President Obama signed The Patient Protection and Affordable Care Act (“the Act”) into law on March 23, 2010. Separately, on March 25, 2010, the Senate and House passed the Health Care and Education Reconciliation Act of 2010 (“the Reconciliation Act”) amending many provisions of the Act. The Reconciliation Act was signed into law by President Obama on March 30, 2010. The tax provisions contained in this major health care overhaul are the subject of a series of Insight articles. The focus of this Insight is the Expansion of Information Reporting Requirements on Form 1099.
Beginning in 2012, “Big Brother” will be watching you a little closer. The new health care legislation contains a provision that expands the information reporting requirements by businesses. The new provision has nothing to do with health care and everything to do with raising revenue to pay for health care. The new reporting requirements will significantly raise paperwork requirements for businesses of all sizes.
Current Reporting Requirements
Generally, current rules require every person engaged in a trade or business who makes payments aggregating $600 or more in any taxable year to a single payee to file an information return (generally on the 1099 form series) with the Internal Revenue Service (“IRS”). However, payments made to corporations have generally been excepted from the information reporting requirements by IRS regulation.
Payments subject to the current reporting rules include fixed or determinable income or compensation, but do not include payments for goods or other property.
New Law Reporting Requirements
The new health care law overrules previous IRS regulations by adding Internal Revenue Code (“IRC”) Section 6041(h) making the reporting requirements applicable to payments made to corporations after December 31, 2011. In addition, the new law expands the reporting requirements to include gross proceeds paid to any business in consideration for property and other gross proceeds for both property and services. Accordingly, under the new law, it appears that all businesses will be required to send Form 1099s to vendors for inventory and supply purchases, and for purchases of machinery and equipment. This will add millions of new forms to the paperwork requirements of all businesses.
It should be noted that the new rules for corporations are not extended to organizations exempt from tax under IRC Section 501(a).
The need to raise additional revenues to pay for health care reform is the impetus for expanding the reporting requirements to corporations and to property transactions for all taxpayers. By imposing these reporting rules, Congress believes that substantial revenues will be raised because reporting compliance is highest where parties other than the taxpayer are required to file information reports. The information reports will serve as reminders to recipients to include the amounts in gross receipts and the reporting will make the amounts available and visible to the IRS for their targeted compliance programs. However, this increased compliance will come at the cost of a substantial increase in the paperwork burden to all size businesses and possible exposure to penalties for non-compliance.
Further guidance on the new reporting requirements is expected to be forthcoming from the IRS. We will analyze this guidance in a future Insights when it becomes available.
We encourage you to bookmark our web page dedicated to Health Care Reform for periodic updates.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.