Supporting Statement

SUPPORTING STATEMENT
1. CIRCUMSTANCES NECESSITATING COLLECTION OF INFORMATION
The Pilots are aimed at determining the best method for and value of using the new Form 1099-K information to
identify and treat non-compliance. This is expected to result in the identification of many new cases of gross receipts
underreporting. As a result, this effort will also test new treatment streams to allow the IRS to work these cases. One
of these treatment streams is a new notice process. Requesting the books and records needed to verify the gross
receipts discrepancy through a notice process would result in extensive taxpayer burden. Instead, the taxpayer can fill
out this form, which requests the minimum information needed for us to refine our analysis of the taxpayer's return and
determine if there are any reporting errors/business characteristics that may explain their outlier reported figures.

2. USE OF DATA
The pieces of information requested on this form serve multiple key purposes:
1) Verification of 1099-K data - As the Form 1099-K is a new information reporting requirement, we want to provide the
taxpayer the opportunity to correct any 1099-K data errors. This will not only help us properly access the taxpayer's
return, but also allow us to use this information to improve the IRS' information capture in future years
2) Additional information on reporting methods and business characteristics - This information could potentially be
explanatory factors for taxpayer's outlier figures. Understanding the frequency and nature of these explanatory factors
as well as gaining a better general knowledge of the card-accepting small business community could help the IRS
refine new 1099-K compliance treatments going forward.

3. USE OF IMPROVED INFORMATION TECHNOLOGY TO REDUCE BURDEN
As this is the first year of Pilots and volume is small, the form will be filed manually. There are no current plans to have
electronic submission, but this may change if the Pilot is successful and this form is to be sent to a larger population.

4. EFFORTS TO IDENTIFY DUPLICATION
This form requests taxpayers to verify the information reported on their Form(s) 1099-K and provide additional
information to refine the case selection criteria developed based on 1099-K information. There are no other forms that
request the same information as the Form 1099-K, which is a new information return. The treatment of these cases is
also set up so that no taxpayer will be asked to provide the same information twice.

5. METHODS TO MINIMIZE BURDEN ON SMALL BUSINESSES OR OTHER SMALL ENTITIES
Only a small percentage of the overall small business or other small entity population is required to fill this form. In
addition, the information requested are only the data items necessary to help us better evaluate the taxpayer's return.
These data elements will help us determine whether the business has reasonable explanations for their reported gross
receipts resulting in no further action by the IRS. Additionally, we have asked for estimates where exact values may be
more burdensome for taxpayers to provide.

6. CONSEQUENCES OF LESS FREQUENT COLLECTION ON FEDERAL PROGRAMS OR
POLICY ACTIVITIES
Collection of this data will permit the IRS to address potential underreporting of gross receipts in a manner less
burdensome for both the taxpayer and the IRS than an field examination.

Form 14029 (Rev. 4-2009) Catalog Number 51944B Page 4

Department of the Treasury–Internal Revenue Service

7. SPECIAL CIRCUMSTANCES REQUIRING DATA COLLECTION TO BE INCONSISTENT
WITH GUIDELINES IN 5 CFR 1320.5(d)(2)
N/A

8. CONSULTATION WITH INDIVIDUALS OUTSIDE OF THE AGENCY ON AVAILABILITY
OF DATA, FREQUENCY OF COLLECTION, CLARITY OF INSTRUCTIONS AND FORMS,
AND DATA ELEMENTS
The Form 14420 will facilitate the Agency's ability to figure and collect the accurate amount of tax. Due to the short
time frames with which we are working in this project we are requesting emergency clearance and will publish a notice
requesting comments when we seek long-term clearance.

9. EXPLANATION OF DECISION TO PROVIDE ANY PAYMENT OR GIFT TO RESPONDENTS
N/A

10. ASSURANCE OF CONFIDENTIALITY OF RESPONSES
Our strict disclosure rules will be followed regarding the prohibition of sharing taxpayer records.
Generally, tax returns and tax return information are confidential as required by 26 USC 6103.

11. JUSTIFICATION OF SENSITIVE QUESTIONS
The questions will be appropriate for tax purposes. The form requests taxpayer to verify the accuracy of reported
information and provide additional information on their reporting methodology and general business characteristics

12. ESTIMATED BURDEN OF INFORMATION COLLECTION
The population size for Year 1 of Pilots will be 5,600 respondents. This number may increase or decrease in the future
depending on the results of the pilot.
We anticipate that it will take ~3-6 hours for the taxpayer to complete the form depending on the taxpayer's
record-keeping practices. The estimate is based on experienced knowledge of the typical availablility of the records
needed to complete this form. Additionally, it may take examiners ~1-2 hours to process the information received from
this Form.

Form 14029 (Rev. 4-2009) Catalog Number 51944B

Page 5

Department of the Treasury–Internal Revenue Service

13. ESTIMATED TOTAL ANNUAL COST BURDEN TO RESPONDENTS
We don't anticipate significant cost burden to respondents. The form requires the respondents to verify 1099-K
information and their gross receipts reporting methodology as well as provide some general figures regarding their
business that should be readily available to them. The potential cost to the respondents would be the time required to
fill out this form.

14. ESTIMATED ANNUALIZED COST TO THE FEDERAL GOVERNMENT
We don't anticipate significant cost to the federal goverment for sending this form. A potential cost to the government
would be the labor resources and time necessary to print and mail these forms, and process information gathered.

15. REASONS FOR CHANGE IN BURDEN
The new Form 1099-K information reporting will provide invaluable information to the IRS to identify and treat
non-compliance. This additional volume of cases will only be valuable if it can be worked. As a result, the Pilot is
testing notice treatment streams, which will be able to work these cases on a broader scale. In order to minimize the
burden of taxpayers sending in extensive records to verify their reported gross receipts, this form will collect the
essential data items that will allow us to better evaluate the case and determine cases that deserve further attention
and cases where data errors or certain business characteristics may be sufficient to potentially explain the taxpayer's
outlier reported figures.

16. PLANS FOR TABULATION, STATISTICAL ANALYSIS AND PUBLICATION
Extensive statistical analyses were conducted using Form 1099-K information to develop case selection criteria.
Information gathered from this Form and other parts of the Pilots will help us refine these case selection criteria in the
future.

17. REASONS WHY DISPLAYING THE OMB EXPIRATION DATE IS INAPPROPRIATE
The Pilot will test the ability to use a notice process and this form to work cases identified as potential underreporters
using the new 1099-K information. If the Pilot is successful, we anticipate using this form for future compliance
purposes on a larger scale.

18. EXCEPTIONS TO THE CERTIFICATION STATEMENT ON OMB PRA SUBMISSION FORM
N/A

19. REASON FOR EMERGENCY SUBMISSION
The pilot studies commence November 12, 2012. Delaying the approval of this Form 14420 delays execution of
those pilots. Pilots are designed for dherence to the legislation for Payment Card Reporting and Basis Reporting which
was passed in 2009. The Form 14420 will provide invaluable data based on the law implementation with the 2011 Tax
Year and those filings have been received. The pilots would put the Service in the position of not being able to address
potential compliance issues timely and miss the opportunity to communicate any findings prior to the next filing season.

Form 14029 (Rev. 4-2009) Catalog Number 51944B

Page 6

Department of the Treasury–Internal Revenue Service