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Businesses, landlords would have to file form on annual transactions over $600

NORTH BAY – Congress now has twice failed to repeal an increasingly unpopular part of the health care reform law that will require, starting in 2012, all businesses, charities and state and local governments to file 1099 forms for all purchases of $600 or more in goods from another business throughout the year.

This new requirement, Section 9006, would impact as many as 40 million American businesses.

Though all businesses will be affected, small businesses are seen as being particularly hard hit because they lack the legal and accounting knowledge needed to comply and deal with the added paperwork.

Also part of the attempted repeal is a less pervasive but more imminent part of the jobs bill passed in September that will require landlords to file 1099s on all services of more than $600 starting Jan. 1, 2011, and goods beginning in 2012.

The businesses will be required to submit a form to both the vendor and to the IRS.

“This means if one is going to buy 50 boxes of printing paper, you need to know who you bought it from. How much do you spend and what is their tax ID number?” said John Panetta, tax partner with Burr Pilger Mayer.

He said systems will have to be in place to capture all the information to draw the line at the $600 level for all purchases of goods and services and that this is intrusive into the daily systems of operating a business.

This accounting is supposed to bring between $17 billion and $19 billion in revenue, which will go toward paying for the health bill. But many experts have raised doubts about the revenue estimates.

“We all recognize that we have to be smart on how we run the country, it is to the good in that sense,” he said. “On the other hand, there is a clear reaction that it imposes more burdens on the business person in their internal financial systems to keep track of this. This is an increased burden on American business.”

It is also meaningful on the recipients’ end. The vendor who sells the goods to the business will be receiving the 1099s, and that will be another item they have to cross check against when they tally up paperwork at the end of the year.

“If there is a discrepancy, do they call the business they sold the goods to?” said Mr. Panetta. “It is going to be a challenge to organize on both sides.”

Sen. Mike Johanns, R-Neb., introduced the Small Business Paperwork Reduction Act in July, which would eliminate Section 9006.

"Momentum behind this repeal has been building since I first introduced it in July," Sen. Johanns said Nov. 17, when he reintroduced the bill. "We've heard businesses say this will bury them in costly paperwork; we've heard a division of the IRS say it will lead to an increase in tax penalty errors; and we've heard the president himself call the mandate counterproductive."

The IRS says about 85 million 1099s are filed each year. The National Small Business Association predicts that an average business will have to file 95 forms a year under the new rules, compared to the current average of fewer than 20.

According to the Office of the Taxpayer Advocate, “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.”

The American Institute of Certified Public Accountants contends that implementing the change will require collaboration among businesses and software vendors and likely the help of CPAs to correctly identify, characterize and report these transactions.

"Purchases affected could range from inventory to payments for advertising services to the electricity bill," read a statement the group put out on the legislation.

Sen. Mike Enzi, R-Wyo., co-sponsor of the Johanns amendment, spoke in Congress on Nov. 29.

He said the new government mandate will impose significant burdens on both small and large businesses, and taxpayers’ costs will increase as a result of accumulating the information and preparing the tax forms necessary to comply with this expanded mandate.

"Imagine you’re a freelance writer and you buy a new laptop," he said. "Well, now you have to send Form 1099 to Apple and the IRS or be labeled a tax cheat. Oh, and you’ll need Apple’s taxpayer identification number too, so don’t forget to ask the salesman for that."

Sen. Max Baucus, D-Montana, offered a virtually identical repeal of 1099. The Baucus amendment also failed, though he vowed to continue working to get it repealed.

“Small business owners voiced legitimate concerns that these requirements would be burdensome, and the Senate should act in response to those concerns. I am disappointed that we weren’t able to repeal these requirements today, but I intend to keep working until we do,” Sen. Baucus said on Nov. 29.

“Our bill will allow small business owners to direct their focus onto job creation and growth rather than on paperwork.  We will keep up our fight on behalf of small businesses so they can continue their critical work to create jobs and help the economy recover.”