Received incorrect 1099-K from Cash App after account hack - Report or dispute?

You're facing what many taxpayers don't realize is a fairly common issue - incorrect information reporting. Have you considered that the IRS actually has established procedures for exactly this situation? DON'T just pay the tax on income you didn't receive. That's essentially accepting responsibility for someone else's fraud. The correct approach is to file Form 14039 (Identity Theft Affidavit) along with your return, and include a statement explaining the situation. You should also report the 1099-K on your return, but offset it with an adjustment. This creates a paper trail showing you're aware of the discrepancy but aren't accepting it as legitimate income.

Have you possibly contacted the IRS Taxpayer Advocate Service about this issue? They might, in certain circumstances, be able to assist with resolving this before it becomes a larger problem. I'm somewhat surprised that Cash App would issue a 1099-K for transactions that were flagged as fraudulent and denied - generally speaking, payment processors are supposed to report actual completed transactions, not attempted ones. It would be helpful to know if Cash App has given you any timeline for resolving their investigation?

Having dealt with an incorrect 1099 issue last year, I can tell you that per IRS Publication 556, you should NEVER just accept incorrect tax documents. The nightmare of trying to get this fixed after filing incorrectly isn't worth it. I spent 4 weeks trying to reach someone at the IRS who could help me. After 37 call attempts (counted them!), I finally used Claimyr (https://www.claimyr.com) and got through to an actual IRS agent in about 15 minutes. They confirmed exactly what I needed to do - report the income but offset it with an adjustment, and include a detailed statement. Saved me hundreds in taxes I didn't owe and potentially thousands in professional fees to fix it later. Worth every penny to actually speak to someone who could verify the proper procedure.

In my previous experience working with similar cases, another approach you might consider is filing IRS Form 8275 (Disclosure Statement) with your return. This form specifically allows you to disclose items or positions that aren't otherwise adequately disclosed on a tax return. I've seen this work well for clients with erroneous 1099s when the issuing company couldn't correct them in time for filing deadlines. It puts the IRS on notice that you're aware of the discrepancy and aren't trying to hide anything, which typically prevents automatic underreporting notices.

Has Cash App given you any indication of how long their investigation might take? I'm in a somewhat similar situation but with a much smaller amount, and I'm worried about filing my taxes before they resolve it.

This is exactly why the 1099-K reporting threshold was such a contentious issue. The current system puts the burden of proof on the taxpayer when third-party payment processors make reporting errors. From my understanding of the Internal Revenue Code Section 6201(d), if you can provide reasonable documentation contesting the accuracy of an information return, the IRS must prove its accuracy before making an assessment. Make sure to keep all your communication with Cash App, screenshots of the account closure, and any other evidence of the fraudulent activity. This documentation will be your lifeline if the IRS questions the discrepancy.

I'm so sorry you're dealing with this mess! It's frustrating when someone else's mistake creates tax headaches for you. I want to add that beyond the excellent advice already given, you should also consider placing a fraud alert on your credit reports with the three major credit bureaus. When someone attempts financial fraud through one account, they often try others. Also, you mentioned the $200 tax impact - that's just federal. Depending on your state tax rate and whether you have local income taxes, the total could be higher. Plus, incorrectly reported income could affect income-based programs you might qualify for. Always protect yourself by properly documenting and contesting incorrect information returns!

I had almost this EXACT situation happen with Venmo last year! Someone hacked my account, tried to transfer about $3,800, it got flagged, account closed... and then boom, a 1099-K shows up in January. I freaked out just like you're doing now. What worked for me: I filed my taxes normally but included a statement explaining the situation along with proof that Venmo was investigating. I also included Form 8275 (Disclosure Statement). About 3 months later, Venmo finally issued a corrected 1099-K showing $0. The IRS never questioned it, and I didn't have to pay taxes on money I never received.

Here's a different approach that might save you some headache: • Request a filing extension using Form 4868 - this gives you until October 15 to file • Continue pushing Cash App to resolve their investigation and issue a corrected 1099-K • If resolved before October, file normally with the corrected form • If still unresolved by October, file with one of the adjustment methods others have suggested This approach gives Cash App more time to fix their mistake before you have to deal with it on your tax return. Just remember that an extension to file is NOT an extension to pay, so estimate any taxes you legitimately owe and pay by April 15.

I went through something very similar with PayPal in 2022 - fraudulent transactions totaling $4,200 that resulted in an incorrect 1099-K. Here's what I learned from that experience: First, don't wait for Cash App to resolve their investigation before filing. These payment processor investigations can drag on for months, and you don't want to miss filing deadlines. What worked for me was filing with the adjustment method several people have mentioned - I reported the 1099-K amount as "Other Income" on Schedule 1, then immediately subtracted it as a negative adjustment with the description "Fraudulent transactions under investigation - Case #[insert your case number]." I also attached a detailed statement explaining the situation and included screenshots of my account closure notification and the fraud investigation case number. The IRS processed my return without any issues. One additional tip: Make sure to get everything in writing from Cash App. When I dealt with PayPal, I had to request written confirmation that the transactions were indeed fraudulent and that they were investigating. This documentation became crucial later when I needed to prove my case. You're absolutely right not to just pay the $200 - that sets a terrible precedent and essentially rewards the fraudster. Stand your ground and document everything properly.