The 1099-K rules that require reporting of credit card sales to the IRS were enacted in 2008 and took effect in 2011. The rules have now been around long enough to appear in court cases.
Lawmakers stated that the reason for the new 1099-K was to improve “voluntary” compliance by business taxpayers and to help the IRS determine if business tax returns are correct and complete.
There’s little question that the 1099-K has improved and will continue to improve voluntary compliance, because with the 1099-K weapon, the IRS now knows how much money businesses have collected with credit cards.
This puts a big dent in the tax-cheating underground economy where businesses used to reduce their income taxes by simply underreporting their sales receipts. We applaud the 1099-K and its ability to stop tax cheats.
The Kahmann case shows how the IRS used the 1099-K as a new audit weapon in coordination with its tried-and-true bank deposits methods to increase the Kahmanns’ Schedule C taxable income from $10,933 to $70,936. ... Log in to view full article.