The House Committee on Small Business held hearings on repealing the unpopular expansion of 1099 information reporting in the health care reform bill.
One of the topics for discussion during the hearing last Wednesday was a bill introduced by Rep. Dan Lungren, R- Calif., which would repeal the new 1099 reporting requirements. Section 9006 of the Patient Protection and Affordable Care Act requires that businesses and nonprofit organizations report on transactions totaling over $600 a year with any other business to the IRS.
Lungren noted that his bill, the Small Business Paperwork Mandate Elimination Act, has attracted bipartisan support from 270 co-sponsors. Supporters include the chairman of the Small Business Committee, Rep. Sam Graves, R-Mo., and ranking member Nydia Velázquez, D-N.Y.
"The new 1099 filing requirement is emblematic of the broader array of regulatory obstacles which add to the difficulty faced by small business owners who are just trying to survive," said Lungren. "This new government mandate only adds to the perceived burdens which lie ahead and raises what might best be described as an 'uncertainty tax.' If we want to encourage investment, hiring and business growth, we should be looking at ways to create an environment which is more friendly to entrepreneurship. In this regard, the new filing requirement is entirely a step in the wrong direction."
The House Ways and Means Committee plans to do a markup Thursday of Lungren’s bill, as well as another bill that goes further in repealing the 1099 requirements. The second bill, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, would repeal the same 1099 requirements as the Lungren bill, as well as repeal an additional Form 1099 information reporting requirement on owners of rental real estate, and add an offset that would reduce improper overpayments of exchange subsidies established under the new health care law.
The Senate approved a repeal amendment earlier this month as part of a larger bill modernizing the Federal Aviation Administration (see Senate Passes 1099 Repeal Amendment). The Senate is still debating the larger FAA bill, but Senate Majority Leader Harry Reid, D-Nev., hopes to get the bill passed this week.
“This new 1099 requirement will cause an avalanche of additional 1099 forms to be filed, and affect over 36 million entities,” Graves said at last week's hearing. “At a time when we should be making it easier to create jobs, promote growth and invest in our economy, small firms don’t need yet another costly and burdensome mandate. Although attempts were made last session to repeal the provision, those efforts were unsuccessful. We must repeal it immediately, so small businesses do not begin to devote scarce resources to compliance.”
Velázquez agreed that the provisions need to be repealed. “Small firms already spend 1.8 billion hours on tax compliance—and the new 1099 rules would add to that burden,” she said. “It also does little to limit tax avoidance as estimates have found it would improve tax compliance by only one-half percent.”
Several small business owners also testified before the committee. Jerol Kivett, the president of Kivett’s Incorporated, a family-run church pew manufacturing and refinishing business in Clinton, N.C., testified on behalf of the National Federation of Independent Business. “Tax filing is never a task small-business owners look forward to, but making filing more burdensome only drains resources from already struggling companies,” he said.
Seth Shipley, the owner of Shipley’s Diamonds and Fine Jewelry in Hampstead, Md., testified on behalf of the National Retail Federation. “My small store in rural Carroll County serves about 6,000 customers a year,” he said. “I estimate that more than 1,500 of those customers spend more than $600 a year in my store. According to the government website, it only takes 18 minutes for me to fill out a 1099 form. Even so, that means approximately 500 more hours of work will have to be devoted to filling out those forms for my customers by my estimate. In addition, I conduct transactions with about 200 jewelry suppliers each year and will invest more than $600 with each of them. That means an additional 60 hours of work to fill out those 1099 forms.”
In his State of the Union address, President Obama suggested that he supported fixing the controversial provisions. However, in the White House budget proposal for fiscal year 2012 that was released on Monday, only the expanded 1099 reporting requirements for purchases of goods would be repealed, but not for services totaling more than $600 per year paid to corporations.
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