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Saturday, November 13, 2010

1099s - The Good, the Bad and the Ugly

Well, need I say more than that title? Information reporting forms are certainly a useful compliance tool, but perhaps not for everything. Having a small business issue 1099s for these purchases starting in 2012 would be pointless:
  • $852 of office supplies purchased from Staples
  • $2,592 of airline tickets purchased directly from the airlines
  • $1,300 of services from their CPA firm

Issuing a 1099 for $700 of services rendered by a web designer makes sense though and existing law already covers that.

Where is the line between an action that improves compliance without causing unnecessary costs and burdens to reporters?

What are better steps to take to reach the taxpayers with the poorest compliance?

I've got a short article in this week's AICPA Corporate Taxation Insider on 1099s noting the problems with recent changes to greater use and alternatives - 1099s - The Good, the Bad and the Ugly.

What do you think?


Jeff McCartney, CPA said...

Hey Professor; I'm a CPA, tell me what use the IRS will make of these 1099's I will have to issue: 1) $800 to CCH for my tax research service, 2) $650 to a broker for my malpractice insurance, and 3) $2,000 to my state CPA society for my Continuing Professional Education. They all report these amounts, so no additional tax revenue will be generated. Will just be more time that I can't spend with my fee-paying clients!

Jeff McCartney, CPA, Tempe, AZ

Ying Moua said...

I think that it is a good idea that Congress has taken steps to reduce the tax gap and at the same increasing revenue. On the other hand, this may posed hardship on businesses of all size. Using the 10 principles of good tax policy to analyze the new reporting requirement the principle of equity and fairness are met. Regardless of the size of the businesses, money and time will be spent on meeting the new reporting requirements for all businesses except exempted organization. Transparency and visibility are not meet because taxpayers will have to keep records and track each vendor if $600 or more were paid for the goods or services provided. Taxpayers will also have to identify whether vendors are exempted from reporting. The principle of certainty and simplicity are not meet because the new reporting requirements are not transparent and visible so it’s hard for taxpayers to be certain, making filing difficult. Economy in collection is not met because it will cost businesses more money to gather information to comply with the new reporting requirements. The new reporting requirement has no effect on convenience of payment, appropriate government revenues, and neutrality principles. The minimum tax gap is not met. If taxpayers are uncertain and they have hard time figuring if they are required to file then the compliance rate would be low. The economic growth and efficiency principle seems to have the most weight in this evaluation. It places a major burden on businesses; therefore, impeding the growth of the economy. In conclusion the new reporting requirement is not appropriate to close the tax gap.