Small Businesses Underreporting Gross Receipts

Forms 1099K have been filed by credit card processors since 2011 to report all transactions on their system. (See: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/New-Notices-Related-to-Form-1099-K). The IRS has utilized these disclosures to focus on small businesses that have a high level of credit card sales. The IRS compares the businesses credit card gross receipts against the industry norm. If the IRS believes that the credit card receipts comprise too high a percentage, it sends out a notice. The theory being that the business might be underreporting cash receipts.

Since Fall 2012, the IRS has issued letters to 20,000 small businesses alerting them to the fact that they might be underreporting gross receipts. As this article in Money magazine indicates, a small business will have thirty days in which to reply to the IRS Notice.

Read: Money Magazine's The IRS is Cracking Down on Small Businesses