Form 1099-K for a restaurant

[pkcpa]

The credit card processing company includes tips and sales tax in the 1099-K box 1a amount.

If the sales reported on the 1120S is less than the 1099-K amount will this generate an IRS inquiry?

I believe that some preparers gross up the sales (and cost of sales) by the tip and sales tax amounts

but I hesitate to do this.

Thanks for your advice! 

[IRonMaN]

If there is a significant difference, I would add the tips to sales and show an expense for the tips paid. If the difference is minor, I would just proceed onward and not worry about grossing them up.

[dkh]

You're worried total sales are less than the 1099-K.......So this restaurant only accepts Debit/Credit cards - never has sales paid by cash or check ?? 

[rbynaker]

When they first came out with the 1099-K there was a reconciliation that was supposed to be done (on the tax return) but nobody liked it so they scrapped it in favor of just sending notices.  <shrug>  Not quite sure why, they could have simply made the instructions "complete this section if your 1099-K amount is greater than your gross sales".  But they don't ask me.

I'm personally averse to tinkering with the accounting in order to fool the IRS computer into ignorance.  But I'm in VA where the gross receipts number gets reported to the locality for cross-reference with the city/county business license tax.  So reporting income that's not really income might get you a letter from the city/county government, pick your poison.

How hard would it be to do a 1099-K reconciliation?  Then attach it as a statement.  It's not likely to get read by anyone but at least it makes for an easy response to the impending IRS inquiry.  "As shown on the attachment: 1099-K amount - tips - sales tax = x + cash sales = 1120S line 1."

I've heard other people put them in as Returns and Allowances so maybe that's an option to consider.

Rick

[pkcpa]

Yes, cash sales are recorded but they are not enough to compensate for the sales tax and tips.

With covid in 2022 online sales with credit cards for delivery or pick up increased. 

Thanks