What Are the IRC Reporting Requirements?

The U.S. tax system operates on voluntary compliance and self-assessment, relying on reporting requirements established by the Internal Revenue Code (IRC). A reporting requirement is a legal obligation to provide specific financial information to the Internal Revenue Service (IRS) using designated forms. These obligations allow the government to verify tax liabilities and enforce tax law. The requirements cover reporting one’s own income, payments made to others, and the disclosure of certain foreign-held assets.

This system creates a transparent financial environment where income can be tracked from the payer to the recipient, aiding IRS verification. The various forms and schedules are designed to capture distinct types of financial activities. Non-compliance with these mandatory reporting duties can lead to penalties.

Core Reporting for Individual Taxpayers

The foundational reporting requirement for an individual is the annual income tax return, Form 1040. A person must file this return if their gross income exceeds an amount determined by their filing status and age. This threshold aligns with the standard deduction, meaning those earning less may not have a filing requirement unless other specific conditions apply.

Even with income below the filing thresholds, an individual may still be required to file a Form 1040. A common reason is having net earnings from self-employment of $400 or more, which ensures contributions to Social Security and Medicare. Other situations that mandate filing include owing special taxes or receiving distributions from a health savings account.

Conversely, some individuals below the income threshold choose to file. They may do so to receive a refund of withheld income tax. Another reason is to claim refundable tax credits like the Earned Income Tax Credit.

For most individuals, reporting begins with Form W-2, Wage and Tax Statement, received from an employer. This form details the total wages paid and the amount of federal, Social Security, and Medicare taxes withheld. The figures from Form W-2 are transferred to Form 1040, serving as the primary record of employment income and taxes paid.

Beyond wages, taxpayers must report other income on supplemental schedules. If an individual receives more than $1,500 in either taxable interest or ordinary dividends, they must file Schedule B, Interest and Ordinary Dividends. This schedule requires listing each payer and the amount of income received, using information from Forms 1099-INT and 1099-DIV.

The sale of assets like stocks or real estate requires reporting capital gains and losses on Form 8949, Sales and Other Dispositions of Capital Assets. On this form, the taxpayer lists each asset’s purchase date, sale date, cost basis, and sale price. The totals are then summarized on Schedule D, Capital Gains and Losses, which separates short-term and long-term gains that are often taxed at different rates.

Income from self-employment must be reported on Schedule C, Profit or Loss from Business. On this form, the individual reports gross income and deducts ordinary and necessary business expenses. The net profit is then reported on Form 1040 and is subject to both income tax and self-employment tax. A separate Schedule C is required for each distinct business activity.

Primary Reporting for Business Entities

A business entity’s reporting requirements are dictated by its legal structure, with different structures using distinct forms. These returns are used to calculate the entity’s tax liability. For pass-through entities, they report the financial results that flow through to the owners’ individual returns.

Businesses structured as C corporations file Form 1120, U.S. Corporation Income Tax Return. This form reports the corporation’s income, deductions, and credits to calculate its income tax. As a separate tax-paying entity, a C corporation pays tax on its profits at the corporate level. The return is due by the 15th day of the fourth month after the end of the corporation’s tax year.

Partnerships file Form 1065, while S corporations file Form 1120-S. Both are information returns for pass-through entities that do not pay income tax at the entity level. These forms report the business’s income and deductions, which are then passed through to the owners via Schedule K-1. Each owner reports their share on their personal tax return.

The filing deadline for both Form 1065 and Form 1120-S is the 15th day of the third month after the end of the entity’s tax year.

Businesses with employees also have employment tax reporting obligations:

• Form 941, Employer’s QUARTERLY Federal Tax Return: Used to report wages paid, federal income tax withheld, and both the employer and employee shares of Social Security and Medicare taxes. It is filed quarterly.
• Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return: Used to report FUTA taxes, which are paid by the employer on the first $7,000 of each employee’s wages. It is filed annually by January 31.
• Form W-2, Wage and Tax Statement: Must be completed for each employee, detailing their total earnings and withheld taxes. A copy must be sent to the employee and the Social Security Administration (SSA) by January 31.
• Form W-3, Transmittal of Wage and Tax Statements: Filed with the SSA to summarize the totals from all W-2s being submitted.

