Tuesday, December 4, 2012

IRS - New Program Targets Underreporting by Form 1099-K Taxpayers

The IRS launched a New Compliance Program targeting the underreporting of income by Merchant taxpayers who receive Form 1099-K information returns from credit card companies and third-party transaction networks.     

If you receive a letter or notice from the IRS, it will explain the reasons for the correspondence (Audit) and provide instructions. The notice you receive covers a very specific issue about your account or tax return.
Generally, the IRS will send a notice if it believes you owe additional tax or if there is a question about your tax return.
If you received one or more of these letters and notices because you may have underreported your gross receipts. This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments and other Form 1099-K reportable transactions.
It is very important that you respond to the IRS!
Here are some tips to help you in addressing the inquiry.
  • Read the notice thoroughly and complete any worksheets.
  • Gather your tax records including the 1099-Ks that you have received and determine if you agree with the notice about the underreporting of gross receipts.
  • Consult your Tax Professional for Assistance.
  • Consult your Tax Professional for Assistance. 
  • Consult your Tax Professional for Assistance.
The IRS uses the information reported from third parties to ensure individuals and businesses meet their tax obligations. The IRS is integrating the new information supplied on the Form 1099-K into a variety of areas, including its compliance efforts, to ensure fairness and address non-compliance.
All 1099-K activities respect taxpayer rights and provide opportunities for taxpayers and Tax Practitioners to offer explanations or corrections, if they receive a notice or audit related to this effort.
The program involves letters and notices going out to taxpayers who may have underreported their gross receipts.
The IRS posted four different letters on its website

  1.   IRS Letter 5035: Notification of Possible Income Reporting

The letters then require different responses. One letter requests that the information be reviewed and IRS be notified if there are inaccuracies and/or a request to complete a Form 14420, Verification of Income.         

Another letter asks the taxpayers to make sure they are fully reporting receipts from all sources, including card, cash, checks, and other sources. This letter also warns that failing to fully account for all income may result in further enforcement action, which may carry additional penalties.

If you have received one of these IRS Letters, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at www.TaxAid.us or www.TaxLaw.ms or Toll Free at 888-8TaxAid (888 882-9243).


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