history:
There was a damage to our property (actual repair costs well over $125k). We hired an attorney and sued for the repair cost and nothing more.

we settled out of court for $100k. the settlement fund was deposited to an IOLTA account for the benefit of me.

lawyer took the balance of my retaining fee (it has been accuring a lot during the last few weeks of the process) from the settlement and forwarded the settlement balance ~$80k

come tax time, MY lawyer sent me a 1099-MISC with the amount of the balance of the settlement fee. First he put it in Box 7 "non-employee compensation". When I pointed out that the settlement is not wages, he sent me a 1099-MISC correction with the same amount in Box 3.

We filed the taxes, and deducted the 109--MISC Box3 amount in LIne 21 - settlement amount for property damage repair suit.

then we get a letter from the IRS saying that we owe them about $2k in self employment taxes (the amount makes no sense, btw. SE on $80 should be about 5x that..). I send them the copy of the settlement, the claim, the 1099-MISC corrected.

but then they rejected saying our information was not sufficient. and I need a corrected income statement from my lawyer. When I called my lawyer, he found out that although he sent me the 1099-MISC correction, he never filed the correction with the IRS!

So, if he files the correction to the 1099-MISC, and i get a copy and a statement that he filed the correction, and then send that to the IRS, will this go away?

or is there something else I need to worry about? (like, I don't understand how IRS came up with $2k in taxes.. it's not based on $80k box 7 error?)

oops. it posted on the incorect forum... I'll try to move it to the correct category..

So, if he files the correction to the 1099-MISC, and i get a copy and a statement that he filed the correction, and then send that to the IRS, will this go away?===========>> I am Sorry for the damage. Box 3 of Form 1099-MISC is used to report other income that is not reportable in one of the other boxes on the form. Generally, all punitive damages ,even if they relate to physical injury or physical sickness, and any other taxable damages are required to be reported in box 3. However, if a taxpayer receives an award of back pay that constitutes wages, it generally would be reportable on Form W-2, not Form 1099-MISC.When he sent you a 1099-MISC correction with the same amount in Box 3,I mean he also had to submit corrected 1099MISC to the IRS too; he had to file the correction to the 1099-MISC with the IRS. As you can see, payer ALSO would need to furnish the IRS with a copy of the 1099-Misc.So you basically need to follow IRS request, then UNLESS the IRS proves it is taxable self employment income on which you need to pay self employment tax, they do not require you pay SECA tax on the income on 1099MISC;

or is there something else I need to worry about? (like, I don't understand how IRS came up with $2k in taxes.. it's not based on $80k box 7 error?)===========>>it is based on the amount on 1099MISC box 7; the amount reported on 1099MISC box 7 is USUALLY reported on Sch C of 1040 as self employment income not subject to FICA tax withholding and aslongas the amount on line 29 / 31 of Sch C is $400 or exceeds $400 you must file return and also aslongas the amount on Sch SE line 2 / 3 is ALOS $400 or exceeds $400 , then you must pay self employment tax to IRS however you can deduct 50% of your SECA tax on 1040 line 27.