Attacking Small Businesses that Receive Too Much in Credit Cards – IRS Letter 5043

Attempt to get “Cash” businesses

The IRS has been pushing for many years to capture cash income of small businesses and force him to pay taxes. That is one of the reasons that the IRS is requiring credit card merchant service companies to report a 1099-K for businesses to the IRS. This form lists the amount of credit card payments made to the business by its customers. The IRS then takes this information, comparing it to the gross sales of the business. If the business has too high of a percentage of credit card sales, the IRS issues a letter 5043.

This letter starts out that “your gross receipts may be underreported.” This is the beginning of a long series of letters and correspondence which could eventually lead to an audit in an attempt to force businesses to report cash income. Most of the letters seem to be going out to clients that are restaurants, pizza parlors, bars and other small retail businesses.

New Trend Attacking Service Businesses

Now, a new trend has started. The IRS is going after many types of businesses that typically does not have a lot of cash, such as law firms, accounting firms, other professional practices, and general service businesses such as IT support and construction. The real problem is the IRS is way behind the times!

Upscale restaurants typically have 90% or more of their sales by credit cards. Even small food businesses such as pizza restaurant’s and fast food restaurants have over half of their sales by credit card. Frequently, consumer oriented attorneys, accountants, and other service providers are having higher percentages of their gross receipts paid by credit card. Cash payments or declining, checks are decreasing and credit cards or increasing.

The end result of this notice is that the IRS is chasing after cash that does not exist and causing extensive heartache and expense for many small businesses.

If you Receive a 5043 Letter

If you receive a notice from the IRS demanding the explanation. you immediately should retain a tax attorney. Your tax attorney will prepare a response reviewing your income reported on the tax returns as well as your accounting and bank statements records. IRS letter 5043 is not something that should be ignored. If you do not respond you will be audited!

In accordance with Circular 230 Disclosure

Original Source By: Ronald Cappuccio

Ronald J. Cappuccio, J.D., LL.M. (Tax), business and tax attorney, has more than 30 years of tax and business law experience. As a lawyer since 1976, admitted to practice before NJ State and Federal Courts, including the US Tax Court and the Court of Federal Claims, I have helped clients from around the U.S. as well as multi-national clients. I have dedicated my life to agitating people – especially the IRS and government functionaries. I have never worked for the IRS and therefore I do not have to worry about them as former colleagues. Fighting the government so you can keep your money is just plain fun for me!

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5 comments on “Attacking Small Businesses that Receive Too Much in Credit Cards – IRS Letter 5043

  • Thank you for keeping people informed of these important issues Ron! All too often people receive these notices and do not know what to do. Your guidance goes along way to help so many and for that TaxConnections appreciates all the outstanding knowledge you share with so many.

  • P. L. Baskowitz CPA, MTX

    Retain a Tax Attorney and presumably Mr. Cappuccio himself. This gentleman is evidently quite impressed with himself. A tax oriented CPA or EA would probably get to the heart of the matter quicker and could draft a more on-point response saving the client a considerable sum. Tax Attorneys definitely have their role but not typically the best choice for compliance issues like this.

  • I would like to thank you for taking the time to read my blog post and to comment on it. Certainly, I am not saying there is no role for a CPA or EA in tax matters. Nevertheless, these notices are one area that we need to protect our clients with the attorney-client privilege. The actual form of the letter from the IRS, with the attached copy of a 1040 X, is at a minimum threatening an audit based upon underreporting of gross income. I would hate to see a situation where a taxpayer reveals information to a CPA or EA who is then called to testify against the taxpayer in a criminal tax proceeding.

    In each of the situations where the taxpayer has received the notice from the IRS is more than just a simple letter. This could be a very serious attack on the taxpayer taxpayer’s business.

    Once again, thank you for your comments.

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