FinanceRegs.com » Will IRS’ honor program work?

Will IRS’ honor program work?

September 22, 2008 by Carol Katarsky
Posted in: 1099s, Communication, In this week's e-newsletter, IRS regs, Latest news & views, Tax compliance

Forgive us if we’re skeptical of the feds’ latest ploy to get more independent contractors to actually report and pay all of their taxes. IRS has announced that it’s putting 31,000 independent contractors (ICs) who are suspected of underreporting income on an honor program. Here’s how it works: If IRS spots any discrepancies between the workers’ 1099s and their ’08 returns, the Service will simply alert them to the problem and ask them to amend and correct the return. IRS will then flag those folks’ ’09 returns to make sure the underreporting has stopped.

The hope is that people will then ‘fess up what they actually owe, and IRS can save itself the time and money of repeatedly contacting those who underreport, as well as avoid collections efforts for small-dollar amounts.

If it works, it could save A/P a lot of grief: ICs who underreport cost IRS billions each year in lost taxes. And if the “honor program” doesn’t put a big dent in that, you can expect IRS to look for different methods to collect that “lost” money. 

So far, the most “popular” plans to make up the so-called tax gap all involve more work on A/P’s end: More reporting, gathering more info on vendors, etc.

Sound off in the comments: Will this honor program save you from having to do more work? Or will IRS have to bring down the hammer — and shove its tax enforcement work onto you?

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2 Responses to “Will IRS’ honor program work?”

  1. Joe Wenzel Says:

    I see a BIG problem here, because if a business cuts a check to an IC on 12/30 or 12/31, the IC, who is most likely a Cash Basis taxpayer, may not receive payment in the same year, thus the 1099′s will not match the IC’s tax return. While the program may scare some IC’s into reporting income that matches the 1099′s, I do not think this is going to work.

  2. Carol Katarsky Says:

    Joe, presumably there will be some sort of procedure for an IC to show that a check from company X was cut on 12/30 but not delivered until 1/3 of the next year and therefore not reportable. But you’re right — having to go through that extra hoop makes the “savings” of this program a moot point.

    It will be interesting to see how IRS handles it going forward.


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