Fixing a flawed money flow: how to transfer 1099-k (credit card) income from one business to another?

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Topic Author
foolio97
Posts: 28
Joined: Sun Mar 10, 2013 4:31 pm

Fixing a flawed money flow: how to transfer 1099-k (credit card) income from one business to another?

Post by foolio97 »

PROBLEM STATEMENT
My wife was gifted a business from her father on 1/1/2023 1/1/2022. Despite the transfer of the business, she continued to use his credit card machine throughout CY2022 and the money was deposited into his checking account. Throughout CY2022, he would periodically write her checks to transfer this revenue to his daughter (my wife).

As they were supposed to, the credit card processing company issued a 1099-K to her father that declared in box 1.a "Gross amount of payment card/third party network transactions" with an amount matching the business revenue through that credit card reader in CY2022.

What options (if any) are available for transferring this business income from her father to my wife's business?

RESEARCH
My "google fu" turned up the following link for a somewhat similar situation for a 1099-DIV:
https://support.taxslayer.com/hc/en-us/ ... eone-else-

When I then searched for "nominee recipient", I found the link below with the "Nominee/middleman returns":
https://www.irs.gov/instructions/i1099g ... 9320878080

CORRECTIVE ACTION
which I think applies to this situation. I think the required steps are for her father to issue her a 1099-K, effectively transferring this revenue to her business and submit this to the "IRS Submission Processing Center" for our area.

QUESTIONS
1. Does this sound like the correct solution?
2. Could he file this 1099-K via one of the commercial 1099 filing websites, such as www.tax1099.com? Or does this need to be completed via snail mail?
3. Does this complicate my father-in-law's tax return significantly?
4. Anything else we're missing?

CORRECTION: Changed business transfer date from 1/1/23 -> 1/1/22 per commenter below.
Last edited by foolio97 on Fri Feb 03, 2023 4:06 pm, edited 1 time in total.
Sprucebark
Posts: 299
Joined: Thu Aug 27, 2020 9:22 pm

Re: Fixing a flawed money flow: how to transfer 1099-k (credit card) income from one business to another?

Post by Sprucebark »

Are the dates correct in your original post? 1/1/23 was the transfer date?

CY = calendar year?
toddthebod
Posts: 5737
Joined: Wed May 18, 2022 12:42 pm

Re: Fixing a flawed money flow: how to transfer 1099-k (credit card) income from one business to another?

Post by toddthebod »

Yes, he needs to issue her a 1099-K.

https://www.irs.gov/instructions/i1099k
Aggregated payees. If you receive payments from a PSE on behalf of one or more participating payees and you distribute such payments to one or more participating payees, you are:
The participating payee with respect to the PSE who sent you the payment(s), and the PSE with respect to the participating payees to whom you distribute the payments. For more information on nominee/middleman reporting, see part A in the current General Instructions for Certain Information Returns.
https://www.irs.gov/instructions/i1099gi
Nominee/middleman returns. Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts allocable to each. You must also furnish a Form 1099 to each of the other owners. File the new Form 1099 with Form 1096 with the IRS Submission Processing Center for your area. On each new Form 1099, list yourself as the “payer” and the other owner as the “recipient.” On Form 1096, list yourself as the “Filer.” A spouse is not required to file a nominee return to show amounts owned by the other spouse. The nominee, not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.
Regarding your last two questions, assuming he no longer has a business and thus no business tax return, he should include the income on Schedule 1 line 8z and negative it out on line 24z with a comment "1099-K received as nominee/middleman" or something like that.
Topic Author
foolio97
Posts: 28
Joined: Sun Mar 10, 2013 4:31 pm

Re: Fixing a flawed money flow: how to transfer 1099-k (credit card) income from one business to another?

Post by foolio97 »

> Are the dates correct in your original post? 1/1/23 was the transfer date?
Good catch, should have been 1/1/22.

> CY = calendar year?
Correct.
Topic Author
foolio97
Posts: 28
Joined: Sun Mar 10, 2013 4:31 pm

Re: Fixing a flawed money flow: how to transfer 1099-k (credit card) income from one business to another?

Post by foolio97 »

Regarding your last two questions, assuming he no longer has a business and thus no business tax return, he should include the income on Schedule 1 line 8z and negative it out on line 24z with a comment "1099-K received as nominee/middleman" or something like that.
Thank you, very helpful!
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