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The Internal Revenue Service (IRS) has stepped up oversight of certain financial transactions to detect possible unreported income. One situation that can trigger a more detailed review occurs when certain accounts exceed certain thresholds for income and transactions reported by payment platforms.
In these cases, the agency receives information through Form 1099-K, a document that allows it to cross-check the data reported by banks and electronic platforms with the tax returns filed by taxpayers.
IRS can investigate all bank accounts that exceed this sum of money
According to the rules applicable for certain tax years, payment platforms must issue a Form 1099-K when a user simultaneously meets these two conditions:
- Receives more than USD 20,000 in gross income during a calendar year.
- Make more than 200 transactions in that same period.
When both requirements are met, the platform is required to report those transactions to the IRS. It is important to clarify that this threshold corresponds to the obligation to issue Form 1099-K and does not mean that the IRS automatically investigates all accounts that exceed it.
Are investigations automatic?
The fact that a platform sends a Form 1099-K does not by itself mean the start of an investigation. What happens is that the IRS incorporates that information into its systems and compares it with the tax return filed by the taxpayer. If the reported income matches, there is usually no problem.
On the other hand, if significant differences appear between the reported amounts and the filed return, the agency may request clarification or carry out a more detailed review.