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  1. #1
    Join Date
    Mar 2015
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    2

    Default 1099-Misc for Embezzlement

    To make a long story short....
    Over 10 years ago, I embezzled money from my employer. A few years later, I received a 1099-Misc for this amount (plus some), which therefore the IRS said I owed back taxes and penalties.
    At the time, there was not a judgement with the court for restitution. I was told by the IRS that I would ether need to get my employer to withdraw the 1099-Misc forms, pay back the money (and prove this) or produce a judgement form the courts and I could request a hearing with the IRS.
    I have not been able to pay the money back. (not only for financial reasons, but due to there not being a judgement, the court clerk couldn't make me money)
    Just this past month (yes, over 10 years later) a judge ordered restitution.

    My time to request a hearing with the IRS has long since past.
    If there is now a court order for re-payment, shouldn't the employer be required to withdraw the 1099's? How can I get them to to this?

    If I can't get them to this, how can I fight this with the IRS since it has been so long. I finally have what they said I needed.

    Thanks of any help you can offer!

  2. #2
    Join Date
    Sep 2010
    Posts
    19,667

    Default Re: 1099-Misc and Embezzlement

    What do you think there is to fight. Money you steal IS taxable. It's how they got Al Capone.
    It would be a different story if you'd actually MADE the restitution.

  3. #3
    Join Date
    Mar 2015
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    2

    Default Re: 1099-Misc and Embezzlement

    Quote Quoting flyingron
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    What do you think there is to fight. Money you steal IS taxable. It's how they got Al Capone.
    It would be a different story if you'd actually MADE the restitution.
    Not helpful.... I have been hit with over 15K in taxes and penalties, plus excessive interest on the court order. I am trying my hardest to make amends, however any money paid goes to the IRS first because of this...

    The order was just put in place last month! I could not pay anything until that was in place - the court's call, not mine.
    However, even though I couldn't make payments, I am still being hit with excessive interest. ("excessive" deemed by my attorney)

    I am trying to keep my head above water and provide for my family. Asking for legal help here, not judgements from someone who doesn't know the whole story.... unless you have something valuable to contribute, please keep it to yourself.....

  4. #4
    Join Date
    Oct 2014
    Posts
    7,919

    Default Re: 1099-Misc and Embezzlement

    Quote Quoting cvasquez77
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    If there is now a court order for re-payment, shouldn't the employer be required to withdraw the 1099's? How can I get them to to this?
    The employer does not have to amend the Form 1099 filing and it wouldn’t matter anyway if the employer did amend the Form 1099. The tax law is clear: all money or property received is income unless the Code provides some exclusion for it. There is no exclusion for money you obtained by theft, and thus the embezzled income should have properly been included in your income the year you embezzled it unless you repaid the income in that same year. Including in income several years later when the employer finally issued the Form 1099 was not technically the correct way to do it, but your time to contest that before paying the liability (i.e. to take the case to Tax Court) was 90 days after you were issued a notice of deficiency. As the tax has already been assessed, that opportunity to contest it is gone. Besides, in any event, the embezzled funds were income, and you would have had to include the funds in income and pay tax on it; the only issue here being which was the proper year for it. Including it in the earlier year would, of course, mean even more interest to pay on your tax obligation.

    The way this works is that you are allowed a deduction for repayments of the embezzled funds in the year that you make the repayment. Thus, for example, if you repay $5,000 of the embezzled funds in 2015 you get a $5,000 deduction on your 2015 return. You do not get to amend the earlier return to reduce your tax for the year in which the embezzled funds were included in income. In short, you’ll still be stuck paying off the tax liability you have from the embezzled funds, but you can reduce your future taxes if you repay the embezzled funds in the year that you make the repayment.

  5. #5
    Join Date
    Sep 2010
    Posts
    19,667

    Default Re: 1099-Misc and Embezzlement

    Perhaps not helpful, but accurate. It's always frustrating when people come here and crap all over those who give them the bad news that there's no fairy dust you can sprinkle over your legal problem that will change reality.

    The INTEREST is not a tax issue. You had use of the money you stole, the person you stole it from did not. They're entitled to that over the amount of strict amount you stole. The penalties are NEVER deductible either. This is your deterrant for your crime of mortal turpitude. As I pointed out, the stolen money, even if it wasn't 1099'd is TAXABLE. As TM points out (and I alluded to in my last statement in the first post), when you repay it, you may be able to deduct it.

  6. #6
    Join Date
    Oct 2014
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    7,919

    Default Re: 1099-Misc and Embezzlement

    Quote Quoting flyingron
    View Post
    The INTEREST is not a tax issue. You had use of the money you stole, the person you stole it from did not. They're entitled to that over the amount of strict amount you stole. The penalties are NEVER deductible either. This is your deterrant for your crime of mortal turpitude. As I pointed out, the stolen money, even if it wasn't 1099'd is TAXABLE. As TM points out (and I alluded to in my last statement in the first post), when you repay it, you may be able to deduct it.
    This raises a point that I think I didnít make clear before. You may deduct the repayment of the amount you actually embezzled in the year repaid. So, if the amount you took was $15,000, then the repayment of that $15,000 would be deductible in the year paid. You do not get to deduct the interest paid nor any penalty paid to the employer as a result of the judgment.

    By the way, in one sense you are lucky. Iíve seen taxpayers who embezzled funds and did not report it on the return for the year in which the funds were taken get criminally prosecuted for tax evasion as well as having to pay the tax, interest, and civil penalties for the unreported income. Tax evasion can get you a trip to federal prison for up to five years on each count.

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