New questions this year, though sending 1099MISC is not new.
Schedule E for rentals:
http://www.irs.gov/pub/irs-pdf/f1040se.pdf
Schedule C for self-employed businesses:
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
Please click on the link above to see a sample copy of the 2011 Schedule E for rental properties. As you can see, the very first two questions on the form ask, "Did you make any payments in 2011 that would require you to file Form(s) 1099?(see instructions)" and "If “Yes,” did you or will you file all required Forms 1099?" Schedule C's questions are on lines I and J. Farms too are required to answer similar questions.
Forms 1099MIsc are required to be filed for any unincorporated service providers to whom you paid $600 or more in 2011. This includes, but not limited to gardeners, repairmen, property managers, cleaners, accountants and bookkeepers. For businesses, you may also have to send a 1099Misc to your landlord, unless you pay rent to a property manager or the landlord is a corporation other than an LLC.
For a sample of the Form 1099Misc, please see http://www.irs.gov/pub/irs-pdf/f1099msc.pdf. Instructions for 1099Misc are at http://www.irs.gov/pub/irs-pdf/i1099msc.pdf. The forms are due the service providers January 31, 2012. Failure to file Forms 1099misc could result in penalties of up to $200 for each form that is required, but not filed.
If you need to file these Forms 1099misc, you may want to visit this web site for a list of approved IRS business providers. This may be your least expensive option. http://www.irs.gov/efile/lists/0,,id=101242,00.html
For schedules C, E and F filers, you may want to obtain a federal employer tax ID number from the IRS so you don't have to release your SSN to your service providers. See http://www.irs.gov/businesses/small/article/0,,id=98350,00.html
Also, you should give your service providers a W-9 form to get his/her tax ID, either a social security number or an FEIN (federal employer tax ID number): http://www.irs.gov/pub/irs-pdf/fw9.pdf. There is no need to use the service providers' SSN if the service provider has an FEIN. Of course, if the service provider is a partnership, all you can get is the partnership's FEIN.
Forms 1099misc are also required for any trade or business operating in the form of a partnership, trust, or corporation, including non profit organizations.
Showing posts with label 1099. Show all posts
Showing posts with label 1099. Show all posts
Wednesday, January 11, 2012
Tuesday, May 31, 2011
1099 repeal eases some requirements, but leaves new ones for 2011
http://www.accountingtoday.com/ato_issues/25_5/1099-repeal-eases-some-requirements-but-leaves-new-ones-for-2011-58111-1.html
05/01/2011
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.
RENTAL PROPERTY EXPENSES
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.
THE PAY-FOR
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.
1099 REPORTING FOR 2011
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.
SUMMARY
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.
05/01/2011
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.
RENTAL PROPERTY EXPENSES
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.
THE PAY-FOR
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.
1099 REPORTING FOR 2011
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.
SUMMARY
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, April 15, 2011
Expanded 1099 filing by Obamacare is repealed
http://www.journalofaccountancy.com/Web/20114071.htm
On Thursday, President Barack Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act (PL 111-240). The Senate approved the bill on April 5, and the House voted in favor of it on March 3.
In March 2010, the Patient Protection and Affordable Care Act (PL 111-148) (part of the health care reform legislation) expanded the 1099 reporting requirements to include all payments from businesses aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation), and to include payments made for property, starting with payments in 2012. The 1099 Act repeals the expansion to payees that include corporations by removing IRC § 6041(i). It repeals the expansion to cover payments for property by removing the language “amounts in consideration for property,” and “gross proceeds” from section 6041(a). The act also removes IRC § 6041(j), which granted the Treasury secretary authority to issue regulations under section 6041, including “rules to prevent duplicative reporting of transactions.” These changes are effective for payments made after Dec. 31, 2011 (when the new rules were to take effect), and they revert those portions of section 6041 to how they were before the Patient Protection and Affordable Care Act.
The Small Business Jobs Act enacted a requirement that individuals who receive rental income issue Forms 1099 to service providers for payments of $600 or more. It did this by specifying that “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” The 1099 Act strikes IRC § 6041(h) in its entirety, effective for payments made after Dec. 31, 2010 (the original effective date of section 6041(h)), placing individuals who receive rental income in the same position as if the expanded information reporting requirements had never been enacted.
As a result of the repeal, the 1099 reporting rules continue unchanged: Namely, under IRC § 6041(a), “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” of $600 or more must report the amount and the name and address of the recipient to the IRS and to the recipient. The Code applies this requirement to payments of “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income,” and the Treasury regulations add, “commissions, fees, and other forms of compensation for services rendered aggregating $600 or more” as well as interest (including original issue discount), royalties and pensions (Treas. Reg. § 1.6041-1(a)(1)(i)).
This required information must be reported each calendar year for payments made during that calendar year.
The AICPA had advocated strongly for repeal of both provisions and as one of the only organizations advocating against the rental property requirement was a driving force in its repeal. When the Senate passed the bill on April 5 and sent it to President Obama for his signature, AICPA President and CEO Barry Melancon described the repeal as “a victory for taxpayers.”
Increased Penalties Not Repealed
The 1099 Act did not repeal the increase in the information reporting penalties that were mandated by the Small Business Jobs Act. The first-tier penalty under IRC § 6721 for failure to timely file an information return was increased from $15 to $30, and the calendar-year maximum from $75,000 to $250,000. The second-tier penalty was increased from $30 to $60, and the calendar-year maximum from $150,000 to $500,000. The third-tier penalty was increased from $50 to $100, and the calendar-year maximum from $250,000 to $1,500,000. For small business filers, the calendar-year maximum increased from $25,000 to $75,000 for the first-tier penalty; from $50,000 to $200,000 for the second-tier penalty; and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard increased from $100 to $250.
The increased penalties will be adjusted for inflation every five years.
The Small Business Jobs Act also similarly increased the penalties for failure to provide correct payee statements in addition to the information reporting penalties (IRC § 6722).
