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Taxpayer Alert:: 1099 Traps Multiply This Yearby Claudia Hill, 02.26.10, 01:58 PM ESTBank consolidations, stock options, and 1099-R changes could create problems. Here's how to stay out of the IRS' crosshairs. The most frequent reason taxpayers are contacted by the IRS is because they have overlooked some item reported to both them and to the IRS by third parties such as banks, brokers and pension payers. In 2008 the IRS and its computers generated 3.5 million letters to taxpayers proposing they pay an additional $6.4 billion in tax because some "information document" couldn't be reconciled with what they'd listed on their 1040s. This year there are some special traps. But with a little extra effort, you can avoid receiving one of those annoying letters. (Even when they're wrong, straightening things out with the IRS can be time consuming.) With all the changes and consolidations of banks and brokers this past year, it's more important than ever to be sure you match all the accounts you reported to the IRS in prior years with the 1099s you've received this year. Be on the watch for online financial institutions (such as ING ( ING - news - people ) Direct and E*Trade Financial ( ETFC - news - people )) that provide your annual tax information electronically only--if at some point you've agreed to go paperless. If that's the case, you'll need to log on to your account and generate your own Form 1099 information documents. With all the changes and consolidations of banks and brokers this past year, it's more important than ever to be sure you match all the accounts you reported to the IRS in prior years with the 1099s you've received this year. The 1098s issued by mortgage servicers. These forms should report the deductible home mortgage interest you paid as well as any real estate taxes paid through the mortgage company. If the company collecting your monthly mortgage payments has changed, you'd be well advised to match your own records against the totals from the multiple 1098s you might (or might not) receive. If you refinanced this past year, be on the alert; often, the initial lender sells the loan shortly after funding it, and your tax paperwork may be disrupted. It's a messy year for 1099-Rs. Read the article »
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