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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law


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Form 1099-K, IRS, Chicago Tax LawyerBusiness tax preparation is becoming increasingly complicated each year.

According to a recent initiative by the IRS, all businesses that take credit card payments must now complete Form 1099-K: Payment Card and Third Party Network Transactions. This requires businesses to list, month by month, how much receipts they brought in through third-party payment methods, such as  credit cards, debit card swipes, and PayPal invoices. If the IRS believes, after analysis, that the amounts you are reporting on Form 1099-K are too small relative to your industry or business size, they will contact you and ramp up the inquiries.

Analyzing a 1099-K

Of course, there doesn't seem to be a lot to analyze in a form that essentially asks you for a monthly total of your third-party payments and little else, but the IRS is, of course, a step ahead.  For example, they have created a massive database of Taxpayer Identification Numbers (TINs) and real names, which is used in the analyzing process. A business owner submits his company’s transaction records (which include records of the names on each card swiped/payment made) and those records are potentially 'matched' with the receipts turned in under each of those individual TINs.

The idea here is that, by comparing what you're reporting as your income vs. what each individual customer is reporting as their outflow, the IRS will be able to more accurately determine who is misreporting and who is not. Of course, it's not as black-and-white as that for a number of reasons - the most obvious being that transaction records don't keep track of how much of a debit card transaction was 'cash back' that didn't actually provide any income to the business.

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