July 8, 2010
Taxpayer Advocate: Tax-Exempt Organizations Subject to Onerous Reporting Requirements under the Health Care Act
In her mid-year report to Congress, Taxpayer Advocate Nina E. Olson raises concerns about new reporting requirements imposed on businesses and tax-exempt organizations beginning in 2012 by the Patient Protection and Affordable Care Act of 2010. Specifically, she questions the compliance benefits of the new requirements to the IRS in relation to the potentially onerous burdens imposed on small business and tax-exempts. The relevant portion of her report, as summarized on the IRS website, follows (emphasis added):
2. New Business and Tax-Exempt Organization Reporting Requirements.
The report expresses concern that a new reporting requirement contained in the Patient Protection and Affordable Care Act may impose significant compliance burdens on businesses, charities, and government agencies. Beginning in 2012, all businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year. To meet this requirement, these businesses and entities will have to keep track of all purchases they make by vendor. For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases. The provision will have broad reach. According to a TAS analysis of 2009 IRS data, about 40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, four million S corporations, two million C corporations, three million partnerships, two million farming businesses, one million charities and other tax-exempt organizations, and more than 100,000 government entities. All of these nearly 40 million businesses and other entities are subject to the new reporting requirement.
TAS has not yet reached any conclusions regarding the benefits and burdens of the requirement, but the report expresses concern that the burdens “may turn out to be disproportionate as compared with any resulting improvement in tax compliance.” During FY 2011, TAS will study the impact of the new reporting requirement more closely and, depending on what its study finds, may propose administrative or legislative recommendations to modify the provision or suggest that Congress consider less burdensome tax gap proposals, including a TAS proposal to require reporting of non-interest bearing bank accounts, to replace it.
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