Businesses Seek Relief from Health-Reform Mandate for More 1099 Paperwork

Momentum is growing in Congress to repeal a new tax reporting rule in the health law. The provision requires all businesses, charities and state and local governments to file 1099 tax forms with the Internal Revenue Service when they buy $600 or more in goods from another business. Before the health reform law was enacted, the reporting requirement pertained only to purchasing services of $600 or more from unincorporated providers. Under the new rule, though, firms would have to send a 1099 to Apple, to use one example, every time they bought an iMac. The provision, unless repealed, will take effect in 2012.

The business community is trashing the provision, saying it will pile a massive amount of new paperwork on companies, putting a burden on small companies that can least afford it. It’s especially ill advised during a time of economic fragility, they say.

Sen. Mike Johanns (R-NE) is taking up the cause, pledging to add an amendment that would repeal the reporting requirement to the Senate version of the small business lending bill, which the Senate hopes to take up in September. If he’s successful, the matter would have to be resolved in a conference committee, since the House version contains no such provision.

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But dropping the requirement will mean a loss of tax revenue. And Congress will have to find another way to raise the $17 billion the provision was estimated to yield from 2012 to 2019 by making it harder for firms selling goods to understate their income to the IRS. A need for revenue was the only reason the provision was included in the $940-billion health law.

The issue is sure to be used as a political bludgeon by Republicans in their campaigns against Democrats in the fall. They’ll point to it as another example of excessive government regulation, pushed by the Democrats, that’s antibusiness and harmful to economic recovery.