Venmo 1099s - A New Audit Trigger? - YES!

 1099-k Reporting Requirements for Venmo Transactions and Other Mobile Apps

You may have heard or read about the IRS' recent proclamation about reporting receipts from Venmo transactions and other mobile payment apps. 

The IRS recently announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of more then $600. For the calendar year 2022, third party settlement organization who issue Forms 1099-k are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions. 

So, while the reporting requirement may have been delayed, those of us who use Venmo as a payment mechanism need to continue to monitor this situation and implement compliant procedures for calendar year 2023. 

The IRS using matching programs to match-up amounts contained in tax returns with actual amounts reported by third parties. A matching error notice is usually not that a big a deal, its a matter of reporting back to the IRS that the amounts were included in a larger total amount or otherwise included in the taxpayer's return. However, this marks a large expansion into a new technology payment system that will impact many taxpayers who are a part of the gig economy and have a little or no experience in reporting this type of income. Irregularities in matching programs are often a first start to an audit. 

For some large users of the mobile app payment system this can represent a very large part of their overall income numbers. This is significant tool in the IRS toolbox to enforce compliance at all levels, small or large. 

What should taxpayers focus on during this transition period? I recommend the following:

1. Consider opening a mobile app for just your business.

2. Treat the business mobile app just as you would your business checking account versus your personal account. If you do not maintain separate checking accounts then you are further behind the curve.  

3. Further document your income and expenses paid through mobile apps. A record of the payment via a mobile app is not enough to substantiate that income or deduction on your return. This is a great opportunity to avoid future headaches and look at your documentation procedures. 

My experience is that having documentation at the ready is a great way to shut down an IRS inquiry. The IRS tends to move on if your response is accurate and timely. Let them focus on someone else who is not as prepared. Some thought also has to go into how this income is presented on your return. Consider a separate line item or supporting schedule that set forth the matching amount from your mobile payment activity. 

Even with increased funding I see the IRS taking advantage of technology to conduct their compliance checks, and this is an easy one to see coming and respond to. 


Location: Austin Tax Help

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