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Mary Bernard
Mary Bernard

Expansion of 1099 Reporting Requirement Repealed

How the repeal affects your business.

April 28, 2011
by Mary Bernard, CPA

On April 14, President Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (1099 Act). This law repeals the expanded Form 1099 reporting requirements introduced in the Patient Protection and Affordable Care Act (PPACA) and the Small Business Jobs Act of 2010 (SBJA).

The repeal impacts the provision of the PPACA that required businesses to file Form 1099 for all payments for services aggregating $600 or more to a single payee, including corporations. Payments for property received were also scheduled to be included beginning in 2012. Previously, businesses were not required to report transactions with corporations. The 1099 Act returns the rules to how they were before Congress passed the PPACA.

The SBJA required that individuals who receive rental income issue Forms 1099 to service providers for payments of $600 or more (the landlord provision). Many property owners considered this requirement to be unnecessarily burdensome. The 1099 Act repeals this provision, which would have become effective for payments made after December 31, 2010.

By virtue of this new law, the reporting rules for Forms 1099 remain basically unchanged. Internal Revenue Code section 6041(a) reads “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” in the amount of $600 or more must report the amount, name and address of the recipient to the Internal Revenue Service (IRS) and the recipient on a calendar-year basis. This requirement applies to payments of rent, salaries, wages, premiums, annuities, compensation, commissions, fees and other fixed or determinable gains, profits and income.

Penalties Increased

The SBJA also included a provision to increase the penalties for noncompliance with the information reporting rules. The 1099 Act did not repeal this provision:

  1. The first-tier penalty for failure to timely file an information return was increased from $15 to $30, with the calendar year maximum increasing from $75,000 to $250,000.
  2. The second-tier penalty was increased from $30 to $60, with the calendar year maximum increasing from $150,000 to $500,000.
  3. The third-tier penalty was increased from $50 to $100, with the calendar year maximum increasing from $250,000 to $1.5 million.

For small business filers, the calendar-year maximums were increased from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for failure to file due to intentional disregard increased from $100 to $250.

The increased penalty amounts were effective January 1, 2011 and remain in effect after the passage of the 1099 Act. The increased penalty amounts are scheduled to be adjusted for inflation every five years.

Upon the Senate’s passage of the bill, the White House press secretary released a statement of support: “We are pleased Congress has acted to correct a flaw that placed an unnecessary bookkeeping burden on small businesses. Small businesses are the engine of our economy and eliminating the 1099 reporting requirement is the right thing to do.”

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Mary F. Bernard, CPA, is director — income/franchise tax, at the Dallas, Texas-headquartered tax services firm of Ryan. Bernard formerly worked as principal, director of State & Local Tax Services, at Providence, RI-basedKahn, Litwin, Renza & Co., Ltd.