exactly how the IRS resolves / flags this, I don't know. Maybe someone else can answer, but you can imagine that if they track you for multiple years they should have some idea of how many dollars are rolling over and whether you might have "forgotten" to report something from a few years ago that happened at a year-end break.


From the 1099 instructions:

File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year

Your accounting method doesn't matter. You file 1099 for the year you paid the money.

  • 2
    This is true for the ones going out. I understood the question to be about the ones coming in. If I send an invoice late in December, I've accrued charges in December even if I get paid in January. I'll get a 1099 based on the year that I'm actually paid. The OP's issue occurs if I'm on an accrual basis (income is in the earlier year) and get paid in January (1099 comes in the later year). Vice versa if the check is mailed Dec 30, arrives Jan 2, and I'm on a cash basis.
    – user32479
    Commented Jan 29, 2016 at 13:30

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