HATED 1099 RULES ABOUT TO GO

On April 5, the Senate voted to repeal expanded Form 1099 information reporting rules added by 2010 legislation.  The bill was passed by the House on March 3.  The President is expected to sign it.

Background.

Before the 2010 healthcare law, 1099s were generally required for payments totaling at least $600 in a single calendar year to a single recipient.  Reporting on Form 1099 was required only when the payor was considered to be engaged in a trade or business and made the payment in connection with that trade or business. The type of payment that most commonly triggered the reporting requirement was payment for services.  However, no 1099s were required for payments to corporations.

2010 Law.

The 2010 law added payments of amounts in consideration for any type of property (i.e., it added payments for goods or other property not just services) to the list of payments subject to information reporting and further provided that, beginning in 2012, payments to corporations would be subject to information reporting.

Additionally, for payments made after 2010, the Small Business Jobs Act of 2010 provided that, subject to limited exceptions, a person receiving rental income from real estate would be treated as engaged in the trade or business of renting property for information reporting purposes. In particular, rental income recipients making payments of $600 or more to a service provider (for example, a painter or plumber) in the course of earning rental income would have to provide an information return to the service provider and IRS.

New Law.

The 2010 reporting requirements were intended to increase reporting and compliance and therefore raise revenue to pay for the healthcare law.  They also imposed a huge administrative burden and would have added billions of 1099s to the system.  In short, while people disagreed about the healthcare law, just about everyone hated these provisions.

For payments made after Dec. 31, 2011, the new law repeals the provisions of current law that impose a reporting requirement for payments to corporations and payments for goods or other property.  For payments made after Dec. 31, 2010, the new law also repeals application of the information reporting requirements to recipients of rental income from real estate who are not otherwise considered to be engaged in the trade or business of renting property. In other words, under the new law, the information reporting rules effectively revert to the way they read before enactment of the 2010 changes.