Mar 16

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IRS ends unpopular 1099 reconciliation

The IRS recently eliminated an unpopular rule relating to how credit card and debit card payments are accounted for on tax returns. The new process was otherwise going to go into effect in 2012, and would require companies to explain the differences between 1099-K forms and their internal records.

The Housing and Economic Recovery Act of 2008 added Internal Revenue Code Section 6050W. This code section requires information returns (specifically, Form 1099-K) regarding annual gross receipts for credit card transactions. Recently, the IRS added a requirement for business taxpayers to reconcile their gross taxable revenues with the aggregate gross receipt amounts on Form 1099-K. The now-cancelled reconciliation was complicated by several appropriate transactions that are not part of gross taxable revenues, such as cash refunds, sales tax, and tips. These collections, which are not merchant revenues, would consistently cause the two totals to not agree.

Payment processes must continue to submit 1099-K forms, and a difference between the numbers on the forms and the gross receipts on the merchant’s tax returns could trigger an audit.



About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/03/irs-ends-unpopular-1099-reconciliation/

1 comment

  1. San Diego Real Estate

    Good article! We are linking to this great article
    on our site. Keep up the great writing.

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