Don't Mess With Taxes

Shortly after health care reform became law in March, a small ripple showed up in the vast tax-law ocean.

Today it has become, if not a  tsunami, as least a decent sized wave of opposition to new Form 1099 reporting requirements that businesses will soon face.

Starting in 2012, part of the Patient Protection and Affordable Care Act (Public Law 111-148) will force companies to file a Form 1099 for payments for goods or services that total more than $600 annually to a single business. The current law only applies to the purchase of services, not the purchase of goods.

The expanded provision was included as a way to raise money to pay for health care measures. The Joint Committee on Taxation's numbers crunching projects the added reporting will bring in $17.1 billion over 10 years thanks to the IRS having increased information about money paid out to vendors.

New paperwork burden: Small business owners in particular are outraged about the amount of new work this law will create. And support for their position is growing.

Concern first started showing up on blogs, such as The Wandering Tax Pro, Tax Update Blog, taxgirl and Tax Lawyer's Blog.

Others soon joined the "this stinks" chorus.

The new information reporting requirement "may present significant administrative challenges to taxpayers and the IRS," wrote Taxpayer Advocate Nina E. Olson in her latest report to Congress.

Olson told Representatives and Senators that her office "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."

Most recently, the American Institute of CPAs wrote members of the House and Senate asking them to repeal the new 1099 reporting section of the health care law.

Now, some lawmakers are trying to do just that.

A group of Democratic Senators -- Ben Nelson of Nebraska, Mark Begich of Alaska, Jeanne Shaheen of New Hampshire and Evan Bayh of Indiana -- wrote IRS Commissioner Doug Shulman expressing concerns about the new 1099 requirements. They want the IRS to reduce the resulting paperwork burdens that small businesses expect to face.

Bills to repeal introduced: Legislatively, Sen. Mike Johanns (R-Neb.) has introduced S. 3578, which would roll back the health care law's expansion of Form 1099 information reporting requirements. Eighteen of his colleagues have signed on as cosponsors.

On the other side of Capitol Hill, Rep. Daniel E. Lungren (R-Calif.) has offered a companion bill, H.R. 5141, which has 131 cosponsors.

"Businesses are up in arms over this new provision  and they should be," Johanns told participants at a recent health care forum in Washington, D.C., hosted by several business groups. "This provision is absolutely brutal for small businesses. It will require them to spend more time and money on paperwork and reporting."

Both bills are titled the Small Business Paperwork Mandate Elimination Act and each is currently pending in its respective House or Senate tax-writing committee. Practically speaking, that's probably as far as they'll progress this Congressional session.

But since the new reporting requirement doesn't kick in until 2012, expect to see the effort to repeal the added Form 1099 reporting to get even more attention as the effective date nears.

• Don't fall for health care tax rumors
• Health care reform taxes, redux
• Tax provisions in the health care bill
• Adding adult kids to health care, FSAs
• IRS health care notices hitting mailboxes
• IRS health care expansion not imminent

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