The increased penalty amounts were effective Jan. 1, 2011, and remain in effect after the repeal of the expanded 1099 reporting requirements.
On Thursday, President Barack Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act (PL 111-240). The Senate approved the bill on April 5, and the House voted in favor of it on March 3.
In March 2010, the Patient Protection and Affordable Care Act (PL 111-148) (part of the health care reform legislation) expanded the 1099 reporting requirements to include all payments from businesses aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation), and to include payments made for property, starting with payments in 2012. The 1099 Act repeals the expansion to payees that include corporations by removing IRC § 6041(i). It repeals the expansion to cover payments for property by removing the language “amounts in consideration for property,” and “gross proceeds” from section 6041(a). The act also removes IRC § 6041(j), which granted the Treasury secretary authority to issue regulations under section 6041, including “rules to prevent duplicative reporting of transactions.” These changes are effective for payments made after Dec. 31, 2011 (when the new rules were to take effect), and they revert those portions of section 6041 to how they were before the Patient Protection and Affordable Care Act.
The Small Business Jobs Act enacted a requirement that individuals who receive rental income issue Forms 1099 to service providers for payments of $600 or more. It did this by specifying that “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” The 1099 Act strikes IRC § 6041(h) in its entirety, effective for payments made after Dec. 31, 2010 (the original effective date of section 6041(h)), placing individuals who receive rental income in the same position as if the expanded information reporting requirements had never been enacted.
As a result of the repeal, the 1099 reporting rules continue unchanged: Namely, under IRC § 6041(a), “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” of $600 or more must report the amount and the name and address of the recipient to the IRS and to the recipient. The Code applies this requirement to payments of “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income,” and the Treasury regulations add, “commissions, fees, and other forms of compensation for services rendered aggregating $600 or more” as well as interest (including original issue discount), royalties and pensions (Treas. Reg. § 1.6041-1(a)(1)(i)).
This required information must be reported each calendar year for payments made during that calendar year.
The AICPA had advocated strongly for repeal of both provisions and as one of the only organizations advocating against the rental property requirement was a driving force in its repeal. When the Senate passed the bill on April 5 and sent it to President Obama for his signature, AICPA President and CEO Barry Melancon described the repeal as “a victory for taxpayers.”
Increased Penalties Not Repealed
The 1099 Act did not repeal the increase in the information reporting penalties that were mandated by the Small Business Jobs Act. The first-tier penalty under IRC § 6721 for failure to timely file an information return was increased from $15 to $30, and the calendar-year maximum from $75,000 to $250,000. The second-tier penalty was increased from $30 to $60, and the calendar-year maximum from $150,000 to $500,000. The third-tier penalty was increased from $50 to $100, and the calendar-year maximum from $250,000 to $1,500,000. For small business filers, the calendar-year maximum increased from $25,000 to $75,000 for the first-tier penalty; from $50,000 to $200,000 for the second-tier penalty; and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard increased from $100 to $250.
The increased penalties will be adjusted for inflation every five years.
The Small Business Jobs Act also similarly increased the penalties for failure to provide correct payee statements in addition to the information reporting penalties (IRC § 6722).
The increased penalty amounts were effective Jan. 1, 2011, and remain in effect after the repeal of the expanded 1099 reporting requirements.
Friday, February 4, 2011
Stock Sale Tax Rules Force Make-or-Break Choices
http://www.accountingtoday.com/news/Stock-Sale-Tax-Rules-Force-Make-or-Break-Choices-57187-1.html
BY ROGER RUSSELL, SENIOR EDITOR, ACCOUNTING TODAY
The new cost basis reporting rules won’t affect this year’s returns, but they are already in effect.
Beginning on Jan. 1, 2011, it became mandatory for brokers and other financial intermediaries to report cost basis information on Form 1099-B to investors and to the Internal Revenue Service for equities acquired on or after that date. The new requirements, spelled out in the Emergency Economic Stabilization Act of 2008, also will cover mutual funds acquired on or after Jan. 1, 2012, and debt securities, options and private placements acquired after Jan. 1, 2013.
The rules take aim at the practice of deciding after the fact what stock was sold where an investor holds different lots of the same stock, each with a different cost basis. For example, an investor holds three lots, with a cost basis of $40 for the first lot, $60 for the second lot, and $100 for the third lot. If shares are sold for $90, the investor might decide at a later date which ones were sold—those with a high cost basis, creating a loss, those with a medium cost basis, creating a small gain, or those with a low cost basis, creating a larger gain.
“Starting this year investors have to decide what they’re selling, and communicate this to the broker immediately,” said Stevie Conlon, CPA, Esq., senior director and tax counsel at Wolters Kluwer Financial Services. “You can’t do it later. You have to identify lots that were sold no later than the settlement date of sale. Before this, people would look at the stock they had sold at the end of the year or at the end of every month and determine which were the best lots to have sold.”
“The final regulations are clear that the taxpayer must select the lot that was sold no later than the settlement date, which would be the date of the trade plus three days,” she said. “This is probably what the law was before, but the law and the new regulations make it specific. In the old days it wouldn’t be obvious to the IRS that you changed something later. Now, the broker must issue a Form 1099-B for the stock sold this year that was bought after January 1 of this year.”
“Next February investors will receive a Form 1099-B showing the cost basis under that rule,” she said. “It will show the cost basis that was communicated to the broker by the settlement date, or the broker will be required to use FIFO. If what you put on your tax return doesn’t match, it will be obvious that you picked a different method after the fact. There will be taxpayers that are unsatisfied with both their broker and their tax adviser.”
This is a momentous issue due to the way that taxpayers normally interact with their advisers, Conlon indicated. “It requires getting tax advice on a recurring basis, almost in real time. That’s very different from an adviser’s normal involvement with a client at year-end planning sessions and tax return time,” she said. “Under the new rules, you’re locked in by whatever you select. It forces you to make an analysis about what’s the right lot to sell on an ongoing basis. The adviser has to be involved at the time of the trade, and that’s significant.”
