Hi, I have a unique situation. I rendered consulting services to a business several times in 2007. The total amount came to $42,000. The company had some revenue issues and I ended up being paid only $29,000 before the close of 2007. I received a 1099 for the whole $42,000! The business claimed that because they use the accrual method, they are reporting an unpaid expense because the services were rendered in 2007. Well, I use the cash method, so I only report income in the year it is received. Irrespective of accounting method, I don't think their rationale flies in the name of tax method. It is my understanding that what you report tax wise can differ from accounting method. Can a business reap the tax benefits of an expense they did not pay? Do I have to pay tax on income not received? Please help, because having to report that extra $13,000 I did not receive will cost me around $4000 in tax liability. That will suck!:(

Your tax return is done on a cash basis. You would only record income you received during the taxable year (i.e. the 29,000). They need to reissue the 1099 as it is incorrect and not acceptable under IRS regulations.