NOVEMBER 16, 2010
In letters to members of the House of Representatives and the Senate, the AICPA on Nov. 16 expressed its concerns about the compliance burdens being placed on businesses (including rental property owners) by recently expanded Form 1099 information-reporting requirements. The letters, signed by Patricia Thompson, CPA, chair of the AICPA’s Tax Executive Committee, urge Congress to repeal the new requirements.
Two recent pieces of legislation expanded information-reporting requirements for businesses and for individuals who receive income from rental property. The Patient Protection and Affordable Care Act, PL 111-148, overturned the regulation that exempted payments to corporations from the information-reporting rules. The act also expanded the information-reporting requirements to include business payments for property (instead of just services, as required under current law). Under the act, starting with payments made in 2012, businesses would generally have to provide a Form 1099 to vendors and the IRS—and collect the required Form W-9 information—for purchases of $600 or more in property or services from another entity (including corporations).
The Small Business Jobs Act, PL 111-240, requires taxpayers who receive rental income to issue Forms 1099 to service providers for payments of $600 or more during the year. The act subjects recipients of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a trade or business, so rental income recipients making payments of $600 or more to a service provider in the course of earning rental income will be required to provide an information return (typically Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010.
The two AICPA letters, one to House members and the other to Senators, express several concerns with the new rental property owner reporting requirements. They note that, “(1) keeping records to track expenses by provider, (2) obtaining tax identification numbers and other information from providers of property and services, and (3) providing Forms 1099-MISC during January, a month when taxpayers would not normally be focused on tax issues, would be extremely burdensome.”
The AICPA letters also focus on other burdens and costs that collecting relevant information and preparing and mailing Forms 1099 will impose on taxpayers. The letters note that, for fiscal-year or accrual-basis corporations, reconciling cash-basis, calendar-year information reported on Forms 1099 will be burdensome. The AICPA also questions the value of the information reported to either taxpayers or the IRS.
The letters argue that repeal of both expanded information-reporting requirements “is the best alternative to imposition of an overwhelming compliance burden on the nation’s small businesses and real estate owners.”
Legislative Proposal
Sen. Max Baucus (D-Mont.), chair of the Senate Finance Committee, has announced that he will introduce legislation during the current congressional session to repeal the requirements enacted by the Patient Protection and Affordable Care Act. However, his bill, called the Small Business Paperwork Relief Act, does not address the expanded rental property owner requirements. Sen. Baucus’ bill has not yet been introduced, and its prospects for passage are unclear.
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