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Will new 1099 reporting requirements be repealed post-Nov. 2?

Buried on page 855, in section 9006 of the Patient Protection and Affordable Health Care Act of 2010, expanded Form 1099-MISC reporting requirements were enacted into law in March. Though some may be aware of the requirements, virtually few if any companies are fully prepared to implement the new provisions. Here are some fast facts to get up to speed on the new reporting requirements:

* Requires all corporations, charities, government entities and nonprofit businesses to report all payments for goods, services or property purchased from another entity.

* Effective Dec. 31, 2011, which will require accounting system updates in spring 2011.

* Applies to payments to companies totaling $600 or more annually.

* Designed to reduce the tax gap by $17 billion due to the increased reporting of previously underreported income.

* Credit card transactions are exempted from reporting since starting in 2011; the Internal Revenue Service will collect data through the credit card companies.

* If a vendor fails to furnish a correct taxpayer identification number, the business is required by law to impose backup withholding at the rate of 28 percent of the purchase price.

* Fines of up to $50 can be charged for each form not filed or filed incorrectly.

* Forms must be filed electronically if there are more than 250 in one year.

* The IRS estimates that each form 1099-MISC takes approximately 16 minutes to complete.

Many companies have estimated that the number of 1099-MISC forms they file will increase tenfold under the law. It'll increase the person-hours required to program software, keep records and collect and verify taxpayer identification numbers (TINs). Companies seem to be most concerned about collecting the correct TIN and about promptness in receiving information from vendors, which could delay the production of 1099s past the Jan. 31 due date each year, which triggers fines.

Unintended Consequences

On June 30, the IRS National Taxpayer Advocate produced a report lending credibility to the business community's complaints by raising concerns about costs of the new reporting burden, particularly as it falls on small businesses, and noting that potential improvements in tax compliance may be negated by the cost to implement.

Among other potential unintended consequences:

* The law will encourage companies to purchase from larger conglomerates with the ability to issue end-of-year purchase summaries. Small companies that cannot provide this service could lose customers.

* It may encourage companies to purchase from as few firms as possible to limit the number of 1099 forms.

* There will be significant difficulty in obtaining the correct TIN number from vendors, especially when purchasing from franchise businesses such as fast food vendors, gasoline stations or hotels.

* Backup withholding may be impossible for two reasons: A company may have already paid full price for a product. Or in the case of a utility service, the company may receive a disconnection notice for nonpayment.

* The law could drive many companies to demand the acceptance of credit cards for payment. This could raise prices in order to account for high credit card fees charged on each purchase.

How and When to Repeal

Due to the uproar from the business community, there have been several efforts early this fall to repeal or scale back the requirements. But due to the $17-billion cost to repeal, Congress must come to agreement on a revenue raiser that fully pays for the Congressional Budget Office's official "score" of repeal.

Though Congress failed to repeal the language before the midterm elections, it's unclear if there will be enough political pressure to repeal during a lame duck session of Congress after Nov. 2.

Congress may consider several other tax measures related to the estate tax, marginal rates and capital gains and dividends rates during this time, and it's possible that language repealing the form 1099 reporting requirements could be included in one of these tax bills.

While Democrats and Republicans are unified on the need to repeal or scale back the new reporting requirements, they have been less willing to compromise on how to "pay" for repeal of the law.

FEI Involvement

FEI's Committee on Private Company Policy (CPC-P) has taken the lead in following this issue and advocating for repeal. CPC-P recently signed on to a letter to Congress along with thousands of other organizations urging repeal of the form 1099 reporting requirements.

FEI staff was also asked to serve on a Small Business Administration (SBA) roundtable to provide examples of the significant burdens that would be imposed on companies of all sizes to be used in the SBA's upcoming testimony on this issue to Congress.

Cady North is senior manager, Government Affairs, who is based in FEI's Washington, D.C., office. She can be reached at or 202.626.7803.
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Title Annotation:washington insights
Author:North, Cady
Publication:Financial Executive
Article Type:Legislation
Geographic Code:1USA
Date:Nov 1, 2010
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