What This Letter Means
Letter 5039, Notification of Possible Income Underreporting, goes to businesses. The IRS compared the gross receipts on your return to the card and third party network payments reported to it on Form 1099-K. Your share of receipts from card and 1099-K payments is unusually high for your type of business.
Businesses like yours usually take in more cash and checks. So the IRS suspects some cash or check receipts didn't make it onto your return. The letter lists your reported gross receipts and your total 1099-K payments.
This is not a bill and not a finding. It's a request to explain.
What to Do
- Review all the records you used to prepare the return. Confirm you reported receipts from every source: cards, cash, checks and anything else.
- Complete the enclosed Form 14420, Verification of Reported Income. Use it to explain why your card and 1099-K share is higher than expected.
- Return it within 30 days from the date of the letter in the envelope provided.
- Keep a copy of everything you send.
What Happens Next
The IRS reviews your Form 14420. If your explanation covers it, you get a follow-up letter saying no further action is needed. If not, the IRS may ask for more information or propose an adjustment to your tax.
Failing to respond can lead to a proposed assessment or further compliance action, which can include an audit. A complete, accurate answer now is the cheapest way to end this.
If You Find a Mistake
If your review shows receipts were left off, don't hide it. Get advice on correcting the return before you answer. What you say on Form 14420 becomes part of the record.
If you received Letter 5039 and want help answering it, call us at (813) 229-7100.