Crisis Averted

If you operate a business or are a sole proprietor you may
have noticed a few new lines that appeared on your tax forms for 2011. In 2008
Congress passed a tax law that requires all businesses to separately disclose
the amount of their gross revenue that was collected via credit cards. This
amount was to be reconciled by the taxpayer to the new form 1099-K that reports
such transactions by month. Any differences were to be explained on the tax
return.

This was going to create an accounting nightmare. Just think
of all the problems a small restaurant might have trying to reconcile their
gross income to a 1099-k showing all credit card receipts that include sales
tax and tips that are not a part of the restaurant’s earnings at all. It would be
even worse for businesses that report revenue on an accrual method (when it is
earned) versus a cash method (when it is received). The potential list of disparities
was enough to send any bookkeeper into early retirement.

IRS realized there were obstacles to compliance, and allowed
that even though the 2011 forms had lines set up for this data, they announced
that for this year only taxpayers can disregard those input lines and report
gross income as before. They gave everyone a one year reprieve.

The good news: After hearing the complaints from industry
groups IRS has backed off and will not require the reconciliations in 2012 or
in the foreseeable future. However we will still be required to disclose credit
card receipts, and any differences between taxpayer’s amounts and form 1099-k
amounts could be a red flag for future audits.