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A far-reaching provision related to the Patient Protection and Affordable Care Act involves the 1099 tax reporting requirements and how they are expanded in the healthcare reform.
As you know, the Patient Protection and Affordable Care Act (PPACA) has given us myriad new legal requirements and resultant business consequences. However, one of the most far-reaching provisions from a practical standpoint was off the radar screen until the passage of the legislation.
In a provision consisting of less than half a page in the more than 2,000 pages worth of legislation, the 1099 tax reporting requirements were dramatically expanded. The result will be a massive administrative undertaking for almost every business.
Prior to these changes, businesses were required to file a Form 1099 with the IRS to report payments to a person for services when the aggregate amount paid to that person exceeded $600 per year. Payments to corporations generally were not subject to these reporting requirements. IRS regulations also made it clear that payments for "merchandise" also were not subject to this reporting requirement.
First, the definition used to describe the recipients of payments covered by the reporting rules was modified from "person" to include "any corporation." The only exceptions to this rule are corporations that are tax exempt under Code Section 501(a), which includes all 501(c) organizations.
The second change added the phrase "amounts in consideration for property" to the type of payments that are reportable on a 1099. Both of these changes are effective for payments made after December 31, 2011.
Senate Finance Committee staffers have defended these policies as a means of helping close the tax gap-the amount of unreported or underreported income. The Joint Committee on Taxation estimates that this provision will raise $17 billion from 2012 through 2019.
Businesses will need to expand their data to include payments to corporations for services. In addition, businesses will need to modify their systems to track purchases in order to determine the annual amount of purchases from each vendor.
Given the number of vendors a typical organization uses, the burden of compliance will be substantial. These reporting obligations include not only payee names and amounts, but also taxpayer information numbers from the vendors. Due to the potential difficulties in determining vendors to include or exclude, overreporting is likely.
CREDIT CARD PURCHASES
An exception to these reporting obligations does appear to be possible. Businesses using credit cards to acquire goods or services from a corporation will not be required to report the purchases.
Watch for IRS guidance. It has been reported that the IRS intends to issue clarifying regulations in connection with the new Form 1099 reporting requirements in the near future. In addition, Rep. Daniel Lungren (R-Calif.) has introduced legislation intended to repeal these new requirements. Although the repeal does not appear likely, modification is another possible alternative to watch for.
This column is written for informational purposes only and should not be construed as legal advice.
Michael Phillips is a partner with Calfee, Halter & Griswold LLP and co-chair of the firm's Health Care and Life Sciences Practice.