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A 1099 Wish in 2011

December 29th, 2010

The new federal health care “reform” law threatens to make the business of small business and non-profits more costly by imposing new, aggressive recordkeeping and tax reporting requirements. Beginning in 2012, all businesses and other entities will have to track and report the exact amount of purchases from each vendor. They risk audits and fines if the reported purchases do not equal the reported sales.

Even the Internal Revenue Service is “concerned” that the burdens “may turn out to be disproportionate as compared with any resulting improvement in tax compliance.” In July, 2010, IRS National Taxpayer Advocate Nina E. Olson worried that the “new reporting requirement…may impose significant compliance burdens on businesses, charities, and government agencies.”

MS Olson illustrates the record keeping problem with an example: “if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases.” (My note: we must obtain the legal name and taxpayer identification number of each “vendor” so we can fill out the 1099s.)

What does this have to do with health care? Nothing that I can see. There may, in fact, be a vast hidden economy that deprives us of significant revenues by failing to report large taxable transactions. However, this new 1099 net proposes to scoop up millions of small fry together with the major violators.

According to National Taxpayer Advocate Olson, “The provision will have broad reach. According to a TAS analysis of 2009 IRS data, about 40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, four million S corporations, two million C corporations, three million partnerships, two million farming businesses, one million charities and other tax-exempt organizations, and more than 100,000 government entities. All of these nearly 40 million businesses and other entities are subject to the new reporting requirement.”

What does the IRS National Taxpayer Advocate propose to do about this concern? “During FY 2011, TAS will study the impact of the new reporting requirement more closely” and may make recommendations. Here’s hoping she recommends abolishing this provision and that Congress listens to her.

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