**GAO-09-238**                      Published: Jan 28, 2009. Publicly Released: Feb 27, 2009.                  

-   
-   
-   
-   

    Jump To:  
-  Elder Abuse 
-  Services for Older Adults 
-  State and Local-Level Drivers and Trends 
-  State and Local Fiscal Projections 
-  Federal Borrowing 
-  Managing the Debt 
-  Summary of Funding Provisions 
-  Auditing the Government's Books 
-  Unpacking the Financial Report 
-  Highlights 
-  Recommendations 
-  Background 
-  About This Work 
-  About This Work 
-  Trends 
-  About the Center 
-  Why It's High Risk 
-  What Remains To Be Done 
-  Key Reports 
-  Newest COVID-Related Reports 
-  AI Use Cases 
-  Flood Insurance 
-  Past Pandemic-Related Reports 
-  CARES Act Oversight Reports 
-  All COVID-19 Reports 
-  Report Suspected Fraud 
-  Subjects 
-  How to Get Notified 
-  Past Reports 
-  Public Health Threats 
-  Explore the FY 2022 and 2023 Funds 
-  Status of FY22 Projects 
-  Lessons Learned 
-  Agency Reports 
-  Recent Reports 
-  Recommendations 
-  Supplemental Material 
-  Full Report 
-  Additional Data 
-  View Decision 
-  Downloads 
-  Previously Identified Actions 
-  Related Pages 
-  Associated Agencies 
-  Tough Choices and Opportunities Ahead 
-  Americas Fiscal Future Key Areas 
-  Retirement Security Key Areas 
-  Current List 
-  About The High Risk List 
-  Area Ratings 
-  Previous High Risk Products 
-  Search Federal Vacancies 
-  Past Federal Vacancies 
-  Violation Letters 
-  About the Yellow Book 
-  Advisory Council 
-  Related Resources 
-  Comment Letters 
-  Related Publications 
-  Contacts and Resources 
-  Major Issues Facing the Nation 
-  Meeting Strategic Challenges 
-  Additional Resources 
-  Resources 
-  GAO Contacts 
-  Mission Teams 
-  Operations and Staff Offices  
-  Organization Chart  
-  Why a Career at GAO? 
-  Am I Qualified? 
-  Company Culture 
-  Reasonable Accommodations 
-  Video Gallery 
-  Paid Internships 
-  Student Volunteers 
-  Professional Development Program 
-  Advancement 
-  Executive Candidate Program 
-  Summer Associates 
-  Externships 
-  Benefits 
-  Contacts 

Skip to Highlights

## Highlights

Third party payers, often businesses, reported $6 trillion in miscellaneous income payments to IRS in tax year 2006 on Form 1099- MISC information returns. Payees are to report this income on their tax returns. Even a small share of payers failing to submit 1099-MISCs could result in billions of dollars of unreported payments. IRS data suggest that payees are more likely to report income on their tax returns if IRS receives payers' information returns. GAO was asked to examine 1099- MISC reporting including the extent to which payers fail to submit 1099-MISCs; impediments to payers to submitting1099-MISCs; and whether IRS could better use the 1099-MISCs it currently receives. GAO reviewed IRS documents and compliance data and interviewed officials from IRS, its advisory groups, and others who advise 1099-MISC payers.

The Internal Revenue Service (IRS) does not know to what extent payers fail to submit required 1099-MISCs, but various sources point to the possibility of a significant problem. For tax year 2005, 8 percent of the approximately 50 million small businesses with assets under $10 million submitted 1099-MISCs, but IRS does not know how many of the other 92 percent were required to report payments but did not. Many business payments, such as payments to corporations, are not subject to 1099-MISC reporting. If even a small share of the businesses that did not submit a 1099-MISC should have, millions of 1099- MISCs could be missing with significant amounts of unpaid taxes by payees. GAO's prior work in 2003 found significant 1099-MISC payer noncompliance by some federal agencies. IRS could mitigate costs for research on payer noncompliance by building on its existing research programs. Payers face a variety of impediments that may contribute to 1099-MISC noncompliance, including complex reporting requirements and an inconvenient submission process. For example, certain payments to unincorporated persons or businesses are subject to 1099-MISC reporting, but payments to corporations generally are not, requiring payers to determine the status of their payees. GAO in the past determined that the benefits in terms of increased tax revenue and improved taxpayer compliance justify eliminating this distinction. IRS agrees, and the Bush Administration's proposal to do so would have required legislative action. Other options to remind payers about their reporting obligations include adding a tax return checkbox asking if payers submitted required 1099-MISCs and adding a chart to help payers navigate the detailed instructions for the Form 1099-MISC. IRS matches what the payees report on their tax returns to what payers report on 1099-MISCs to detect payees underreporting income and taxes. But IRS does not pursue all mismatches its computers detect. If IRS were to increase payer compliance with 1099-MISC requirements, the number of mismatches would likely increase. However, IRS does not systematically collect information on the causes of mismatches or whether they could be prevented.

## Recommendations

## Matter for Congressional Consideration

## Recommendations for Executive Action

See All 8 Recommendations

## Full Report

Highlights

Full Report (58 pages)

Accessible Text 

## Office of Public Affairs

### Media Inquiries

Sarah Kaczmarek
kaczmareks@gao.gov

(202) 512-4800

### Public Inquiries

Public Affairs
PublicAffairs@gao.gov

(202) 512-4800

## Topics

Tax Policy and Administration

Data collectionData integrityElectronic formsFederal formsFederal taxesFinancial statementsIncome taxesNoncompliancePersonal income taxesProgram evaluationReporting requirementsTax administrationTax nonpaymentTax return auditsTax returnsTax violationsTaxpayersVoluntary complianceResearch programsTax gapUnderreporting