Four New Proposals to Repeal 1099 Requirement
Sept 22, 2010
After the Senate failed last week to pass two amendments that would have repealed or scaled back the expanded 1099 reporting requirements for businesses in the health care reform bill, other lawmakers began offering new proposals to repeal the requirement. Essentially, the Senate could not agree on how to replace the $17 billion in revenue over 10 years that the provision is expected to generate.

The controversial new 1099 reporting requirement, which was included in the Patient Protection and Affordable Care Act, would require businesses to report to the Internal Revenue Service (IRS) any purchase from a vendor of goods or services worth $600 or more during the calendar year. The new requirements would be effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.

At least four new proposals to repeal the provisions, with differing offsets to recoup the lost revenue, are now being circulated in the House and Senate.

The first House repeal proposal includes two potential revenue-raising devices that will most likely make it impossible for most Republicans and some moderate Democrats to support. The first would generate about $5.3 billion by revising the Grantor Retained Annuity Trust Inheritance rules, while the second would raise taxes on carried interest, which is a type of compensation for private equity managers and venture capitalists. Although, both of these proposals were included in the bill that the House rejected in July, this measure could potentially come to the Floor for a vote later this week.

Also in the House, Rep. Dan Lungren (R-Calif.) filed a discharge petition to force a floor vote on his bill, the Small Business Paperwork Mandate Elimination Act (H.R. 5141), that would fully repeal the reporting requirement, but at this time, does not offset the lost revenue. Currently 93 lawmakers have signed on in support of the petition, yet the bill requires 218 signatures for a floor vote to be scheduled.

Meanwhile, over in the Senate, Sens. Mark Begich (D-Alaska) and Ben Nelson (D-Neb.) introduced a proposal to completely repeal the expanded 1099 reporting requirement and replace the revenue with surplus funds from the 2009 federal economic stimulus package. Although, Sens. Debbie Stabenow (D-Mich.) and Claire McCaskill (D-Mo.) signed on as cosponsors, Democratic leaders opposed the proposal.

Finally, Chair of the Senate Committee on Small Business and Entrepreneurship, Sen. Mary Landrieu (D-La.) introduced, the Information Reporting Modernization Act of 2010 (S. 3783), would raise the threshold for businesses to file information reports to $5,000 from its current level of $600 and would index the threshold to inflation after 2012.

While those levels are similar to those in the failed amendment offered by Sen. Bill Nelson (D-Fla.) on the small business bill (S. Amdt. 4595 to H.R. 5297), the Landrieu bill would not exempt businesses with fewer than 25 employees and does not include an offset to pay for the change. Landrieu has indicated that she is open to working with both Democrats and Republicans to find an acceptable offset for the legislation.

NSBA has been adamant that the only solution to the huge problem posed by the new 1099 reporting provision is full repeal. This provision would increase the average number of firms for which small-businesses must file a 1099 report from an average of 10 to an average of 86. Furthermore, it will hamper business-to-business transactions as firms look to ease the new requirement by consolidating business purchases, giving big-box companies an inherent advantage over small businesses.