Slideshow The top reasons the IRS sends notices for incorrect payments

Published
  • August 24 2017, 3:20pm EDT
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A recent survey by the National Association of Enrolled Agents asked its members to name the most common reasons for the IRS to reach out to a taxpayer proposing changes to their tax returns. Topping the list? Independent contractors in the “gig economy” who failed to report payment received for their work.

The NAEA also asked the 2,300 members polled about the biggest mistakes taxpayers made in responding to an IRS notice. The top answer? Pretty much everything …

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1. Failing to report payment as an independent contractor

At 60.2 percent, this was the most common mistake the EAs surveyed cited. The tax system is more complicated for freelancers who comprise a growing segment of the American workforce,” the NAEA noted in releasing the survey. “These independent contractors are required to maintain accurate records on payments received from multiple clients and file accurate returns or face steep penalties.”

2. Improperly managing Forms 1099-B and/or Schedules K-1

At 59.7 percent, this was a close second for being the most common error. 1099-Bs summarize the proceeds of stock transactions or barter income, while Schedules K-1 report income from a partnership, corporation or trust. “Both documents are complex and typically among the last tax documents received by taxpayers,” the NAEA noted.

3. Filing early without all necessary financial documents

Over a third of respondents, or 38.5 percent, named filing before all the forms are in as a problem. The NAEA attributed much of this to taxpayers being eager to receive their refund, but pointed out that, while employers, banks and other institutions are required to send statements by January 31, delays often occur.

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4. Failing to report bonuses, commissions and/or manufacturer incentives

Over a quarter of respondents, or 28.7 percent, chose failing to report this kind of income as a common mistake. CP2000 notices are often sent out when the IRS wants to propose changes to a tax return when information in the return doesn’t match data that the IRS has received from employers, clients, banks and other third parties.

5. Math errors by do-it-yourselfers

The fifth-most common mistake cited was math errors – often a problem for do-it-yourself filers who assume the software will fix their calculations for them.

Wait – don’t answer that!

When it came to the biggest taxpayer mistakes in responding to a CP2000 notice, the NAEA’s members overwhelmingly chose “All of the above …”

“Resolving tax disputes with the IRS is not a job for the do-it-yourselfer,” said NAEA executive vice president Cedric Calhoun in a statement.