1099 Form Is Expensive Headache For Small Businesses

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After all the wrapping paper is put away this Christmas, job creators will have to start stocking up on a different kind of paper: tax forms.

When Democrats passed their health care bill earlier this year, they claimed the legislation would be “paid for” and would, in fact, reduce the deficit by $100 billion. They achieved that price tag with accounting gimmicks and by scrounging for revenue, or, in Washington speak, “offsets” wherever they could find it: new taxes, Medicare cuts, and dumping costs on the states.

Now, however, it turns out that one of the offsets creates so much paperwork for job creators that many Democrats want to repeal it — but they don’t want to “pay for” the $19 billion it was supposed to raise.

The provision is known as the 1099 reporting requirement. It requires all businesses to file a 1099 IRS tax form for each purchase they make over $600. Beginning in 2012, each business would have to file a tax form detailing its annual transactions with its paper supplier, bottled water distributor, office supply dealer, phone and Internet companies, and every other vendor with which it contracts. The provision will be especially burdensome to the small businesses that have fewer resources to deal with the piles of new paperwork.

The Wall Street Journal provided the example of what a midsized trucking company would face under the new reporting requirement. Its office would have to collect “hundreds of thousands” of receipts from every gas station where its drivers filled up, determine where the drivers spent more than $600, and then file countless forms with the IRS.

The bill’s authors claim this requirement will help the federal government collect new revenue from business income, but it’s questionable whether the federal government would benefit at all.

The Treasury Department’s National Taxpayer Advocate says the costs will be “disproportionate as compared with any resulting improvements in tax compliance.” The Taxpayer Advocate Service also says it is “highly likely the IRS will improperly assess penalties it must abate later, after great expenditure of taxpayer and IRS time and effort.” In other words, this requirement is an expensive headache for small businesses and for the government.

Last week, two amendments were offered to repeal this provision. One, offered by Republican Senator Mike Johanns, would have absorbed the estimated cost of the repeal by trimming other costs associated with the health care bill. He, like all other Republicans, does not support the health care bill, but believes we must repeal the 1099 provision now to avoid dumping new burdens on job-creating businesses.

The other amendment, offered by Democrat Senator Max Baucus, would have repealed the provision without an offset. Both amendments failed.

Some Democrats now say they didn’t initially understand the implications of the 1099 provision when it was added to the Obamacare bill. That’s not surprising, given the hasty manner in which the overall measure was written and passed.

Much ado was made about the supposed affordability of this bill. But as Democrat House Speaker Nancy Pelosi said, the bill had to pass so we could find out what’s in it. Now we know and shouldn’t be surprised as the costs start piling up.

Sen. Jon Kyl is the Senate Republican Whip and serves on the Senate Finance and Judiciary committees. Visit his Web site at www.kyl.senate.gov or his YouTube channel at www.youtube.com/senjonkyl.

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