Monday, November 29, 2010

Johanns Amendment (#4702) on 1099 Small Business Reporting

Senator Johanns has offered an amendment (#4702) to the food safety bill (S. 510) regarding new corporate reporting requirements included in the health care law.  A vote on the motion to suspend the rules to allow for consideration of the amendment is expected to occur this evening; the motion to suspend is subject to a 2/3rds majority vote.  Background information on the Johanns 1099 amendment can be found in two articles on the issue, one by the New York Times and another in National Journal.
Summary and Background:
  • The amendment repeals Section 9006 of the health care law.  This Section 9006 information reporting provision requires vendors and small businesses to file Forms 1099 for any goods purchases that total over $600 in the aggregate over the course of a year—which will force all businesses, including small businesses, to file tax forms listing the amount of their annual transactions with vendors like their paper supplier, bottled water distributor, caterer, etc.
  • According to an e-mail from the Joint Committee on Taxation, both the Baucus and Johanns amendments have the same effect of repealing the 1099 paperwork requirement.  From the JCT e-mail:

The two amendments (4713-Senator Baucus) and (4702-Senator Johanns) accomplish the same result in that they only repeal the new 1099 requirements in PPACA and leave in place the 1099 rental real estate requirements from the small business bill and the score is the same for both amendments.   There are two versions because Senator Johanns amendment is somewhat unclear in that it says Section 9006 of PPACA and the amendments made thereby are repealed.  That wording is somewhat confusing and suggests that all new 1099 requirements are repealed (including rental real estate).  It turns out that the rental real estate requirements were added as an amendment to section 6041 as amended by section 9006 of PPACA so technically rental real estate is unaffected.  Baucus’ amendment states specifically what is being repealed and makes it clear that the rental real estate reporting requirements are left untouched.

  • Unlike the Baucus amendment, the Johanns amendment is paid for through a rescission of $39 billion in unobligated discretionary funds from accounts other than the Departments of Defense and Veterans Affairs. (Although repealing the 1099 provision results in the loss of only about $19 billion in revenue, the amendment rescinds $39 billion because, in scoring the amendment, CBO assumed that not all of the rescinded funds would have been spent in the first place; therefore the amendment must rescind more than $19 billion.)  The Office of Management and Budget is given discretion to find appropriate sources for the rescissions.
Arguments in Favor:
  • According to a report issued by the National Taxpayer Advocate, the new 1099 reporting requirements will affect 40 million businesses—ten times the number of firms the Administration asserts will benefit from small business tax credits.
  • The Taxpayer Advocate has also called the reporting requirement “disproportionate” and “burdensome” for small business.  For instance, the Taxpayer Advocate noted that small businesses “may lose customers” to larger chains more easily able to comply with the new requirements, and that “it is highly likely that the IRS will improperly assess penalties” for not filing forms.
  • The Taxpayer Advocate has also noted that “the IRS will face challenges making productive use of this new volume of information reports” required by the health care law, because “the amounts on the information reports and the tax returns” will not match for a variety of technical reasons.
  • The amendment fully repeals the 1099 reporting requirements, and does so by reducing federal spending.
  • According to OMB, the projected amount of unobligated funds at the end of fiscal year 2010 (not including those from Defense or VA) is about $684 billion.  The Johanns amendment would rescind just over five percent of that total.