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Changed Requirements for 1099-MISC Filing
August 2, 2010
If you are a business owner or self-employed person, please read on for information that could be very important to you! The Internal Revenue Service has changed the filing requirements for Form 1099-MISC. Certain types of payments that previously were not required to be reported must now be tracked and filed with the IRS. The most significant change is that payments made to corporations for goods or services must now be reported on Form 1099-MISC.
As in previous years, under the regulations of the Internal Revenue Code, every person engaged in a trade or business is required to report any payment to another person or non-corporate entity of $600 or more to the IRS on Form 1099-MISC. A copy of the form must also be sent to the person or entity who received the payment. Previously, most payments made to corporations were exempted from 1099-MISC reporting. However, the Internal Revenue Code section that regulates 1099 reporting was recently amended by the Patient Protection and Affordable Care Act of 2010.
The Act changed the existing rule for reporting payments to corporations, stating that the term "person" (pertaining to the language in the code) now includes any corporation that is not considered tax-exempt under the Internal Revenue Code. In addition, the amendments have added reporting requirements for "payments of amounts in consideration of property" and "gross proceeds." These new reporting requirements apply to payments made after December 31, 2011. Payments that are exempt from reporting that were not changed by the Patient Protection and Affordable Care Act include interest, dividends, royalties, and securities and broker transactions.
Many businesses and organizations have expressed concern with these new reporting requirements. They fear that the new rule will create a financial burden for businesses, especially small businesses that are already operating under small margins due to the state of the economy. The new requirements would require businesses and self-employed individuals to keep detailed records of all payments made to corporations. This could prove to be a time consuming task, especially if payments are made to a corporation throughout the year in frequent, small dollar transactions.
The Taxpayer Advocate Service has estimated that about 40 million businesses and other entities will be affected by the new reporting requirements. While the Service has not come to a conclusion about the positives and negatives of the changes, it has voiced concern, stating that the burdens of the new legislation "may turn out to be disproportionate as compared with any resulting improvement in tax compliance."
The Treasury Department and the Internal Revenue Service have welcomed comments and/or suggestions on this new legislation. In response to comments that they have already received from business owners and other financial professionals, the two bodies have proposed legislation that would create an exception to the new rule. Due to other legislation passed this year, there will be new reporting requirements in effect for payments made with credit cards. In order to avoid double reporting of the same transactions and to mitigate the financial burden for businesses, the Treasury Department and the IRS have indicated that payments made to corporations with credit cards will not be required to be reported on Form 1099-MISC. This legislation is expected to be finalized this summer.
To view the publication issued by the IRS on the new reporting requirements visit http://www.irs.gov/pub/irs-drop/n-10-51.pdf
If you have any questions on how these new reporting requirements may affect you or your business, please contact your advisor at the 415 Group (330.492.0094)
by: Lindsay J. Cooper, CPA