Conlon advised tax preparers to explain the new rules to their clients during tax season, if they haven’t already. “The sooner you can educate your clients about the new rules, the better it will be at the end of the year,” she said.
BY ROGER RUSSELL, SENIOR EDITOR, ACCOUNTING TODAY
The new cost basis reporting rules won’t affect this year’s returns, but they are already in effect.
Beginning on Jan. 1, 2011, it became mandatory for brokers and other financial intermediaries to report cost basis information on Form 1099-B to investors and to the Internal Revenue Service for equities acquired on or after that date. The new requirements, spelled out in the Emergency Economic Stabilization Act of 2008, also will cover mutual funds acquired on or after Jan. 1, 2012, and debt securities, options and private placements acquired after Jan. 1, 2013.
The rules take aim at the practice of deciding after the fact what stock was sold where an investor holds different lots of the same stock, each with a different cost basis. For example, an investor holds three lots, with a cost basis of $40 for the first lot, $60 for the second lot, and $100 for the third lot. If shares are sold for $90, the investor might decide at a later date which ones were sold—those with a high cost basis, creating a loss, those with a medium cost basis, creating a small gain, or those with a low cost basis, creating a larger gain.
“Starting this year investors have to decide what they’re selling, and communicate this to the broker immediately,” said Stevie Conlon, CPA, Esq., senior director and tax counsel at Wolters Kluwer Financial Services. “You can’t do it later. You have to identify lots that were sold no later than the settlement date of sale. Before this, people would look at the stock they had sold at the end of the year or at the end of every month and determine which were the best lots to have sold.”
“The final regulations are clear that the taxpayer must select the lot that was sold no later than the settlement date, which would be the date of the trade plus three days,” she said. “This is probably what the law was before, but the law and the new regulations make it specific. In the old days it wouldn’t be obvious to the IRS that you changed something later. Now, the broker must issue a Form 1099-B for the stock sold this year that was bought after January 1 of this year.”
“Next February investors will receive a Form 1099-B showing the cost basis under that rule,” she said. “It will show the cost basis that was communicated to the broker by the settlement date, or the broker will be required to use FIFO. If what you put on your tax return doesn’t match, it will be obvious that you picked a different method after the fact. There will be taxpayers that are unsatisfied with both their broker and their tax adviser.”
This is a momentous issue due to the way that taxpayers normally interact with their advisers, Conlon indicated. “It requires getting tax advice on a recurring basis, almost in real time. That’s very different from an adviser’s normal involvement with a client at year-end planning sessions and tax return time,” she said. “Under the new rules, you’re locked in by whatever you select. It forces you to make an analysis about what’s the right lot to sell on an ongoing basis. The adviser has to be involved at the time of the trade, and that’s significant.”
Conlon advised tax preparers to explain the new rules to their clients during tax season, if they haven’t already. “The sooner you can educate your clients about the new rules, the better it will be at the end of the year,” she said.
Thursday, February 3, 2011
Senate Passes 1099 Repeal Amendment
The Senate approved an amendment Wednesday to repeal the expanded 1099 information reporting requirements in the health care reform law. For more information, read http://www.accountingtoday.com/news/Senate-Passes-1099-Repeal-Amendment-57177-1.html
Tuesday, November 30, 2010
Senate Again Fails to Repeal 1099 Requirements
http://institute.accountingtoday.com/news/Senate-Again-Fails-Repeal-1099-Requirements-56475-1.html
Washington, D.C. (November 29, 2010)
By Michael Cohn
The Senate voted Monday evening on a competing pair of amendments to repeal the expanded 1099 information reporting requirements that were included in the health care reform bill, but failed for the second time this fall to roll back the controversial requirements.
The provision, which was included in the health care reform bill, would require companies to report on any purchases of goods or services of over $600 from a single vendor during the calendar year to the Internal Revenue Service on a Form 1099-MISC. The dueling amendments, from Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Mike Johanns, R-Neb., mainly differed in how they would be paid. They were attached to a larger food safety bill, which overcame a procedural hurdle to move forward by a vote of 69-26, shortly before the vote on the amendments.
“There are two big differences between our two amendments,” said Baucus. “First, my alternative is especially friendly to small businesses. It takes extra measures to permit the IRS to waive certain duplicative reporting requirements for small businesses that use credit cards to pay their bills. Second, our two versions differ about paying for the change. The alternative offered by my colleague from Nebraska would give the unelected director of OMB [the Office of Management and Budget] unprecedented authority to slash spending, all on his own. The Johanns alternative would thus abdicate Congress’s responsibility over the budget. For these reasons, I urge my colleagues to oppose the Johanns amendment and support my alternative.”
Johanns contended that the Baucus amendment would add $19 billion to the federal deficit and drive up the overall cost of the health care bill.
He noted that his own amendment would direct the Office of Management and Budget to identify $39 billion in unspent and unobligated accounts to replace the revenue that might have been generated by the 1099 paperwork mandate, representing only about 5 percent of the total funds in unspent and unobligated accounts and giving the administration discretion to ensure the funds do not affect ongoing and necessary programs.
“Every small business out there is asking the question, ‘Why is the cost of this health care bill falling on my back?’” said Johanns. “You can’t go anyplace in this country without people asking, ‘What is this about the 1099 requirement?’ They are concerned they are going to spend on accountants for compliance with this requirement. They are asking, ‘Why are you picking on us?’ Why would you add $19 billion to the federal deficit, and that’s what the Baucus amendment does. You simply won’t find better offsets than the ones mine has. My phone is ringing off the hook, and we can’t go along with these offsets. The Baucus amendment simply does not pay for these offsets. In the end, it hampers the next generation. It adds to the national debt.”
Sen. Tom Harkin, D-Iowa, one of the lead sponsors of the food safety bill, the FDA Food Safety and Modernization Act, recommended that neither amendment should be approved.
