They are maddening, but here's why you get them.
A client called early this morning to inform me that he had received a Corrected Form 1099 from TD Ameritrade over the weekend. This happens just about every year, and it bears a brief explanation.
All financial institutions are required to send their customers a report of all taxable transactions that occurred in the customers' accounts during the previous year. This report is of course the infamous Form 1099. In addition to sending the 1099 to the customer, the institution also sends a copy to the IRS. The IRS can then check its copy against your tax return to make sure you're reporting your taxable income properly.
In the case of brokerage firms such as TD Ameritrade, the 1099 is a consolidated report consisting of information given to the brokerage firm by the various securities held within the account. (A "security" in this case includes stocks, bonds, mutual funds and ETFs, among others.)
Now, consider the case of a mutual fund or ETF (exchange-traded fund). These funds consist of dozens (sometimes hundreds) of stocks, bonds, and/or other securities, each of which must report its own taxable transactions to the fund company. Then, the fund company must report all of the tax information resulting from transactions within the fund.
The result of all this activity is thousands of transactions that must be reported, calculated, and consolidated into a single report that must be submitted to the brokerage firm in time for the firm to create a 1099 for each applicable account and send to its customers no later than the last day of January.
If even one transaction -- even if it is a minor one -- somewhere upstream has been calculated or reported incorrectly, it sets off a chain reaction of corrected report after corrected report, finally culminating in a corrected 1099 arriving in your mailbox.
With all those transactions and deadlines, and zero tolerance for error, it's no wonder that corrected 1099s are a commonplace irritant for taxpayers. It is not uncommon for brokerage clients to receive multiple corrected 1099s in a single year.
What should you do if you receive one of these beauties after filing your tax return? A corrected 1099 changes your taxable income, but it may be by an insignificant or even negligible amount. (The client who called this morning saw only an $11 difference in the original and corrected versions.) Well... I'm not about to tell you to ignore it, but neither will I tell you to go to all the hassle and expense of filing an amended return for a difference of eleven bucks. Look at the difference, consult your accountant or tax professional, and make your own decision.