"Everyone that thinks the IRS cross-checking system won't raise a red flag if NEC's plus K's add up to more than gross receipts reported on the tax return, raise your hand, please."

🖐

What you don't take into consideration:

Who ever said there was reconciliation to 1099-NEC?

Who ever said 1099-K related only to business?

"Could a client only be paid through a Payment Settlement Entity"

Sure. Just like a client can gross $3 million and never receive either form. The business still reports the business info. A tax preparer needs to know not to rely on Forms as if that is all that is exposed.

I use the word "discoverable" in my class, as in, "If you have any footprint for business purposes, including spending money, getting money, have a cell phone, have a life, you can bet that if you and I were to go over your info, the IRS can go over it, too."

"If it adds up to more than actual gross receipts"

You don't even need to add it together; you need to be prepared with your substantiation or supporting documents. All those people being reimbursed by Venmo for entertainment shares from their friends simply need to be able to prove that's all it was, and it wasn't business.