Contact: John Michaels
FOR IMMEDIATE RELEASE
Survey Reveals Top Reasons Taxpayers Receive an IRS Notice for Incorrect Payment
Independent contractors working in the “gig economy” among those most at risk
WASHINGTON, D.C., July 31, 2017 — A new survey conducted by the National Association of Enrolled Agents (NAEA) reveals the most common reasons taxpayers receive a notice from the Internal Revenue Service for incorrect tax calculation. Independent contractors participating in the “gig economy” were cited as among those most at risk of failing to accurately report all of their income. Survey results were released in conjunction with the start of the NAEA National Conference (#NAEANatCon), the premier education event for tax professionals.
The IRS mails a CP2000 notice to taxpayers proposing changes to their tax return when information in the return doesn’t match data provided by one’s employer, clients, bank and/or other third parties. A CP2000 notice may arrive at any time throughout the year and taxpayers who receive one are instructed to respond within 30 days. The individual may contact the IRS directly or file IRS “Form 2848, Power of Attorney and Declaration of Representative” to allow someone, such as an enrolled agent, to contact the IRS on their behalf.
NAEA conducted a survey of its members, enrolled agents who are federally licensed tax professionals with unlimited rights to represent taxpayers before the IRS, to pinpoint the most common reasons taxpayers receive a CP2000 notice. Here’s a look at the three most common reasons identified by the nearly 2,300 survey respondents:
1. Failing to Report Payment Received for Work Performed as Independent Contractor
Well over half of respondents (60.2%) indicated that Americans working either full or part-time as independent contractors are among those most likely to miscalculate taxes owed, leading to an IRS notice. The tax system is more complicated for freelancers who comprise a growing segment of the American workforce. These independent contractors are required to maintain accurate records on payments received from multiple clients and file accurate returns or face steep penalties.
2. Improper Management of Form 1099-B and/or Schedule K-1
A similar percentage (59.7%) of survey respondents pointed to mismanagement or improper handling of IRS Form 1099-B and Schedule K-1 as among the three most common reasons taxpayers misreport income. Form 1099-B summarizes the proceeds of stock transactions or barter income. Schedule K-1 is the report of income from a partnership, corporation, or trust. Both documents are complex and typically among the last tax documents received by taxpayers.
2. Filing Early Without Having All Necessary Financial Documents
The third most common reason (cited by 38.5% of respondents) taxpayers receive a CP2000 notice is because, anticipating a refund, they rush to file early before they have all the necessary tax documents. Employers, banks and other institutions are required by law to send necessary statements to taxpayers by January 31 but sometimes delays occur. Taxpayers should file an extension if they have not received all of the statements they need in advance of the April deadline.
“As more Americans seek to augment their income by adding a side gig or freelance assignments, they would be wise to seek help from an enrolled agent to ensure their taxes are prepared and filed properly,” said NAEA President James Adelman, EA. “I encourage anyone who has a tax problem or wants to avoid one altogether to visit the free online directory at eatax.org and find a qualified enrolled agent in your area.”
Biggest Mistakes Taxpayers Make in Responding to an IRS Notice
When asked to identify the three most common mistakes taxpayers make upon receiving an IRS notice, more than 65% of those surveyed responded “all of the above” when presented with the following options:
- Waiting too long to respond
- Not responding at all
- Simply agreeing to the updated total without consulting a tax professional
- All of the above
“Resolving tax disputes with the IRS is not a job for the do-it-yourselfer,” added NAEA Executive Vice President Cedric Calhoun, FASAE, CAE. “Enrolled agents are uniquely qualified to assist and represent you when you find yourself the subject of unwelcome IRS scrutiny.”
An online member survey was conducted by the National Association of Enrolled Agents between June 21, 2017 and July 7, 2017. The survey yielded responses from 2,285 NAEA members, all enrolled agents, two thirds of whom have more than 20 years of professional experience preparing and filing taxes. Click here to view survey findings.
About the National Association of Enrolled Agents
The National Association of Enrolled Agents (NAEA) has been powering enrolled agents, America's tax experts®, for more than 45 years. NAEA is a non-profit membership organization composed of more than 10,000 tax specialists licensed by the U.S. Treasury Department. NAEA provides the networking, educational opportunities, programs and services that enable enrolled agents and other tax professionals to excel beyond their peers. Enrolled agents are the only federally-licensed tax practitioners who both specialize in taxation and have unlimited rights to represent taxpayers before the Internal Revenue Service. To find out more, visit www.naea.org and follow NAEA on Facebook and Twitter.