Billions In Potential Taxes Related To Form 1099-K Data Identified by TIGTA

The Treasury Inspector General for Tax Administration (TIGTA) has released an audit initiated to determine whether IRS is identifying and addressing individual and business taxpayers with underreported income or unfiled returns related to Form 1099-K, Payment Card and Third Party Transactions Income. (Audit Report No. 2021-30-002). 

Auditors identified 314,586 business taxpayers with $335.5 billion in Form 1099-K income "that appeared to have a filing obligation, but were not identified as nonfilers by the IRS," it said. "The problem is that the IRS cannot use third-party information returns, such as Form 1099-K data, to identify business nonfilers and create cases if the taxpayers' accounts are coded as not having an open filing requirement, or no tax account exists because the business has never filed a tax return," the audit said.

According to TIGTA, IRS also does not identify all individual nonfilers with significant Form 1099-K income. Auditors identified some 62,000 individual nonfilers with $575 million in Form 1099-K income who IRS failed to identify as nonfilers. No nonfiler cases were created for these individuals. "While the IRS cannot work all of the nonfiler cases it identifies due to resource limitations, TIGTA identified a significant number (325,060 business nonfilers and 103,991 individual nonfilers with $203 billion and $3 billion in Form 1099-K income, respectively) that were not selected to be worked," the audit said. 

In addition, auditors identified some 45,000 business under reporter cases not selected to be worked by the Field Case Selection unit, with $73 billion in "potentially underreported" Form 1099-K income.

Finally, "TIGTA estimates that if the IRS identified, created, and worked just the nonfiler and under reporter cases with Form 1099-K income of $1 million or more for businesses (Form 1120) and $100,000 or more for individuals, the IRS could potentially assess an additional $5.723 billion in taxes.

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