Every year the IRS issues millions of tax bills to taxpayers for items of income not reported on tax returns. For example, if a taxpayer received a pension distribution during the year, but did not report the distribution as income, the IRS sends a bill for the taxes on the unreported income.
Few items of income escape IRS scrutiny anymore. Back in the 1990’s, the IRS did little in the way of matching income from tax returns to the electronic data they received from employers, brokerages, and other sources. The IRS pretty much took returns as they were filed.
Beginning around 2006, the IRS began an aggressive electronic program to match taxpayer reported income to the IRS electronic records. Every year the IRS electronically matches more types of income.
In 2019, most types of income are now traced from the IRS electronic records to tax returns. The IRS matches 1099’s of all types, W-2 forms, and K-1 forms in some instances. If you fail to report income from one of these forms, the IRS sends you a tax bill. You don’t get an inquiry about why you didn’t report income. You get a tax bill.
Of course, not all of the tax bills are correct. Many mistakes are made on the various forms filed with the IRS. For example, one client received a 1099-MISC form that was overstated by $500K. We were two weeks from Tax Court before we got the IRS to accept a correction. These are the sorts of problems you may face if you get on the IRS mailing list.
Here’s how to stay off the IRS mailing list.
Tax forms begin arriving in January for the prior year. Put anything marked “important tax information” into a folder. Scanning is even better. Yes, I know that a lot of these items are craftily worded junk. Bring them to us, and we’ll sort them out.
Get on our organizer list. We’ll provide a tax organizer, which shows all of the income you had in the prior year. You don’t have to complete it. Use it as a guide to make certain you aren’t missing any forms that you had in the prior year.
I scan all of my tax documents the same day they come in the mail. I don’t want forms to get moved or misplaced while sitting on the kitchen counter.
The stakes are high. Getting a letter from the IRS means a few frustrating months trying to resolve the issue. The IRS is in crisis right now. Because of staffing shortages, even simple requests take months to complete.
To stay off the IRS mailing list, be extra diligent in collecting all of your tax documents. You’ll save hours of frustration and heart ache.
Thanks for reading!
Frank Stitely, CPA, CVA