Monday, November 8, 2010

A Closer Look at the 1099 Reporting Requirements Coming in 2012

It wasn’t long after the passing of the Patient Protection and Affordable Care Act (H.R. 3590) that people were alerted to the adjustments made to the business expense reporting requirements taking effect in 2012. These changes, which were thought to have been introduced to help fund the health reform bill, are a game-changer in the 1099 reporting world which had mostly been reserved for reporting payments to independent contractors. Simply stated, businesses (sole proprietors, partnerships, corporations, etc.) will now be required to issue a 1099 for all goods and services purchased with a cumulative total of $600 or more received from ANY, non tax-exempt business.

Section 9006 of H.R. 3590, Expansion of Information Reporting Requirements, was designed to amend Section 6041 of the Internal Revenue Code. For your convenience, we have indicated the pertinent adjustments in bold below:

Sec. 6041. Information at source

(a) Payments of $600 or more [Effective for payments made after December 31, 2011]

All persons [Including any corporation that is not an organization exempt from tax under section 501(a)] engaged in a trade or business and making payment in the course of such trade or business to another person [Including any corporation that is not an organization exempt from tax under section 501(a)], of rent, salaries, wages, amounts in consideration for property, premiums, annuities, compensations, remunerations, emoluments, or other gross proceeds, fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or 6050N(a) applies, and other than payments with respect to which a statement is required under the authority of section 6042(a)(2), 6044(a)(2), or 6045), or $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gross proceeds, gains, profits, and income, and the name and address of the recipient of such payment.

What does this all mean?
In previous years, businesses have always had the luxury of deducting goods and services purchased from a corporation without having to issue a 1099. However, these recently introduced changes could now add a few headaches from an information collection and document generation standpoint. Imagine the additional time it will now take businesses to collect tax ID numbers from their vendors and issue 1099’s. That said, businesses who maintain organized books throughout the year will be in better shape, but will still be faced with an increased workload.

Where do we stand today with IRC Section 6041?
Since it was initially uncovered, Section 9006 has been the subject of scrutiny from business owners, congressmen, senators and, most recently, President Obama. In fact, during his November 3rd press conference, President Obama indicated his willingness to discuss the repeal of this provision due to its potentially adverse effects on small businesses. H.R. 5141, authored by Congressman Dan Lungren, was introduced on April 26th to repeal the extension of IRC 6041 to include payments made to corporations (Senator Mike Johanns introduced a similar bill in July, S. 3578).

If Section 6041 remains undisturbed, there has been an effort made to soften the potential burden placed on businesses. The IRS has proposed regulations that would exempt credit card transactions from this reporting requirement. Additionally, the IRS is considering adjustments to reporting deadlines.

If you’d like to learn more about H.R. 3590, and the current attempts to repeal its information reporting requirement, please follow any of the links below:
H.R. 3590: The Patient Protection and Affordable Care Act
IRC Sec. 6041: Information at Source
S. 3578: Small Business Paperwork Mandate Elimination Act
H.R. 5141: Small Business Paperwork Mandate Elimination Act
IRS Bulletin 2010-29: Information Reporting Under the Amendments to Section 6041 for Payments to Corporations and Payments of Gross Proceeds and With Respect to Property

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