As a former IRS agent, unless the 1099-K is somehow addressed on the return, a $500K difference between the 1099 & gross receipts will trigger at a minimum inquiry from IRS.
It may trigger an audit. I know IRS is short staffed these day, but $500K discrepancy is a lot of money for IRS to overlook.
That is why I strongly suggest pursuing a corrected 1099-K...so IRS gets a copy of of the error.
If no corrected copy is issued, then somehow/somewhere on the return, the incorrect 1099 needs to be modified. That is why I suggested reporting it, then deducting returns and allowances, and providing an explanation in the return. Try and minimize contact with IRS and waste everyone's time. This is all based on the premise that his records are accurate and the 1099-K is wrong.
When we looked at returns and 1099s, if reported amounts were equal or greater than the 1099 amounts, we generally passed unless there were other reasons for inquiry/audit. However, if 1099 amounts were greater than reported amounts, that triggers inquiries/audits.
**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**
