Do you use Venmo, Pay Pal, Cash App or other platforms? You will want to read this…

Do you use Venmo, Pay Pal, Cash App or other platforms?
You will want to read this…

A new law that requires cash apps and online marketplaces, including Venmo and eBay, to send tax documents to millions of Americans is ensnaring a surprising demographic: the wealthy.

Under the rule, e-commerce and digital payment platforms that transfer money from a buyer of goods or services to a seller must issue the recipient a Form 1099-K if they receive $600 or more in a calendar year. The Internal Revenue Service will also get a copy of the form, which details who got paid and through which third-party service. Lawmakers severely shrank the previous reportable threshold — $20,000 earned through at least 200 transactions — last year as part of the $1.9 trillion stimulus bill known as the American Rescue Plan.

Common information returns include forms W-2, 1099 and 1098, among others.

With the supporting documents destroyed, the IRS will likely be missing many of the documents it requires to adequately screen for accuracy of returns, and may also end up lacking sufficient materials for tax audits. However, the IRS can request taxpayers provide relevant proof or copies of documents used to support their income tax returns, including copies of files the IRS may have destroyed..

“TIGTA previously reported that there were actions the IRS could take to reduce paper filings and/or convert paper tax returns into an electronic format. In addition, TIGTA reported that, while the electronic filing (e-filing) of business tax returns continued to increase, the e-filing rate still lags behind that of individual tax returns. Finally, repeated efforts to modernize paper tax return processing have been unsuccessful.

In other findings, TIGTA reported that has taken several steps to increase e-filing, but that the pandemic amplified the backlog of paper tax returns and records. This, TIGTA noted, suggests that the IRS needs to create an agency-wide “strategy to further increase e-filing.”

TIGTA made three overall recommendations as a result of its audit:

1. Develop a Service-wide strategy to prioritize and incorporate all forms for e-filing;
2. Develop processes and procedures to identify and address potentially non-compliant corporate filers;
3. Develop processes and procedures to ensure that penalties are consistently assessed against business filers that are non-compliant with e-filing requirements.

The report from the Treasury Inspector General for Tax Administration is at:

https://www.treasury.gov/tigta/auditreports/2022reports/202240036fr.pdf