Wednesday, April 28, 2010

Just Spent $600? Must Tell IRS. It's a New "Health Care" Rule

From the Cato Institute:
Most people know about the individual mandate in the new health care bill, but the bill contained another mandate that could be far more costly.

A few wording changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year. It appears to be a costly, anti-business nightmare.


Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS. Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS. [emphasis mine]

Tax CPA Chris Hesse of LeMaster Daniels tells me:
Under the health legislation, the IRS could be receiving billions of more documents. Under current law, businesses send Forms 1099 for payments of rent, interest, dividends, and non-employee services when such payments are to entities other than corporations. Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases. And for the first time, 1099s are to be sent to corporations. This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result.
There appears to have been little discussion before this damaging mandate was slipped into the health bill and rammed through Congress, but a few business groups did raise concerns. Here’s what the Air Conditioner Contractors of America said:
The House bill would extend the Form 1099 filing requirement to ALL vendors (including corporate) to which they pay more than $600 annually for services or property. Consider all the payments a small business makes in the course of business, paying for things such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services.
In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.
The author of this Cato post, Chris Edwards, goes on to ask: "For what purpose? So the spendthrift Congress can shake a few extra bucks out of private industry?"

I think not.

Rules like this put so much booking pressure on Mom and Pop businesses that they'll be making even less income. Believe it or not, entrepreneurs do not go into business for love of paperwork, or even to give the IRS a chance to breathe down their necks quarterly--tempting as that might sound--but to perform the services to society that they are actually good at, have trained for, and like to do, like selling clothing, hardware, or toys; designing houses or technologies; raising roses, tomatoes, or dairy cows; or repairing cars or furnaces. Mountains of government-required paperwork severely cut into the time small business people can spend doing what they went into business to do in the first place, and leaves precious little time left for planning ways to improve the business for growth--or even to hire that unemployed person that Congress wants us to think they care about.

Taking Congress's actions at face value, there are few other conclusions to draw than that Congress wants to put small businesses out of business.

Too bad for Congress. They're going to miss small businesses when they're gone.



  1. My wife's interior design business just became a freaking nightmare? It's hard enough to track sales tax for all the stuff she buys for her clients, now I gotta track every curtain rod and pillow from Pottery Barn and send THEM a 1099?

    It's madness!

  2. Yep. I can't imagine how this will work [not work] in practice.

    A police officer can't ask an illegal alien for ID, but I have to provide paperwork telling the IRS exactly where I spend every dime between January 1 and December 31 (in triplicate).

    I would be John Galt already, if I didn't have to eat and support my family.