“If the Baucus or Johanns amendment is adopted, it will kill the bill,” he said. “There’s no doubt about it. Revenue measures have to originate in the House. I hope this body will reject any extraneous amendments.”
The Johanns amendment received 61 votes in support and 35 votes in opposition, but failed to reach the two-thirds margin needed. The Baucus amendment received 44 votes in support and 53 in opposition and thus did not pass either.
The Senate failed to pass a repeal of the 1099 reporting requirements in September after Democrats and Republicans introduced competing amendments to the Small Business Jobs Act (see Senate Fails to Repeal 1099 Requirements).
After his amendment was defeated, Baucus vowed to continue fighting to repeal the expanded 1099 requirements. Although the requirements had not yet gone into effect, he noted, many small business owners expressed concerns the requirements would create an onerous paperwork burden.
“Small business owners voiced legitimate concerns that these requirements would be burdensome, and the Senate should act in response to those concerns," Baucus said in a statement. "I am disappointed that we weren’t able to repeal these requirements today, but I intend to keep working until we do. Our bill will allow small business owners to direct their focus onto job creation and growth rather than on paperwork. We will keep up our fight on behalf of small businesses so they can continue their critical work to create jobs and help the economy recover.”
Washington, D.C. (November 29, 2010)
By Michael Cohn
The Senate voted Monday evening on a competing pair of amendments to repeal the expanded 1099 information reporting requirements that were included in the health care reform bill, but failed for the second time this fall to roll back the controversial requirements.
The provision, which was included in the health care reform bill, would require companies to report on any purchases of goods or services of over $600 from a single vendor during the calendar year to the Internal Revenue Service on a Form 1099-MISC. The dueling amendments, from Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Mike Johanns, R-Neb., mainly differed in how they would be paid. They were attached to a larger food safety bill, which overcame a procedural hurdle to move forward by a vote of 69-26, shortly before the vote on the amendments.
“There are two big differences between our two amendments,” said Baucus. “First, my alternative is especially friendly to small businesses. It takes extra measures to permit the IRS to waive certain duplicative reporting requirements for small businesses that use credit cards to pay their bills. Second, our two versions differ about paying for the change. The alternative offered by my colleague from Nebraska would give the unelected director of OMB [the Office of Management and Budget] unprecedented authority to slash spending, all on his own. The Johanns alternative would thus abdicate Congress’s responsibility over the budget. For these reasons, I urge my colleagues to oppose the Johanns amendment and support my alternative.”
Johanns contended that the Baucus amendment would add $19 billion to the federal deficit and drive up the overall cost of the health care bill.
He noted that his own amendment would direct the Office of Management and Budget to identify $39 billion in unspent and unobligated accounts to replace the revenue that might have been generated by the 1099 paperwork mandate, representing only about 5 percent of the total funds in unspent and unobligated accounts and giving the administration discretion to ensure the funds do not affect ongoing and necessary programs.
“Every small business out there is asking the question, ‘Why is the cost of this health care bill falling on my back?’” said Johanns. “You can’t go anyplace in this country without people asking, ‘What is this about the 1099 requirement?’ They are concerned they are going to spend on accountants for compliance with this requirement. They are asking, ‘Why are you picking on us?’ Why would you add $19 billion to the federal deficit, and that’s what the Baucus amendment does. You simply won’t find better offsets than the ones mine has. My phone is ringing off the hook, and we can’t go along with these offsets. The Baucus amendment simply does not pay for these offsets. In the end, it hampers the next generation. It adds to the national debt.”
Sen. Tom Harkin, D-Iowa, one of the lead sponsors of the food safety bill, the FDA Food Safety and Modernization Act, recommended that neither amendment should be approved.
“If the Baucus or Johanns amendment is adopted, it will kill the bill,” he said. “There’s no doubt about it. Revenue measures have to originate in the House. I hope this body will reject any extraneous amendments.”
The Johanns amendment received 61 votes in support and 35 votes in opposition, but failed to reach the two-thirds margin needed. The Baucus amendment received 44 votes in support and 53 in opposition and thus did not pass either.
The Senate failed to pass a repeal of the 1099 reporting requirements in September after Democrats and Republicans introduced competing amendments to the Small Business Jobs Act (see Senate Fails to Repeal 1099 Requirements).
After his amendment was defeated, Baucus vowed to continue fighting to repeal the expanded 1099 requirements. Although the requirements had not yet gone into effect, he noted, many small business owners expressed concerns the requirements would create an onerous paperwork burden.
“Small business owners voiced legitimate concerns that these requirements would be burdensome, and the Senate should act in response to those concerns," Baucus said in a statement. "I am disappointed that we weren’t able to repeal these requirements today, but I intend to keep working until we do. Our bill will allow small business owners to direct their focus onto job creation and growth rather than on paperwork. We will keep up our fight on behalf of small businesses so they can continue their critical work to create jobs and help the economy recover.”
Monday, November 29, 2010
Senate pushing to repeal reviled IRS rule
It would be a darned shame if Congress fails to repeal this provision in the Health care bill.
http://money.cnn.com/2010/11/29/smallbusiness/1099_repeal/index.htm
By Charles Riley, staff reporterNovember 29, 2010: 2:40 PM ET
NEW YORK (CNNMoney.com) -- Lawmakers will get a chance Monday to undo a piece of health care reform that businesses big and small say will cost jobs.
The Senate is set to consider whether to repeal the new requirement that businesses notify the Internal Revenue Service of purchases over $600.
The provision was adopted in March as part of the massive health care reform law.
Starting in 2012, businesses will be required to issue 1099 tax forms not only to contracted workers (as they already do) but also to any individual or corporation from which they buy more than $600 in goods or services in a year.
The measure is expected to raise about $17 billion over 10 years by increasing tax compliance, but small business owners have argued the measure would increase paperwork, and drive up costs.
