Good news: the TY 2011 IRMF by Payee State Code Extract is on schedule for distribution in April 2013 which will contain the long-awaited 1099-K information from IRS. Finally, state tax agencies will have access to this vital data to get an idea of online sales activity. Once the data is in state agency hands, the next challenge will be to compare it to an individual 1040, or a corporate T2 filing for 2011. Of course the easy ones to pick out are the huge discrepancies, but what about the scenarios where the 1040 is slightly lower than or level with the 1099K amounts?

Audit cases for 2011 IRMF 1099K data

The colourful names of each of these audit cases illustrate the point that when the revenue gap is smaller, contesting the 1099K data is easier without an established baseline.

LTAS Technologies Inc., a leader in providing quality business leads from online classifieds, social networks, and auction sites offers this data to revenue discovery departments. This data comes directly from open-source, publicly available websites, but tedious and time-consuming to collect without the powerful Harmari TaxCrawler, an LTAS Technologies reporting service. Look at the graph below to see the difference:


Audit case with 2009, 2010, 2011, 2012 data and the IRMF extract for 1099K

By extrapolating Tax Crawler data for 2011 for other years, you can see a better picture of revenues. See how much easier it is to beat The Buzzsaw when you have an established baseline of online sales from prior years? Where did that $400k go for 2010, Mr. Buzzsaw?  He likely saw the 1099K bullet coming and dodged it by structuring his company into different pieces that all fall below the $20,000 AND 200 transaction cutoff.

The IRMF data has other fundamental weaknesses:

• It does not report cash transactions, which are the standard payment method for Craigslist-based purchases
• It does not report on buyers resident in the state, only sellers. Therefore it is not useful for Use Tax purposes
• It does not report on sellers that are not headquartered in the state yet still have a physical nexus through a warehouse or other distribution center in your state.
• It lags behind market conditions, so the business can be open and running for 2 years before the 1099K data arrives at the state Revenue office. So it’s of no use with fly-by-night operations.

Pick from any or all of the following online sites: Ebay, Etsy, Amazon, Yelp, Foursquare, VRBO, or Craigslist. Other websites can also be analyzed, on a request basis. Contact LTAS Technologies today for a free quote and sample report!