Costly IRS Mandate Slipped into Health Bill

A recent post by Chris Edwards on the Cato Institute Blog, Costly IRS Mandate Slipped into Health Bill, reviews a mandate included in the recent health care bill that increases reporting requirements for businesses.

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.

The current law requires businesses to issue 1099's to contractors, however the new law purchases to the requirements. As described by RIA, a firm that provides tax information, and quoted by Edwards,

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.

Edwards quotes Chris Hesse of LeMaster Daniels PLLC as saying, "Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases."

The requirements are already being challenged. Representative Dan Lungren (R-Calif.) introduced legislation repealing the requirement. As reported by the On the Money, the Hill's blog on finance and the economy, Lungren thinks that the burden is not particularly wise.

"It is just one of the dumber things I have seen in Congress," he said, adding, "Imagine this: Goods and services purchased by a small business, from a supplier ranging from component parts of every American product, to phone and internet service, to the shipping service of Fed Ex or UPS, will now give rise to a new paperwork burden at tax time."

The proposal is apparently now waiting for the Ways and Means Committee.