Changes to Form 1099 Reporting

Scott Taylor, CPA, MBT

Senior Tax Manager

Eide Bailly

sataylor@eiebailly.com

eidebailly.com

Topic: Accounting

On March 10, 2010, President Obama signed into law The Patient Protection and Affordable Care Act.  One section of this Act amends the filing requirements of Form 1099 for businesses, effective for payments made after December 31, 2011.  The two significant changes to the 1099 reporting are that payments for “goods” are now included as items required to be reported on Form 1099 and payments for “goods” to for-profit corporations are now required to be reported on Form 1099. 

Currently, the IRS Code requires payments aggregating $600 or more for the year to be reported on Form 1099.  In general terms, payments made to an individual or company for services must report the transaction on Form 1099.  However, most payments made to corporations are currently exempt from this filing requirement; not so beginning in 2012.

What does this mean to your business?  Beginning after December 31, 2011, payments for services, goods, materials, merchandise, supplies and other property totaling $600 or more to an individual or for-profit company (including corporations) will be required to file Form 1099.  So, if your company purchases a $500 computer and a $150 computer monitor from the same vendor in the same year, you will be required to file Form 1099.  The new Act will require your business to file more Form 1099s and will increase the responsibility and burden on your business to comply with these new reporting requirements.  You will be responsible to obtain the taxpayer identification numbers (TINs) from vendors that were not previously subject to Form 1099.  Businesses will need to change their current processes on information gathering to make sure they are in compliance with the new reporting requirements.  Failure to comply will result in significant fines.  The fines have increased to $250 per vendor that is not correctly reported, with a $1.5 million maximum penalty per company.

What can businesses be doing now to make sure you are in compliance in 2012?  First, verify that you are in compliance with the current regulations.  Then, start developing processes now that will assist you with the changes.  Set up processes that will assist in the collection of information needed (TINs, addresses, payment amounts made). This may include communicating the information to third parties assisting your business with the completion of Form 1099.

The Internal Revenue Service is currently requesting comments from the public on these new 1099 reporting requirements.  There are some exceptions for certain goods purchased with payment cards and there are likely to be additional procedures developed. However, because the 1099 reporting change is estimated to generate $17 billion in revenue it is likely to remain in place.