Expansion of 1099 rules for business to business transactions

The new health care legislation has made tremendous changes to existing laws.  Many of these changes phase in over the next five years.  

The National Federation of Independent Business (NFIB) has a timeline listing many of the provisions in the new health care legislation and their date of implementation. 

The IRS is responsible for collecting taxes from Americans.  The amount of taxes that are legally owed; yet not paid, is often referred to as the “ tax gap”.  The IRS estimates that taxpayers only pay about 84% of the tax they owe.  The IRS currently estimates that Americans paid about 514 billion dollars less in taxes in fiscal year 2008 than they should have paid. 

One of the methods the IRS plans on using to try to lower the “tax gap” is requiring more “information reporting”.   A good example of  ”information reporting”  are the W-2′s that employers are currently required to issue to all employees.  Each employer currently sends a W-2 to each employee and a copy to the Internal Revenue Service.  Since the IRS gets a copy of each W-2 they can cross check tax returns and ensure that taxpayers are reporting their salaries.     

The new health care legislation has a provision that will impose another large regulatory burden on all business owners in the United States. 

This new law will effect all payments made by businesses after 12/31/11.  All businesses will be required to issue a 1099 to all businesses and individuals they pay $600 or more in a calendar year!  This is going to be an absolute nightmare for business owners.  The IRS has not determined when these 1099′s will be due; however, the likely due date will be Feb 28th if they are paper filed and then March 31st if they are electronically filed.

We currently prepare about 200 1099′s for our clients.  With the new law we will likely have to file about 1200 1099′s the first year this plan is implemented. 

As the IRS issues further instructions we will keep you aware of those changes. 

Mike Sylvester, CPA/ABV “accredited in business valuation”