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I received several 1099-MISC and reported this income on line 1 of Schedule C plus a bit more for which I did not receive any 1099-MISC.

Now I'm getting a letter from the IRS proposing to change my return and add in all the 1099-MISC income as being unreported.

How is the IRS supposed to match up my Schedule C line 1 with the 1099-MISC I received? In turbo tax, there is line 1a and line 1b to segregate the line 1 income between 1099 reported on line 1b and unreported on line 1a, however, that line is not broken out on schedule C. When I filled out my return in Turbo Tax, I put all the income under 1a since it seemed to make no difference. I tried to move it to 1b and amend with 1040X but that resulted in no change to my return. Did the line 1a vs 1b show up somewhere that the IRS picked up on?

  • Things can make no difference in your taxes and yet matter. The matching computer didn't like your shortcut and now you have to amend your return. – Loren Pechtel Mar 25 '16 at 3:24
  • @LorenPechtel But how does the IRS know about line 1a and 1b if they are not part of schedule C and only part of TurboTax? There is nothing to amend, the tax returns would look identical. – WilliamKF Mar 25 '16 at 3:26
  • Exactly, how are they supposed to know? They know by sending you a letter, and then reading your response to that letter. – jjanes Mar 26 '16 at 23:04
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    @littleadv Please point to the government directions where such a statement being needed is explained. – WilliamKF Mar 28 '16 at 20:39
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    @littleadv Yes, but more generally, I'd like to see the directions for all returns, not just mine, that I need to follow to avoid this in the future. – WilliamKF Mar 29 '16 at 0:08
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The 1(a) and 1(b) separation may have been explicit on the return filed electronically. There's a lot of information being electronically filed that you would add in "statements" as attachments to your return if you filed it on paper. One of these statements would be the breakdown for line 1 of your Schedule C, which the matching computer would then be using to match.

It appears that you just aggregated the sum yourself instead of adding all the 1099s separately into the software and let it do the math. Next time don't do that.

If you paid for audit protection with Turbo Tax, you can ask them to help with writing the response. Otherwise, you'll have to write a response yourself telling them the breakdown of line 1. Or hire a EA/CPA licensed in your State to do that for you, which is what I'd advise you to do at this point.

  • I did not file electronically, so do I need to add a statement to my return? – WilliamKF Mar 28 '16 at 17:06
  • @WilliamKF You already filed your return, how can you attach anything to it? – littleadv Mar 28 '16 at 19:58
  • I can attach a statement by amendment 1040X. – WilliamKF Mar 28 '16 at 20:38
  • @WilliamKF there's nothing to amend, your return is not changing. You need to attach the statement to your response to the letter. in fact - that statement is your response to the letter. – littleadv Mar 28 '16 at 23:14

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