Get ready to handle a lot more paperwork for the IRS. Because the Senate couldnt pass simple legislation this week that would repeal an onerous reporting measure set to sock small businesses, marine dealers can expect to file dozens, if not hundreds, more 1099s beginning in January, 2012.
In essence, businesses will have to track every purchase to see whether total payments add up to $600 or more per year. If so, a 1099 filing will be required. To complicate things even more, youll also have the extra work of keeping track and segregating payment methods, since the IRS will exempt credit card purchases from the requirement.
The expanded 1099 provision was slipped into the 2,300-page health care reform bill by the IRS as a way to help pay for the cost of that legislation. It is estimated to raise $17 billion over 10 years. But the truth is IRS had been looking for a way to require this reporting for several years but could never find a way to legislate it. When the massive unread health care bill came along it provided IRS the needed cover.
It is a nightmare for the nations businesses, especially small business owners such as marine dealers who simply dont have personnel, time or funds to handle such a paperwork calamity. Ironically, both Republicans and Democrats, while pleading they didnt know it was buried in the health care bill, say they are all for repeal. Still, they cant get the job done because they cant agree on how to do it.
FYI - Two attempts at repeal were made in the Senate this week by proposing amendments to an unrelated food safety bill. Both failed to get the needed 67 votes. The Republican amendment, which would have required using unspent federal funds to cover the $17 billion, garnered 61 votes. The Democrat amendment, which included no monetary offset, drew only 44 votes.
In spite of the fact that even President Obama and SBA administrator Karen Mills have publicly called for repeal of the 1099 provision, there is no certainty it will come about during this current lame duck session. It likely will fare better going in the new Congress that comes to Washington next January. Certainly thats expected to be a group of lawmakers more favorable to small business interests.
Even more interesting, though I am not a Constitutional scholar, is the fact that the Constitution requires all tax issues to originate in the House, not the Senate. Accordingly, even if the Senate had passed the repeal, a challenge might come because the House had not acted or initiated action. Hey, thats Washington for ya!
Bottom line: Its still in our best interest to keep emailing our Washington representatives, telling them as a small business owners we need the burdens of the new 1099 requirements lifted off our backs.