Republicans have led the charge to repeal the provision, but they have been joined by some key Democrats including Sen. Max Baucus, the Finance Committee chairman who introduced one of two amendments that would eliminate the new requirements.
Even President Obama no longer defends the provision.
Earlier this month, one day after after suffering a "shellacking" in the congressional election, Obama announced that he would support repealing the measure in the spirit of helping the business community.
Republican Sen. Mike Johanns of Nebraska authored the second amendment.
The Washington Punch List
"Senators will have a clear choice between a fiscally responsible end to the 1099 mandate or one that tacks on billions more to the health care law's already bloated price tag and adds to our national debt," Johanns said in a statement.
But the move faces an uphill battle, at least for now. Neither amendment up for consideration on Monday is expected to get the 67-vote supermajority required for passage, according to multiple aides on both sides of the aisle.
In September, both a Republican-backed proposal to repeal tax requirements and a Democratic plan to amend it failed to pass the necessary procedural votes to move it forward.
-CNN's Ted Barrett contributed to this report. To top of page
http://money.cnn.com/2010/11/29/smallbusiness/1099_repeal/index.htm
By Charles Riley, staff reporterNovember 29, 2010: 2:40 PM ET
NEW YORK (CNNMoney.com) -- Lawmakers will get a chance Monday to undo a piece of health care reform that businesses big and small say will cost jobs.
The Senate is set to consider whether to repeal the new requirement that businesses notify the Internal Revenue Service of purchases over $600.
The provision was adopted in March as part of the massive health care reform law.
Starting in 2012, businesses will be required to issue 1099 tax forms not only to contracted workers (as they already do) but also to any individual or corporation from which they buy more than $600 in goods or services in a year.
The measure is expected to raise about $17 billion over 10 years by increasing tax compliance, but small business owners have argued the measure would increase paperwork, and drive up costs.
Republicans have led the charge to repeal the provision, but they have been joined by some key Democrats including Sen. Max Baucus, the Finance Committee chairman who introduced one of two amendments that would eliminate the new requirements.
Even President Obama no longer defends the provision.
Earlier this month, one day after after suffering a "shellacking" in the congressional election, Obama announced that he would support repealing the measure in the spirit of helping the business community.
Republican Sen. Mike Johanns of Nebraska authored the second amendment.
The Washington Punch List
"Senators will have a clear choice between a fiscally responsible end to the 1099 mandate or one that tacks on billions more to the health care law's already bloated price tag and adds to our national debt," Johanns said in a statement.
But the move faces an uphill battle, at least for now. Neither amendment up for consideration on Monday is expected to get the 67-vote supermajority required for passage, according to multiple aides on both sides of the aisle.
In September, both a Republican-backed proposal to repeal tax requirements and a Democratic plan to amend it failed to pass the necessary procedural votes to move it forward.
-CNN's Ted Barrett contributed to this report. To top of page
Monday, September 20, 2010
Small Business Jobs and Credit Act of 2010 (H.R. 5297)
Senate has approved the Small Business Jobs and Credit Act of 2010 (H.R. 5297) which includes a package of enhanced small business tax incentives. In addition to many non-tax provisions related to small business lending and access to capital, tax provisions in the legislation include a retroactive extension of bonus depreciation, a doubling of the Code Sec. 179 expense limit, a five-year general business credit carryback, a 100-percent exclusion for qualified investments in small business, an increase in start-up business expensing and a five-year holding period for built-in gains of S Corporations. Other provisions address the tax treatment of business-provided cell phones, the penalty for failure to report a listed transaction, Roth accounts in 401(k), 403(b) and 457(b) plans and the treatment of nonqualified annuities.
But the Bill also includes a provision that requires landlords to issue Forms 1099-MISC to service providers who were paid $600 or more in any calendar year. The Bill also substantially increases the penalties for failure to file these information tax returns.
The House is expected to pass a similar Bill this week and President Obama has said he would sign the Bill into law as soon as it arrives at his desk.
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf
But the Bill also includes a provision that requires landlords to issue Forms 1099-MISC to service providers who were paid $600 or more in any calendar year. The Bill also substantially increases the penalties for failure to file these information tax returns.
The House is expected to pass a similar Bill this week and President Obama has said he would sign the Bill into law as soon as it arrives at his desk.
For more information, read http://tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf
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.
http://www.webcpa.com/news/1099-Reporting-Changes-Provoke-Opposition-55300-1.html
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.
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.
http://www.webcpa.com/news/1099-Reporting-Changes-Provoke-Opposition-55300-1.html
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.
Thursday, May 27, 2010
IRS Sees Need for More Tax Information Reporting
http://www.webcpa.com/news/IRS-Sees-Need-for-More-Tax-Information-Reporting-54401-1.html
Washington, D.C. (May 27, 2010)
By WebCPA Staff
IRS Commissioner Douglas Shulman defended the increased amount of information reporting that the agency will be expecting from businesses in the next few years.
“The technology revolution changed information reporting for both business and the IRS and creates opportunities and challenges for both of us,” he said during a speech Thursday before the American Payroll Association and the American Accounts Payable Association. “The better use of technology translates into better use of data – extracting knowledge and intelligence. So, we must invest in technology to keep up with new legislation, regulations and strategies in a more complex and interrelated global tax system.”
Businesses that accept credit or debit cards, or other electronic payments, will be subject to new information reporting requirements, he noted (see Get Ready for a Blizzard of 1099 Forms).
“Beginning in 2012, payment processors will be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year,” said Shulman. “This will help improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.”
Shulman explained that at the end of the year, banks will begin sending businesses a 1099 form reporting the dollar figure from credit and debit card purchases made by customers at their establishment. An identical information document will also be sent to the IRS. When the business owner or tax practitioner fills out the business’s tax return, they have to segregate the credit and debit card sales from cash sales, and the new report will make it easier to do so, according to Shulman. The IRS will be able to see if the credit card dollar figure reported on the tax return matches the bank’s information return, and also see if the amount of revenue from credit cards makes sense in the context of firm's overall business.
