Senate to vote on 1099 paperwork burden

November 29, 2010

Phoenix Business Journal

Kent Hoover

Washington - The Senate is scheduled to vote Nov. 29 on whether to repeal a health care reform provision that would force businesses to file dozens - if not hundreds - more forms with the Internal Revenue Service every year.

The health care reform law requires businesses, beginning in 2012, to file a 1099 form any time they spend more than $600 a year with any other business for goods and services. That’s a dramatic expansion of current 1099 reporting requirements, which apply only to payments made to unincorporated providers of services.

Congress included the provision as a way to raise an estimated $17 billion in revenue to help pay for the cost of health care reform. In theory, third-party reporting of income, such as that provided by 1099s, makes businesses less likely to cheat on their taxes, thereby bringing in more revenue to the government.

Small businesses, however, contend this new requirement would create a paperwork nightmare. They’ve been fighting for repeal ever since the law was passed.

“I’ve never heard complaints like I’ve heard this year about 1099,” said Roger Harris, president of Padgett Business Services, an Athens, Ga.-based company that provides accounting and tax services to small business owners.

“Every small business owner - including myself - will face an increased paperwork and administrative burden for each additional 1099 form prepared,” said Larry Nannis, a certified public accountant who chairs the National Small Business Association.

If the requirement were in effect for this year, his own firm, Levine, Katz, Nannis + Solomon PC in Needham, Mass., would have to file at least 79 form 1099s instead of only two 1099s, he said.

To reduce this paperwork burden, many businesses might consolidate their purchases with a few vendors, he said.

“This will have a disproportional impact on small businesses and entrepreneurs attempting to get a foot in the door,” Nannis said.

Small Business Administration chief Karen Mills and the SBA’s Office of Advocacy called on Congress to repeal the 1099 requirement.

“We’ve heard strong opposition from small business about the new 1099 requirement, and the message we heard was repeal,” said Winslow Sargeant, the Office of Advocacy’s chief counsel.

Even Sen. Max Baucus, D-Mont., who inserted the 1099 provision in health care reform in the first place, now supports repeal, as does President Barack Obama. The question is whether the Senate will approve Baucus’ bill, which as of Nov. 22 did not provide a way to make up for the revenue that would be lost by 1099 repeal, or a competing bill sponsored by Sen. Mike Johanns, R-Neb. Johanns’ bill calls for the Office of Management Budget to pay for 1099 repeal by using unspent funds sitting in existing government accounts. Both bills will be considered as amendments to food safety legislation. The House would have to sign off on the legislation in order for it to reach Obama’s desk and be signed into law.

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