Federal Form 1099 Rule Changes

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By now you have probably heard about new Tax Legislation changes that have been included as part of the new Patient Protection and Affordable Care Act of 2010.  Corporations will soon be dealing with a volume of 1099 reporting beyond their wildest fears.

Congress tucked a small section into the enormous Healthcare legislation bill  that amends Section 6041 of the Internal Revenue Code that will soon mandate businesses to file an information return (likely a Form 1099) when payments to the single payee total $600 or more in a calendar year… including corporations!

The provision is effective for payments made after Dec. 31, 2011. Currently in Section 6041 most payments to corporations are exempt from Form 1099 reporting requirements. These exemptions include: Providers of Goods, Corporations, Tax Exempt Organizations, Internal Organizations, and Retirement Plans. Possibly the biggest change is that reporting is now required for corporations. Currently  1099’s are only required for a small subset of the suppliers where payments were made. This is typically well less than 10% of the payments made to a company’s suppliers  , under the new law that number could spike to 95%.

Section 9006 of the 2010 Health Care Act also includes “gross proceeds” paid for “property” or services. (if the $600 min is met) This will of course exclude tax-exempt corporations under Section 501(a) of the IRC. Vice President of Government Relations has stated that if a vendor refuses to provide a Tax Information Number to the payer required to provide the 1099, the vendor may be required to withhold on behalf of the IRS. I have been unable to find a corroborating source for this online, but assuming this comes to pass, this will create a mountain of work to stay in compliance with such legislation. Legislation requiring this level of attention and workload from corporations is by no means unprecedented.

Although there is much to learn about the new legislation the new reporting appears as though it will include payments for much routine expenditure

  • Some travel expenses such as gasoline and automobiles
  • Computers and hardware purchases
  • Software
  • Rental and Leases
  • Office supplies and expenses
  • Janitorial services
  • Some mail delivery services

If all of these items require 1099 reporting we will be dealing with the exchange of potentially billions of forms for which companies will have to obtain and verify an official vendor/supplier company name and a TIN and match the information successfully or they are penalized!!!

Having closely monitored this impending law for years Lavante can help significantly to help companies automate the collection of W9’s as well as the require IRS TIN collection and match. At the very least this huge work load can be eliminated. We encourage people to learn more at lavante.com. It is estimated that within the next 10 years they government will raise $17 billion of new tax revenue. The problem is that much of that revenue will come from small and mid sized businesses. Additionally, the cost to accounting departments across the country might be large as well.

In this bloggers opinion benefit to taxpayers are completely undermined by the volume of work and the spike in costs that the new mandates will create. Business of all sizes will be trying to support increased workload for employees, opportunity costs associated with pulling staff off of their already swelling workloads, payments to accountants and possibly lawyers and much more.

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