How does the IRS make up a Return for You?

How does the IRS “know” that a taxpayer “should” file a return? By law, many entities must report the income they pay to individuals. A 1099 MISC/DIV/INT/B or a K-1 are just some of the income reporting documents that are filed directly with the IRS. This IRP (Income Reporting Program) Database also is enhanced in early Spring each year when the Social Security Administration downloads their W-2 database to the IRS. The IRP Database then begins the process of matching all these hundreds of millions of tax documents against the hundreds of millions of Social Security numbers. Just think about this function alone: billions of cross-referenced numbers and documents. This is why the failure to file penalty is so strict for Corporations and Partnerships, as the IRS has found people fraudulently “hide” from the income reporting laws in these business entities. It usually takes at least eighteen months for a missed tax document to be reported back to the taxpayer in a CP2000. However, as of April 2017 we have been receiving 2015 CP2000 Proposed Assessments. With technology, the IRS is only going to get more efficient.