Efforts to Repeal Expanded Form 1099 Reporting Continue

By Marcia Richards Suelzer, Toolkit Staff Writer

Expanded tax information reporting through Form 1099 - the provision everyone loves to hate and everyone vows to eliminate - remains on the books while no fewer than five bills repealing it languish in congressional committees, and one Senate-passed bill that incorporates the repeal awaits House action.

Enacted as a stealth revenue-raising provision, section 9006 of the Patient Protection and Affordable Care Act (PPACA) greatly increased the information reporting burden on businesses. Businesses are required to report to the IRS a wide variety of transactions, ranging from payments to independent contractors to amounts received in barter transactions, if the amounts involved add up to more than $600 in a year. As pervasive as information reporting requirements were before the PPACA, section 9006 upped the ante in two extremely significant ways:

• payments to corporations will no longer be exempt from the reporting requirements, and
• payments for property, rather than just services, will become "reportable transactions."

The impact of these changes, which are currently set to take effect for payments beginning in 2012, is expected to be extremely burdensome for all businesses, but are likely to hit small businesses the hardest.

Example: Dawn's Doggie Detailing Service, a pet grooming business, buys $800 worth of dog shampoo from Shiny Pups, Inc. each year. The business also buys knitted doggie sweaters from a local craftswoman; over the year, she pays the craftswoman $610. Two groomers work at the salon as independent contractors. Dawn has purchased $100 worth of products from a new supplier, Posh Puppies, Inc.

Under current law, Dawn will need to issue a Form 1099 to each of the two independent contractor groomers. She will have no other reporting requirements.

If the expanded requirements are not repealed, beginning in 2012, Dawn will still need to provide a Form 1099 to each of the groomers. However, she will also need to:

• obtain the Employer Identification Number of Shiny Pups, Inc, prepare and mail Shiny Pups a Form 1099, and also file the Form 1099 with the IRS;
• obtain the Social Security Number of the local craftswoman, prepare and mail her a Form 1099, and also file the Form 1099 with the IRS;
• keep track of the amounts spent with Posh Puppies because if she ends up purchasing $600 or more of their products, she will need to obtain their Employer Identification Number, prepare, send and file a Form 1099 for those purchases.

Not only does the law increase the amount of paperwork required by the business owner, the requirement to obtain identification numbers is particularly problematic for individuals who supply goods to a business. Individuals who do not have an Employer Identification Number, which is not required for a sole proprietor, will be forced to supply their Social Security Numbers, with little assurance that the business has adequate identity protection measures in place.

It is likely that these expanded requirements will be repealed before the changes take effect; however, it is unclear how many Byzantine twists and turns will be necessary to clear both houses of Congress and be signed by the president. Currently, the repeal is tied to an amendment to the FAA Air Transportation Modernization and Safety Improvement Act.

However, Senate Finance Committee Chairman Max Baucus intends to substitute the text of the Aviation Funding Bill, which does not contain repeal language, for the FAA Modernization Bill. Will the repeal survive this motion to substitute? Or, will the clock continue to count down toward the effective date as Congress tees up another repeal proposal? That remains to be seen.

Posted February 11, 2011.