Will the IRS Catch a Missing 1099 Form?

The Internal Revenue Service (IRS) has sophisticated systems to catch missing 1099 forms. When a business or individual pays someone over $600, they are legally required to file a 1099 form. The IRS receives copies of these forms and matches the reported income against tax returns. If you fail to report income from a 1099, the IRS may flag this during their review process, leading to potential audits or penalties.

The IRS Compliance Program: CP-2000

For decades, the IRS has maintained a tax compliance program known as CP-2000. This program uses computers to match the totals on tax returns against the totals on various 1099 forms. Any discrepancies are investigated, resulting in notices and bills.

However, in practice, the accuracy of these matching programs is around 65%, with approximately 35% of missing documents left unreported. Should you underreport income, you might face penalties and interest, especially if the unreported income is a significant portion of your total income.

What Happens if You Miss a 1099 Form?

If your figures do not match the IRS’s figures, you will eventually hear from them. Failing to address the discrepancy now could lead to years of accumulated penalties and interest, making the overall amount you owe exponentially higher.

The IRS obtains 1099-R forms for all W-2s and 1099 series, using the recipient's Social Security number. If you missed a form and the income was over $100, you will likely receive a dunning letter for unpaid taxes, penalties, and interest.

Best Practices and Tips

Better to file the 1099 form now rather than waiting. If you encounter a noticeable discrepancy, resolving it promptly can save you from substantial penalties and interest in the future. It’s always advisable to file all required forms accurately to avoid any issues with the IRS.

Remember, timely and accurate reporting not only ensures compliance with IRS regulations but also potentially saves you money in the long run. Don’t let a small oversight become a significant tax problem down the road.