Will Congress Repeal the 1099 Reform?

When President Obama signed the Protection and Affordable Care Act signed into law on March 23, 2010, much attention was paid to the sweeping reforms in the healthcare industry. Tucked into the Patient Protection and Affordable Care Act was a section that altered the reporting requirements around the IRS 1099 form. [The "1099" refers to the Internal Revenue Service (IRS) form that an independent contractor receives stating his or her income from a given business in a given tax year.]

Prior to March 2010, the IRS 1099 form had been used to document individual workers, largely freelancers and contractors, who provide services and receive any compensation greater than $600. Reform expanded this requirement, as in addition to documenting services that individuals provide, businesses now had to issue 1099s to any individual or corporation that provided any service or tangible goods with a total annual value greater than $600.

Not surprisingly, 1099 reform was met with significant opposition from small businesses. The expansion of the existing reporting requirements has been seen as a significant burden on small business particularly, and has been the subject of numerous challenges, questioning lawmakers’ sanity. Resistance from small businesses has only grown louder as the implementation date, January 1st, 2012, draws nearer.

Following the 2010 midterm elections, where Republicans captured sixty seats in the House of Representatives and six seats in the Senate, several Democratic officials stated they would be in favor of repealing the law. While several government officials have called for the repeal of the law, this is the first time that Democrats have joined the chorus. President Obama has indicated he would support repeal, and the Chairman of the Senate Finance Committee, Senator Max Baucus, said he would introduce legislation to repeal the new rules.

It remains to be seen if Congress will follow through and repeal the measure for good, but the government point of view will not be considerably changed. The IRS’s (and Congress’s) view is that unreported income will continue to be an area of focus, so even if the new 1099 requirements are repealed, it is likely there will new attempts to find taxable revenue and close the tax gap. The AMS team will be keeping an eye peeled for a possible repeal.

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