Among the dozens of provisions of the Health Care and Education Reconciliation Act of 2010 is Section 9006. Somewhat innocuous in its wording, this little provision amended Section 6041 of the Internal Revenue Code. Section 6041, in turn, is the tax code section that governs when a business must issue a Form 1099 to a worker or service provider.
The tax code generally requires that if a contractor pays more than $600 in a year to a person or entity for services, the contractor has to issue that person or entity a Form 1099 showing the money paid. A copy goes to the Internal Revenue Service (IRS) as well. There were only two useful exemptions to this requirement: if you were paying a corporation and for purchases of goods.
All that will change Jan. 1, 2012. As a result of Section 9006, businesses will have to issue a 1099 for virtually any expense they incur that adds up to more than $600 over the course of the year. The exceptions for corporations or goods no longer apply.
Why the broad coverage? The Obama administration suggests this is a way to recover “missing taxes” at no cost and to help small businesses’ recordkeeping. The argument is this increases accountability and forces businesses to maintain accurate expense records during a tax year, while also helping track income since they will receive a 1099 on most of their sales. Not mentioned: in the event of an IRS audit, the IRS can estimate your earned income by adding up the 1099s the IRS received on your business.
There are efforts under way to repeal Section 9006, but that concept seems frozen pending the outcome of upcoming elections. So for now, count on filing many more 1099 forms each year.
—D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.homeimprovementlaw.com), a national law firm specializing in the home improvement industry. [email protected].
This article is for informational purposes only and should not be construed as legal advice.
