A group of small businesses has written an open letter to the leaders of the Senate Finance Committee requesting changes in the expanded 1099 reporting requirements in the health care reform law.
The new requirements require totaling, and reporting, by vendor, all purchases of both goods and services from any taxpayer-vendor which total to more than $600 per year, wrote Eric Blackledge and Thala Taperman Rolnick, CPA, tax issue chairs of the National Small Business Network, in a letter dated May 24. These provisions will have substantial unforeseen consequences and unreasonably high administrative costs for both taxpayers and the government. Although the new requirements do not take effect until January 2012, businesses who try to comply will have to start making major expenditures to modify accounting software and procedures by mid 2011.
In the letter, they asked Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Charles Grassley, R-Iowa, to re-examine the real benefit of this change in relation to its very high administrative costs and consider adoption of an alternative revenue offset for health care.
They explained that the revenue provision, which was unrelated to health care, originated from a desire to reduce perceived under-reporting of income by non-employee personal service contractors and small cash-based businesses.
Unfortunately, the adopted language was a massive overkill directed at the wrong target, they added. Business purchasers of goods or non-employee personal services are not the primary source of unreported income. Business purchases are usually tax deductable and businesses have a self-interest in clearly documenting transactions in case they are audited internally or by the IRS. This is particularly true when using independent contract service providers who could be subject to re-classification as employees. Individual consumers are actually the major source of unreported personal service income.
National Taxpayer Advocate Nina Olson also questioned the new 1099 information reporting requirements in her annual report to Congress on Wednesday (see Taxpayer Advocate Concerned about 1099 Reporting).
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