The IRS is willing to try the “honor system” with certain taxpayers next year. It intends to notify 30,000 taxpayers about discrepancies between the Form 1099s sent to them by issuers and the taxable income they reported on ‘09 returns.
The IRS will instruct these taxpayers to correct their returns or have revised 1099s issued. Then it will examine 2010 returns to detect whether the trend has continued. One-time break: If you misrepresent the 1099 income for 2009 and report it properly on a 2010 return, you won’t be penalized.