Small Business Committee Chairman Presses IRS to Modify Tone of Underreporting Notices

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By Lydia Beyoud

An Internal Revenue Service program aimed at increasing income reporting compliance among small businesses is raising concerns on Capitol Hill.

The chairman of the House Small Business Committee is pushing IRS's Small Business/Self-Employed Division to explain why it is sending letters to taxpayers asking them to explain possible income underreporting, despite the fact that the program is intended to be used only for informational purposes.

Rep. Sam Graves (R-Mo.) sent a letter Aug. 9 to SB/SE Commissioner Faris Fink at the behest of tax preparers who contacted the committee about their clients' concerns. Graves asked IRS to respond by Sept. 3 with a plan to modify its notices and procedures to lessen taxpayers' fears of audit or additional compliance burdens.

Graves noted that the taxpayer notices begin with the phrase, “Your gross receipts may have been underreported.” This statement gives the impression that IRS is looking for more than just additional information, he said. “To the contrary, the letter implies that this is a serious matter than could lead to assessments of additional tax, penalties and interest,” Graves said.

The notice letters of possible income underreporting are being issued as a result of the Form 1099-K, Payment Card and Third Party Network Transactions, for a reporting program enacted in 2008 but that only went into effect in 2011.

Text of the letter from Rep. Graves is at

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