The Internal Revenue Service’s plans to implement new rules for reporting credit card transactions could create burdens for taxpayers and problems for the IRS, a Treasury Department audit says.
Under the 2008 Housing and Economic Recovery Act, banks and merchant services, such as PayPal, are required to report annual gross payments processed by credit or debit cards to the IRS and to merchants.
The payments are to be reported to the IRS using Form 1099-K. TIGTA found the forms may not facilitate a direct match between sales reported on 1099-K forms and amounts reported on tax returns.
Due to the increased volume of information, there is a risk of mismatches not being resolved before backup withholding becomes mandatory.
“We found that improvements must be made if this effort is to function as intended, which is to help reduce the tax gap,” said J. Russell George, Treasury Inspector General for Tax Administration.
The IRS agreed with TIGTA’s recommendations, including increased monitoring of the amounts reported for merchant card payments.
Click here to read the full report.