Texts of Competing Proposals in Senate To Fix New 1099 Rules

There are now two competing proposals that the Senate will consider to address the onerous new 1099 rules which were part of the healthcare reform bill and which go into effect on January 1, 2012. If you are not familiar with the new rules, they require reporting of property purchases over $600, as well as purchases of services, including property purchases from corporations. Meaning, literally, if you are in business and buy a computer from Your Local Friendly Retailer for $601, you have to send Your Local Friendly Retailer a Form 1099. The rules are ridiculous and absurd and need to be repealed, or substantially modified. I’ve written about this before, and so has the national taxpayer advocate, and many others. Among the problems with the rules–if you have to 1099 Your Local Friendly Retailer, you will need Your Local Friendly Retailer’s taxpayer identification number and if Your Local Friendly Retailer won’t give it you, you may have to implement backup withholding! The taxpayer advocate also sounded the alarm about how these rules could favor big retailers over smaller competitors who may not have the resources to offer compliance programs to business shoppers.

The proposal to fix these rules offered by Sen. Bill Nelson (D-Fla.) is quoted in its entirety below.

These proposals are going to be voted on as amendments to the small business bill when the Senate returns. The small business bill is also the bill that includes the 100% capital gains exclusion for startup company stock that qualifies as qualified small business stock.

For good news coverage, see this story by The Hill.

The proposal offering by Sen. Bill Nelson (D-Fla.) (quoted below) does not repeal the new 1099 rules in their entirety. Instead, it does the following:

  • increases the threshold for property purchase reporting from $600 to $5,000 and excludes from property purchase reporting obligations persons not employing more than 25 people. Meaning, if you employ more than 25 people, and you purchase more than $5,000 in goods from Your Local Friendly Retailer each year in your business, you will still need to 1099 Your Local Friendly Retailer (unless another exception applies, such as the credit card reporting exception).
  • excludes reporting any amount with respect to which a return is required to be made under section 6050W, which covers reporting obligations for payment card transactions. (For information on 6050W, see the proposed regulations under section 6050W, the press release that accompanied the proposed regulations, and the notice inviting public comment on those proposed regulations.)

The proposal offered by Sen. Mike Johanns (R-Neb.) would repeal the new rules in their entirety as if they’d never been passed. You can view both proposals here.

At the end of subtitle B of title II, add the following: 
PART V–ADDITIONAL PROVISIONS 
SEC. __X. CERTAIN EXCEPTIONS TO INFORMATION REPORTING PROVISIONS. 
(a) In General.–Section 6041 of the Internal Revenue Code of 1986, as amended by section 9006 of the Patient Protection and Affordable Care Act and section 2101 of this Act, is amended by redesignating subsection (j) as subsection (k) and inserting after subsection (i) the following new subsection:

“(j) Coordination With Returns Relating to Payment Card and Third Party Network Transactions.–This section shall not apply to any amount with respect to which a return is required to be made under section 6050W.”.

(b) Increase in Threshold Amount and Exemption for Small Employers for Reporting of Payments Relating to Property.–Subsection (a) of section 6041 of the Internal Revenue Code of 1986, as amended by the Patient Protection and Affordable Care Act, is amended by adding at the end the following new sentences: “In the case of payments in consideration of property, this subsection shall be applied by substituting `$5,000′ for `$600′ and this subsection shall not apply in the case of any person employing not more than 25 employees at any time during the taxable year. For purposes of the preceding sentence, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as one employer.”.

(c) Regulatory Authority.–Subsection (k) of section 6041 of the Internal Revenue Code of 1986, as redesignated by subsection (a), is amended by striking “including” and all that follows and inserting “including–

“(1) rules to prevent duplicative reporting of transactions, and 
“(2) rules which identify, and provide exceptions for, payments which bear minimal risk of noncompliance.”. 
(d) Effective Dates.– 
(1) IN GENERAL.–Except as provided in paragraph (2), the amendments made by this section shall apply to amounts with respect to which a return is required to be made in calendar years beginning after December 31, 2010.

(2) PROPERTY THRESHOLD.–The amendment made by subsection (b) shall apply as if included in the amendments made by section 9006 of the Patient Protection and Affordable Care Act.

(e) Public Comments and Suggestions.–In order to minimize the burden on small businesses and to avoid duplicative information reporting by small businesses, the Secretary of the Treasury or the Secretary’s designee is directed to request and consider comments and suggestions from the public concerning implementation and administration of the amendments made by section 9006 of the Patient Protection and Affordable Care Act, including–

(1) the appropriate scope of the terms “gross proceeds” and “amounts in consideration for property” in section 6041(a) of the Internal Revenue Code of 1986, as amended by such section 9006,

(2) whether or how the reporting requirements should apply to payments between affiliated corporations, including payments related to intercompany transactions within the same consolidated group,

(3) the appropriate time and manner of reporting to the Internal Revenue Service, and whether, and what, changes to existing procedures, forms, and software for filing information returns are needed, including electronic filing of information returns to the Internal Revenue Service,

(4) whether, and what, changes to existing procedures and forms to acquire taxpayer identification numbers are needed, and

(5) how back-up withholding requirements should apply. 
(f) Timely Guidance.–The Secretary of the Treasury is directed to issue timely guidance that will implement and administer the amendments made by section 9006 of the Patient Protection and Affordable Care Act in a manner that minimizes the burden on small businesses and avoids duplicative reporting by small businesses.

(g) Reports to Congress.– 
(1) IN GENERAL.–Prior to the effective date of the amendments made by section 9006 of the Patient Protection and Affordable Care Act, the Secretary of the Treasury shall report quarterly to Congress concerning the steps taken to implement such amendments, including ways to limit compliance burdens and to avoid duplicative reporting. Such reports shall include–

(A) a description of actions taken to minimize, reduce or eliminate burdens associated with information reporting by small businesses, and

(B) a description of business transactions exempted from reporting requirements to avoid duplicative reporting or because such transactions represent minimal compliance risk.

(2) COMPARISON.–Not later than 6 months prior to the effective date of the amendments made by section 9006 of the Patient Protection and Affordable Care Act, the Secretary of the Treasury shall report to Congress a comparison of the expected compliance requirements after the implementation of such amendments to the compliance requirements under section 6041 of the Internal Revenue Code of 1986 prior to the effective date of such amendments.

SEC. __X. DENIAL OF DEDUCTION FOR MAJOR INTEGRATED OIL COMPANIES FOR INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION OF OIL, GAS, OR PRIMARY PRODUCTS THEREOF.

(a) In General.–Subparagraph (B) of section 199(c)(4) of the Internal Revenue Code of 1986 is amended by striking “or” at the end of clause (ii), by striking the period at the end of clause (iii) and inserting “, or”, and by inserting after clause (iii) the following new clause:

“(iv) in the case of a taxpayer which is a major integrated oil company (as defined in section 167(h)(5)(B)), oil related qualified production activities (within the meaning of subsection (d)(9)(B)).”.

(b) Conforming Amendment.–Section 199(d)(9)(A) of the Internal Revenue Code of 1986 is amended by inserting “(other than a major integrated oil company (as defined in section 167(h)(5)(B))” after “taxpayer”.

(c) Effective Date.–The amendments made by this section shall apply to taxable years beginning after December 31, 2010.


 

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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