Attacks on Small Businesses That Receive Too Much in Credit Cards

 

The IRS has been pushing for many years to capture cash income of small businesses and force him to pay taxes. That is one of the reasons that the IRS is requiring credit card merchant service companies to report a 1099-K for businesses to the IRS. This form lists the amount of credit card payments made to the business by its customers. The IRS then takes this information, comparing it to the gross sales of the business. If the business has too high of a percentage of credit card sales, the IRS issues a letter 5043.

 

This letter starts out that “your gross receipts may be underreported.” This is the beginning of a long series of letters and correspondence which could eventually lead to an audit in an attempt to force businesses to report cash income. Most of the letters seem to be going out to clients that are restaurants, pizza parlors, bars and other small retail businesses.

 

 

Now, a new trend has started. The IRS is going after many types of businesses that typically does not have a lot of cash, such as law firms, accounting firms, other professional practices, and general service businesses such as IT support and construction. The real problem is the IRS is way behind the times!

 

Upscale restaurants typically have 90% or more of their sales by credit cards. Even small food businesses such as pizza restaurant’s and fast food restaurants have over half of their sales by credit card. Frequently, consumer oriented attorneys, accountants, and other service providers are having higher percentages of their gross receipts paid by credit card. Cash payments or declining, checks are decreasing and credit cards or increasing.

 

The end result of this notice is that the IRS is chasing after cash that does not exist and causing extensive heartache and expense for many small businesses.

 

 

If you receive a notice from the IRS demanding the explanation. you immediately should retain a tax attorney. Your tax attorney will prepare a response reviewing your income reported on the tax returns as well as your accounting and bank statements records. IRS letter 5043 is not something that should be ignored. If you do not respond you will be audited!

 

 

Original Source By: Ronald Cappuccio