Many, many business groups and writers have come out against the new 1099 rules which were contained in section 9006 of the “Patient Protection and Affordable Care Act” (P.L. 111-148) (the health care reform bill). I am not aware of any commentators who are not urging the repeal of the new rules. Why? Well, because they are onerous and ridiculous.
If you are in business, and you buy goods in the course of your business, you are going to have to issue Forms 1099 to the businesses from which you buy more than $600 in goods during the year.
Example 1: I am an independent contractor. I buy a computer from My Local Friendly Retailer for $601. I have to issue a Form 1099 to My Local Friendly Retailer. It doesn’t matter if My Local Friendly Retailer is a Fortune 1000 company.
Example 2: I regularly buy office supplies from My Local Friendly Retailer. None of my purchases are over $600. However, my aggregate purchase prices over the course of the year total more than $600. I have to issue a Form 1099 to My Local Friendly Retailer.
The AICPA wrote a great letter urging the repeal of the new rules. The National Taxpayer Advocate has also voiced alarm about the new rules. The IRS has issued some proposed regulations which would exempt from these rules certain purchases made by credit card. However, these draft regulations would not fully alleviate the problem.
As summarized by the National Taxpayer Advocate:
A provision in the Patient Protection and Affordable Care Act (PPACA), enacted in March of this year, added a new information reporting requirement that may present significant administrative challenges to taxpayers and the IRS. In particular, businesses will have to issue Forms 1099 for goods purchased after 2011, regardless of the corporate form of the vendor. The Office of the Taxpayer Advocate is concerned that the new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance.
Now the Independent Insurance Agents & Brokers of America has chimed in with a very good letter to Congressional leaders in the Senate and the House. You can find a text of the letter here. In key part, the letter says:
As you know, beginning in 2012 this provision will require all businesses to file Form 1099s for all payments for goods and services of $600 or more, or for a series of payments cumulatively adding up to $600 or more, during the tax year. In order to comply, businesses will be forced to institute costly new record keeping procedures for every business to business transaction, including tracking the name, address and taxpayer identification number (TIN) of the each vendor. The following year businesses will be required to file each Form 1099-MISC with the IRS and send a copy to its business counterparty.
We understand this provision was intended to close the “tax gap” of businesses not in compliance with the tax code. However, for insurance agencies and brokerages and their many small business clients, this onerous provision will cost jobs. The amount of resources that will have to be poured into new record keeping, accounting and compliance procedures will be especially burdensome for small businesses such as those in our membership. At a time when we are attempting to recover from a deep recession, this provision will stretch already thin resources to the breaking point.
In addition, although this provision is intended to target businesses evading taxes, in reality it is the compliant businesses that will pay the price. Noncompliant businesses will continue to avoid paying taxes, and compliant businesses will be saddled with increased costs and unjustified audits by the Internal Revenue Service (IRS). Meanwhile little to no net revenue will be raised for the government, especially when increased costs at the IRS are factored in.
As evidenced by the recent legislative action in both the House of Representatives and the Senate, there is bipartisan support for repeal of this provision. We are encouraged by these developments and urge full repeal as soon as possible.
Let us hope that when Congress returns it repeals these new rules.