Even if your business doesn’t have “Tea Party” in its name, you may be receiving a notice of inquiry from the IRS. The controversial notices, titled ‘Notification of Possible Income Reporting’, have already been sent to at least 20,000 small businesses across America. The IRS is gathering data from several third parties, including credit card companies, to check that all income is being reported. Form 1099 has been modified in a manner that provides the IRS with more details about credit and debit card transactions. A high percentage of card transactions may trigger suspicion that not all cash receipts are being reported.
The IRS Notificatin may also state that the business’ receipts are deficient from an IRS average (without revealing its source), and requests documentation to prove why the numbers don’t fall within IRS’s standard. The recipient has just 30 days to respond. This campaign further complicates compliance and strains small business’ costs, not exactly a winning situation, especially in today’s economy.