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Heartland Institute
Phone: (312) 377-4000 x130
E-Mail: dmiller@heartland.org
Thursday, May 27, 2010
IRS To Scrutinize Obamacare Transactions
By Steve Stanek
Talk of the health care overhaul in the Obamacare bill apparently
diverted attention from another important aim: to grow the
government's ability to track almost every business transaction.
Buried in Section 9006 of the 2,409-page Patient Protection and
Affordable Care Act is a provision to force all businesses to issue
1099 tax forms not just to contractors but to any person or business
from which they buy more than $600 in goods or services in a tax year.
The provision kicks in on January 1, 2012.
Buy a $600 business computer? Send a 1099. Spend $600 on office
supplies? Send a 1099. Spend $600 on hotels? Send a 1099. Spend $600
on shipping? Send a 1099.
Currently all these activities are exempted from 1099 reporting, and
only individuals, not corporations, receive 1099s.
If this expanded 1099 reporting provision stands, businesses and
independent contractors will be buried under a mountain of required
tax reporting and bookkeeping. Imagine having to gather the name and
taxpayer identification number of every payee and vendor with whom we
do business. Imagine the flood of 1099 tax forms that would pour into
companies large and small.
In a recent Budget & Tax News interview, Marianne Couch of the Cokola
Tax Group in Michigan said the provision could result in a fivefold
increase in the number of 1099 forms. Couch is former chairwoman of
the IRS Information Reporting Program Advisory Committee's
subcommittee on small business and self-employed tax issues.
Tax expert and best-selling author Dan Pilla notes Americans already
send the IRS nearly 2 billion "information returns" each year
detailing how much we paid and to whom. He expects that number to
surge under this new 1099 reporting provision.
Under the Obamacare law, the following must be reported if the amount
exceeds $600 (with exceptions for nonprofits):
* rent;
* salaries, wages, or other compensation or remuneration;
* premiums;
* annuities or pensions;
* interest, rents, or royalties; and
* any other fixed or determinable gain, profit, or income.
That's virtually everything a business does.
The justification for the new provision is found in a report issued
last year by the Government Accountability Office, which estimated a
"tax gap" of more than $300 billion a year, due in part to businesses
avoiding taxes because certain transactions are not documented to the
IRS.
But National Taxpayer Advocate Nina E. Olsen—whose office is a part of
the IRS—issued a report in 2008 estimating the nation's costs of
complying with IRS reporting requirements totaled $193 billion
annually.
"This is a staggering 14 percent of aggregate income tax receipts,"
she noted in her 2008 Annual Report to Congress.
Set aside the question why a provision aimed at addressing a general
tax problem is in a health care bill. The "tax gap" has a variety of
causes , including misreporting of charitable donations by
individuals. The new 1099 reporting requirement in the Obamacare bill
will send the nation's IRS compliance costs much higher, eating into
whatever "tax gap" reduction it might achieve.
It will also reduce the efficiency of all businesses and individuals
subject to the additional reporting and record-keeping, shrink
business profits, and no doubt encourage more tax-dodging. It has long
been known that the more onerous and confusing a tax system becomes,
the more businesses and individuals look to hide income.
Rep. Dan Lungren (R-CA) has introduced legislation to repeal the new
1099 reporting requirements. He already has more than 50 House
cosponsors. Let's hope most lawmakers sign on.
Steve Stanek (sstanek@heartland.org) is a research fellow at The
Heartland Institute.
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