“The information we receive is an important window into underreporting,” Shulman noted. “It can also help us better understand tax compliance and trends in different industry sectors.”
Congress also recently imposed basis reporting requirements for publicly traded securities, he noted. Under current law, a broker is required to file with the IRS annual information returns generally showing only a customer’s gross proceeds from certain transactions. The same information is furnished to taxpayers to help them file accurate and complete returns.
However, the Government Accountability Office estimates that as many as 7 million taxpayers – more than one in three who sold securities – may have misreported capital gains and losses, and approximately half of them did so because they misreported their basis.
“This new provision – effective Jan. 1, 2011 – will go a long way to reducing this problem and making things easier for investors,” said Shulman. “I don’t know about you, but I have spent far too much time digging through old records, trying to find the basis for securities I sold. I think investors…and I count myself one …will welcome getting this new, easy-to-understand information from their brokers. Basis reporting can also help us work smarter. As the GAO points out, knowing the basis for taxpayers’ security sales will allow us to get a better bead on taxpayers’ income for security sales through our document matching program. In other words, basis reporting creates knowledge.”
Congress also recently passed another new information reporting provision, he added, requiring expanded information reporting on payments made from businesses to corporations, and on payments businesses make for goods. The new information reporting requirement applies if businesses pay a single entity $600 or more per year in aggregate for these types of transactions, starting in 2012.
“While businesses do not need to file information returns on these payments until January of 2013, business groups – particularly those that represent small businesses - have raised concerns about the burden that this new provision may impose,” said Shulman. “I want to assure the business community that the IRS will look for opportunities to minimize burden and avoid duplicative reporting. That is why we will be spending the next several months soliciting input from businesses of all types and sizes before proposing regulations to implement the law. We will also look to service providers who help those businesses understand and adapt to new laws and regulations, to help us craft a process that is as efficient as possible. We know that there is no ‘one-size-fits-all,’ so we want to hear your ideas."
To streamline implementation and minimize the burden, the IRS plans to use its administrative authority to exempt from this new requirement business transactions conducted using payment cards such as credit and debit cards, Shulman added. “These transactions will already be covered by reporting requirements on payment card processors, so there is no need for businesses to report them as well,” he said. “So, whenever a business uses a credit or debit card, there will be no new burden under the new law."
However, Shulman argued that the IRS needs enhanced information reporting tools to combat tax evasion and abusive tax avoidance, especially among banks, wealthy individuals and offshore activities in bank secrecy jurisdictions. He noted that one of the most important developments in international information reporting was the enactment this year of the Foreign Account Tax Compliance Act, which creates more transparency in the offshore financial market.
Some of the key elements include encouraging the reporting of U.S. citizens’ worldwide income by withholding 30 percent on payments for foreign financial institutions, unless they identify and report the U.S. citizens who own the accounts. U.S.-owned accounts would have to include accounts beneficially owned through shell foreign entities. In addition, U.S. taxpayers will be required to report on their tax returns offshore assets worth an aggregate of $50,000 or more. “This is in addition to existing law that requires the filing of a so-called FBAR form if the aggregate of their foreign accounts is over $10,000,” Shulman noted. “As you can see, this is a significant and meaningful step towards combating U.S. tax evasion, bank secrecy and other illicit financial practices.”
Separately, the Treasury Department announced Thursday that the U.S. and 16 other countries in the Organization for Economic Cooperation and Development signed a protocol to the Convention on Mutual Administrative Assistance on Tax Matters, in order to bring the existing Convention into conformity with current international standards for the exchange of information for tax purposes between national revenue authorities.
The protocol provides for the full exchange of information on request in tax matters without regard to a domestic tax interest requirement or bank secrecy laws, such as those that have delayed the sharing of information on UBS’s bank customers with U.S. authorities. The proposed protocol also provides updated rules regarding the confidentiality and permitted uses of exchanged information as well as the level of detail that countries must provide when making a request for information. In addition, the Protocol permits countries that are not members of the OECD or of the Council of Europe to become parties to the Convention, subject to unanimous consent by the existing parties.
The final English version of the unsigned protocol can be viewed here.
__________
The entire prepared remarks by the IRS Commissioner can be viewed at http://www.irs.gov/newsroom/article/0,,id=223835,00.html
Washington, D.C. (May 27, 2010)
By WebCPA Staff
IRS Commissioner Douglas Shulman defended the increased amount of information reporting that the agency will be expecting from businesses in the next few years.
“The technology revolution changed information reporting for both business and the IRS and creates opportunities and challenges for both of us,” he said during a speech Thursday before the American Payroll Association and the American Accounts Payable Association. “The better use of technology translates into better use of data – extracting knowledge and intelligence. So, we must invest in technology to keep up with new legislation, regulations and strategies in a more complex and interrelated global tax system.”
Businesses that accept credit or debit cards, or other electronic payments, will be subject to new information reporting requirements, he noted (see Get Ready for a Blizzard of 1099 Forms).
“Beginning in 2012, payment processors will be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year,” said Shulman. “This will help improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.”
Shulman explained that at the end of the year, banks will begin sending businesses a 1099 form reporting the dollar figure from credit and debit card purchases made by customers at their establishment. An identical information document will also be sent to the IRS. When the business owner or tax practitioner fills out the business’s tax return, they have to segregate the credit and debit card sales from cash sales, and the new report will make it easier to do so, according to Shulman. The IRS will be able to see if the credit card dollar figure reported on the tax return matches the bank’s information return, and also see if the amount of revenue from credit cards makes sense in the context of firm's overall business.
“The information we receive is an important window into underreporting,” Shulman noted. “It can also help us better understand tax compliance and trends in different industry sectors.”
Congress also recently imposed basis reporting requirements for publicly traded securities, he noted. Under current law, a broker is required to file with the IRS annual information returns generally showing only a customer’s gross proceeds from certain transactions. The same information is furnished to taxpayers to help them file accurate and complete returns.
