Taking Aim at the Tax Gap

For those of you paying close attention to the Tax Gap, which is a sum total of all the under-reporting of income and all the over-reporting of expenses, among other things, you know that Congress has enacted a whole slew of new regulations aimed at reducing the tax gap. (Incidently, the tax gap is estimated to be over $350 BILLION.)

Well, one of the new provisions, among the many that have been enacted, concerns businesses and the new reporting requirements of credit card processing companies (on the new Form 1099-K). According to the IRS press release, beginning with tax year 2011, credit card companies will now have to report the amount they process for merchants who accept credit cards from their customers. Theoretically, by reporting this, the IRS will have data they can match to gross receipts as reported by businesses.

Will this work? My opinion is that it will weed out some bad apples, but you can never be sure. An unscrupulous business entity could just report the minimum or slightly more and IRS cross-checking might not catch it.

More reporting requirements will be following, including capital gains and loss reporting from brokers. Stay tuned.

Owen S. Arnoff, Enrolled Agent
Admitted to Practice Before the Internal Revenue Service
http://www.betterbusinessventures.com
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