Expanded Form 1099-MISC Requirements Increase Burden on Businesses

Bob Denkert, CPA Auditing & Accounting Senior Manager   email
September 2010

Congress amended the Internal Revenue Code to expand the filing requirements for Form 1099-Miscellaneous Income (1099-MISC) starting in 2012.

Currently, the 1099-MISC is used to report payments to another person for rent and services of at least $600.  After December 31, 2011, payments for goods totaling at least $600 in a taxable year in the course of a trade of business will be required to be included.   Additionally, Congress expanded the definition of person to include corporations that are not tax exempt. Currently, the definition of person for this section includes individuals as well as all business organizations with the exception of corporations.

Congress anticipates that income which previously was not reported on the tax returns of recipients will now be reported since the Internal Revenue Service (IRS) will have the information from the 1099-MISC.

The effect of these changes includes the following.

• Businesses will need to gather the names, addresses and taxpayer identification numbers (TINs) for all of their vendors including corporations.
• Businesses may be required to withhold and remit 28 percent of the payment to the IRS, if a vendor refuses to provide its TIN.
• Small business owners who use their Social Security numbers for their TINs may want to apply for a TIN to help preserve their privacy.
• Businesses will need to file a 1099-MISC if they spend at least $600 at their local discount store since the expanded requirement now includes the purchase of goods.
• Businesses may be required to file electronically due to the increased number of forms that need to be filed.
• If the proposed IRS regulation that exempts payments made by credit cards is finalized, businesses will need to track how payments are made to determine whether a 1099-MISC needs to be filed.
• If the name and TIN on the 1099-MISC do not match the IRS's files, businesses will need to take the time to determine why the name and TIN do not match and make the correction.

Although there may be some benefit from the expanded filing requirement, it appears that Congress may not have considered the additional cost to businesses and the IRS for processing the millions of additional forms that will be filed. The additional information on payments to corporations may not be meaningful since Forms 1099-MISC are filed on a calendar-year basis while many corporations file their income tax returns on a fiscal-year basis.

Both parties in Congress recognize that the changes need to be repealed. To help businesses, we urge you to contact your congressman and senator and stress the burden that this will cause your business.