Friday, August 20, 2010

1099 Reporting Changes Provoke Opposition

The IRS has a problem if this 1099-MISC filing requirement under the Health Care Reform Act is not repealed because there is another requirement for credit card companies to report all charged sales to the IRS for each merchant. This will double up all credit card/PayPal type sales. The IRS commissioner recently announced that the IRS would use its power to exempt purchases using credit cards from 1099-MISC reporting. However, if businesses don't report credit card purchases on 1099-MISC, they would have the added burden to segregate cash purchases from credit card purchases. Most small businesses don't have that kind of capability. The result is all credit card sales to businesses will be reported twice.

If this filing requirement is repealed, then the cost of the health care reform will be bigger on paper, as the Obama administration claims this filing requirement would generate tax revenues.
By Roger Russell, Senior Editor, Accounting Today

My guess is that there’s at least a 50-50 chance that the new Form 1099 reporting mandate will be repealed or modified before they go into effect.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

While they 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.

8109 coupons to be discontinued

I have always advocated use of electronic payments. Using EFTPS (electronic federal tax payment system) is easy and convenient.

Washington, D.C. (August 19, 2010)
By WebCPA Staff

The Internal Revenue Service issued proposed regulations on Thursday to significantly increase the number of electronic transactions between taxpayers and the federal government.

In accordance with a Financial Management Service initiative announced in April of this year, the proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain the existing rules for depositing federal taxes through the Electronic Federal Tax Payment System.

Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government, the IRS noted. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.

Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.

Information on EFTPS, including how to enroll, can be found at or by calling EFTPS Customer Service at (800) 555-4477.

Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.

Tuesday, August 17, 2010

New California tax rate and law

The FTB has announced changes in the 2010 tax rate schedules, return filing thresholds, standard deduction, phaseout of itemized deductions, personal exemptions, phaseout of personal exemptions, various credit changes and the AMT exemption. You can view all of these changes at

On 8/13/2010, Governor Schwarzenegger signed AB 2177, effective 1/1/2011 through 12/31/2017. This bill authorizes the FTB to issue regulations authorizing electronic communications with taxpayers and representatives (both sending and receiving) for personal and corporation income tax matters after receiving the taxpayer's consent. This would include sending notices, statements, bills, protests, and other communications to a taxpayer's secure mailbox on the FTB's website. You can read the bill at

Monday, August 2, 2010

Congress and Estate-Tax Revisions
Tom Herman, On Sunday August 1, 2010, 1:03 am EDT

Q: Who in Congress are the key leadership players on revising the estate tax? Is this a separate issue or part of overall tax reform? Is it possible they will deal with this prior to their August recess?

A: Among the major players are Senate Majority Leader Harry Reid, a Nevada Democrat, and Sen. Max Baucus (D., Mont.), who heads the Senate Finance Committee, which oversees tax legislation.

Others include Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee; Sen. Jon Kyl (R., Ariz.); and Sen. Blanche Lincoln (D., Ark.)

The main focus is on the Senate since the House already has approved estate-tax legislation. Among the key players in the House: Speaker Nancy Pelosi, a Democrat from California, and Democratic Rep. Sandy Levin of Michigan, chairman of the powerful Ways and Means Committee. Rep. Dave Camp of Michigan is the ranking Republican on the Ways and Means Committee.

On your question about timing: Nobody knows when Congress will act, or whether this tax will be dealt with as part of some wide-ranging legislation. It's possible that the Senate might reach agreement in coming weeks. But lawmakers might wait to tackle the issue until after the November elections.

Congress might be unable to reach any agreement this year, some analysts note. If Congress takes no action, the estate tax, which expired at the end of last year, will return next year with a basic exemption of $1 million and a top rate of 55% on the largest estates. (Transfers between spouses typically are tax-free.) For 2009, the basic exemption was $3.5 million, and the top rate was 45%.

Here's a recent development that bears watching: Sens. Kyl and Lincoln introduced a bill that would set the top estate-tax rate permanently at 35%. It also would set the exemption amount at $5 million, phased in over 10 years and indexed for inflation.

And it would restore what's known as "stepped-up basis" for inherited assets that have gone up in value. Essentially, it means stocks, bonds and other assets you inherit typically would be valued on the date of death of your benefactor, instead of what that person originally paid for them.

That's important for calculating capital-gains taxes when you eventually sell those assets.

Write to Tom Herman at

Here is a link to Senator Kyl's web site on the proposed bill,

Senator Lincoln's press release is at

H.R. 5297 is at

CNN Money recently has an articled, titled "Estate tax in limbo". Read it at