IRS criticizes new reporting requirement

Says new health care reporting rules would burden small businesses and the IRS itself.


The recently-enacted health care reforms included a new tax reporting requirement that has generated significant controversy. Under current law, a business is required to issue a Form 1099 information report of any payment that it makes to an individual or unincorporated entity for services that vendor supplies. The health reform bill expands the reporting requirement by adding a requirement that payments for goods be included in this reporting regime. The new requirement is effective beginning in 2012.

The IRS Office of Taxpayer Advocacy (a sort of ombudsman for taxpayer problems) issued a report this week that, among other things, criticized this provision for the great burden it imposes on small businesses and the IRS itself. As many as 40 million Forms 1099 would have to be provided to vendors and to the IRS.

The Advocate notes that "[t]he Office of the Taxpayer Advocate is concerned that the new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance."

Further, the Advocate's report suggested that the IRS does not have adequate resources to the process the additional 1099s to glean and systemize the information from so many reports. The Office believes that it is likely that the cost of compliance may exceed the amount of revenue that could be gained.

The small business community is very opposed to this new requirement and is making efforts to overturn it before it can become effective.