1099 tax problems

GAO report says noncompliance with 1099-Misc reporting requirements contributes to the tax gap [GAO-09-238]:

Mike Habib, EA Tax Relief & Tax Problem Resolution

A “significant problem” may exist regarding the extent to which third party payers fail to submit required Form 1099-MISC information returns, the Government Accountability Office (GAO) said in a report released on Feb. 27.

According to GAO, for tax year 2005, 8% of some 50 million businesses with assets under $10 million submitted the form, but IRS cannot say how many of the remaining 92% of businesses were required to report payments and failed to do so. “If even a small share of the businesses that did not submit a 1099-MISC should have, millions of 1099-MISCs could be missing with significant amounts of unpaid taxes by payees.” GAO said.

The report noted that various impediments may stand in the way of Form 1099-MISC compliance, “including complex reporting requirements and an inconvenient submission process.” IRS compares what payees report on their tax returns with what payers report on Form 1099-MISCs, but the agency does not pursue all mismatches its computers discover, GAO said.

IRS does not systematically collect information on the causes of mismatches or whether they could be prevented,” GAO added.

The report is available at http://www.gao.gov/new.items/d09238.pdf

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