Escaping the 1099 Avalanche?

The new 1099 mandate I previously discussed here is beginning to attract more attention. Currently, businesses submit 1099’s for every consultant or contractor they hire. Under the new rules, businesses must submit 1099s for every other business with whom they do business. This mandate will inundate small businesses with the requirement to submit a flood of 1099 forms to the IRS starting in 2012.

Now CNN/Money is focusing on the problems associated with the 1099 mandate:

But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.

Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

“It’s a pretty heavy administrative burden,” particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.

Eliminating the goods exemption could launch an avalanche of paperwork, he says: “If you cater a lunch for other businesses every Wednesday, say, that’s a lot of information to keep track of throughout the year.”

CNN/Money further reports that Rep. Dan Lungren, R-Calif. introduced legislation last week that would repeal the new 1099 requirements.

As James Taranto observed:

Speaker Nancy Pelosi famously said in March: “We have to pass the bill so that you can find out what is in it.” It is increasingly evident that we all would have been better off not knowing.

More from:

  • TaxGirl – Probably the best analysis on the issue I’ve seen.
  • TaxProfBlog – Has some additional links, including the one to TaxGirl.
  • Classical Values – Drew my attention to TaxProfBlog.

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