Received 1099-NEC, instead of MISC for return on investment in former company

Forum|Forum|4 months ago
February 6, 2026
2 replies
9 views

I have a client who was part of a large law firm who was working on a large lawsuit that has spanned 20+ year. The partners of the firm were all required to put money into the lawsuit to pay the interest on the LOC that was needed. He has not worked there since 2010 and in Dec of 2025 received a lump sum, which was his return on his portion of the investment once the lawsuit ended. He did no work on the lawsuit, just helped fund it. The law firm sent him a 1099-NEC instead of a 1099-MISC - again he did not perform any services for this project, was just a funder/investor. If the firm doesn't reissue the 1099-MISC, how do I fix this on his return so he is not paying SE tax? I was thinking to add it to Sch C and then back it out to Sch D so we can report the earnings as a LT capital gain.

ProConnect Tax

IRonMaN

Level 15

And if he was still working at the firm, you still would have reported it on a schedule D?

Slava Ukraini!

J

JamesTCAuthor

Level 3

So do I just report it on the Sch D and not do anything with the Sch C?

IRonMaN

Level 15

I think you missed my point. I'm not in the camp that thinks it should be on a schedule D.

Slava Ukraini!

BobKamman

Level 15

A partner shares in all the income, and if it's SE income he pays SE tax on it. Apparently he is no longer a partner, so he can't put it on a K-1. But I would compare it to deferred commissions to retired insurance agents. Or the fees that workers comp lawyers get, a percentage of all payments for the rest of the claimant's life.

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