Financial institutions processing credit/debit cards and other electronic payments (e.g., PayPal) must report merchant transactions to the IRS on Form 1099-K (no reporting is required if there are 200 or fewer transactions or they total less than $20,000). In one recent case, the IRS used these information returns to reconstruct a jewelry merchant’s undisclosed income. While merchants receiving these forms don’t have to reconcile them on their returns, they must report all income; Form 1099-K is a big hint to the IRS about the amount of income.