Although it¨s just one of many new taxes in the health care reform law, and its effective date is more than a year away, the new Form 1099 reporting requirements are suddenly on everyone's radar screen.

The requirements, included as Section 9006 in the Patient Protection and Affordable Care Act, will require the tracking of payments for goods as well as services, and for payments to corporations as well as individuals. All businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they make purchases totaling $600 or more during a calendar year.

National Taxpayer Advocate Nina Olson cited the new requirements as one of her main concerns during the fiscal year ahead, saying that the burdens "may turn out to be disproportionate as compared with any resulting improvement in tax compliance."

During 2011, her office will study the impact of the new reporting requirement more closely and, depending on what the study finds, may propose administrative or legislative recommendations to modify the provision or suggest that Congress consider less burdensome tax gap proposals.

"This will add an untold number of 1099s to the mix, and it's going to be a record-keeping burden for the purchaser," said Benson Goldstein, senior technical manager at the American Institute of CPAs. "What if they have multiple locations, and the purchaser is buying from many different vendors? There's a lot to be worked out, but it will be a very burdensome task not only for the business community, but also for the IRS."

"It starts with the fact that Form 1099 was focused on reporting compensation for personal services, rather than goods," said Robert Kerr, senior director of government relations for the National Association of Enrolled Agents. "But when push came to shove, it scored higher as a 'pay for' to include goods as well."

"It's extremely intrusive on businesses, particularly small businesses," Kerr explained. "For example, if you run a small shop and pick up doughnuts for the office every Friday, eventually you will reach the $600 threshold, so do you ask for the vendor's Taxpayer Identification Number on the day you get the first doughnut, or on the day you have reached the $600 mark? And what if you go to two doughnut stores - they could be owned by two different franchisees. Is it a reasonable exercise for small business to keep track of which Dunkin' Donuts they buy from?"

Moreover, he noted, it is the responsibility of the owner to determine whether the business will reach the $600 threshold for a particular vendor. "They might just stop buying doughnuts because the paperwork is too burdensome," he said.

IRS Commissioner Doug Shulman has acknowledged the burden the provisions impose, and plans to use IRS administrative authority to exempt business transactions that use credit or debit cards. "These transactions will already be covered by reporting requirements on payment card processors," he said. The IRS is also looking for other ways to reduce the burden (see TaxNews, at right).

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