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IRS may ramp up tax audits for gig economy

When people hear about the Internal Revenue Service (IRS), they often think of taxes and audits. Occasionally, it is not the taxpayers that get audited. Occasionally, the IRS gets audited.

Why would the IRS get audited? A separate government agency recently audited the IRS to determine whether or not the agency was ensuring taxpayers meet their tax obligations. The Treasury Inspector General for Tax Administration (TIGTA) conducted the audit and focused specifically on how the IRS handled self-employed taxpayers. Ultimately the agency found the IRS had room for improvement.

The agency reviewed data from 2012 through 2015 tax returns. On these returns, the agency states it identified over 264,000 tax returns that likely underreported earnings from jobs in the gig economy.

How did the agency narrow their focus to the gig economy? This niche market includes individuals who work through platforms like Lyft, Uber, Airbnb, Etsy and Closet Collective. The IRS requires these platforms to file a Form 1099-K. A copy of the form is sent to the worker and the IRS. TIGTA compared data from forms sent to the IRS with taxpayer filings. Based on this information, the agency was able to identify the discrepancy.

The report found the discrepancies increased by 237 percent from 2012 to 2015 and predicts the problem will only grow. The gig economy is booming and the agency claims not everyone is paying their share of taxes on these earnings.

What does this mean for taxpayers? Anyone that makes more than $20,000 and conducts 200 or more transactions a year within the gig economy will likely need to report these earnings. Based on the findings of this report, the IRS will likely increase audits of those who fail to properly report their income from these earnings.

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