Tax Tip for May 2011
Repeal of expanded 1099 requirements signed into law
The
President has signed the “Comprehensive 1099 Taxpayer Protection and
Repayment of Exchange Subsidy Overpayments Act of 2011.” This new law
retroactively repeals unpopular Form 1099 information reporting rules
added by 2010 legislation. Here are highlights of the tax changes in the
Act.
Original information reporting rules. Before amendment by
the Small Business Jobs Act of 2010 and the Patient Protection and
Affordable Care Act (PPACA), payments totaling at least $600 in a single
calendar year to a single recipient were required to be reported to IRS.
Reporting on Form 1099 was required only when the payor was considered
to be engaged in a trade or business and has made the payment in
connection with that trade or business. The type of payment that most
commonly triggered the reporting requirement was payment for services.
Payments to corporations were exempt from these reporting requirements.
Pre-Act law—changes made by 2010 legislation. Beginning in
2012, payments of amounts in consideration for any type of property and
gross proceeds—i.e., it added payments for goods or other property—to
the list of payments subject to information reporting. Also, beginning
in 2012, payments to corporations—which had previously been exempt from
the reporting requirement—would be subject to information reporting.
Additionally, for payments made after 2010, a person receiving rental
income from real estate would be treated as engaged in the trade or
business of renting property for information reporting purposes. In
particular, rental income recipients making payments of $600 or more to
a service provider (for example, a painter or plumber) in the course of
earning rental income would have to provide an information return to the
service provider and IRS.
New law. For payments made after Dec. 31, 2011, the Act
repeals the provisions that impose a reporting requirement for payments
to corporations and payments for goods or other property. And for
payments made after Dec. 31, 2010, the Act also repeals application of
the information reporting requirements to recipients of rental income
from real estate who are not otherwise considered to be engaged in the
trade or business of renting property. In other words, the information
reporting rules effectively revert to the way they read before enactment
of PPACA and the Small Business Jobs Act of 2010, as noted in the
‘original information reporting rules’ paragraph above.
