Revenue-raising provisions in the Patient Protection and Affordable Care Act, PL 111-148, and the Healthcare and Education Reconciliation Act of 2010, PL 111-152, like their healthcare provisions, have far-reaching implications. One could even fundamentally change the way we do business and keep records in the United States — by dramatically increasing information reporting requirements for business transactions.
Under IRC §§ 6041(a) and (h) as amended by the Patient Protection Act, beginning Jan. 1, 2012, virtually all payments by a trade or business aggregating $600 or more to any single vendor during any calendar year will have to be reported at the end of each calendar year to the vendor and to the IRS on Form 1099. Vendors include almost anyone a trade or business pays in the course of doing business, other than its employees whose compensation is already reported on Forms W-2.
Implementing this change will require collaboration among businesses and software vendors and likely the help of CPAs to correctly identify, characterize and report these transactions. Purchases affected could range from inventory to payments for advertising services to the electricity bill. IRS Commissioner Doug Shulman, however, said in a speech in May that the Service plans to administratively exempt business transactions conducted using payment cards such as credit and debit cards, because those transactions would already be reported by the payment processors.
Reporting on Form 1099 currently applies only generally to certain financial transactions (for example, dividends, interest, sales of securities and loan transactions), targeted transactions (for example, bartering, prizes and qualified plan distributions) and amounts paid to unincorporated businesses — generally understood to be independent contractors — for services. Current law and regulation (Treas. Reg. § 1.6041-3) excludes reporting of most business payments to corporations and governments and for purchases of goods. Payments to tax-exempt organizations should also continue to be exempt from information reporting under the new law. With so much to keep track of, however, it may be easier for many businesses to simply accumulate and report these payments with other vendor transactions rather than identify and segregate them for non-reporting.
This article has been excerpted from the Journal of Accountancy. View the full article here.