In my previous blog post, “Prepare for 900% Increase in 1099 Workload,” I estimated that the expanded requirements for filing a 1099 (on everything over $600 in value) could increase tax compliance as high as the estimated increase in revenue of $17 billion. So the economy would suffer a net loss of $34 billion ($17 billion in new tax revenue and $17 billion in higher tax compliance costs).
Congress in 2010 expanded the information return reporting requirements contained in Code Sec. 6041. Generally, Code Sec. 6041 requires payments of $600 or more to a single recipient in the course of a trade or business to be reported by the payor to the IRS and the payee, usually on Form 1099-MISC. There are exceptions to the general reporting requirements but these exceptions begin to disappear in 2011.
One of these disappearing exceptions to the reporting requirements involves landlords. The Small Business Jobs Act of 2010 (2010 Jobs Act) (P.L. 111-240) amended the definition of trade or business to include renting real property. Before 2011, most landlords were not subject to the reporting requirements because renting real property was not considered to be a trade or business. Under the new version of Code Sec. 6041, real property rental is now considered a trade or business but only for purposes of the reporting requirements.
Of course, as with many government regulations, there will also be unintended consequences. In this case, the 1099 requirements could make landlords vulnerable to identity theft:
Since landlords have not, until now, been “engaged in a trade or business,” the reporting requirements create a problem. According to the instructions for Form 1099, sole proprietors and others, like landlords, who are not otherwise required to have an employer identification number (EIN) should use their Social Security number (SSN) for reporting purposes. Moreover, the instructions state that the filer’s name and TIN should be consisted with the name and TIN used on the filer’s other returns. This opens up the opportunity for identity theft.
So I wonder whose going to be scooped up next in the 1099 dragnet as more of these exceptions disappear?