I received royalty checks last year that i never cashed due to unresolved discrepancies in what is owed to me. I am still waiting on the operator to fix them before cashing the checks. The producer sent me a 1099 and has refused to correct it even though I never cashed the checks. Are they supposed to correct this? What do i do?
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Oh my! Most checks are void after 90-180 days, what in the world made you take this approach? I get taking a stance on what you think you are owed, but maybe you should have cashed the checks to hire an atttorney to solve this for ya? Now you are in the same spot as before and going to have to ask them (I assume its a hostile relationship at this point) for new checks, good luck!
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I had a couple lawyers advise not to cash them until the situation is resolved Professional approaches towards situations do not lead to hostility. The checks are not expired at this point. Hoping to get the answers to resolve this. My question still remains unanswered though.
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Consult your CPA and your lawyers for expert advice. From the company’s perspective, they paid the royalties and your failure to cash the checks while still holding them just means it is an outstanding account payable on their balance sheet and an expense on their income statement. So the company sent you a 1099 reflecting the payments. Generally, you are taxed on income received by December 31. This is no a normal situation and you need to follow the best professional advice.
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So, you had a “couple lawyers” advise you not to cash expiring checks for a year due to a discrpancy. Its impossible for a message board to give you answers to solve it and answer your question without the chain of title and what you are protesting. One has to ask, why didnt one of those lawyers solve/fix the discrepancy so you wouldnt be in this situation a year later?
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Bob they’re not expired yet and i never said it’s been a year. You can stop commenting since there’s no value your adding to this topic. Have a nice day
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My experience with incorrect 1099s has not been good. Almost impossible to get them to admit they are wrong. Sometimes my CPA has noted it on my return and hope the IRS accepts it. I would consult with my tax person. Not really an answer to your question just my experience.
You are exactly right about him!
Your responsibility on your tax return is to accurately report your income and calculate your tax. See below from 1099 Errors: What to do when you receive a 1099 that’s incorrect - Financial Solution Advisors
What to do when you receive a 1099 with an error
Occasionally taxpayers receive a 1099 that has incorrect information, such as amount earned. For instance, you may have earned $10,000 in tax year 2021 from a single client, but that client reported $100,000 on the 1099. In the eyes of the IRS, you are now deemed as having received $100,000 and owing tax on that amount. First things first: Don’t ignore the incorrect 1099.
Act quickly to rectify any 1099 errors, ideally before the client has filed the 1099 with the IRS. Reach out to your client (or the third-party payment processing platform) first. You may be able to resolve the issue directly with the sender by providing accounting details. If you are able to resolve the issue with the client, ask for a letter stating that they erroneously issued a Form 1099, and reissued a 1099 with the correct amount. That way, if you run into a problem, you have the proper documentation to explain the discrepancy.
In most cases, however, it’s tough to catch an error before the sender completes the filing process. If you reach out to your client and learn that he or she has already filed, a corrected 1099 is in order. The original filer (your client or payment platform) will need to file the corrected 1099, simply by completing a new 1099 form and checking the “corrected” box. Note that the correction may take some time to settle in the IRS system, overriding the initial 1099.
In some cases, the 1099 sender may not be willing to work with you or be difficult to reach. In this scenario, there is no quick resolution. You’ll address the discrepancy on your tax return on line 21, or on a Schedule C. You will need to show the client reported an erroneous amount on your 1099 and attach a statement to explain the difference. In your statement, include the amount reported, the difference, and the correct amount. Unfortunately, a 1099 discrepancy puts you at higher risk of being audited, but your explanation may serve to reduce your audit risk.
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Bob has made a valid point that, at times, following legal advice can cause a different, unrelated problem. It frequently takes more than year to resolve title issues, especially if another royalty owner will end up with a reduced DOI. You may not want to cash the checks paid on the reduced DOI to preserve your ability to file a lawsuit and dispute the DOI. Yet you still received undisputed income as the payments made are due, just not as much as you believe you are entitled to. As a cash basis taxpayer, you probably must recognize the income and pay taxes on it. The IRS is not likely to accept an excuse that you are deliberately not cashing the checks. Bob’s point is that checks have time limits, some limited to 90 days, so you need to resolve the legal issues very quickly or you will have to ask for replacement checks. Other forum users can benefit from Bob’s comments.
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Just because @Bob77 isn’t telling you what you want to hear, that doesn’t mean he’s not adding value. Are the checks too light and did you sign a division order?
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Thank you for helpful feedback. I called the IRS and they told me this as well (to attach a note to explain the difference).
My accountant said if you can’t get a corrected 1099, to include the 1099-MISC as income to avoid a notice but then offset with a equal amount deduction with an explanation.
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You and SafetyPin seem to have a problem with me, just wondering why? SP, claims to have consulted multiple attorneys, with no results to resolve this situation. Yet, hes here asking for legal advice again and now calling the IRS to resolve a situaion that they have no control over regarding the dispute. So the question I asked remains the same, (that makes both of you attack me for no apparent reason) why did the previous attorneys hired, not resolve the conflict of interest? I was simply trying to help out SP about the expiring checks (60-90 days) and the effort/money it will take to get new ones issued after they expire due to the operator’s title attorney DTO. For now on, Ill refrain from commenting on matters like this one since I add no value to the topic, my apologies.
Your attorneys advised you well. You should think carefully about cashing a check for less than the amount owed because your acceptance could be construed as an accord and acceptance of the new terms. Cash the check only if you are willing to accept less the amount owed to you.
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