Onerous 1099-MISC Reporting Starting in 2012

A highly overlooked aspect of the health care reform, Patient Protection and Affordable Care Act, is the expanded 1099-MISC reporting requirements. The 1099-MISC reporting is being expanded in two different ways. The first expansion requires businesses to include payments made to corporations, and the second expands reporting to include payments of property.  The definition of “property” is still unclear, but IRS Commissioner Douglas Shulman recently made reference to “goods” instead of property which would suggest the IRS is looking at using a larger, more comprehensive definition.

This increased reporting requirement being placed on all businesses seems to be substantially burdensome in my opinion. How many businesses in this country will have to send 1099s to companies such as their local office supply store, and how many office supply stores want to receive potentially hundreds of thousands of 1099s from their customers? Businesses of all sizes will be required to report hundreds of 1099-MISC reports for any individual or corporation for which it pays $600 or more to in the year. Currently the requirement only applies to payments made to individuals, which makes sense, since individuals have the higher risk of not fully reporting income.  However, businesses already have reason to fully report their income to offset expenses and show owners and investors a return on their investment, not to mention potential SEC requirements and the fear of audits.

The AICPA, American Institute of Certified Public Accountants, is currently trying to influence Congress to repeal this section of the new health care law. If we are lucky, Congress will see the problems with this section and repeal it, however businesses in the mean time should review their systems to begin preparing for additional reporting burdens coming in 2012.