Sometimes I get irritated at my own laziness. But after all, I’m retired!
Here’s an outrageous item I meant to post over 3 weeks ago, but let slide. Thankfully my bro-in-law Adam reminded me to get going on this.
This 1099 provision in the massive health care bill is madness. Apparently it means my (and your) SS# or TIN (business ID#) could be floating around in many vendors’ hands. The opportunities for mischief are boundless.
I guess the only good news is that — if the 1099’s are filed on paper rather than electronically — the IRS will be overwhelmed with paperwork — complete with many errors. Crushed, actually.
The opportunity to file false 1099’s for enemies will likely tempt many. It’s always been there, but now with everyone filing 1099’s, people will become more aware of this potential nefarious strategy.
Doubtless the Chinese are gleeful about this make-work project for Americans. It will reduce U.S. productivity and make doing business more costly.
When the health care bill hung in the balance, Nancy Pelosi said it best –“But we have to pass the [health care] bill so that you can find out what is in it.” Really — she actually said that.
http://www.youtube.com/watch?v=KoE1R-xH5To
She should have been a bit more honest — NOBODY knew all that was in the 2,000+ page health care bill — including those who voted to pass it. Certainly SHE didn’t have a clue.
If you don’t bother with such forms, you will be obligated for the 20% withholding tax you should have withheld (required to be withheld if you don’t have and submit the buyer’s ID number). Plus penalties, interest and likely audits.
Remember my axiom — incompetency trumps conspiracy (most of the time).
——
http://tinyurl.com/1099Madness
CATO
Costly IRS Mandate Slipped into Health Bill
April 26, 2010 @ 11:57 am
Posted by Chris Edwards
Most people know about the individual mandate in the new health care bill, but the bill contained another mandate that could be far more costly.
A few wording changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year. It appears to be a costly, anti-business nightmare.
Under current law, businesses are required to issue 1099s in a limited set of situations, such as when paying outside consultants. The health care bill includes a vast expansion in this information reporting requirement in an attempt to raise revenue for an increasingly rapacious Congress.
In a recent summary, tax information firm RIA notes the types of transactions covered by the new 1099 rules:
The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services.
Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS. Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.
Tax CPA Chris Hesse of LeMaster Daniels tells me:
Under the health legislation, the IRS could be receiving billions of more documents. Under current law, businesses send Forms 1099 for payments of rent, interest, dividends, and non-employee services when such payments are to entities other than corporations. Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases. And for the first time, 1099s are to be sent to corporations. This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result.
There appears to have been little discussion before this damaging mandate was slipped into the health bill and rammed through Congress, but a few business groups did raise concerns. Here’s what the Air Conditioner Contractors of America said:
The House bill would extend the Form 1099 filing requirement to ALL vendors (including corporate) to which they pay more than $600 annually for services or property. Consider all the payments a small business makes in the course of business, paying for things such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services.
In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.
Private transactions are the core of a market economy, and the source of America’s growth and prosperity. Now the federal government is imposing a vast new web of red tape on perhaps billions of these growth-generating private exchanges.
For what purpose? So the spendthrift Congress can shake a few extra bucks out of private industry? The business sector is the generator of America’s high living standards, but most federal legislators just see it as a kitty to be raided or a cow to be milked dry.
I’m stunned that there wasn’t a broader debate before such a costly mandate was enacted. If it goes into effect, it will waste vast quantities of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. The struggling American economy can’t afford anymore suffocating tax regulations. This mandate is a giant deadweight loss. It should be repealed.
Chris Edwards
Comments 6
Mr. Rider:
What you are referring to is not just for the Healthcare bill, but for all
business transactions. Those IRS changes were made just this year.
Please go to: http://www.taxgirl.com/new-rules-about-forms-1099-are-causing-a-stir/
for clarification of the purpose and intent of this new 1099 provision.
Author
Thanks, Gwendolyn, for the clarifying blog item.
I realize the 1099 regs have to do with all business transactions — not just health care related. Which raises the question — what the heck is this “clarifying” provision doing buried in the health care bill?
I agree that regs and perhaps new laws will somewhat lighten the load of this confusing requirement. There will be a LOT of complaining about this — hopefully with positive results.
It sure is discouraging stuff for a small business to put up with — and potentially dangerous. It’s just one more reason not to start a business — or to retire and close one’s business.
Sadly, it’s an area where errors (and noncompliance — intentional and unintentional) will be a fertile field for audits, fines, levies for money not withheld and — when the IRS fancies it — criminal prosecution.
In answer to your question of “why in the healthcare bill”, I would say that it may “de rigueur” to insert IRS lingo requirements in legislation that has a financial impact.
I think you are way to pessimistic about this new change in 1099’s and it’s effect on business. I certainly wouldn’t let that stop me from starting a business. As they say, “where there’s a will…there is a way” to handle business. Yes, it looks complicated, but in the end will help to close some loopholes. The challenge will be getting the word out about this new change and affecting compliance.
Author
OF COURSE this latest 1099 requirement is not IN ITSELF enough to drive one out of business. But for some it CAN be the straw that breaks the camel’s back. It’s just one more reason to avoid making the effort and taking the risks of entrepreneurship.
For 20 years, I was a self-employed CFP operating out of my home. I had one part-time employee — normally a college kid delighted with the opportunity to work in a financial environment. That meant I had to deal with all the hassle of withholding, insurance and the submission of reports and money to state and federal overseers.
Finally the state passed a bill that all businesses had to have a safety plan — complete with a designated employee and a manual of do’s and don’ts (subject to inspection) — even for a one room office with one part-time employee.
For instance, in my office in the home, I was to post some warning not to open top two drawers of my file cabinet — lest I be crushed by it falling forward (an epidemic problem at the time, no doubt). Another notice was needed — don’t poke metal objects in electrical sockets.
That was the last straw for me. It just got to be too much trouble to have an employee.
So reluctantly I fired my employee. As a result, my employee was unemployed (and lost valuable experience), and I henceforth wasted my time doing less productive office work. My productivity suffered, but not as much as my productivity suffered from the rules and regs (and costs) imposed for having an employee.
Of course, you have a more sanguine view of such regs — you make your living off the taxes and regs imposed by government on your clients. Indeed, accounting is one of the few professions still growing in our moribund economy.
That and government employment!
Author
The only “fitness program” the “Central Government” needs to “take a grip on” is it’s OWN physical fitness — or rather it’s FISCAL fitness. The obesity problem exists — it’s called the Federal government!
Author
My previous post on federal obesity was flawed. I failed to give due obesity credit to our state and local governments. My apologies.