Business owners will have to be prepared for a lot more paperwork in filing their tax returns in the future, but upcoming guidance from the Internal Revenue Service (IRS) may provide some relief from this burden. Slipped into the 2000-page health care law were changes to the tax code regarding 1099 reporting requirements.

The new law, set to go into effect in 2012, will require businesses to use form 1099 to report to the IRS all payments to corporations in excess of $600 for goods and services. Under past law, service recipients were only required to send 1099 forms to non-corporation service providers. For each non-corporation service provider, the service recipient was required to issue two 1099 forms—one to the IRS and one to the service provider.

As part of the new expanded form 1099 reporting requirement, businesses will be required to obtain accurate Taxpayer Identification Numbers (TINs) from all qualifying vendors. Meaning that, small businesses will now need to regularly ask for the TINS of the various individuals and companies with which they do even a modicum of business, including companies that provide them with computer and phone services.

The details to the new regulation—Section 9006—which dramatically changes the 1099 reporting requirement have not been finalized by the IRS yet. However, Commissioner Doug Shulman has said the IRS will provide small businesses with at least partial relief from this paperwork burden.

During a speech at the American Payroll Association’s convention, Shulman said "we plan to use our administrative authority to exempt from this new requirement business transactions conducted using payment cards such as credit and debit cards. These transactions will already be covered by reporting requirements on payment card processors, so there is no need for businesses to report them as well. So, whenever a business uses a credit or debit card, there will be no new burden under the law."

Unfortunately this so-called "easing" of the new reporting requirement by excluding credit or debit card payments could have unintended and drastic negative impacts on small-business oweners. Many small-businesses could see their customers vanish as they attempt to streamline and minimize the number of vendors requiring additional reporting. Furthermore, there are myriad small-buisnesses that either do not accept credit or debit card payments, or are unable to do so on a competitive basis with larger companies.

Over the next several months, the IRS will be soliciting input and feedback from business owners and interested parties over this matter before proposing final regulations for implementation of the reporting requirement in the health care law.

As the IRS proceeds with their planning, they will be open to considering alternate approaches, including working with Congress to address any potential implementation issues that may arise during this process. The IRS wants to ensure that there is no duplicative reporting and that fulfilling the requirement is not too burdensome.

The primary purpose of this new reporting requirement is to close what the IRS calls the 'tax gap'—the IRS estimates there is a $290 billion annual gap between what is owed in federal taxes and what is collected. The information reporting requirements have been on the IRS wish list for a long time, and it was included in the health care reform bill as a way to raise revenue and help offset the cost of the program.

NSBA supports legislation the Small Business Paperwork Mandate Elimination Act (H.R. 5141), introduced by Rep. Dan Lungren (R-Calif.), which will repeal section 9006 of the PPACA that requires any business that purchases more than $600 of goods or services from another business to submit a 1099 form to the IRS. 

Please click here to urge your members of Congress to support Rep. Lungren's legislation.