New Notices Related to Form 1099-K
The IRS uses third-party information reporting on forms in the 1099 series to increase voluntary compliance and improve collections. Beginning in 2011, legislation requires reporting of income in two areas: payment card (credit, debit and certain electronic transactions) and securities basis reporting.
If you receive a letter or notice from the IRS, it will explain the reasons for the correspondence 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 are due a larger refund, or if there is a question about your tax return.
What do I do with the Form 1099-K?
Form 1099-K is an information return that reports payment card and third party network transactions. You should retain it for your records and use it to assist you in completing your tax return. Refer to Publication 583, Starting a Business and Keeping Records, for more detailed information and assistance regarding proper record keeping.
Remember, the information reported on the 1099-K should already be reflected in your income tax return as part of your total gross receipts, which are a combination of both payment card receipts and other forms of payment like cash and checks.
What do I do if I receive a notice related to Form 1099-K?
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.
- If you have questions, use the contact information provided on the notice.
- If appropriate, consult your tax professional for assistance.
How is the IRS going to use this information?
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.
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