Small Business Relief! Expanded 1099 Reporting Repealed

Small Business Relief! Expanded 1099 Reporting Repealed

On April 14, 2011, President Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (P.L. 112-9) which repeals the expanded Form 1099 reporting requirements for businesses that resulted from the enactment of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148, § 9006), and increases the amount of overpayment of health care credit subject to recapture for health insurance coverage purchases through exchanges established by P.L.111-148.  Prior to the enactment of P.L.111-148, businesses generally were required to report only payments to a vendor that aggregated $600 or more for services, and payments to corporations were exempt from the reporting requirements.  For payments made after December 31, 2011, P.L.111-148 expanded the information reporting requirements to include payments to corporations and gross proceeds paid in consideration for property. P.L. 111-148, §9006.  Moreover, the Small Business Jobs Act of 2010 imposed information reporting requirements for payments made to vendors of $ 600 or more in the course of earning rental income which under prior law, certain payments made by persons engaged in passive investment activity were exempt.  P.L. 111-240, § 2101.  

The expanded reporting requirements raised considerable concern among taxpayers and policymakers.  Critics opposed the legislation because of the substantial tax compliance burden that the requirements imposed on small businesses essentially forcing small businesses to devote scarce resources to comply with reporting requirements rather than business expansion and job creation.  House Report 112-15, 112 H. Rpt. 15Because a business' failure to comply could result in stiff penalties, critics argued that the expanded reporting requirements imposed a substantial administrative burden on small businesses including costs to purchase new software or pay for additional accounting services.  House Report 112-15, 112 H. Rpt. 15Accordingly, critics maintained that the administrative burdens placed on small businesses outweighed any potential improvement in tax compliance.  House Report 112-15, 112 H. Rpt. 15.

As a result of the enactment of P.L. 112-9, the expanded information reporting requirements for payments to corporations, gross proceeds for property, and payments made in the course of earning rental income are repealed in their entirety.  P.L. 111-148, § 9006.  Thus, businesses are no longer burdened with such reporting requirements under I.R.C. Section 6041.  The Joint Committee on Taxation estimated that the repeal would cost $24.7 billion over 10 years.  Joint Committee on Taxation, Estimated Revenue Effects of the Chairman's Amendment in the Nature of a Substitute to H.R. 4, the "Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011," Scheduled for Markup by the Committee on Ways and Means on February 17, 2011, JCX-12-11 (Feb. 15, 2011).  P.L. 112-9 offsets the cost of the repeal by changing the limits on repayments of advance premium assistance tax credits connected with health insurance exchanges.  The Joint Committee on Taxation estimated that the offset would raise $24.9 billion over 10 years.  Joint Committee on Taxation, JCX-12-11 (Feb. 15, 2011).

The President emphasized in a statement that "[s]mall business owners are the engine of our economy and because Democrats and Republicans worked together, we can ensure they spend their time and resources creating jobs and growing their business, not filling out more paperwork."

During these tough economic times where small businesses are struggling to survive among retail and service giants, it seems that legislators were out of touch with the realities of their small business constituents.  Although the repeal provides the necessary relief from this administrative burden, it can hardly be said that rectifying a situation back to the status quo before the enactment of P.L.111-148 and P.L. 111-240 will create the number of jobs and business growth needed to spur the economy.  Perhaps more focus should be made on increasing the United States' competitiveness in the global marketplace rather than imposing "paperwork" on small businesses.

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