If you don't send a 1099 when required, the law has been
broken. If you don't think the guy was on 1099, then
maybe you hired him as a domestic employee, in which
case, did you send the social security withholding for
him? Its one or the other, there is no "none of the
above" when it comes to the IRS.

John,

1099's are required when a business deducts the monies paid as an operating
expense. That's why Steve sends 1099's out to his subs, as he should.

A private individual cannot deduct the money he paid a contractor as a
expense, and he already paid the tax when he earned the money in the first
place. In the eyes of the IRS, it is the person who received the money that
is responsible for reporting that income.

Domestic employees are a whole other issue, and if you ever get into the
extremely complex but vague IRS definitions of what constitutes an employee
vs. a contractor, you'd probably get a headache (as I have).

As a commercial electrical contractor, I actually allow my individually
licensed employees to use company equipment to do small jobs for neighbors,
family members and friends. Conversely, my employees donate a lot of time
assisting me in community projects and the like... so I think it works out.

Don't jump on the guy without knowing the whole story here. While I don't
approve of taking work from other tradesmen so my people can get rich on the
side, helping your neighbor, family or the community does have its benefits.

Jake