1099 reporting to IRS(pls don't answer unless you're CPA or enrolled agent). Can you clairfy?

Question

Each year using Turbo Tax Home and Business I dutifully complete a Schedule C reporting income received from a client that was reported to the IRS on a 1099. TTax has a line where you enter income reported on a 1099 on Schedule C and that's where I put it. Each year I get a notice from the IRS (an AUR) that says I did not report this income. I call in, they look, and they fix it, but it is a pain in the butt. The agent I talked to today said I am supposed to report 1099 income on line 21 of the 1040. I said wasn't it proper for me to report in on the Schedule C. She said yes, but that the tax examiners only look on line 21 and if it is not there, then an AUR is issued. I can't believe this. Because either I am doing something wrong or if I am not then they must be issuing AURs for every person in the US who is filing a schedule C. Can anybody clarify this for me?

Update:

Wayne Z: I think you nailed it with your answer. My pay was being reported in block 3 (and for two of the three years, I was actually the one preparing the 1099s, so shame on me! Fortunately, I was the only person in that category). I have asked the current bookkeeper to file a corrected 1099 reporting the income in block 7. Thanks for your clear, concise answer.

Wayne Z · Accepted Answer

It sounds like a problem on your client's end.

What box of the 1099misc is the income reported in?

It should be in Box 7 (Non-Employee Compensation) and not in Box 3 (Other Income).  The IRS expects items in Box 3 to be on Line 21.  When they are not there, the system kicks out the letter.

A Hunch · Answer

I own 2 small businesses that I report on Schedule C and my dad has been a independent tax accountant for 50 odd years (he initially put me to work at age 5).

I have never had a problem reporting my 1099 income on Schedule C.

Do you have expenses associated with your 1099 or is it pure profit?  
That's the only thing I can think of, is if you don't have any expenses on the Sch C and only  income, it might be making some error pop up...

Line 12 of the 1040, should equal the profit (or loss) from the Sch C

tro · Answer

sorry, I am neither but most programs have in their questions on a Sch C your total income not reported on 1099's and the next question is your 1099 reported income
line 21 would be income reported on a 1099 that is not a business income, ie. had you won a prize or other income that is not due to your self employment

? · Answer

Self-employment (or independent contractor) income goes on schedule C and line 12.

Line 21 is for miscellaneous income not reported any other place (like gambling winnings).

chatsplas · Answer

I've never had this problem with the IRS in my personal returns and TT   OR with professional tax preparation in the course of business.  Maybe it is the level of TT (I use Premium) or how you answer the question.  The proprietary software I use puts it on Schedule C, and I am aware of no clients receiving notices.

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1099 reporting to IRS(pls don't answer unless you're CPA or enrolled agent). Can you clairfy?

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