Where on a 2017 tax year 1040 form would you include a 1099-Misc payment received for a surrender of

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dbush040551
dbush040551 Member Posts: 1 Newcomer

Where on a 2017 tax year 1040 form would you include a 1099-Misc payment received for a surrender of possession agreement payment. I used line 21 and received a letter from the IRS suggesting this was improper. Note I was not a contractor or self employed to the mortgage company that agreed to this payment as “keys for cash”.

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  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
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    Hi Dbush,

    CoryF has provided you some great information. I want to add to what he has told you with some additional research I found on this topic.

    The IRS provided some guidance on this topic back in March 2011. See this IRS Notification: Volunteer Tax Alert 2011- 08 March 4, 2011 Cash for Keys Program. To summarize, financial institutions were paying homeowners or tenants cash to move out a home that was foreclosed on. The concern was that the financial institutes reported the amount in box 7 of the 1099-MISC as Non-employee Compensation, which was incorrect. The amount should have been reported in Box 3 as Other Income.

    On your 2017 return, you reported it correctly on Line 21 of the 2017 Form 1040. However, the IRS did not get a corrected 1099-MISC. Hence the IRS notification you got.

    Is that what happened to you? Was that amount in box 7 as non-employee compensation? What I recommend you do write back to the IRS and contest their assessment. Explain that the financial institution never provided a corrected 1099-MISC and the payment was for a "Cash for Keys" program. If you can mail them a copy of the 1099-MISC, that will help.

    Here is the link again for that IRS tax alert.

    https://www.irs.gov/pub/irs-utl/VTA_2011-08_Cash_for_Keys_Program.pdf

Answers

  • CoryF
    CoryF FreeTaxUSA Agent Posts: 65
    edited November 2023
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    Thank you for this question, Dbush.

    I looked at 2017 tax information available on www.irs.gov to arrive at possible answers. The IRS may be inferring that you were in fact a Contractor or Self-Employed Landlord and this 1099-Misc payment must be taxed as such. This would require a Schedule C Business or at the very least a Schedule E Rental. Since you are stating "I was not a contractor or self-employed", the correct procedure would be to write up a response to the IRS communicating this fact and presenting your relationship with the Mortgage Company that sent the payment. You may even want to provide your 2017 Form 1098 (if you still have it) or other documents that prove that you are a Homeowner only. Furthermore, you may want to provide any documentation for why these payments were made to you since you referred to them as "keys for cash". This response will help in explaining that this income should not be taxed as Self-Employment and leave the issue alone.