Three New IRS Tax Reporting Rules Will Help to Identify Tax Cheats
Three new reporting requirements will significantly change the landscape as we know it for the identification and examination of federal tax reporting errors and omissions.
Payment Card and Third-Party Payment Transactions
This new tool in Code Sec. 6050W will affect businesses that accept credit or debit cards, or other electronic payments. Beginning in 2012, payment processors will have to make an annual information report to the merchant and IRS stating the gross amount paid to the merchant during a calendar year. The IRS will be in a position to see if the credit card dollar figure reported on the tax return matches the bank’s information return, and if the amount of revenue from credit cards makes sense in the context of firm’s overall business.
Basis reporting
Currently, a broker must file with IRS and taxpayers annual information returns generally showing only a customer’s gross proceeds from certain transactions. It is estimated that more than one in three who sold securities may have misreported capital gains and losses in many cases because they misreported their basis. Beginning in 2011, basis reporting will kick in under Code Sec. 6045(g).
Payments to Corporations
Congress recently passed a new information reporting provision requiring expanded information reporting on payments made from businesses to corporations, and on payments businesses make for goods. Beginning in 2012, this new information reporting requirement applies if businesses pay a single entity $600 or more per year in aggregate for these types of transactions. Beginning in 2013, businesses do not need to file information returns on these payments.
Summary
Big brother is watching! The new reporting requirements will help identify tax cheats and likely increase your chance of having your tax returns rejected, audited or changed where amounts reported by others differ from that reported on your tax returns. The IRS currently successfully uses a “matching” program to compare amounts reported by third parties to those amounts reported on your tax returns. The new rules simply expand the use of these matching techniques. The services of quality, certified public accounting firms are needed more than ever. Now, more than ever, it is critical that taxpayers scrutinize the accuracy of third party information reported and information reported for taxpayer transactions with others.
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