A little background:

In May of 2010, I subleased my apartment to a friend of a friend. She was performing a fellowship and they paid for part of her housing. The fellowship organization sent me a check of $1000 and I consequently used that money towards paying the rent of the apartment I was subletting out to her.

However, I recently received a notice from the IRS saying that I owe taxes on the $1,000 I received. Apparently, the fellowship organization filed a 1099-MISC, which I did not receive, stating that they paid me $1,000 in income. Since it wasn't technically income, paying the IRS penalty would be like paying for income I never earned.

I am wondering how to go about resolving this issue. I have thought about filing an amended 1040, but how would I show the IRS that the so-called income wasn't income at all. Or should I contact the fellowship organization and get them to amend the 1099-MISC. Please advise.

Thank you!

“I am wondering how to go about resolving this issue. I have thought about filing an amended 1040, but how would I show the IRS that the so-called income wasn't income at all. Or should I contact the fellowship organization and get them to amend the 1099-MISC?”---->You are NOT subject to the 1099 form as you are NOT an independent contractor; as you can see, A 1099 is used to report income that you don't receive as regular wages, such as if you work as an independent contractor, or if you receive interest income. As incorrect information is listed on the 1099 that you received, it can pose problems on your tax return, possibly resulting in your paying either more or less in federal taxes,i.e, you may have to pay quarterly estimated taxes or SE tax or etc, than you are supposed to. If anything on the 1099 form is incorrect, you cannot file your taxes using it. Instead, you need to contact the payer about the wrong 1099form. Yo need to request that the payer to correct 1099 form. If you cannot reach the payer, you can get help from the IRS. You can call the IRS for assistance with the toll-free number 800--829--1040. You should give the IRS representative your name, your address, your phone number, your SSN, the payer's name, the payer's address, and the payer's phone number or any other relevant dates for the income. When you do this, the IRS will contact the payer to get the payer correct the wrong 1099 for you. Since you are receiving rental income (from your sublessee), which is taxable income, You'd also be entitled to claim certain expense deductions related to the rental.You need to put this income on schedule E of 1040 to avoid self-employment tax(Sch SE) on it. The key point, however, is whichever way you do it, be consistent. In other words, if 10% of the space is subleased and you put that income onschedule E, then 10% of the rent and utilities paid should go on schedule E, along with 10% of maintenance and repair. It may not be worth it to you to figure this all out, in which case, put the sublease income on Sch E(OR Sch C as other income if you are a self employer filing Sch Cof 1040) and Form 1040 line 17.You ALSO may have to pay quarterly estimated tax to the IRS and your state. In general, your quarterly estimated taxes cover your income taxes(fed and state/local etc) for you who have earned income, rental income in this case, during the year that has not been subjected to tax withholding on your paychecks. If the total tax you have paid throughout the year in the form of quarterly estimated taxes on 1040 ES or tax withheld by your ER on your paychecks is too low, you may owe a penalty at the end of the year.