Has your business received a Notification of Possible Income Underreporting from the IRS? If so, your business is one of more than 20,000 that received a similar notification. The notice implies that the taxpayer underreported cash receipts. These letters do not mean that your business is going to be audited, according to IRS officials. The tax agency is merely asking taxpayers to review the accuracy of their tax returns and, in many cases, provide additional documentation.
So what triggers these notification letters? If your business processes electronic payments, which most do today, the entity that processes the transactions reports the information to the IRS via Form 1099-K. Majority of the time, card transactions reported in a 1099-K filing will not match a merchant’s income because the filing simply does not reflect factors such as sales tax, chargebacks, refunds, etc.
For more information about these notices and to determine a future strategy for you, read Weaver’s e-newsletter article, IRS Notifications and Rulings that Target Small Businesses.