Will new 1099 reporting requirements be repealed post-Nov. 2?

• Author: North, Cady
• Position: Washington insights - Legislation

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...