My question is somewhat confusing. I had a client come to see me regarding a 1099 that he received on 4/17 for $11,200. He and his spouse are separated and living apart, they filed a joint return in 2010 and HE assumed the same would occur for 2011. However, the Spouse decided to file separate, took all three children as a dependents.

The husband and spouse jointly own a commercial building and property. The spouse owns an LLC that "leases" the building and property for a bar business. There is NO formal lease agreement that the husband is aware of.

The LLC issued on 4/17 a 1099 for rental income in the name of the husband only. This income was NEVER RECEIVED by the husband (or paid by the LLC).

How do I guide my client? Is this fictious income to the husband taxable? I strongly suspect that the LLC needed to show a rental expense to reduce the Spouses taxable income.

Can someone guide where where to find the answer.. Thank you in advance!