National

New tax rule affects 38 million businesses

WASHINGTON — Talk about a paperwork nightmare: Tucked into the massive new health care law is a demand that around 38 million U.S. businesses file tax forms for every vendor that sells them more than $600 in goods.

House Democrats now want to repeal it. Republicans, too. But nothing is that simple in an election year.

The House on Friday rejected a bill that would have repealed the filing requirement. Democrats and Republicans disagreed on how to make up the lost revenue.

The goal of the provision was to prevent vendors from underreporting their income to the Internal Revenue Service. The government apparently thinks those vendors are omitting a lot because the filing requirement is estimated to bring in $19 billion over the next decade.

Businesses already must file Form 1099s with the IRS when they purchase more than $600 in services from a vendor in a year. The new provision would extend the requirement to the purchase of goods, starting in 2012.

The requirement would hit about 38 million businesses, charities and tax-exempt organizations, many of them small businesses already swamped by government paperwork, according to a recent report by the National Taxpayer Advocate. It would also create an avalanche of paperwork that could strain the IRS itself, wrote the advocate, an independent watchdog within the IRS.

Businesses that repeatedly make small purchases from the same vendor would have to keep good records in case the total exceeded $600 in a year. Companies would also have to get vendors' tax identification numbers to include in the filings.

"Tax paperwork and compliance are already major expenses for small businesses," a coalition of 80 business groups wrote in a recent letter to lawmakers. "This new and expanded requirement means that almost every business-to-business transaction is potentially reportable to the IRS."

Lawmakers have heard the complaints.

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