Beginning in 2012, businesses will be required to file “Form 1099” information returns with the Internal Revenue Service (IRS) and report all payments to corporations for goods or services in excess of $600. Under current law, most corporations are exempt from receiving 1099s. The 1099 reporting requirement is expected to raise $17 billion over 10 years. It was included as a revenue-raising initiative under the new health care law, in this case, collecting taxes on a potential source of unreported income.
SEMA-supported legislation has been introduced in Congress to repeal the requirement. Unless overturned, the rule threatens to impose enormous burdens on small businesses, certified public accountants and tax preparers as they attempt to track and report a wide range of payments to contractors, vendors and others. For example, companies would be required to report business-to-business payments for airline tickets, office supplies, phone and shipping services.
The IRS is seeking comments on how to best implement the law. The IRS has proposed to exempt purchases made with credit or debit cards since they are now reported by banks and other payment processors. However, it would not be a solution for businesses that pay by check or cash, or for vendors that do not accept credit/debit cards, in part, to avoid the 2% or 3% transaction fees. Additionally, if a vendor refuses to supply a tax ID number, then the payer could be required to withhold 28% of the vendor’s payment and send that amount to the IRS.
Comments about the IRS proposed rule are due by September 29. SEMA is working with a coalition of other associations to repeal the law.
For further information, contact Stuart Gosswein at email@example.com.