IRS updates its 1099 K matching program

Accounting Today reports the IRS is taking a soft touch to matching busienss income:


The Internal Revenue Service has always been able to match individual tax returns against information statements and propose under-reporter adjustments that come in the form of CP2000 notices.


In September, the IRS started its first information return-matching program for business return Forms 1120, 1120S and 1065. This program matched business return incomes to the total amounts reported on all information returns.
This year, business taxpayers also started receiving Form 1099-K, Merchant Card and Third-party Network Payments, reporting amounts received from payment settlement entities (from debit/credit cards and third-party network payers such as PayPal). To avoid taxpayer burden, the IRS stated in a letter to the National Federation of Independent Business on February 9 that it will not require taxpayers to separately report amounts from Forms 1099-K on returns, and has no plans to do so in the future.
On November 16, the IRS announced that it will start questioning businesses with smaller-than-expected income, based on its analysis of Forms 1099-K reported to the business. Interestingly, the IRS cannot propose specific adjustments to the return because it can’t match Forms 1099-K directly to line items on 2011 business returns. However, the IRS is contacting taxpayers when it thinks that there is a discrepancy. The IRS determines this probability based on the taxpayer’s line of business and a perceived disproportionate share of credit/debit card and third-party network payments reported on Forms 1099-K, compared with gross receipts from other sources reported on the tax return. 
In November, as reported by the National Association of Tax Professionals, the IRS indicated that it is starting three compliance initiatives:

• A soft-touch inquiry that asks taxpayers to review their returns more closely;
• A correspondence audit; and
• An under-reporter notice and assessment, similar to the CP2000 automated under-reporter program used for individual income discrepancy adjustments.

The NATP reported that the IRS will send out about 20,000 letters to small businesses.




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“Black Friday” Tax Planning Puts Taxes on Sale!

The holidays are here, and millions of Americans kicked off the season with “Black Friday” shopping. Braving the crowds and the cold, facing scorn from family they’ve left behind, they line up at obscenely early hours (or duck out of Thanksgiving dinner before the pumpkin pie is even served) to save $20 on a DVD player or $40 on a flat-screen television. 

It’s sad, but true, that most Americans spend more time planning their “Black Friday” shopping than they spend planning their taxes. But that can be an expensive mistake! 

What if the IRS had a sale? What if the IRS let you discount your taxes by thousands of dollars, this year and every year to come? And what if they let you do it from the comfort of your home or your office, without lining up in the pre-dawn hours of a chilly November morning? Would you give thanks for a sale like that?
You’re probably not holding your breath for the scrooges at the IRS to hold a “sale.” The good news is, you don’t have to wait for that to happen. You just need a plan. Tax planning is the key to paying the legal minimum, especially with the “fiscal cliff” looming on the horizon. And a good tax plan can pay for a holiday season full of gifts and fun.

Call me today at (217) 241-4597 for your free Tax Analysis. We’ll find the mistakes and missed opportunities that may be costing you thousands today, and show you how “Black Friday” tax planning can save thousands more tomorrow. We guarantee you’ll give thanks for the savings, or we’ll donate $50 to your favorite soup kitchen. So call now to schedule your Analysis.

Hurricane Sandy Charitable Relief Donations Reminder

While many of us have been consumed by news of the 2012 election, we're all sobered by the devastation of Hurricane Sandy. If you plan to help out, keep in mind some of these tips for making the most of your storm relief donations.

• You can deduct up to 50% of your adjusted gross income for cash gifts to "501(c)(3) organizations" or public charities working on behalf of storm victims.

• If you give more than $250, you'll need a written receipt dated no later than the filing date of your return.

• Gifts of clothing, furniture, electronics, and household items are deductible at fair-market value, such as the price they would bring at a resale shop. Consider buying software, available at any office-supply store, for tracking your gifts and their value. You might be surprised how much you save!

• Congress and the IRS have cracked down on inflated car and truck deductions. If you give away a vehicle, you can deduct its fair market value only if the charity uses it for "exempt" purposes (such as a church using a van to drive parishioners). If the charity sells the vehicle, your deduction is limited to the charity's actual proceeds. If you claim more than $500, you'll generally have to attach a certification to your return that states the vehicle was sold in an arm's-length sale and includes the gross proceeds from the sale.
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The IRS cautions all of us to seek out qualified charities, and warns of unscrupulous operators looking to take advantage of our generosity during a time of crisis. The IRS has also issued Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, for those who want to contribute or form a new charity. For more information contact our office at 217-241-4597.