Repeal of Expanded 1099 Requirements
Melanie Kidder, — Accounting and CFO Advisory Services
Lisa Henderson, — Tax Services
On Thursday, April 14, 2011, President Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (the 1099 Act). The Act repeals recently expanded Form 1099 reporting requirements enacted under the Patient Protection and Affordable Care Act of 2010 (see November 11, 2010 article), and the Small Business Jobs and Credit Act of 2010 (see December 16, 2010 article).
In essence, the new law:
- Repeals the information reporting requirements on payments made to corporations and payments for property and other gross proceeds.
- Repeals the information reporting requirements for rental property expense payments.
Certain old rules, however, remain in effect:
- Businesses must report fees paid for service to non-corporations.
- Increased penalties for late filing enacted under the Affordable Care Act of 2010 remain in effect.
Background
The Patient Protection and Affordable Care Act of 2010 expanded business 1099 reporting requirements to include all payments totaling $600 or more to a single payee (including corporations) and to include payments made for property (beginning 2012).
The Small Business Jobs and Credit Act of 2010 required landlords (individuals who receive rental income) to reports payment to service providers on Form 1099.
What Has Changed
The 1099 Act makes several changes to IRS § 6041 and reverts portions of that statute to how it was before the two 2010 Acts were enacted.
First, The 1099 Act repeals the expanded Form 1099 reporting requirement with regard to corporate payees by removing IRC § 6041(i).
Second, it repeals the expansion of the 1099 requirement to landlords by removing the language “amounts in consideration for property,” and “gross proceeds” from section 6041(a). The 1099 Act also strikes IRC § 6041(h) in its entirety, which required landlords to issue Forms 1099 to service providers by specifying that “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.”
Third, the act removes IRC § 6041(j), which granted the Treasury secretary authority to issue regulations under section 6041, including “rules to prevent duplicative reporting of transactions.
As a result of the repeal, the 1099 reporting rules continue as they were before the passage of the two Acts in 2010: Anyone “engaged in a trade or business and making payment in the course of such trade or business to another person” of $600 or more must report the amount on Form 1099. This includes payments of “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income,” along with commissions, fees, and other forms of compensation for services rendered. This information must be reported each calendar year for payments made during that year.
What Has Not Changed
The 1099 Act did not repeal the increased reporting penalties that will be imposed (under the Small Business Jobs Act) for late filings and failures to file. The penalties will be assessed according to a three-tier system.
- First-tier: Less than 30 days late. Penalty is $30 per form maximum of $250,000 ($75,000 for small businesses).
- Second-tier: More than 30 days late but filed by August 1. Penalty is $60 per form, maximum of $500,000 ($200,000 for small businesses).
- Third-tier: Not filed by August 1. Penalty is $100 per form, maximum $1.5 million ($500,000 for small businesses).
For more information about these reporting requirements, please contact Melanie Kidder or Lisa Henderson at Frank, Rimerman + Co. LLP.