If you received a 1099-R, then the IRS did too. Anyone who issues a 1099-R must send a copy to both the recipient and the IRS. If your tax return doesn't match the information provided to the IRS, a red flag goes up and your return will be examined, either by a computer or an IRS employee. In either case, you can count on some type of inquiry from the IRS, from the routine to the criminal.
Your best hope if you fail to file your 1099-R is that you receive a simple notice from the IRS. When you file your return, a computer will compare the income you report with the income the IRS knows you received, from forms such as the 1099-R. If there is a discrepancy, the IRS will recalculate the tax you owe on your return and send you a bill. You can dispute this notice, which is known as a CP11 notice, if you file a response within 60 days of the date of the notice. However, if the 1099-R you received was legitimate and accurate, fighting the CP11 notice won't do you any good since you legally owe the tax.
In more serious cases, you might receive a notice that the IRS wants to "review" or "examine" your return, more commonly known as an audit. While it's generally less likely that you'd receive an audit notice than a CP11 notice in the case of a missing 1099-R, it's possible that the size of your unreported income could draw further scrutiny to your return. If the IRS takes a closer look at your return and finds more discrepancies, the chances of an audit can go up. If your missing 1099-R results in you substantially under-reporting your income, you could face a 20 percent penalty in addition to taxes and interest.
Civil Fraud Investigation
If the IRS feels that you have willfully and fraudulently tried to avoid paying the taxes you owe, it may open a civil fraud investigation. IRS fraud convictions are exceedingly rare, so as long as your missing 1099-R was the result of careless record-keeping or general absent-mindedness, a fraud investigation is unlikely. However, an investigation is possible if the IRS asserts that you hid your 1099-R as part of an effort to under-report your income. In addition to taxes and interest you might owe, the IRS can slap a 75 percent tax penalty on you if it finds you guilty of civil fraud.
Criminal Fraud Investigation
For a missing 1099-R, a criminal fraud investigation is the least likely option, but it is a weapon in the arsenal of the IRS. Criminal fraud can result in up to five years in prison and up to a $250,000 fine. However, criminal fraud can be hard to attach to a simple missing 1099-R, as it is generally reserved for severe and blatant disregard of the tax code with a specific intent to defraud the government.
- Thinkstock/Comstock/Getty Images
- How to Report Oil & Gas Income on Tax Returns
- IRS Late Fees & Penalties
- Does Everyone With Earned Income Have to Fill Out an Income Tax Return?
- What Can I Itemize on My Tax Returns?
- How to File Past Year Tax Returns
- What Is a Schedule C Tax Return?
- About Claiming Children on Tax Returns
- Can an Adult Who Is Not Disabled Qualify As a Dependent on an Income Tax Return?
- Things to Look for in Your Tax Preparer
- How to Determine if a Tax Return Has Been Cashed