IRS Ends Tax Rule Unpopular with Small Businesses

By AccountingWEB Staff
 
The IRS has eliminated an unpopular rule relating to how credit card and debit card payments are accounted for on tax returns, prompting relief from small business owners.
 
The new process, which was set to go into effect next year, would have mandated that companies explain the differences between numbers on 1099-K forms and their internal records. This rule was termed an "onerous and unnecessary extra step" by the National Federation of Independent Business (NFIB).
 
The NFIB explained the situation this way: "Section 6050W of the Internal Revenue Code, added by Section 3091 of the Housing and Economic Recovery Act of 2008, requires information returns (Form 1099-K) to be made regarding annual gross receipts reimbursements to settle merchant card transactions. Recently, the IRS added a Line 1a-e on business tax returns requiring business taxpayers to reconcile their actual gross receipts with the aggregate gross receipts amounts from Form 1099-K."
 
The IRS announced it would not go forward with Line1a-e on business tax returns. The NFIB had protested the rule, saying that a company's internal record of gross receipts would "rarely match" the amount payments processors report on 1099-K forms. That figure on the forms could include cash refunds, sales tax, tips, and other fees that merchants would not consider part of gross receipts, CFO magazine reported.
 
The IRS said in its letter to the NFIB, "There will be no reconciliation required on the 2012 form, nor do we intend to require reconciliation in future years." The reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms.
 
"The many complications in our country's tax code often put the small business owner at a disadvantage with government compliance," NFIB CEO Dan Danner said in a statement. "For this reason, NFIB fought so hard to have this provision eliminated and we count this as a small, but important, step in the direction of simplifying the tax code overall." Small businesses spend more than $74 per hour on meeting their tax compliance obligations, the NFIB says.
 
Lewis Taub, tax director at McGladrey & Pullen LLP, told CFO magazine that business groups might want to change their record keeping. Payment processes must continue to submit 1099-K forms, and a difference between the numbers on the forms and the gross receipts on the merchant's tax returns could trigger an audit.
 
Related articles:

You may like these other stories...

PwC must face $1 billion lawsuit over MF Global adviceA federal judge on Wednesday ordered PricewaterhouseCoopers (PwC) to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the...
Anti Burger Kings: Seven US companies shrinking tax the old-fashioned wayBurger King’s decision to combine with Canadian donut shop Tim Hortons is renewing controversy over the lengths some US companies will go to...
Read more from Larry Perry here and in the Today's World of Audits archive.Since the AICPA's Financial Reporting Framework for Small- to Medium-sized Entities (FRF for SMEs) and some other financial reporting...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.