However, the Government Accountability Office estimates that as many as 7 million taxpayers – more than one in three who sold securities – may have misreported capital gains and losses, and approximately half of them did so because they misreported their basis.
“This new provision – effective Jan. 1, 2011 – will go a long way to reducing this problem and making things easier for investors,” said Shulman. “I don’t know about you, but I have spent far too much time digging through old records, trying to find the basis for securities I sold. I think investors…and I count myself one …will welcome getting this new, easy-to-understand information from their brokers. Basis reporting can also help us work smarter. As the GAO points out, knowing the basis for taxpayers’ security sales will allow us to get a better bead on taxpayers’ income for security sales through our document matching program. In other words, basis reporting creates knowledge.”
Congress also recently passed another new information reporting provision, he added, requiring expanded information reporting on payments made from businesses to corporations, and on payments businesses make for goods. The new information reporting requirement applies if businesses pay a single entity $600 or more per year in aggregate for these types of transactions, starting in 2012.
“While businesses do not need to file information returns on these payments until January of 2013, business groups – particularly those that represent small businesses - have raised concerns about the burden that this new provision may impose,” said Shulman. “I want to assure the business community that the IRS will look for opportunities to minimize burden and avoid duplicative reporting. That is why we will be spending the next several months soliciting input from businesses of all types and sizes before proposing regulations to implement the law. We will also look to service providers who help those businesses understand and adapt to new laws and regulations, to help us craft a process that is as efficient as possible. We know that there is no ‘one-size-fits-all,’ so we want to hear your ideas."
To streamline implementation and minimize the burden, the IRS plans to use its administrative authority to exempt from this new requirement business transactions conducted using payment cards such as credit and debit cards, Shulman added. “These transactions will already be covered by reporting requirements on payment card processors, so there is no need for businesses to report them as well,” he said. “So, whenever a business uses a credit or debit card, there will be no new burden under the new law."
However, Shulman argued that the IRS needs enhanced information reporting tools to combat tax evasion and abusive tax avoidance, especially among banks, wealthy individuals and offshore activities in bank secrecy jurisdictions. He noted that one of the most important developments in international information reporting was the enactment this year of the Foreign Account Tax Compliance Act, which creates more transparency in the offshore financial market.
Some of the key elements include encouraging the reporting of U.S. citizens’ worldwide income by withholding 30 percent on payments for foreign financial institutions, unless they identify and report the U.S. citizens who own the accounts. U.S.-owned accounts would have to include accounts beneficially owned through shell foreign entities. In addition, U.S. taxpayers will be required to report on their tax returns offshore assets worth an aggregate of $50,000 or more. “This is in addition to existing law that requires the filing of a so-called FBAR form if the aggregate of their foreign accounts is over $10,000,” Shulman noted. “As you can see, this is a significant and meaningful step towards combating U.S. tax evasion, bank secrecy and other illicit financial practices.”
Separately, the Treasury Department announced Thursday that the U.S. and 16 other countries in the Organization for Economic Cooperation and Development signed a protocol to the Convention on Mutual Administrative Assistance on Tax Matters, in order to bring the existing Convention into conformity with current international standards for the exchange of information for tax purposes between national revenue authorities.
The protocol provides for the full exchange of information on request in tax matters without regard to a domestic tax interest requirement or bank secrecy laws, such as those that have delayed the sharing of information on UBS’s bank customers with U.S. authorities. The proposed protocol also provides updated rules regarding the confidentiality and permitted uses of exchanged information as well as the level of detail that countries must provide when making a request for information. In addition, the Protocol permits countries that are not members of the OECD or of the Council of Europe to become parties to the Convention, subject to unanimous consent by the existing parties.
The final English version of the unsigned protocol can be viewed here.
__________
The entire prepared remarks by the IRS Commissioner can be viewed at http://www.irs.gov/newsroom/article/0,,id=223835,00.html
Thursday, May 6, 2010
Health care law's massive, hidden tax change
http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/index.htm
By Neil deMause, contributing writerMay 5, 2010: 11:00 PM ET
NEW YORK (CNNMoney.com) -- An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.
Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.
Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.
Eliminating the goods exemption could launch an avalanche of paperwork, he says: "If you cater a lunch for other businesses every Wednesday, say, that's a lot of information to keep track of throughout the year."
The paper trail
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
A Democratic aide for the Senate Finance Committee, which authored the changes, defended the move.
"Information reporting improves tax compliance without raising taxes on small businesses," the aide said. "Health care reform includes more than $35 billion in tax cuts for small businesses ... indicating that during these tough economic times, Congress is delivering the tax breaks small businesses need to thrive."
The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.
More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim's Computer Shack down the street, Tim might not report and pay taxes on his income from the sale.
The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.
While all but unnoticed at the time -- a Pennsylvania business group issued the first warning last October as the idea emerged in draft Senate legislation -- the 1099 rule changes began sparking attention in the blogosphere in the last week. The libertarian Cato Institute called it a "costly, anti-business nightmare"; Rep. Dan Lungren, R-Calif., introduced legislation last week that would repeal the new 1099 requirements.
The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it, tax experts say.
Marianne Couch, a principal with the Cokala Tax Group in Michigan and former chair of a citizen advisory group to the IRS on small business and self-employed tax issues, thinks the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.
But she also sees a silver lining in the new law.
Her firm already recommends collecting tax data on all vendors, since the IRS requires that you have it on hand at the time of the transaction, not just at tax-filing time. And eliminating the corporate and goods exemptions at least means that businesses will no longer have to pour over every transaction to determine if it needs a 1099. The new rule is simpler: If it crosses the $600 threshold, it's in.
"There are probably going to be some hiccups along the way, because systems will need to be redesigned," says Couch. "But overall I believe it will make compliance on the payor end a lot more streamlined and easier."
In any case, the final impact of the law won't be known until the IRS issues its regulations on the new law, which aren't expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.
