Section 9006 of the health care reform bill mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

Congress apparently wants to ensure that payments made by persons engaged in a trade or business to a corporation other than a tax-exempt corporation of $600 or more in the aggregate in one tax year will be reported to IRS if made in 2012 or thereafter. This will flag the payment for IRS to help determine if it was properly reported by the corporate payee.

This information-reporting provision will increase the paperwork burden on businesses that routinely make payments each year totaling $600 or more per corporation.

Presumably, businesses will be able to use Form 1099-MISC to report the payments discussed above.

Example 1
A, a calendar-year taxpayer, is engaged in the trade or business of being a photographer. In 2011, A pays B Corp., a calendar-year taxpayer, $12,000 to rent a storefront to conduct the photography business. A is not required to file an information reporting return with IRS for the $12,000 payment made to B.

Example 2
The facts are the same as in Example 1, except that A pays the $12,000 rent to B in 2012. A will be required to file an information reporting return with IRS for the $12,000 payment, setting forth the amount paid ($12,000) and B’s name and address.  A will also be required to provide B with a statement showing the $12,000 payment and include B’s contact information. IRS will thus be on notice that A paid B $12,000 in 2012, and can check B’s 2012 return to see if B properly reported the rent payment as income.

IRS says it intends to issue guidance that will implement these changes in a manner that minimizes burden and avoids duplicative reporting.

Somerset CPAs will continue to monitor this law change and keep you abreast of any changes, pitfalls or opportunities related to these new reporting requirements.