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August 3, 2010

HRB 13 - Expanded 1099 Reporting Requirements for 2012 and Call for Public Comment

Released August 3, 2010I Download as a PDF

August 3, 2010 -- Beginning in 2012, payments of $600 or more in any taxable year for goods as well as services, and made to any person or entity, including corporations, will be subject to Form 1099 reporting.  The new reporting requirements were introduced as part of the health care reform legislation enacted on March 23, 2010, which amends Section 6041 of the Internal Revenue Code (the “Code”).    Prior to the amendment, Section 6041 required information returns to be filed by every person engaged in a trade or business who makes payments to another person of rent, salaries, wages and other enumerated amounts that total $600 or more in a taxable year.  The amendment significantly expands this reporting requirement to include payments “of amounts in consideration for property” and includes corporations not tax-exempt under Section 501(a) of the Code as “persons” subject to the reporting.  Note that certain business purchases made with credit or debit cards are exempted from the Section 6041 reporting requirement under previously issued proposed regulations (REG-139255-08),1because such purchases will already be reported by banks and other payment processors. 

For this purpose, qualifying payments are generally reported on Form 1099-MISC, which must be filed with the Internal Revenue Service and a copy sent to each entity receiving the qualifying payments.  In order to complete the information required on the Form 1099, businesses will have to obtain vendors’ Taxpayer Information Numbers (TIN) by using Form W-9, and track payments made to all of their vendors to determine which payments satisfy the threshold for reporting – including tracking payments made by check or credit cards.  The 1099 forms for payments made in 2012 will have to be filed and reported by February 28, 2013, or March 31, 2013, if filing electronically, or on such dates as the IRS may require for such information reporting.  (Note: the IRS generally fixes the reporting deadlines for information returns a year before the Form is required to be filed.  For 2009, the IRS set the filing date of the return as March 1, 2010, and for 2010, the filing date is February 28, 2011.  Anticipate a similar timeframe for 2012 forms.)

The new provision was inserted as a revenue raiser in the health care reform legislation, offsetting costs of other provisions.  The reporting requirement is expected to affect businesses – and increase tax revenues -- in two ways.  First, most of the revenue of a business will now be reported to the IRS by third parties, making large understatements of revenue more difficult.  Second, a business will be less likely to overstate its expenses, as it will need to report who the recipients of the payments were.  On a practical level, however, the new 1099 filing requirements will substantially increase the burden and expense of reporting.  The Taxpayer Advocate Service (TAS) submitted a report to Congress expressing the concern that the new requirement will impose significant compliance burdens on businesses, charities and government agencies.  Businesses will have to keep track of all purchases they make by vendor, and each individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases.  According to a TAS analysis of the 2009 IRS data, nearly 40 million businesses will be subject to the new reporting requirement.  Some observers also note that this will seriously affect small businesses adversely, as recordkeeping requirements will be far too costly and time consuming.  Even if debit and credit card payments are excepted, most businesses are not set up to distinguish payments to vendors separately by type of payment.

With businesses groups complaining that the new law will swamp their members in paperwork, there have been some attempts in Congress to repeal the law.  Democrats and Republicans both want to repeal it, but have disagreed on how to make up the $19 billion in lost revenue that the new law was estimated to bring in over the next decade.  The House recently rejected a bill that would have repealed the provision.  There have been similar efforts to repeal the filing requirement in the Senate, with similar results.  The IRS has issued Notice 2010-512inviting public comment on the best way to implement the new reporting requirements in a manner that minimizes the burden and avoids duplicate reporting. 

It is too early to predict whether the new Form 1099 reporting requirements will survive, or how implementation will be altered by public comment.  Fortunately, there is still some time left before companies have to make the changes necessary to develop an effective strategy to handle the new reporting.  Do not be caught unaware with this change, however.  Diligence will be essential to save money, remain efficient, and become compliant.  Stay in contact with your CBIZ MHM professionals, who can advise you on the tax, accounting systems, benefits and payroll aspects of this and other changes in health care reform.

 

 

 

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations.

This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 



[1] IRS Proposed Rules, Hearing Notice (REG-139255-08) on Information Reporting for Payment Card, Third Party Network Transactions, amending Reg . §§31.3406(b)(3)-5 and 1.6050W-1, and amendments of Reg . §§31.3406-0, 31.3406(a)-2, 31.3406(d)-1, 1.6041-1, 31.6051-4, 301.6721-1 and 301.6722-1, relating to information reporting requirements, information reporting penalties, and backup withholding requirements for payment card and third-party network transactions (November 24, 2009).

[2] 2010-29 IRB 83 (July 1, 2010). Deadline for submission of public comment is September 29, 2010.

 

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