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Friday, October 7, 2011

New Tax Return Details for 2011 Returns - Closing the Tax Gap

Who wouldn't want to see the $345 billion annual federal tax gap reduced? That's a lot of money! One way to make that happen is to be sure more taxable transactions are reported to the taxpayers and the IRS. In the past several years, we have seen a few of these items added, such as the requirement for brokers to report basis on Form 1099-B for stock sales. We also saw Section 6050W enacted to require processors of credit and debit cards have to report the amount processed for merchants to both the merchants and the IRS (Form 1099-K which is new).

Well, these forms are really only useful to the IRS if they can match them against information on taxpayer's returns. So, for 2011, we'll see a few changes in tax forms. For example, gross receipts lines for businesses will have 2 lines - one for amounts shown on 1099-K (credit and debit cards and Paypal) and amounts not on 1099-K (cash and transactions that did not require a 1099-K or someone failed to provide a 1099-K to the merchant).

New forms and lines are also needed for the basis reporting.

I have a short article on the AICPA website (for the Individual Taxation Technical Resource Panel) that explains the new forms and suggests extra activities taxpayers will likely want to undertake to be sure they are properly reporting these new 1099s and reducing the chance of notices from the IRS. Click here.

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