Senate Eases 1099 Woes in Small Business Bill

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The Senate has revised the Small Business Jobs Act tax relief and lending bill with amendments scaling back controversial new requirements for 1099 reporting of business transactions.

The expanded 1099 information reporting requirement was originally included as part of the health care reform bill, also known as the Patient Protection and Affordable Care Act. The expanded 1099 reporting requirement is not currently in place, but is scheduled to take effect in 2012, requiring businesses to report to the IRS any purchase from a vendor of goods or services worth $600 or more during the calendar year. It is effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.

The provision has provoked outcry from businesses, and the American Institute of CPAs has urged Congress to repeal the requirement (see AICPA Asks Congress to Repeal New 1099 Requirements). Both Democrats and Republicans have begun introducing legislation to at least scale back the new requirement. A bill known as the Small Business Tax Relief Act repealing the 1099 requirement failed to pass in the House late last month when it was introduced shortly before House members left for an August recess (see Small Business Tax Relief Act Fails to Pass in House).

Senate Democrats have tried on several occasions to pass the Small Business Jobs Act after the House managed to pass a similar bill in June, but so far have not managed to overcome Republican filibusters (see Senate Fails to Overcome GOP Filibuster of Small Business Jobs Bill). The legislation aims to encourage investment in small businesses by allowing investors to exclude 100 percent of the gains from the sale of certain small-business stock from their income for tax purposes if the stock is held for more than five years, and allowing small businesses to carry back general business tax credits to offset their tax burdens from the previous five years. The bill also contains a $30 billion lending fund for small businesses.

On Thursday evening, Senate Democrats proposed a series of amendments in an effort to attract Republican support for the bill, including a modified version of a Republican amendment to repeal the expanded 1099 filing requirement. Senate Majority Leader Harry Reid, D-Nev., has set up votes on the revised bill on Sept. 14, after the Senate returns from its August recess.

Sen. Mike Johanns, R-Neb., recently proposed an amendment to repeal the expanded 1099 requirement, and gained the backing this week of Sen. Blanche Lincoln, D-Ark. Reid, however, favors a similar amendment from Bill Nelson, D-Fla., which would raise the threshold for reporting the transactions from $600 to $5,000.

Reid also objects to a provision in the Johanns amendment that would pay for eliminating the 1099 provisions by in turn eliminating the $15 billion Prevention Trust Fund, which provides access to preventive services, including cancer screenings and smoking cessation programs, especially for those who have lost their health insurance. Reid instead wants to compensate for the cost of scaling back the 1099 reporting requirements by repealing tax cuts for the five largest oil companies that allow them to deduct 6 percent of their income from oil and gas production from their tax liability. The repeal would only apply to the five largest corporations with more than $1 billion of before-tax income.

Senate Finance Committee Chairman Max Baucus, D-Mont., unveiled a substitute amendment to the Small Business Jobs Act with further changes aimed at attracting more support for the bill.

President Obama has made the small-business bill a legislative priority. The disappointing numbers in the monthly jobs report released Friday by the Labor Department’s Bureau of Labor Statistics showed that total nonfarm payroll employment declined by 131,000 in July, underscoring the need for more action on the employment front. Federal government employment fell as 143,000 temporary workers hired for the Census completed their work. Private-sector payroll employment edged up by 71,000, but the unemployment rate was unchanged at 9.5 percent.

“We have a responsibility to pass this bill and give small businesses the help they need,” Baucus said in a statement. “America’s small businesses are starving from a credit crunch that’s preventing them from accessing the capital they need to grow and create jobs. This bill will give small businesses and entrepreneurs the vital access to capital, resources and opportunities they need to grow and create jobs. Small businesses are the engine of American job creation and they need our help and they need it now.”

Changes in Baucus’s new substitute amendment strike a provision included in a previous substitute amendment that would have eliminated the advanced Earned Income Tax Credit (see Senate Further Modifies Small Business Tax Cut Bill). The July 27 version of the Small Business Jobs Act included a provision to repeal the option to request an advanced payment of the EITC.  This provision is now included in Senate Amendment #4575 (FMAP/Teacher Funding) to H.R. 1586 and therefore is no longer included in the new substitute amendment from Reid, Baucus and Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu, D-La.  This modification is estimated to decrease the offsets in the package by $1.1 billion.

The new substitute amendment would also eliminate a provision to provide assistance for 2009 agricultural losses for crops, including specialty crops, livestock, sugar, aquaculture, cottonseed and poultry, after the aid was criticized by some Republicans. This modification is estimated to reduce the cost of the package by $1.479 billion.

The new version of the substitute amendment also strikes out a provision in the July 27 version of the bill that would reallocate $500 million of future spending allotted in the Recovery Act, and return Supplemental Nutrition Assistance Program, or food stamps, benefits to the levels that individuals would have received in 2017 under pre-Recovery Act law, effective Aug. 31, 2017.  This provision is now included in the new Reid-Baucus-Landrieu substitute amendment.  This modification is estimated to decrease package offsets by $500 million. The removal of the food stamp assistance from the bill had been criticized by many Democrats.

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