Search Penny Hill Press

Friday, May 6, 2011

1099 Information Reporting Requirements and Penalties as Modified by the Patient Protection and Affordable Care Act and the Small Business Jobs Act of 2010

Carol A. Pettit
Legislative Attorney

Edward C. Liu
Legislative Attorney

Taxpayers are seen as more likely to report income on their tax returns if they know that a third party has reported it to the Internal Revenue Service (IRS); it follows, therefore, that expanding information reporting requirements under the Internal Revenue Code (IRC) can improve the collection of federal tax revenue. However, expanded reporting requirements place a greater administrative burden on those who must comply with the requirements. Recent expansions of the reporting requirements in IRC § 6041 have been met by protests that the changes impose too great a burden, particularly on small businesses. As a result, the expansions to the information reporting requirement were repealed on April 14, 2011 (P.L. 112-9). The practical effect of the repeal is that the expansion of the reporting requirements is treated as never having occurred. This report remains as a reference for the changes that were enacted in 2010 and the subsequent responses to those changes.

IRC § 6041 requires payments totaling at least $600 in a single calendar year to a single recipient to be reported to the IRS. The required return is generally a Form 1099, which is prepared by the entity making the payment. The return shows to whom payment was made, the amount of the payment, and the general reason for the payment. The form is filed with the Internal Revenue Service (IRS) and a copy is provided to the payee. The form is required only when the payer is considered to be engaged in a trade or business and has made the payment in connection with that trade or business. The Small Business Jobs Act increased the penalties for failure to file an information return (IRC § 6721) and the penalties for failing to provide a copy of the information return to the payee (IRC § 6722). These changes have not been repealed and will apply to any information returns required to be filed after December 31, 2010. However, under a new Treasury regulation, no reporting by the payer will be required for payments made after December 31, 2010, if those payments were made by credit card or through a third party network (e.g. PayPal), and, thus, are required to be reported by a payment settlement entity.

The Patient Protection and Affordable Care Act (P.L. 111-148; PPACA) and the Small Business Jobs Act of 2010 (P.L. 111-240) each amended IRC § 6041. Section 2101 of the latter act was to go into effect for payments made after December 31, 2011; § 9006 of PPACA was to be effective a year later. Section 2101 made most landlords subject to the reporting requirements of IRC § 6041 by stipulating that, for purposes of IRC § 6041(a), they were generally considered to be engaged in the trade or business of renting real property. Section 9006 changed § 6041 in two ways: (1) Payments to corporations would no longer be exempt from reporting, and (2) reporting would be required for payments for goods or other property and gross proceeds.

In the 111
th Congress, several attempts were made to either repeal or modify § 9006 of PPACA. A number of bills were introduced in the 112th Congress to repeal that section (e.g., H.R. 4, H.R. 60, H.R. 144, H.R. 417, H.R. 584, H.R. 705, S. 12, S. 18, S. 72, and S. 223). Some of these would also repeal the changes made by § 2101 of the Small Business Jobs Act. Both the House and Senate passed bills that would repeal § 9006 (H.R. 4 and S. 223), but the two bills differed on whether the changes made by the Small Business Jobs Act would also be repealed, and on how the tax revenue estimated to be lost would be offset.

P.L. 112-9 repealed the expansion of the § 6041 reporting requirements, but it did not repeal the Small Business Jobs Act’s amendment of the penalty provisions for failure to file required information returns or to provide copies to payees.

Date of Report: April 28, 2011
Number of Pages: 19
Order Number: R41504
Price: $29.95

Follow us on TWITTER at 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.