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It was bound to happen. Something buried in the health care reform bill that will cause small business owners more grief than this year’s NBA playoff ouster for Cleveland Cavaliers fans!

This shocking news was revealed by Neil deMause on CNNMoney.com last week. If you saw it, you’re already ticked. If you missed it, you can catch up to the rest of us now!

Inside the 2,409-page health reform bill – you know, the one no member of Congress had time to read - was a provision for a massive expansion of requirements for businesses to file 1099 tax forms. In essence, all businesses will be required to file 1099 forms for every business from which they purchase $600 worth of goods or services! Just the thought of the paperwork, tracking, accounting costs and related administrative expenses should be sparking outrage among small business owners.

This is actually the latest move by the IRS to find unreported income that will rain down new tax forms. This expands the requirements for filing the "1099-Misc" form, which companies use for recording payments to freelance workers and other individual service providers. Until now, payments to corporations have been exempt from 1099 rules, as have payments for the purchase of goods.

But starting in 2012, all business payments or purchases that exceed $600 in a calendar year will need to be accompanied by a 1099 filing. It means obtaining the taxpayer ID number of the individual or corporation you're making the payment to, at the time of the transaction, or else facing IRS penalties. Yes, it will even apply to giant retailers you might use like Office Max or Costco. Bottom line: the 1099-Misc will change from tracking off-payroll employment to one that must accompany virtually any sizeable business transaction.

Tom Henschke, president of the Pennsylvania-based SMC Business Councils, describes it like this: "Phone service: 1099. Computer service: 1099. Whoever does your postage meter: 1099. You do a little advertising, Yellow Pages: 1099. Your landlord: 1099. You might as well just keep them in your pocket and hand them out as you go around every day." It would be funny if it were not true.

Henschke’s SMC had previously surveyed its members and found they averaged 10 filings a year of 1099 forms that took about 30 minutes each to prepare. The SMC survey further found that if 1099s were extended to services purchased from corporations, it would increase the number of filings to about 200 per year for a typical small business. That would add an estimated $6,000 to the cost of preparing the average tax return. But it’s a lot worse than that: the SMC study did not anticipate any requirement that 1099s be filed for all purchases of goods! That now puts costs and hassles in the stratosphere!

Surprise, surprise -- no one in Congress is willing to take credit for how this got into the health bill. Some say it was a change waiting for the right moment. So, when debate was boiling over the costs of health care reform, supporters began a frantic search for “revenue-raisers” to bring down the net cost. Bingo – the 1099 provision went into the bill stealth!

So what can you do about it? Well, you can write your congressman and senators and tell them they should have read the bill and taken time to learn of the immense burden this IRS move will place on your small business. Of course, you gotta hope they have time to read your letter! Or, you can alert your accountant or IT person to start thinking about how to deal with this coming nightmare.

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