Third-Party Information Return Filings

The IRC uses information returns to track payments made between parties in the course of a trade or business. These returns are filed by the payer and sent to both the IRS and the payee. This system creates an information-matching program that allows the IRS to verify that payees are reporting the income they receive.

Common information returns include:

• Form 1099-NEC, Nonemployee Compensation: A business must file this for each non-employee paid at least $600 during the year for services. A copy must be furnished to the contractor and filed with the IRS by January 31.
• Form 1099-MISC, Miscellaneous Information: Required for a variety of payments of at least $600, such as rent, prizes, and awards. The deadline to furnish a copy to the recipient is January 31, with a later IRS filing deadline.
• Form 1099-INT, Interest Income: If a business or financial institution pays at least $10 in interest to an individual, it must report this on Form 1099-INT.
• Form 1099-DIV, Dividends and Distributions: When a corporation pays dividends of $10 or more to a shareholder, it must file this form, which separates dividends by type for tax purposes.
• Form 1098, Mortgage Interest Statement: Any business that receives $600 or more in mortgage interest from an individual must file this form, which reports the total interest and points paid.

Reporting Foreign Accounts and Assets

The IRC contains specific reporting requirements for U.S. persons who hold financial assets outside of the United States to combat offshore tax evasion. These requirements are separate from the obligation to report foreign income; their purpose is to disclose the existence and value of foreign assets. Two separate sets of rules govern this area: the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA).

The FBAR requirement is mandated by the Bank Secrecy Act and administered by the Financial Crimes Enforcement Network (FinCEN). A U.S. person must file an FBAR if they have a financial interest in or signature authority over foreign financial accounts and the aggregate value exceeds $10,000 at any point during the year. Even if the value briefly surpasses $10,000 for a single day, the filing requirement is met.

The FBAR is filed electronically using FinCEN Form 114 and is a separate filing from the annual tax return. Reportable accounts include foreign bank accounts, brokerage accounts, mutual funds, and certain foreign retirement policies. The filing deadline is April 15, with an automatic extension available to October 15.

The second requirement comes from FATCA, an IRS regulation. Under FATCA, certain U.S. taxpayers holding specified foreign financial assets that exceed specific thresholds must report them to the IRS on Form 8938. This form is filed as an attachment to the taxpayer’s annual Form 1040.

The filing thresholds for Form 8938 are higher than the FBAR threshold and vary based on filing status and residency. For a single taxpayer living in the U.S., the requirement is triggered if the total value of assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time. A person can be required to file Form 8938, the FBAR, both, or neither, making it necessary to analyze both sets of rules independently.

Fundamental Record-Keeping Requirements

The Internal Revenue Code requires every taxpayer to maintain adequate books and records. This ongoing obligation enables taxpayers to accurately prepare returns and substantiate the figures reported. The IRS does not mandate a specific record-keeping system but requires that records be complete and sufficient to determine the correct tax liability.

The types of records to keep depend on the taxpayer’s circumstances but must support items of income, deductions, and credits. For individuals, this includes Forms W-2 and 1099, bank statements, and receipts for charitable contributions. For businesses, records include gross receipts documentation, proof of purchase for assets, and proof of payment for expenses.

When a taxpayer acquires property, they must keep records that establish its basis, which is the cost of the asset plus improvements. These records are necessary to calculate depreciation and to determine the gain or loss upon the sale of the property. These records must be kept until the period of limitations expires for the year in which the property is disposed of.

The length of time to retain records is governed by the “period of limitations.” Generally, this period is three years from the date the tax return was filed or its due date, whichever is later. Certain situations extend this retention period:

• Six years if a taxpayer underreports gross income by more than 25%.
• Seven years for claims related to a loss from worthless securities or a bad debt deduction.
• Four years for employment tax records.
• Indefinitely in cases where a fraudulent return is filed or no return is filed at all.