Thursday March 23, 2023 – On this show, I have spoken openly about the new 1099-k information reporting rules for Third party settlement organizations – I think they stink. Recently, the IRS updated their “frequently asked questions about Form 1099-K. We all remember the empty promises made by supporters of this expansion. “This really doesn’t change anything, as these transactions are already taxable.” And “Only payments for goods and services will be effected.”
Now we know, and the IRS has acknowledged, that almost all transactions involving third-party settlement organizations will come under scrutiny and require “Accounting” to explain close to every transaction.
For example, The FAQ page provides guidance on how to report the sale of personal items on Form 1099-K, as well as how to report multiple Forms 1099-K and Forms 1099-K received in error. Taxpayers can report offsetting entries on Schedule 1 for each Form 1099-K they receive separately, or they can combine the Forms 1099-K they’ve received.
The FAQ also address the question “During the year, I sold my personal guitar for $800 on a social media platform’s marketplace and I received Form 1099-K. I purchased the guitar several years ago for $3,000. How do I prove how much I paid if requested by the IRS?” This is what I have been saying from the beginning, and why I thought the explanations given by the IRS, Congress, and their media mouthpieces were, shall we say, disingenuous.
In 2021 the IRS processed 4.7 Billion (with a B) information returns. In 2020 the IRS destroyed 30 million without processing them, because they did not have the resources. With this HUGE increase, look for more delays. Although the delays generally come from paper returns, and the IRS is doing all they can to BAN paper returns.
Attorney Steven A. Leahy looks over the new 1099-K FAQ sheet on Today’s Tax Talk.