“ I asked for my payment and he said only way he can pay me is writing 2 checks in my brother's name ($1600/check as a consultant fee) and asked me to write back $744 to him with my personal check. I was desperate to get paid before he fold his business, so I did whatever he asked me to do.”-->I guess this is a legal issue. Did you use written agreements when you do contract work for the client,the company M? I guess you really should. Using a written agreement avoids disputes by providing a written description of the services you're supposed to perform, when they are to be performed, and how much you will be paid. Many consultants find that they spend way too much time acting as a collection agency, going after deadbeat clients who refuse to pay their bills. The best way to avoid this problem is to use a written client agreement, clearly setting forth your fees (including late charges) and a payment schedule.If a client still won't pay, you should start turning up the heat by persistently demanding payment and pursuing your legal options, if necessary.
“ I came home that night and asked my brother to deposit the checks and write me a check of $3200.”--> As long as you do not have a written agreement for your service with the company M; you didn’t receive any money from M; if your brother allows it, then you may treat $3,200 as a gift (I don’t know if you received $3,200 from your brother). Then your brother doesn’t need to file FORM 709 as $3,200< $13,000 for 2010, the annual gift tax exclusion amount and you do not report it on your return. As said, UNLESS you actually receive 1099MISC from the company M, you can treat the money, $3,200, as a gift. However, in this case, your brother CAN’T deduct $3,200 given to you as a gift on his return.
“Tax season came and my brother and I both didn't get 1099-MISC from the owner.”--> Some people believe that if an employer doesn't send you a 1099 MISC, then you aren't obligated to report the earnings; you are required to report all earnings( if you actually received some money from M), whether you receive a tax form or not.The company M has to mail 1099s by January 31st. You don't need Form 1099-MISC in hand to file your tax return. The law requires you to keep accurate business records and use those records to prepare your tax return. You need to use the 1099-MISC to verify that they are reporting the proper amounts paid to you.
“ I have been contacting him but can't find him or talked to him any more. He is out of country?? What is the best way to report this situation? Should I report $2456 (1099-MISC) on my Tax or should my brother report $3200 (1099-misc) on his tax? “--> Not sure; I don’t know how much money you actually received from M?