IRS is beginning to target small business owners

Small businesses are beginning to receive IRS notices. 

 

The IRS is looking at Form 1099 matching, including new merchant reporting of credit cards and cash reporting.

 

The IRS notices are titled 'Notification of Possible Income Reporting'.

 

If the IRS finds under-reported income, that could also mean more taxes, penalties and interest charges.

 

The IRS is comparing business receipts to "IRS averages" and a notice may be generated because a business gross receipts may be less than the "average" or credit card transactions may be the majority of gross receipts.

 

Sales tax is another issue, since it isn't income to the business that collects if form customers and sends it to the state.  Gift cards too result in a mismatch.  Any or all of these may account for the difference.

 

The IRS doesn't reveal its source and doesn't say what the standard is or where it came from.  It sounds like you are being asked to prove that you didn't under-report your income - which could require extensive correspondence and substantiation of records.  As a result of Form 1099 changes and the ever-increasing web reporting, the IRS receives detailed data about credit and debit card transactions.  The IRS tracks the data and may think that a high percentage of card transactions may mean a business is not reporting all cash transactions.

Return to Articles



CPA Company LLC, 4335 Lake Michigan DR NW, Grand Rapids, MI 49534  616.453.6000