Similar CP2000
Business information matching, including Form 1099-K matching, is a pilot program for the IRS. The IRS has released the letters on its Web site, but it hasn’t provided any details on how it will propose additional assessments.
However, the IRS is attaching Publication 3498-A, The Examination Process (Examinations by Mail), to most of the letters. This indicates that the IRS intends to assess additional tax using deficiency procedures -- similar to how the IRS assesses tax in CP2000 individual under-reporter inquires and audits.
Jim Buttonow, CPA, CITP, is vice president of product development for Beyond415, a Web-based technology for IRS practice and procedure made for tax professionals. He is also a former IRS large case team audit coordinator who worked at the IRS for 19 years. Reach him at JButtonow@Beyond415.com or follow him on Twitter @Jim_Beyond415.
5 Comments
I have already run into this problem with a client. The 1099-K received by the client grossly over-reported the client's credit/debit card receipts. If the IRS sends a letter regarding the discrepancy, the client will have to prove error on the part of the merchant service sending the notice. This is such a total waste of time and resources. I have had to prepare and update a special spreadsheet just to track the card receipts for proof of actual income. I wonder how many other businesses received incorrect 1099-Ks and will have this problem with the IRS because of it?
Posted by: hendricksaccounting | December 7, 2012 10:56 AM
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Although the 1099K is an annual statement is is broken out by month on the form - easy to prepare a FYE reconciliation
Posted by: lsawdey | December 4, 2012 12:50 PM
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How is IRS doing any kind of reconciliation, since businesses were not required to split out their credit card receipts for 2011, and I have read that IRS will not be requiring this in the future either. If this is the case, the only reconciliation possible is if a business reports lower gross income than the total amount received by credit card, and reported to the government via the 1099-K. Any business that is stupid enough to do this deserves to get a nasty letter from the IRS.
Of course the comment on the fiscal year vs. calendar year comparison is also correct, and makes for a mess for reporting.
I also have one client who owns 2 business, only one of which has a credit card machine. He runs payments for both businesses through the single machine, and merely keeps records allocating the receipts to the two businesses. Since there is still at this time no splitting out of this information from the gross receipts by the businesses, this practice is actually moot until such time as the combined credit card receipts for both businesses exceeds the total gross receipts of the business to which the credit card machine is registered. Interesting how that will play out into the future, though.
Posted by: olivertax | December 3, 2012 11:58 AM
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Ok, so IRS will be sending these notices. In order to report correct gross income, the 1099-K has to be adjusted on the tax returns. What is the best way to report the correct income, and to keep IRS off our back?
Posted by: JSREISMAN | November 30, 2012 9:04 PM
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I think the IRS will be overwhelmed by letters from fiscal year corporations since 1099-K is a calendar-year report. It seems there will be a lot of wasted effort for this reconciliation and field audits will have to increase to prove the reconciliations
Posted by: Janosik | November 30, 2012 12:38 PM
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