Solved

Received payment (and 1099Misc) for a service to deliver in 2018. If I don't deliver service I would owe a refund. Can I differ the income (how?).

Forum|Forum|7 years ago
June 1, 2019
3 replies
0 views

I'm a small business; LLC partnership. I received income and a 1099 Misc for a service that will be delivered in 2018. If I fail to deliver the service, then I would be liable for the amount of what they paid. Since they filed a 1099, I need to report the income, but is there a way to defer or show this as a liability so this income does not flow via the K1?

TurboTax Business Windows

Best answer by Rick19744

With the cash method, the partnership reports receipts or sales from operations when actually or constructively received. Income is constructively received when the cash is credited to an account or is available without restriction.

You clearly have met this criteria.

Additionally, when using the cash method of accounting, prepaid income is recognized in the year of receipt even if the services have not been rendered.

If for some reason you do not perform the services and must return the $$, then you take a deduction in that year.

Based on the facts, this does not sound like a security deposit or a customer deposit. These are funds that will most likely be returned to the customer.

Rick19744

Employee

A couple of questions:
1) What is the method of accounting for the partnership?
2) Did you actually receive the $$
3) Is there a written contract between the two parties?

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

M

MikemuckAuthor

thanks for your response/questions. Method of accounting is Cash. Yes, received payment in 2017. Yes, there is a government procurement in writing. They have postponed the service twice, so there is risk that they could cancel and I would have to refund the payment. I received a 1099Misc for this. I read that one way to handle this is (in Turbotax Business) is to enter an expense item for the amount?