IRS STARTS MOPPING UP CONGRESS'S TAX REPORTING MESS
July 14, 2010
With a new mandate looming that will require business owners to file millions more tax forms, the Internal Revenue Service has begun the daunting process of figuring out how to turn the law's sweeping demands into actual rules for taxpayers, says CNN Money.
The new tax regulations, which kick in at the start of 2012, require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services that year. That promises to launch a fusillade of new paperwork: An estimated 40 million taxpayers will be subject to the requirement, including 26 million who run sole proprietorships, according to a report released this week by National Taxpayer Advocate Nina Olson.
Like many who have delved into the details of the new rules, Olson is concerned about their far-reaching scope and potential unintended consequences, says CNN Money:
- 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.
- The new rules are aimed at reducing the "tax gap" between what individuals and businesses owe and what they actually pay; the federal government misses out on estimated $300 billion each year from tax underpayment.
- The expanded reporting requirements, which Congress slipped into the landmark health care reform bill passed in March, are an attempt to create a paper trail of 1099s exposing business-to-business payments that might otherwise stay off the radar.
But the cost of that paper trail could swamp the small companies, sole proprietors and freelancers forced to generate it. Pennsylvania business networking organization SMC Business Councils surveyed its members and found that they currently average 10 filings a year of 1099 forms. The new rules would push that average to more than 200 filings per year for a typical small business, the industry group estimates, says CNN Money.
Source: Neil deMause, "IRS starts mopping up Congress's tax-reporting mess," CNNMoney.com, July 9, 2010.
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