1099 Reporting Changes Provoke Opposition

My guess is that there’s at least a 50-50 chance that the new Form 1099 reporting mandate will be repealed or modified before it goes into effect. On almost anyone’s benefit-burden scale, the burdens far outweigh the benefits.

While the requirements don’t go into effect until 2012, they have created a firestorm of concern and criticism, and have been a frequent topic on editorial pages and Sunday talk shows. The requirements, included in the health care legislation passed in March, will require the tracking of payments for goods in addition to 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

The AICPA was among the numerous organization responding to the requirements, saying it would be especially burdensome and costly for small businesses to compile the data and prepare the Form 1099-MISC return, and calling for outright repeal of the measure.

Moreover, the AICPA said, information provided by the forms will not be particularly helpful in collecting any unpaid taxes because it will be difficult to reconcile payments reported on the forms with the income reported by the vendor.

“This expansion of information reporting may prove to be so burdensome to small businesses that we believe it will significantly contribute to the hurdles to growth and formation that businesses face,” the AICPA stated. “When businesses start tax compliance planning for 2012, Section 9006 [of the Patient Protection and Affordable Care Act, the health care legislation that introduced the mandate] will impose a significant increase in costs on business with respect to the accumulation of relevant information and the preparation and mailing of Forms1099-MISC.”

In addition, many corporations operate on a fiscal year basis rather than on a calendar year, the Institute noted. “Receipt of Forms 1099-MISC by these fiscal year corporations would not provide useful information as the corporations would be receiving calendar year information, triggering a burdensome income reconciliation procedure for the taxpayer that would be necessary to interpret the data,” said the AICPA.

“We strongly support repeal of the requirement,” AICPA senior technical manager Benson Goldstein told me. 

At the same time, he said, the Institute will participate in offering suggestions to the IRS to implement the legislation in a more reasonable manner.

“We will take the opportunity to offer comments to the IRS,” he said. “Our commenting is not to hedge our bets. It’s just that we are taking the opportunity that the IRS is offering because we don’t know how the legislative calendar will work out. But our strongly held view is that the better way is repeal.”

This week, the U. S. Chamber of Commerce sent its own letter to Congress calling for repeal. The letter included 1,100 signatures from local chambers of commerce, associations, and businesses of all sizes. The letter pointed out that the requirement would increase accounting costs, and expose businesses to costly and unjustified audits.

Moreover, it said the mandate could alter marketplace behavior to the detriment of small businesses and startups. Customers might consolidate their purchases by using several large vendors with broad geographic presence and more diverse product lines instead of a number of small vendors.

The logic of the requirement falls apart when you consider how the information will be used. For example, even if Home Depot received 1099s from all of its business customers, would the information be of any value? And if the information has no value, it shouldn’t be required.

For reprint and licensing requests for this article, click here.