7-37, 60-41, 10-99… Part 2

This series of articles is intended for informational use only and does not represent tax or legal advice; the information is believed to be correct at the time of publishing; the author cannot be held liable for any losses resulting from actions taken on the strength of the information provided.

If you need assistance with 1099s or any other IRS related form you are encouraged to visit the IRS Web Site and/or seek the services of a reputable tax lawyer.
New Legislation

The Patient Protection and Affordable Care Act of 2010 was a massive 2,400+ pages but hidden in plain sight on page 737 was a very important section.

Beginning in January 1, 2012 for tax returns in 2013 all companies will have to issue 1099 tax forms to any individual or corporation with whom they spend $600 or more in goods or services in a tax year.

The two major changes are that it expands 1099s to track payments not only for services but also for physical goods. Plus, it requires that a company issues 1099 to both individuals and corporations.

Here is the wording of the amendment:

SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS.

(a) In General.–Section 6041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsections:

“(h) Application to Corporations.–Notwithstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of this section the term `person’ includes any corporation that is not an organization exempt from tax under section 501(a).”

“(i) Regulations.–The Secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.”

(b) Payments for Property and Other Gross Proceeds.–

Subsection (a) of section 6041 of the Internal Revenue Code of 1986 is amended–

(1) by inserting “amounts in consideration for property,” after “wages,”,

(2) by inserting “gross proceeds,” after “emoluments, or other”, and

(3) by inserting “gross proceeds,” after “setting forth the amount of such”.

(c) Effective Date.–The amendments made by this section shall apply to payments made after December 31, 2011.

The Congressional Research Service provides a document on the new 1099 Information Reporting Requirements.

The key points are:

• For payments made after December 31, 2011 payments to corporations will no longer be automatically exempt.
• The types of payments that can trigger the reporting requirement will be expanded to include amounts paid in consideration of property and other gross proceeds.
• The effect of this amendment is to require those engaged in a trade or business to report a broader range of payments made with respect to a broader range of payees.
• The $600 threshold has remained constant over time, since at least 1954; in contrast, other dollar amounts specified in the IRC have been legislatively increased over time or indexed for inflation. For example, the personal and dependent exemption amounts were $600 in 1954, but over time have risen to $3650 for tax year 2010.
• Payments for merchandise, telegrams, telephone, freight, and storage have been exempt under IRS regulation; however, those payments may be considered amounts in consideration for property or gross proceeds under the amendment and could potentially be subject to reporting when the amended language goes into effect.

Coming in Part 3 – Business Implications