Underreported Incomes and Unfiled Returns Yield Billions in Unpaid Taxes

Gilbert’s Tax Attorneys Go in Detail About the Form 1099-K in IRS Findings

Two days before the new year started, The Treasury Inspector General for Tax Administration (TIGTA) issued a report concluding that billions in potential tax revenue from unfiled returns and underreported income was “unaddressed.” Specifically, the report looked at income from taxpayers that received the form 1099-K, typically issued to freelancers and contractors.

The report was the result of an audit to ensure that Internal Revenue Code Section 6050W was being enforced. The section was created to help narrow the so-called “tax gap” of taxes owed and taxes paid by using third-party information reporting to increase voluntary tax-paying compliance.

Form 1099-K is used to report Payment Card and Third Party Transactions income. Some examples include money paid through services like Paypal or Venmo. The audit looked at taxpayers who were issued a 1099-K but who did not report that income on their tax returns (or who did not file a tax return).

The audit found that for tax year 2017, the IRS failed to identify numerous taxpayers who were issued a 1099-K but did not pay the appropriate taxes on that income. The audit identified 314,586 business taxpayers with income of $335.5 billion from Form 1099-K and 62,087 individual taxpayers with income of $575 million from Form 1099-K who did not report this income. The audit found that the IRS either had not created cases for these taxpayers or had created cases but did not have the resources to work those cases.

The report estimated that if the IRS had identified and enforced cases from just a small portion of those underpaying taxpayers – businesses with $1 million or more and individuals with $100,000 or more – the agency could generate $5.723 billion in taxes.

The goal of Section 6050W is to not only help reduce the amount of taxes that are not paid, but also to promote fairness in taxation and to uphold the integrity of the tax system.

You can get more in-depth information about the report and its findings here: https://www.treasury.gov/tigta/auditreports/2021reports/202130002fr.pdf.

This report is just one of many ongoing efforts by the IRS and related agencies to increase tax enforcement and to identify any weaknesses in the system. Taxpayers need to be vigilant about meeting their tax obligations, as well as filing all the required forms on their returns. Even small mistakes can lead to big penalties.

Silver Law PLC represents clients who are facing charges by the IRS. We represent clients in audits, in both civil and criminal tax litigation, in foreign reporting cases, and more. Our tax attorneys have all worked for the IRS themselves, so they have unique insights that can help them defend our clients. Our team is committed to exploring all legal options for reducing your tax liability and penalties. Call Silver Law PLC today to schedule a consultation with a tax attorney and learn more about your options.

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