By Neil deMause, contributing writerMay 5, 2010: 11:00 PM ET
NEW YORK (CNNMoney.com) -- An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.
Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.
Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.
Eliminating the goods exemption could launch an avalanche of paperwork, he says: "If you cater a lunch for other businesses every Wednesday, say, that's a lot of information to keep track of throughout the year."
The paper trail
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
A Democratic aide for the Senate Finance Committee, which authored the changes, defended the move.
"Information reporting improves tax compliance without raising taxes on small businesses," the aide said. "Health care reform includes more than $35 billion in tax cuts for small businesses ... indicating that during these tough economic times, Congress is delivering the tax breaks small businesses need to thrive."
The new rules could drastically alter the tax-reporting landscape by spotlighting payments that previously went unreported. Freelancers and other independent operators typically write off stacks of business expenses; having to issue tax paperwork documenting each of them could cut down on fraudulent deductions.
More significantly, the 1099 trail would expose payments to small operators that might now be going unreported. If you buy a computer for your business from a major chain retailer, the seller almost certainly documents the revenue. But if you buy it from Tim's Computer Shack down the street, Tim might not report and pay taxes on his income from the sale.
The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap.
While all but unnoticed at the time -- a Pennsylvania business group issued the first warning last October as the idea emerged in draft Senate legislation -- the 1099 rule changes began sparking attention in the blogosphere in the last week. The libertarian Cato Institute called it a "costly, anti-business nightmare"; Rep. Dan Lungren, R-Calif., introduced legislation last week that would repeal the new 1099 requirements.
The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it, tax experts say.
Marianne Couch, a principal with the Cokala Tax Group in Michigan and former chair of a citizen advisory group to the IRS on small business and self-employed tax issues, thinks the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.
But she also sees a silver lining in the new law.
Her firm already recommends collecting tax data on all vendors, since the IRS requires that you have it on hand at the time of the transaction, not just at tax-filing time. And eliminating the corporate and goods exemptions at least means that businesses will no longer have to pour over every transaction to determine if it needs a 1099. The new rule is simpler: If it crosses the $600 threshold, it's in.
"There are probably going to be some hiccups along the way, because systems will need to be redesigned," says Couch. "But overall I believe it will make compliance on the payor end a lot more streamlined and easier."
In any case, the final impact of the law won't be known until the IRS issues its regulations on the new law, which aren't expected to arrive until sometime next year. The IRS has not yet commented on when it will release regulations or schedule public hearings, and an agency spokesman was unsure when it will do so. The new requirements kick in January 1, 2012.
Tuesday, March 3, 2009
IRS to Push 1099-MISC Compliance
http://www.webcpa.com/article.cfm?articleid=30892
Washington, D.C. (March 2, 2009)
By WebCPA staff
The Internal Revenue Service could be doing more to encourage businesses to report miscellaneous income payments on 1099-MISC forms, according to a new report.
While businesses reported about $6 trillion worth of such payments in 2006, the Government Accountability Office estimates that even a small share of payers that fail to submit the 1099-MISCs could result in billions of dollars in unreported payments on the payees’ tax returns. Data from the IRS suggests that payees are more likely to report such income on their tax returns if the IRS receives the payers’ information returns.
The IRS does not know to what extent payers fail to submit the required 1099-MISCs, but various sources point to the possibility of a significant problem. For tax year 2005, 8 percent of the approximately 50 million small businesses with assets under $10 million submitted 1099-MISCs, but the IRS does not know how many of the other 92 percent were required to report payments but did not.
Many business payments, such as payments to corporations, are not subject to 1099-MISC reporting. If even a small share of the businesses that did not submit a 1099-MISC should have, millions of 1099-MISCs could be missing with significant amounts of unpaid taxes by payees. The GAO’s prior work in 2003 also found significant 1099-MISC payer noncompliance by some federal agencies.
The GAO recommended that Congress should consider requiring payers to report payments to corporations on the 1099-MISC form. The GAO also recommended that the IRS should research the extent of payer noncompliance and the reasons for it, identify common reporting errors, and provide more guidance about 1099-MISC requirements. The IRS agreed with most of the recommendations. However, it disagreed with the suggestion of adding a tax return checkbox asking if payers have submitted the required 1099-MISCs and adding a chart to help payers navigate the detailed instructions for the form.
Washington, D.C. (March 2, 2009)
By WebCPA staff
The Internal Revenue Service could be doing more to encourage businesses to report miscellaneous income payments on 1099-MISC forms, according to a new report.
While businesses reported about $6 trillion worth of such payments in 2006, the Government Accountability Office estimates that even a small share of payers that fail to submit the 1099-MISCs could result in billions of dollars in unreported payments on the payees’ tax returns. Data from the IRS suggests that payees are more likely to report such income on their tax returns if the IRS receives the payers’ information returns.
The IRS does not know to what extent payers fail to submit the required 1099-MISCs, but various sources point to the possibility of a significant problem. For tax year 2005, 8 percent of the approximately 50 million small businesses with assets under $10 million submitted 1099-MISCs, but the IRS does not know how many of the other 92 percent were required to report payments but did not.
Many business payments, such as payments to corporations, are not subject to 1099-MISC reporting. If even a small share of the businesses that did not submit a 1099-MISC should have, millions of 1099-MISCs could be missing with significant amounts of unpaid taxes by payees. The GAO’s prior work in 2003 also found significant 1099-MISC payer noncompliance by some federal agencies.
The GAO recommended that Congress should consider requiring payers to report payments to corporations on the 1099-MISC form. The GAO also recommended that the IRS should research the extent of payer noncompliance and the reasons for it, identify common reporting errors, and provide more guidance about 1099-MISC requirements. The IRS agreed with most of the recommendations. However, it disagreed with the suggestion of adding a tax return checkbox asking if payers have submitted the required 1099-MISCs and adding a chart to help payers navigate the detailed instructions for the form.
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