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Originally Posted by sreader3
Why should one not worry about the situation you are describing where deducting basis from the revenue shown on the 1099 triggers an audit and forces one to pay an attorney and testify to prove one's innocence? That sound like a nightmare. Except for the attorney.
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Now that is a textbook case of catastrophizing. The IRS audits roughly 0.3% of returns (3 of every 1000). The IRS initiates criminal investigations against fewer than 2 percent of all American taxpayers. Of that number, only about 20 percent face criminal tax charges or fines. Yet 1099s go out by the hundreds of millions. Getting a 1099 and reporting your income and expenses based on it does not trigger an audit. Not reporting anything is more likely to trigger one. All the 1099 does is give the iRS computer a baseline to test the return against. if an anomaly comes up, the IRS asks questions. It may be as little as a letter informing you that there is a discrepancy that you need to address. I've gotten a few of those and have cleared them up pretty quickly with the help of my CPA or my firm payroll processor.