Business Accountant Steve Gift was shocked when he received a letter from the IRS claiming one of his clients was under-reporting the cash income from his Harrisburg, PA restaurant.
It turned out that Gift’s client was targeted because he’s a restaurant owner, and the agency feels that he must be making a considerable amount of unreported cash revenue–in addition to the credit card purchases outlined on the 1099-K form he submitted to them.
A 1099-K details Merchant and Third Party Network Payments that are made to a business (see IRS website).
In the case of Gift’s client, it was simply a case of conjecture: First, his client changed his federal tax ID number halfway through the year, making the income from his business look quite low in comparison to other years. Second, Gift feels that the agency is still living in pre-2007 times, where people weren’t using their credit and debit cards for the majority of their purchases, as they do in current times.
Check out this CNN article for more stories about wrongly-targeted small business owners: CNN Article
Thousands of small and medium business owners are being targeted year-round, as the IRS attempts to reclaim the nearly $450-billion tax dollars that they believe goes unreported in this country. That figure includes what the agency thinks ALL Americans are neglecting to claim.
Here’s the most shocking part of that equation:
The IRS is convinced that small business owners account for at least $140-billion of that total. That represents close to a third of unreported tax earning in this country!
Even more wildly disconcerting:
Of the 6-million small businesses that currently exist in this country, there are only about 20,000 who’re thought to be responsible for the $140-million small-business-related deficit to the US tax system! (see source)
What does all this mean?
“This is nothing new,” said Van Ballantyne, a small business accountant in Greenland, New Hampshire. “I think it’s another attempt to try to get us all to sit a little straighter in our chairs and be more honest in our reporting. It is fairly innocuous.”
Many insiders are speculating that this is a direct result of Obamacare, and that small business owners will just have to dig their heels into the dirt a little deeper; making sure they’ve dotted all their I’s and crossed all their T’s, and ensuring they have an honest and trustworthy small business accounting specialist monitoring their books.
Forbes.com has this to say about the the IRS’s stand:
“The IRS doesn’t even reveal its source of information. The agency is allegedly using industry averages to assess businesses’ transactions, but the IRS doesn’t say what these industry standards are or where they came from. It sounds like you are being asked to prove that you didn’t under-report your income. That’s proving a negative, and could require extensive correspondence and documentation, Forbes adds.”
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