Tuesday, May 31, 2011

1099 repeal eases some requirements, but leaves new ones for 2011

By George G. Jones and Mark A. Luscombe

The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, which passed Congress on April 5, 2011, eliminates two recently enacted 1099 reporting requirements that were to take effect in 2012. Still on the books, however, are a couple of new 1099 reporting requirements effective for 2011.

The Patient Protection and Affordable Care Act of 2010 had expanded the requirements for 1099 reporting by businesses to include payments to corporations, which had been exempted from the prior requirements, and also expanded the reporting requirements to include goods as well as services. The changes were to become effective in 2012.

Businesses expressed concern about the burden that the new reporting requirements would create. Although there were some initial proposals to raise the reporting threshold higher than $600, ultimately support grew for a general repeal of the additional reporting requirements. These additional reporting requirements have now been repealed.


Another 1099 reporting requirement had been added by the Small Business Jobs Act of 2010, requiring individuals who are landlords to report rental property expense payments of $600 or more made with respect to rental real estate. This change was also to become effective in 2012. Although this provision was not as widely criticized as the business reporting provision, complaints by landlords were sufficient for Congress to include repeal of this reporting provision in the legislation that passed on April 5, 2011, as well.

Both reporting requirements had been inserted in their respective legislation to help pay for health care reform and small-business tax breaks. To offset this decline in revenue, the repeal legislation includes an offset provision. Under the health care reform legislation, individuals entitled to a credit to help them purchase health insurance can receive advance payments on the credit to help pay for health insurance. If it turns out that the taxpayer receives a larger advance payment than the credit to which they ultimately prove to be entitled, the health care legislation included a repayment provision with caps.

The repeal legislation modifies these repayment caps by raising them based on the income level of the taxpayer. The old maximum cap was $400. The new cap could be as high as $2,500 if household income is at least 300 percent above the federal poverty level.


Even with this repeal legislation, there remain a couple of new 1099 reporting requirements effective for 2011. The Energy Improvement and Extension Act of 2008 requires that brokers, when reporting the sale of securities to the Internal Revenue Service, also include the customer's adjusted basis in the sold securities and classify any gain or loss as long- or short-term. A covered security is any specified security acquired on or after the applicable date if the security was acquired through a transaction in the account in which the security was held or was transferred to that account from an account in which the security was a covered security, but only if the broker receiving custody of the security receives a statutory statement with respect to the transfer. The applicable date for corporate stock is Jan. 1, 2011. For stock in a mutual fund or stock acquired in connection with a dividend re-investment plan, the applicable date is Jan. 1, 2012. For other securities, the applicable date is Jan. 1, 2013.

The IRS has issued guidance that postpones some of these requirements with respect to transferred shares and to corporate actions changing the basis of their outstanding shares. Other taxpayers are continuing to seek reporting waivers from the IRS. The information is to be reported on Form 1099-B.

The Housing and Economic Recovery Act of 2008 added a requirement for banks and other processors of merchant payment card transactions (credit and debit cards and Internet payments systems) to report a merchant's annual gross payment card receipts to the IRS and to the merchant. The reporting threshold is an aggregate value of third-party network transactions for a merchant of $20,000 or more for the calendar year and aggregate transactions of 200 or more. This reporting requirement is effective for sales made on or after January 1, 2011. Some taxpayers are also seeking waivers from these requirements. The information is to be reported on Form 1099-K.

The growth in third-party reporting has been largely aimed at using third-party information to help close the tax gap, i.e., the gap between the revenues due to the government and the revenues actually collected. The expansion of 1099 reporting has been a popular revenue-raiser in recent years to help address this issue. With this repeal legislation, Congress is likely to take a closer look in the future at the relative benefits and burdens of the revenue to be raised compared to the additional burdens on taxpayers created.

The two repealed reporting requirements were deemed to have flunked the benefits-vs.-burdens test. Still, the IRS feels that there are compliance issues in both areas that the 1099 reporting was designed to help address. The IRS may now be looking for other ways to help improve compliance in these areas.

George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst, at CCH Tax and Accounting, a Wolters Kluwer business.

Friday, May 13, 2011

Medicare, Social Security finance outlook worsens

By Ruth Mantell, MarketWatch

WASHINGTON (MarketWatch) — The outlook for Medicare’s finances have worsened on a slow economic recovery and higher costs, while the outlook for Social Security has also declined, trustees for the programs said Friday.

Medicare’s Hospital Insurance Trust Fund is now expected to be exhausted in 2024 – five years sooner than projected last year. Upon exhaustion, dedicated revenue will be able to pay 90% of costs for the hospital-insurance program.

Meanwhile, government officials said trust fund reserves for Social Security will be exhausted in 2036, one year sooner than expected last year. Afterwards, tax income will only be able to pay for three-quarters of scheduled benefits though 2085.

For the first time since 1983, Social Security spending was greater than non-interest income in 2010. A $46 billion deficit is projected for 2011, compared with $49 billion in the prior year.

Also, trust fund exhaustion for disability insurance is expected in 2018. Costs for disability insurance have been greater than non-interest income since 2005.

“Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided,” according to a summary of the reports for the programs.

The reports about Social Security and Medicare come as U.S. lawmakers remain embroiled in arguments about how to tame the deficit. While House Republicans have presented a plan to cut Medicare, neither side has offered a formal proposal to curb Social Security’s rising costs.

On Friday the trustees urged prompt action from U.S. lawmakers, and noted that an aging population and spending growth in coming decades will ramp up costs for Social Security and Medicare, the two largest federal programs,

“If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare,” according to the trustees’ summary. “Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits.”

Beneficiaries of Medicare and Social Security are worried that lawmakers’ proposals could result in harmful cuts.

“As leaders begin to hammer out solutions, we urge them not to subject Medicare and Social Security to arbitrary spending limits that could jeopardize the benefits that millions of older Americans have earned through a life time of hard work,” said A. Barry Rand, AARP’s chief executive, in a recent statement.

“Rather than singling out Medicare, we believe the focus of any reforms should be on making the delivery of health care more efficient and cost effective to all Americans. And we believe we should tackle our budgetary challenges and devise common-sense solutions without making damaging cuts to Social Security — which, as a self-financed program, should be addressed in a separate debate focused on the need for retirement security.”

Treasury Secretary Timothy Geithner called for reforms to protect current and future retirees, saying “larger, more difficult adjustments” will be needed if reform is delayed.

He added the debt limit is due to be reached by Monday.

“Because Congress has not yet acted, we have now set in motion a series of extraordinary measures that will give Congress some additional time to raise the debt limit. I want to again encourage Congress to move as quickly as possible, so that all Americans will remain confident that the United States will meet all of its obligations – not just our interest payments but also our commitments to our seniors,” Geithner said in a statement.

Ruth Mantell is a MarketWatch reporter based in Washington.