IRS To Enforce Form 1099 Compliance

In recent years, the Internal Revenue Service has increased their vigilance in inspecting annual 1099 reporting regulations. The IRS is using new methods to enforce compliance with their 1099 rules in an attempt to close the $450 billion tax gap created by small businesses that don't comply with these 1099 rules. If you're required to use 1099s as part of your business, you may want to be aware of them. Two important questions were added to tax returns in 2011 in an attempt to close the tax gap. They are: 1. Did your business make any payments that would require filing form(s) 1099, and... A2. If yes, did your business file or will it file form(s) 1099? When you fill out the form, you are required to check either the "yes" or "no" box under penalty of perjury. And if you don't properly follow the IRS regulations regarding 1099s, your answer here may get you into significant trouble. The role of the 1099 form is to notify the IRS of any income taxpayers receive. The IRS enters the 1099 data it receives into their computers, which then match the data against income reported on taxpayers' returns. Any shortage in income results in a letter and/or a bill for taxes due, plus penalties and interest. However, small businesses often don't report correct or complete 1099 information, which is why the two new questions were added to the tax return. If a business states they they made payments that would require a 1099 form but they fail to file one, they have intentionally disregarded the reporting rules. If a business reports that they were not required to file a Form 1099 and it is later shown that they were, that business has intentionally disregarded the reporting rules and lied on its tax return. If you are caught in this trap, you may be liable to pay the greater of $100 per return or 10 percent of the total amount that should have been reported. This could be a significant financial setback for your small business. Avoid these penalties by working with your accountant in advance to ensure that you comply with the most current 1099 regulations. Conferring with your accountant is invaluable, as they will have the best knowledge of your particular business and accounts, and they'll be able to provide the most relevant and helpful advice.