1099-K prediction for 2022

[Rapid Robert]

I predict that IRS will figure out a way to partially (or less likely, completely) waive the new 1099-K filing requirements for TY2022. By this I mean, just as they did repeatedly for three years after a law was passed requiring 1098-T Box 1 amounts to be filed by education institutions, they will waive penalties for failing to meet the filing requirement, perhaps based on a temporarily higher threshold (maybe $5K instead of $600).

My prediction is based on two things: one, it's going to become an even more contentious issue for the various political factions, especially in light of IRS' increased enforcement budget (roughly half of the $80,000M budget allocation from Inflation Reduction Act), and the IRS probably doesn't want to be innocent messenger in the middle, and two, they've shown how wimpy they are in the example I just mentioned, the 1098-T law that was essentially unenforced for 3 years by the IRS.

As a practical matter, I've received business payments for tax prep through Paypal that exceed the threshold this year, but as a long-time holder of a Paypal account, I don't think I've ever given them my SSN or EIN (but can't be sure). Similarly I have also received payments through Quickbooks payments, but those are all ACH debits, not credit card transactions, so I don't know if they are subject to reporting off the top of my head. But surely there are many others who have received reportable payments but don't have valid tax IDs on file with these payment processors.

Here is one article

https://www.cpapracticeadvisor.com/2022/06/21/new-reporting-requirements-for-1099-k/

"Not everyone is onboard with these changes. Organizations such as eBay are currently lobbying Congress to increase the threshold back to the original $20,000, though it’s unlikely to happen, since this change is part of the government’s way to pay for the American Rescue Plan Act. However, there is a bill in Congress right now that would raise the threshold from $600 to $5,000, but it’s unclear as to whether the bill, if passed, would impact the 2022 tax year."

And here is a discussion at a non-tax forum about how people in the tech industry are thinking about this:

https://news.ycombinator.com/item?id=32545466

"However, we have one massive problem: our merchants are not used to paying taxes and are deeply afraid of using our more monetized features because we are legally required to fill out a 1099-K on their behalf. It's one part "I don't want the government taking my money" to two parts "I don't know how taxes work" in most cases that we've looked into."

[TaxGuyBill]

I guess I don't see the big deal about it. The companies are already required to file 1099-Ks, so it isn't like they need to learn how to do things or do significant programming changes. If I remember correctly, the $600 threshold has been in effect in a few states for a few years, so it isn't anything new.

For the taxpayer and tax preparers, just because a 1099-K is received does not necessarily mean it needs to be reported on the tax return. The IRS also knows this, so I suspect that there won't be automated CP2000s for a 1099-K, but they may be used to see patterns that could trigger a notice or audit.

[kathyc2]

For the taxpayer and tax preparers, just because a 1099-K is received does not necessarily mean it needs to be reported on the tax return. The IRS also knows this, so I suspect that there won't be automated CP2000s for a 1099-K, but they may be used to see patterns that could trigger a notice or audit.

If clients receive one that is for non-taxable transaction(s) I would show it and then back it out similar as to how I handle 1099 for less than 15 day rental.

[rbynaker]

We've had them in VA for a couple years now. Some folks send them regardless of amount. I had a DC client a few years ago ignore an AirBnB 1099-K (<$1K) and got a nastigram from the IRS a couple years later. It was correctly unreported (<15 day rental of personal residence) but we still had to deal with the correspondence. At this point I recommend to clients that we report it and back it out. Since VA dropped the threshold to $600, I've seen a fair amount of "garage sale" 1099-Ks from ebay. Clients have agreed to report it and back it out as "Personal property sold at a loss (xxx)". We'll see if that helps or hurts, audit periods are still open. If clients don't want to report and back-out, I recommend that we include a statement to the effect of $xxx reported on 1099-K from ebay was for personal property sold at a loss". I'm confident that nobody at the IRS reads that stuff but then it might be easier to make AUR go away by replying "As stated on the original return . . ."

In my experience the IRS computers are not set up to ignore these things, they assume it's taxable income (and from what I've seen, they assume subject to SE tax). Arguably they would likely be ignored as long as the return has a Schedule C with at least as much gross receipts as 1099-(K/NEC) reported. Even if the 1099-K activity has nothing to do with the Sch C.

Overall it's certainly led to a longer tax "conversation" with clients.

But at least the IRS will have 87K new employees to chase all of these down, right?

Rick

[Beersheba]

"I don't want the government taking MY money...."


Folks, I'm not the biggest fan of the government, but I'm really sick and tired of citizens who try to invent ways to not report their income. For those of us who do pay our taxes and make sure we report income for our own clients, it doesn't sit well with me. Big fan of tax avoidance but not tax evasion.

[Rapid Robert]

"For the taxpayer and tax preparers, just because a 1099-K is received does not necessarily mean it needs to be reported on the tax return."

There are some professional tax preparers, and many DIY taxpayers I'm sure, who will robotically enter the 1099-K into their software default input, instead of where it might actually belong (Schedule C, E, Schedule D, or whatever). If there is no withholding, I am pretty sure that no Form 1099-K input info will be transmitted to IRS with an efiled return whether it is input into the software or not (as contrasted with W-2/1099-R forms, which are normally included in the efile data).

"I predict that IRS will figure out a way to partially (or less likely, completely) waive the new 1099-K filing requirements for TY2022"

Well now I think my prediction is wrong. Rettig could have done it as one final instance of thumbing his nose at Congress before he went out the door, but he didn't for whatever reason.

There are definitely more news items to come aimed at the general public about this in the next few months, it will be misconstrued by some as an attempt to go after low-income tax cheats instead of the ones who scam the big bucks.

[ttbtaxes]

Let's say that a client retired in 2022 and sold his suits and ties for $900 and gets a 1099-K showing the $900 total. Are your reporting the sale(s) on:

1) Schedule C - show sales of $900 and Cost of Sales $900
2) Schedule 1 - and showing a corresponding cost line of $900
3) Form 8949 and use Code "L" to adjusts to zero

[Beersheba]

I would use Form 8949 and adjust to zero. Stops any potential questions.