The Biggest 2010 Health Care Act Change You Never Heard About:

The Biggest 2010 Health Care Act Change You Never Heard About:
Catherine and News & Commentary,May 7, 2010 at 3:05 pm


. . . The coming avalanche of business-to-business 1099 Forms.

Our accounting firm just confirmed the truth of the little-covered story that as part of the new Patient Protection and Affordable Care Act of 2010, (Pub.L. 111-148) (“2010 Health Care Act”).

Congress slipped in a provision that requires every non-tax-exempt business in the US to provide by January 31 of each year an information return (usually, a 1099) to every payee to which it makes aggregate payments of $600 or more during a calendar year, effective for 2012.

The May 2010 issue of The Journal of Accountancy provides a short summary of this and other health-care and non-health-care related provisions of the Act.

Under current law, Section 6041 of the Internal Revenue Code (”IRC”) requires businesses to provide 1099s to individuals in a limited set of circumstances (e.g., to consultants like solo-practice accountants and lawyers for services rendered). Thus, Section 6041 PRIOR to the new changes provides:


§6041. Information at Source

a. Payments of $600 or more.

 All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042 (a)(1), 6044 (a)(1), 6047 (e), 6049 (a), or 6050N (a) applies, and other than payments with respect to which a statement is required under the authority of section 6042 (a)(2), 6044 (a)(2), or 6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.

b. Collection of foreign items.

 In the case of collections of items (not payable in the United States) of interest upon the bonds of foreign countries and interest upon the bonds of and dividends from foreign corporations by any person undertaking as a matter of business or for profit the collection of foreign payments of such interest or dividends by means of coupons, checks, or bills of exchange, such person shall make a return according to the forms or regulations prescribed by the Secretary, setting forth the amount paid and the name and address of the recipient of each such payment.

c. Recipient to furnish name and address.

When necessary to make effective the provisions of this section, the name and address of the recipient of income shall be furnished upon demand of the person paying the income.

d. Statements to be furnished to persons with respect to whom information is required.

 Every person required to make a return under subsection (a) shall furnish to each person with respect to whom such a return is required a written statement showing-

1. the name, address, and phone number of the information contact of the person required to make such return, and

2. the aggregate amount of payments to the person required to be shown on the return.

The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. To the extent provided in regulations prescribed by the Secretary, this subsection shall also apply to persons required to make returns under subsection (b).

e. Section does not apply to certain tips. This section shall not apply to tips with respect to which section 6053(a) (relating to reporting of tips) applies.

f. Section does not apply to certain health arrangements
This section shall not apply to any payment for medical care (as defined in section 213 (d)) made under—

1. a flexible spending arrangement (as defined in section 106 (c)(2)), or

2. a health reimbursement arrangement which is treated as employer-provided coverage under an accident or health plan for purposes of section 106.

g. Nonqualified deferred compensation
Subsection (a) shall apply to—

1. any deferrals for the year under a nonqualified deferred compensation plan (within the meaning of section 409A (d)), whether or not paid, except that this paragraph shall not apply to deferrals which are required to be reported under section 6051 (a)(13) (without regard to any de minimis exception), and

2. any amount includable under section 409A and which is not treated as wages under section 3401 (a).

Section 9006 of the 2010 Health Care Act1 adds two new categories of “payments” for which an information return will be required to be filed with the IRS if the minimum annual aggregate payment threshold is met: “gross proceeds” paid in consideration for “property” or services. The only exclusion from this requirement is payments made to tax-exempt corporations under Section 501(a) of the IRC. In a commentary on the site of the Air Conditioner Contractors of America, its Vice President of Government Relations says that if a vendor refuses to provide a tax information number to the vendee required to provide the 1099, the vendor may be required to withhold on behalf of the IRS. We have not been able to confirm this provision yet, but, if true, a whole new compliance regime would be imposed on businesses of significant size in order to satisfy such a requirement.

Commentators appear to agree that the new reporting encompasses payments for such routine expenditures as rent and the purchase of computers and other equipment, software, office supplies, gasoline and automobiles as well as services like janitorial services, coffee services and express mail delivery services and that we can expect the issuance of hundreds of millions, if not billions, of information returns for which each payor/vendee business will have to obtain tax ID numbers and each payee/vendor business must match to its own accounting and tax records.

Ask yourself how much tax revenue this provision will save in comparison to the costs to businesses of compliance. We think you will conclude that the potential benefits to taxpayers are greatly outweighed by the increased costs in terms of employee time, outside legal and accounting costs, business disruption and general loss of any semblance of business privacy.

Is the goal to so overload small business with compliance costs that you put them out of business? We think so. They will not succeed, but add this to a long list of economic hits from Washington in 2010.
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1This provision adds the following new subsections to Internal Revenue Code Section 6041:

(h) Application to Corporations- Notwithstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of this section the term ‘person’ includes any corporation that is not an organization exempt from tax under section 501(a).

(i) ‘Regulations – The Secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.’.

and amends Subsection (a) of section 6041 as follows:

(1) by inserting ‘amounts in consideration for property,’ after ‘wages,’,

(2) by inserting ‘gross proceeds,’ after ‘emoluments, or other’

(3) by inserting ‘gross proceeds,’ after ’setting forth the amount of such’.