Quote:
Originally Posted by sb1
Thanks Bob,
Agree and understood.
Just curious how they match up the 1099's.
In my other business, non-card related, I receive a handful of 1099's. All my CPA does is copy them and keep them with the return and none are ever line itemed, just lumped in with the rest of the business income, of which they are a small fraction. The return is electronic, so how does the IRS see or account for them?
Is this normally how they would be handled?
Scott
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Depending on the type(s) of 1099s one gets (1099-K, -MISC, -NEC, -INT, -B, -S, etc.) there are certain places on one's tax return where these normally end up being reported. All 1099s the IRS receives, either electronically or via paper copy, are eventually entered into their computer system, and totaled by the various 1099 categories. Everyone's tax returns, either electronically or paper filed, are also eventually entered into the IRS' computer system as well. And then at some point they will run a matching program to make sure that the various 1099 totals, being independently reported to them, are also being reported by you on your tax return. They don't actually match up individual 1099s, they look to see if you've at least reported the total amount(s) of what was shown on the 1099s you also should have received. If the amounts reported on your return match or exceed what was shown on your 1099s, you're generally good to go.
If you reported less income on your return (or maybe put it in the wrong place) than what was reported on your 1099s, the IRS' computer system kicks it out as an error, and normally generates an automatic letter to the taxpayer outlining the discrepancy, as well as how much they calculate that you now owe them, plus interest and penalty charges, if relevant. They assume in the case of a 1099-K discrepancy that the total unreported gross sales reporting difference is ALL taxable income, with no offsetting costs or expenses. In other words, the opposite of criminal courts. You're guilty of owing the taxes they say you owe, until you can prove your innocence and that you actually owe no, or less, tax than they say.
This matching and sending out of letters in case of discrepancies counts as a formal IRS audit by the way. You do not need to actually meet in person, or even talk to an IRS agent on the phone, to undergo an audit. And it could take a year or two before the IRS gets around to running the cross-match of 1099s and people's tax returns. The IRS actually has three years from the later of the due date of a return you file, or the actual date you filed it, to examine and commence an audit of your return under normal circumstances.
And this is exactly how this is normally handled by the IRS. They are slow, overworked, understaffed, and dealing with what is now considered a crappy and somewhat outdated computer system, that has already been successfully hacked at least once to my knowledge.
This should have covered all your questions Scott. Have a good one.