Are you aware of the 1099 fling changes that were attached to the widely debated “Health Care Bill?” – under the changes, we would now be required to send 1099s to all corporations, individuals, and entities that are paid over $600. Period. Goods, services, corporations, etc, all have to be reported.
As a Corporate Tax Manager, I think the new 1099 filing requirements are almost unattainable. I mean, we are a company with ~ 600million in revenues, most of which is spent. What the new law basically says is, “you will have to send out yearly summaries to all your customers (and CC the IRS).” Anyone who has sent out 1099s, or used the fire system, the IRS’ electronic system for the 1099 returns, knows that to accomplish this, the reporting process will have to change drastically. I mean, while we might send out 1,500 1099s given the current regulations, I would estimate the new requirements would put that number up to around 30,000. Wow. Can you imagine the envelope stuffing party that would have to take place to stuff 30k of envelopes? We have to rally the troops here to send out quarterly mailers to 1,200 coop owners. Let’s just examine – fold, stuff, adjust address, seal. A conservative estimate would be one minute each. That’s one person doing nothing but folding and stuffing envelopes for 500 hours. That’s full time, 8 hrs a day, 5 days a week for 12.5 weeks. That’s just over three months. Assuming this temp (could you afford to lose an employee for 3 months for nothing other than 1099 stuffing?) makes $8/hr, we’d be charged $12 by the temp service – that’s $6k. Not to mention the additional 45k (does at least $1.50 each sound reasonable?, with postage, paper, printing, toner, envelopes, etc) to send them out. Our fastest printer prints about 60 pages a minute (55). It would halt access to our printer/copier for about 9 hours. I don’t know your corporate tax policy, but until recently, we only got tax ID numbers (through requesting W9s) from customers when we discovered we would have to send a 1099 to someone. It will be a massive project to collect and record all these tax IDs that we currently don’t have….. Massive…. Now try to imagine Coke doing it. My wife probably drinks $600 worth of Coke a year – will she get a 1099?
The other side of the picture is that as a CPA who does personal and small business tax returns on the side, I see this as a HUGE revenue source for the IRS. It will be a pretty large revenue source for me. Small businesses have to pay someone to do it, usually… I can charge accordingly. In addition, there are quite a few questionable practices in the small business arena that can be summarized by the fact that revenue that isn’t deposited (cash), generally isn’t reported by the smallest of businesses. If you look at it from Congress’ (and the IRS’) point of view -- this will be a huge revenue source that won’t be accomplished by raising taxes. Win/win for the congressmen, they can issue their campaign promises that they will not raise taxes, and not have to lie. The govt gets more money to pay for health care and social security. It would make my job as a tax preparer much easier – I could rely on the revenue numbers without questioning a client’s ethics, and charge more for the additional forms. Woohoo!
So, to be straight, it is both good and bad. I have a solution to make it good and not quite as bad – change the methods of reporting.
For the 1099 reporting to the customer -- Require an e-mail address on W9s, and allow us to send them electronically. We can configure our software to do it automatically for far less than the 45k one mailing will cost us. For customers without e-mail, CPAs/accountants could provide that service for them. I would gladly add “official revenue e-mail addresses” as an additional service that I can provide. Seriously, we won’t need to very ofte, as I would estimate 99% of my clients have e-mail. It is just stupid not to in this day and age for any business. Or to go a little farther, we don’t even have to e-mail them – just let the customers know that the IRS gets ALL the information, and they had better report it. They should be keeping track of it anyway. Allow them to log on to the IRS site and see what was reported, they could contact vendors after the fact if they had a problem with it.
For the business reporting side of the 1099s --
Get rid of the tsv,csv, (or whatever they are) fire files that we have to edit in 3rd party software only created to provide 1099s. Why not allow us to use the spreadsheet of our choice (among industry standards, including Excel, Quattro pro, whatever Mac spreadsheets there are, and Open Office (the free one)). Give us a minimalist form in each of them to report to the IRS, and allow us to submit it easily (and correct it, after the fact, when we find errors). As a CPA, I have to report my CPE credits every year to our state society. They have an Excel form we edit, and submit. Very easy, little margin for error, and widely accepted.
If you make the process easy, we don’t have a problem with complying. When you make the process much harder for the taxpayers who are doing everything right, and paying taxes on everything – just so you can catch the people who aren’t doing it right, that’s when I have a problem. There was a bill introduced in 1995 – I didn’t pay enough attention to know what happened to it, or the results (I was a college student at the time, and we discussed it when it was presented – I got my grade and forgot all about it). It was in response to “Unfunded Mandates” that are placed on the states, by the federal government. I liken the new standards to that – it places a heavy burden on the people who are trying to do everything right. They will catch some of the people who aren’t doing everything right. They will make a lot of money doing it. I will make money doing it for my clients. As it sits, I don’t like it -- it should be much easier to comply
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