In 2011, the IRS is receiving additional information about your Business that they did not receive before. First, all third party payers are required to report to the IRS how much money they paid to your business. A third party is for example a debit or credit firm such as PayPal. This allows the IRS to know the monies that flowed in to your bank account from those firms. Reasonableness would dictate that your Income needs to be at least that amount. The third party is reporting the total payments made to your business in a Form 1099-K.
Secondly, in 2011, the business must answer two questions that were not asked before. “Did you make any payments in 2011 that would require you to file a Form 1099?” So the IRS wants to know who YOU paid and how much. For the most part your business should have completed and sent out a Form 1099 MISC to anyone who is not incorporated and you paid out more than $600 in 2011. Note there are exceptions and additional requirements to this rule. The second question the IRS is asking is: “If yes, did you or will you file the required Form 1099?” Well, what do you think happens if you respond “NO”?
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