I received an email from Commerce Clearing House (CCH), a major tax information firm for tax professionals, with this shocking headline–“Prepare for 900% in 1099 Workload.” What does this mean? According to CCH:
Today most corporations are required to perform 1099 reporting for less than 10 percent of their supplier population, according to industry estimates. That will jump to an estimated 90 percent under new tax legislation that takes effect in 2012. Legislation could make corporations do nine times as much 1099 reporting.
Under the law, businesses will be required to report purchases of items like office equipment, food and bottled water, gasoline, lumber and plumbing supplies if payments to any vendor in the course of a year aggregate to at least $600. In many cases, companies will also have to report payments for things like travel, telephone and Internet service.
And why are they doing this to businesses? Shockingly, its all about the money.
The new reporting requirement, included in the Patient Protection and Affordable Care Act, aims to close an estimated $300 billion tax gap between what individuals and businesses owe compared to what they actually pay. Congress expects the 1099 measure to raise $17 billion in taxes and fees, offsetting part of the cost of health care reform.
OK, I’m having a really hard time justifying this draconian change in the tax laws to raise a measly $17 billion. Folks in D.C. call such amounts “Fairy Dust.” The article does not state which type of 1099 they are referring to, but my guess is that it is the 1099-MISC. According to this document (pdf) from the IRS’s Statistics of Income Division, there were 85,524,982 1099-MISC forms filed in 2009. Multiply that by nine times you get 769,724,838 forms.
Now, how much do you guess it costs to fill out the form, make copies, send one to the vendor and file one for your records? I have no idea, but lets conservatively use a nice round number of $10. That means the costs of compliance with this draconian measure will come to $7.7 billion–nearly 50 percent of the expected revenue increase! Assume $20 and the tax compliance costs would nearly equal the expected revenue!
If you think that’s bad, let’s hope they don’t expand the requirements for filing a 1099-B (Proceeds for Broker and Barter Exchange Transactions) which had over 800 million filings in 2009. Do the math on that one.
But wait there’s more. It seems there is one loophole around this draconian measure:
So far, the IRS has said only that companies who pay bills with credit or debit cards will dodge the 1099 bullet, because the reporting burden will fall on the credit card companies, Roth says. But using credit cards in an attempt to avoid additional reporting burdens is not a good solution. Many vendors or suppliers may not want to allow it because of the extra cost to them of 2 to 3 percent per transaction, and some purchases will exceed the dollar limit for company credit cards.
Say what?! So even avoiding the cost of filing the 1099 is going to cost businesses 2 to 3 percent per transactions and, if they hold a balance, interest. Whoever thought of this idea needs to be taken behind the woodshed . . . better yet, make them file the first couple of million 1099s as community-service.
Isn’t already bad enough that American’s are already shouldering a $1.75 trillion burden complying with federal regulations.