The IRS is attempting to develop a real time system for tax reporting – the goal of the IRS is to put itself on the front-end of the returns preparation and submission chain, not the back end. Commissioner Doug Shulman refers to his vision as an “up-front tax system.”
The foundation for this was laid with the creation of electronic filing. The IRS is now pursuing the development of real time access to all public and private data bases in the country, via the web, embedding core third-party information into their pre-screening filters. The intent is to match a return as it comes to these data bases. The IRS will reject the return upfront if the data on the return does not match.
Like Orwell’s 1984, this tax directive creates a ubiquitous IRS that attempts to be able to know everything you do, when and how you do it. The IRS has been pushing for years for more laws requiring more information return filing with the Agency. These laws are a manifestation of the IRS’s goal to know everything about you.
As of 2012, three new information return requirements will become effective. The first and most important applies to credit and debit card sales for businesses. Credit card processing companies are now required to file reports with the IRS showing the gross amount of payments made to businesses through their credit and debit card sales.
Only five years ago, the majority of business bank deposits were cash and checks; today over 85% of business bank deposits are electronic through credit and debit card sales. If your business processes credit and debit cards, and the gross receipts on your tax returns do not match what is processed through the credit card processors, you are sitting on a time bomb of an audit problem with the IRS and need to contact us.
Second, most brokerage houses will be required to report basis information on most securities purchased in 2011, and all of them in 2012.
Third, offshore banks that have entered into reporting agreements with the U.S. Treasury must file Form 1099s to report interest, dividend and capital gain income on U.S. citizens to the same extent that U.S. Banks must file such reports.
For years, the IRS was pushing Congress for broader requirements for filing 1099 forms on business transactions. One such requirement would have imposed on business the duty to file information returns on their transactions with other businesses, even corporations, if $600 or more was paid to a corporation in a given year..
This was finally passed as part of Obama’s healthcare reform legislation. When the Bill finally passed, critics reviewed the massive act and were outraged to find buried among the thousands of pages of edicts and directives this new mandate. There was outrage everywhere, even with the very Congress that passed the bill.