In deed it is illegal for any company that is paying a contractor, like taxi drivers, not to send a MISC-1099. You must ask again, or report this activity to the IRS. What this amounts to is unreported income, imprisonment is the end result, so choose carefully what you do.

In many cities, taxi drivers act as independent contractors. They lease their cabs from the company for a fixed-rate per shift, and pay for all their own expenses such as gas and tolls. They keep all of the money that they collect, including tips. The money left over after they pay their taxi lease and other expenses are their earnings for the shift.

Under these circumstances, the driver files a Schedule C at the end of the year just like any other business would. There is no 1099 or W2 issued by the taxi company because they have never paid the driver anything.

Edited based on your Additional Details:

It sounds like your friend does indeed act as an independent contractor as I have described, however there seems to be a twist if he is receiving a check from the company. Perhaps he turns in his earnings at the end of each shift, and then they turn around and write him a check for the total amount less lease. I still don’t think the company would have to issue him a 1099 as they are not paying him, but simply acting as a conduit for the money from the customer. I could be wrong on this.

In any case, if he is an independent contractor, he still needs to file a Schedule C at the end of each year. He should also be filing quarterly estimated tax payments with the IRS so he has the money to pay when the time comes.

Your frustration comes from trying to categorize the taxi driver as either an employee or a subcontractor. He is neither.

A W2 is issued by an employer to an employee who provides a service to the employer. A 1099MISC is issued by a business to a person who is not an employee but who performs a service.

Neither of these situations applies to the taxi driver. The taxi company is doing nothing illegal. It is providing equipment and dispatch services for the lessor.

The taxi driver is self-employed but does not receive a 1099MISC. There is nothing wrong with this. He would only receive a 1099MISC if he were performing contracted services, which he is not.

The taxi company will have a record of receipts from each driver, and the IRS may choose to examine those receipts. The drivers need to report their fares and tips, and deduct expenses, on Schedule C.