Tax Dictionary – 1099-K Inquiry
You received one or more of these letters because you may have underreported your gross receipts. This is based on a comparison of your tax return and the Forms 1099-K furnished to you that shows an unusually high portion of receipts from 1099-K reportable transactions. It is very important that you respond to the IRS.
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The IRS compares the cash and credit card income your business reports on its tax return with the income reported by similar businesses. If your business has a higher percentage of credit card sales than is normal for your type of business, you may receive a Form 1099-K inquiry letter such as Letter 5035, 5039 or 5040. Most of these notices require a response.
One of the reasons the IRS issues these notices is to ensure that businesses are accurately reporting their cash transactions.
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