No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

The death of small business – courtesy PlaceboCare

by @ 13:18 on April 29, 2010. Filed under Business, Politics - National, Taxes.

(H/T – Ed Morrissey)

Chris Edwards over at the Cato Institute found a significant penalty for anybody doing business in the recently-passed PlaceboCare bill – essentially every business transaction aggregating to $600 in a given year must be reported to the IRS and the payee starting in 2012.

First, let’s review the current state of the applicable law (Section 6041 of the Internal Revenue Code) – An entity that, in the course of engaging in a trade or business, pays more than $600 (or less, as noted) in a taxable year of the following categories of payments to an individual (generally-speaking; there are some limited instances where that entity must report payments to a corporation) must report the aggregate amount to the IRS and the payee:

  • Wages
  • Salaries
  • Rent
  • Premiums
  • Annuities
  • Compensations
  • Renumerations
  • Enoulments
  • Dividends (including patronage dividends – threshhold of $10)
  • Interest (threshhold of $10)
  • Royalties (threshhold of $10)
  • Stock ownership plan distributions (threshhold of $0.01)
  • Other fixed or determinable gains
  • Other fixed or determinable profits
  • Other fixed or determinable income

There were a trio of changes buried on page 737 of the 936-page engrossed version of PlaceboCare, specifically in Section 9006, titled “Expansion of Information Reporting Requirements”. In order:

  • A new section (h) is created to require reporting payments made to corporations that do not qualify as tax-exempt organizations. That’s right – rent paid by a business entity to a corporation would have to be reported to the IRS.
  • “(A)mounts in consideration for property” would also have to be recorded and reported. I’m not a tax lawyer, but my read of applicable definitions does not limit this to real estate. Rather, it includes any good purchased for the business, from computers to raw materials to fuel burned in business vehicles. That’s right – if you are a contractor who uses your vehicle for business, and you spend $600.01 at a chain of gas stations owned by a single entity, you must add up the amount and report it to both the IRS and the gas station owner.
  • “(Other) gross proceeds” would also have to be recorded and reported. That captures every business transaction.

When this was part of the original version of PlaceboCare that came out of the House, the Air Conditioning Contractors of America noted the following (emphasis added):

Consider all the payments you make in the course of your business for property, such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services. If you paid more than $600 over the course of the tax year, you’ll need to file a Form 1099.

Did the roundtrip ticket for your air travel to the ACCA Annual Conference cost more than $600? If you answered yes, then you would have to issue a 1099 to American Airlines. This enormous impact will hit all businesses, but especially small businesses that don’t have a large administrative staff.

Don’t forget that in order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.

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