Corrected 1099-INT, DIV

[curiousgeorge]

Hello Tax experts,
Your assistance please!

Joint (with rights of survivorship) investment account is owned by two sisters. Brokerage issued 1099s (INT and DIV, for cap gains distributions) issued with both names but on SSN of 1st sister.

Both sisters requested that the 1099 for the full amount should be on the SSN of the 2nd sister instead. A corrected 1099 for the full amount was issued on SSN of 2nd sister - would not this be an ‘original’ rather than a ‘corrected’; and the original with the 1st sister’s SSN should be the one corrected to zero amount?

Per investment firm, they issued only one corrected 1099 because the account number on both 1099s is the same, so the corrected 1099 with the full amount on 2nd sister’s SSN, should invalidate the original on 1st sister’s SSN.
How should all this be indicated on both tax returns?

Thank you!

[rangerj]

How are they going to report the income? 1/2 each return, or all on one return, or by some other ratio?

[curiousgeorge]

Thanks Ranger,

Sister 2 was going to report the full amount - which is why both sisters requested the 1099 SSN change from sister 1 to sister 2.
Broker issued only a corrected 1099 with the SSN of sister 2 for the full amount; sister 2 did not have any 1099 prior to this corrected 1099. Broker said that because both 1099s are for the same account number, the corrected 1099 should invalidate the other 1099 that is uncorrected.

So for the same account, there are now 2 1099's on different SSN's for the same full dollar amounts. Would this mean to the IRS that both sisters got separate equal amounts and are each liable for tax?
Is there a way to indicate on the tax return that the income belongs only to sister 2?

Just curious - if both sisters report 1/2 each, how would this be indicated on the tax return?

Thanks again.

[rangerj]

If their ownership is such that they are each 100% owner (joint and severable) then they can report the amounts in any ratio they choose. The "corrected" 1099 should cancel the first 1099. That said, a note should be included with the tax returns explaining how much was reported by each owner, identified by name and SSN, so that 100% is reported in total. This is not uncommon. I see it a lot where Husbands and wives file MFS and have joint accounts and report amounts in a way that minimizes federal, state, and local income taxes. The government(s) want to know that it got reported and by whom. You can also do this with expenses like home mortgage interest and real estate taxes as long as the owners are joint and severable owners and each is 100% liable for the taxes and the debt. The ratio does not have to be 50/50.   

[curiousgeorge]

Thanks so much Ranger!

" The "corrected" 1099 should cancel the first 1099. "   This is great!
So the broker is correct in saying that the corrected 1099 with a different SSN with full dollar amounts makes null and void the original UN-corrected1099 with a different SSN.

The account is owned by sisters; ownership is joint and severable. So - even for non-spouses, each owner can report any amount; does not have to be 50/50; can it even be 100/0? 

How and where to report?  Indicate the amounts on Schedule B of each return? By the way, the 1099-Div had separate entries for ordinary dividends and capital gains distributions.  Where to report cap gains distributions? Schedule B specifically says Ordinary Dividends. How and where to add a note if tax prep software does not take free text? 

Ranger - Appreciate very much your kind assistance. 
Thanks again and have a great day/weekend! 

[rangerj]

100% to 0% is fine . If 100% is reported by the person in whose SSN the 1099 is issued the IRS will not question it. If the 100% is reported on the other persons return, I usually also tell the IRS that this is NOT an assignment of income.  Be sure to tell the IRS that the 1099 was issued in the other persons SSN and name and that the amount is being reported by a joint and severable owner.

[curiousgeorge]

Thanks Ranger!

So - there are two 1099's, one original uncorrected and the second, corrected; and the same full amounts on both - looks like there are 2 possible ways of reporting:

1. If 50% reported on each return - statement on each return to IRS would be "50% is being reported by the joint owner - with name, SSN and account number.

2. If 100% is reported by the second person whose SSN is on the corrected 1099 - add a statement on the return that says:  (a) this is NOT an assignment of income, (b) that the 1099 was issued in the other person's SSN, and name and (c) that the amount is being reported by a joint and severable owner.

Are above correct? Which would be less auditable?

By the way, just realized that 1099-Div shows small amount of ordinary, qualified dividends that do not require Schedule B and are reported in 1040 Lines 9a/b. Larger amount is capital gains distributions that do not require Schedule D for 1040 Line 13.

Where and how to include on the returns the above-mentioned statements?

Ranger - thanks ever so much foir your kind assistance. 

[rangerj]

STOP. The corrected 1099 effectively cancels the first 1099. Otherwise your statements are correct. Report amounts on the appropriate lines for the type of income, e.g. dividends, interest, capital gains, etc.

[curiousgeorge]

Good morning Ranger!

Got it!  So sorry - sometimes,  "sometime-heimers" kicks in. 

Thank you, thank you so much for yur kind help! 
Have a great day... I hope not too much snow by you.

[curiousgeorge]

Mar 14, 2017 10:29:30 GMT -5 rangerj said:

STOP. The corrected 1099 effectively cancels the first 1099. Otherwise your statements are correct. Report amounts on the appropriate lines for the type of income, e.g. dividends, interest, capital gains, etc.

Hello Ranger,

Got it! So sorry - sometimes, "sometime-heimers" kicks in.
Unfortunately, there's a new twist to the situation - and I have to again ask for your kind assistance.

Sister 2 had a change of heart and now wants sister 1 to take on the full tax liability for 100%. Broker said they can ‘reverse’ the SSN change that was done and issue a corrected 1099 in 1st sister’s SSN. The corrected 1099 in 1st sister’s SSN should cancel out the corrected 1099 in the 2nd sister’s SSN – correct?  If so, would the 2nd sister still need to report the  amounts that are in her corrected-1099 amounts?

Would above complicate the issue further?  Would it perhaps be simpler if both sisters could agree to report 50% -50%?
A small amount – just very concerned about having accurate tax returns without any possible audit red-flags.

Thanks ever so much for all your kind help!