[StBernard] House and Senate spar on repeal of 1099 reporting rule

[Westley Annis]

House and Senate spar on repeal of 1099 reporting rule
Created 03/08/2011 - 12:15
Accounting & Auditing Auditing Income Tax Income tax IRS Legislation Tax Tax
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Last week, the U.S. House of Representatives passed H.R. 4, a bill repealing
the health care reform law provision that requires businesses to furnish
1099 statements to corporate vendors.  The Small Business Paperwork Mandate
Elimination Act of 2011 passed with a vote of 314-112, with 76 Democrats
voting with the Republican block to eliminate the 1099 portion of what has
come to be known as ObamaCare.
 
Previously, the Senate voted for a similar elimination of the 1099 rule,
which is set to go into effect in 2012, but there are differences between
the chambers regarding what portions of the new 1099 reporting law should be
eliminated and what should be kept in place.
 
The House bill seeks to eliminate all of the changes to 1099 reporting put
forth in the health care legislation that became law in 2010. The Senate
would like to keep the portion of the new 1099 rules that relates to 1099
requirements on landlords.
 
The House bill has been returned to the Senate where it faces an uncertain
fate. The Senate hopes to retain the portion of the 1099 reporting
requirement that requires landlords (including individual who own rental
property and owners of vacation homes used as rental property) to complete
1099 forms for services provided by any unincorporated service providers
(including accountants) but not for the purchase of goods. This landlord
provision comes from the Small Business Jobs Act which was signed into law
last fall. Businesses will be prohibited from taking a deduction for
1099-related services if the 1099 form is not filed.
 
The problem that lawmakers in both chambers face is that, due to the
self-imposed requirement that no legislation will be passed that in effect
lowers taxes without a PAYGO - a budget neutral alternative - there must be
a cut in expenses or an increase in revenue somewhere else to pay for the
money the government expects it will lose by revoking this provision.
 
The White House has indicated that it supports repeal of all of the new 1099
provisions.
 
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What does this mean to me?

There's no question that the tax gap is real. The IRS estimates that almost
20 percent of the total tax liability of the nation goes unpaid every year
by individuals and businesses that underreport income. Hundreds of billions
of tax dollars never get paid. The 1099 reporting rule was designed to
combat this shortfall, and the IRS has been given authority to hire enough
people to process all of the additional paperwork and go after the taxpayers
who are not paying their fair share of tax. 

If the 1099 reporting rule is too difficult to follow, what alternatives do
we have? Public humiliation for those who get caught underreporting isn't
really our national style, although some sort of scarlet letter displayed by
tax dodgers might be effective. Another alternative is to stop taxing
businesses altogether. Businesses pass the cost of tax to consumers through
higher prices for products and services, so the consumer ultimately pays the
tax anyway. Is it time to remove corporate (all?) income tax and give
serious thought to a national sales tax?
Going back to the original legislation, the Patient Protection and
Affordable Care Act (aka ObamaCare) requires that all businesses, including
tax-exempt organizations and government agencies, must issue 1099 forms to
any vendor from whom they purchase at least $600 worth of goods or services
during a calendar year. This expands the 1099 requirement to include
payments to your utilities companies, office supplies stories, restaurants,
hotels, service companies, and so on.
 
The American Institute of Certified Public Accountants (AICPA) and many
other organizations have voiced objections to the reporting requirement,
describing the rule as burdensome, costly, and unnecessary.
 
 
Related items:
AICPA calls on Congress to repeal 1099 reporting requirements [2]
State of the Union provides hope for accountants [3]
 

Source URL:
http://www.accountingweb.com/topic/tax/house-and-senate-spar-repeal-1099-rep
orting-rule
Links:
[1] http://www.accountingweb.com/image/irstax1099
[2]
http://www.accountingweb.com/topic/tax/aicpa-calls-congress-repeal-reporting
-requirements
[3]
http://www.accountingweb.com/topic/tax/state-union-provides-hope-accountants