Carol A. Pettit
Legislative Attorney
Edward C. Liu
Legislative Attorney
As a general rule, taxpayers are more likely to pay taxes on income if the Internal Revenue Service has been notified of that income. To encourage compliance with tax laws, the Internal Revenue Code (IRC) includes a number of information reporting requirements. For example, when businesses make certain payments, they have been required to report those payments to the recipients and the IRS. The new health reform law, the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, contains a provision, designed to raise revenue without raising tax rates, that would expand the number and kinds of payments that these businesses would be required to report, beginning in 2012. As the public becomes more aware of this provision, a number of concerns are being raised about added complexity and the cost of compliance for all businesses, and the potential effect on small businesses in particular.
Before PPACA, § 6041 of the Internal Revenue Code (IRC) required businesses making payments to a single recipient of at least $600 in a single year to file a Form 1099-MISC with the IRS and the recipient. IRS regulations exempted, among other things, payments made to corporations and payments made for merchandise. Beginning in 2012, § 9006 of PPACA will effectively require all businesses to report payments to and purchases from any taxable entity totaling $600 or more in a calendar year, regardless of the payee’s corporate status or whether the payments were made for merchandise or other property.
Those in favor of the expanded 1099 reporting requirements argue that it is a means through which tax revenue can be generated without raising taxes. The argument is that the 1099 reporting will encourage those who may not have been reporting all of their income to begin doing so and provide the IRS with a means of assessing tax on those who do not report income on their tax returns that has been separately reported to the IRS on 1099s. However, the National Taxpayer Advocate, in her Report to Congress: Fiscal Year 2011 Objectives, has questioned the efficacy of the new reporting requirements and promised to examine the impact of the new reporting requirements, focusing on the requirement to report purchases of goods.
The changes enacted by PPACA do not affect the penalties for failure to comply with 1099 reporting requirements. A payer’s failure to file a timely and accurate information return with the IRS can result in monetary fines; criminal sanctions may be applicable if the failure is willful. Payers may also be penalized for failing to provide a timely and accurate copy of an information return to their payees. Legislation has been introduced that would increase the penalties for failure to file accurate 1099s or to provide payees with timely, accurate copies.
In the 111th Congress, several bills and amendments have been introduced that would repeal the modifications made to IRC § 6041 by PPACA § 9006. Both versions of the Small Business Paperwork Mandate Elimination Act, S. 3578 and H.R. 5141, would repeal PPACA § 9006 entirely. Similar provisions have also been proposed in Senate amendments to H.R. 5297 and in H.R. 5982. S.Amdt. 4595 to H.R. 5297 would modify some aspects of the new requirements but not repeal them.
Legislation has also been proposed to require landlords to file information returns for payments made with respect to their rental properties and to increase the penalties for failing to file an information return. The House passed such a provision in H.R. 4849. The Senate passed a provision with similar language as part of H.R. 4213, but this language did not make it into the enacted bill. S.Amdt. 4594 to H.R. 5297 includes a substantially similar provision.
Date of Report: September 7, 2010
Number of Pages: 13
Order Number: R41359
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Legislative Attorney
Edward C. Liu
Legislative Attorney
As a general rule, taxpayers are more likely to pay taxes on income if the Internal Revenue Service has been notified of that income. To encourage compliance with tax laws, the Internal Revenue Code (IRC) includes a number of information reporting requirements. For example, when businesses make certain payments, they have been required to report those payments to the recipients and the IRS. The new health reform law, the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, contains a provision, designed to raise revenue without raising tax rates, that would expand the number and kinds of payments that these businesses would be required to report, beginning in 2012. As the public becomes more aware of this provision, a number of concerns are being raised about added complexity and the cost of compliance for all businesses, and the potential effect on small businesses in particular.
Before PPACA, § 6041 of the Internal Revenue Code (IRC) required businesses making payments to a single recipient of at least $600 in a single year to file a Form 1099-MISC with the IRS and the recipient. IRS regulations exempted, among other things, payments made to corporations and payments made for merchandise. Beginning in 2012, § 9006 of PPACA will effectively require all businesses to report payments to and purchases from any taxable entity totaling $600 or more in a calendar year, regardless of the payee’s corporate status or whether the payments were made for merchandise or other property.
Those in favor of the expanded 1099 reporting requirements argue that it is a means through which tax revenue can be generated without raising taxes. The argument is that the 1099 reporting will encourage those who may not have been reporting all of their income to begin doing so and provide the IRS with a means of assessing tax on those who do not report income on their tax returns that has been separately reported to the IRS on 1099s. However, the National Taxpayer Advocate, in her Report to Congress: Fiscal Year 2011 Objectives, has questioned the efficacy of the new reporting requirements and promised to examine the impact of the new reporting requirements, focusing on the requirement to report purchases of goods.
The changes enacted by PPACA do not affect the penalties for failure to comply with 1099 reporting requirements. A payer’s failure to file a timely and accurate information return with the IRS can result in monetary fines; criminal sanctions may be applicable if the failure is willful. Payers may also be penalized for failing to provide a timely and accurate copy of an information return to their payees. Legislation has been introduced that would increase the penalties for failure to file accurate 1099s or to provide payees with timely, accurate copies.
In the 111th Congress, several bills and amendments have been introduced that would repeal the modifications made to IRC § 6041 by PPACA § 9006. Both versions of the Small Business Paperwork Mandate Elimination Act, S. 3578 and H.R. 5141, would repeal PPACA § 9006 entirely. Similar provisions have also been proposed in Senate amendments to H.R. 5297 and in H.R. 5982. S.Amdt. 4595 to H.R. 5297 would modify some aspects of the new requirements but not repeal them.
Legislation has also been proposed to require landlords to file information returns for payments made with respect to their rental properties and to increase the penalties for failing to file an information return. The House passed such a provision in H.R. 4849. The Senate passed a provision with similar language as part of H.R. 4213, but this language did not make it into the enacted bill. S.Amdt. 4594 to H.R. 5297 includes a substantially similar provision.
Date of Report: September 7, 2010
Number of Pages: 13
Order Number: R41359
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
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