Sen. Mike Johanns today introduced a bill that would repeal a costly tax reporting provision included in the new health care law. The provision forces all businesses, charities, and state and local governments to file 1099 forms if they purchase $600 or more in goods from another business throughout the year. This includes everything from supplies and shipping costs to phone and internet services. Senator Johanns' bill, the Small Business Paperwork Mandate Elimination Act, would repeal this provision and prevent a massive new paperwork requirement from being imposed on businesses, which could increase 1099 filings by 2000 percent.
"This mandate forces businesses to waste staff time and resources on paperwork that even the IRS says will likely be of little value," Johanns said. "One more mandate that stifles small businesses at the same time that Washington urges them to hire workers. For businesses already struggling to emerge from a recession this would be particularly burdensome, requiring government paperwork for common, everyday purchases. It is nothing more than a government-imposed obstacle to economic growth and job creation.
"Additionally, a division of the IRS has already stated the agency will 'face significant challenges' in handling the mountain of 1099 reports that will result from this new requirement, and has predicted an increase in erroneous penalties on our citizens. This provision has nothing to do with health care, and I hope my colleagues will support its repeal to protect small businesses across the country."
Background
• On June 30, Johanns invited all of his Senate colleagues to become co-sponsors of the bill. To date, eleven Senators have signed on.
• The provision of the health care law, Section 9006, would impact as many as 40 million American businesses. [National Taxpayer Advocate (a division of the IRS), Report to Congress]
o Of that number, 26 million are sole proprietorships, not counting farms.
• "The IRS will face challenges making productive use of this new volume of information … In our view, it is highly likely that the IRS will improperly assess penalties that it must abate later, after great expenditure of taxpayer and IRS time and effort." [National Taxpayer Advocate, Report to Congress, pp.24-25]
• "The cost of that paper trail could swamp the small companies, sole proprietors, 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." [CNNMoney.com, "IRS Starts Mopping Up Congress's Tax-Reporting Mess," 7/9/10]
• Small businesses have created more than 64% of new jobs nationally in the past 15 years. [Small Business Administration]
• If it is not repealed, the 1099 provision would take effect in 2012.