Recently, the IRS sent letters to about 20,000 small businesses implying that they had underreported cash receipts on their tax filings. The letters were sent as a result of a relatively new requirement that provides the IRS with more information about debit and credit card transactions via Form 1099-Ks (the form filed by banks, credit card companies and other payment settlement agencies on behalf of businesses). Once the IRS has received the 1099-K data, they compare it with what a business reports on their tax return. If there is a large disparity in the numbers, the IRS asks for an explanation.

Although the purpose of the recent IRS notifications is to request additional information regarding business income, the language used in the letters may cause a small business owner to feel alarmed or threatened. According to Rep. Sam Graves (R-MO) in a letter he submitted to the IRS Commission for the Small Business and Self-Employed Division, “[the notification] implies that this is a serious matter that could lead to assessments of additional tax, penalties and interest.”

Recipients of the IRS notifications received one of the following four letters:  IRS Letters 5035, 5036, 5039 and 5043. Of the four letters, only Letter 5035 does not require a direct response. However, Letters 5036, 5039 and 5043 all require a response within 30 days. In addition, Letter 5039 requires the completion of an IRS form which generally takes several hours to complete.

If you have already received IRS notification, please contact us at (402) 423.4343. As mentioned above, failure to respond to certain notices within 30 days could result in further correspondence, an IRS audit or an assessment.