Wednesday, February 2, 2011

Stabenow Amendment (#9) on 1099 Reporting

Senator Stabenow has offered an amendment (#9) to the FAA reauthorization bill (S. 223) regarding new corporate reporting requirements included in the health care law.  
Summary and Background
  • The amendment repeals Section 9006 of the health care law.  This Section 9006 information reporting provision requires vendors and small businesses to file Forms 1099 for any goods purchases that total over $600 in the aggregate over the course of a year—which will force all businesses, including small businesses, to file tax forms listing the amount of their annual transactions with vendors like their paper supplier, bottled water distributor, caterer, etc.
  • The Stabenow amendment is paid for through a rescission of $44 billion in unobligated discretionary funds from accounts other than the Departments of Defense and Veterans Affairs and the Social Security Administration. (Although repealing the 1099 provision results in the loss of only about $19 billion in revenue, the amendment rescinds $44 billion because, in scoring the amendment, CBO assumed that not all of the rescinded funds would have been spent in the first place; therefore the amendment must rescind more than $19 billion.)  The Office of Management and Budget (OMB) is given discretion to find appropriate sources for the rescissions.
  • The amendment is virtually identical to the Johanns amendment previously offered during the 111th Congress, and which received 61 votes on November 29.
  • The prime difference between the Stabenow amendment and the Johanns amendment is that the former would also exempt the Social Security Administration from a rescission of unobligated funds in addition to the exemptions for the Defense and Veterans Affairs Departments (included in both Stabenow and Johanns).  However, as both the Johanns amendment and the Stabenow amendment rescind “appropriated discretionary funds,” BOTH measures would NOT result in reductions in mandatory spending on Social Security retirement and disability benefits.  Moreover, as both measures give OMB discretion to determine “the amount of such rescission” from each agency budget, the Johanns amendment would only result in a rescission of Social Security discretionary funds if the Administration affirmatively chose to make such a reduction.
  • According to a report issued by the National Taxpayer Advocate, the new 1099 reporting requirements will affect 40 million businesses—ten times the number of firms the Administration asserts will benefit from small business tax credits.
  • The Taxpayer Advocate has also called the reporting requirement “disproportionate” and “burdensome” for small business.  For instance, the Taxpayer Advocate noted that small businesses “may lose customers” to larger chains more easily able to comply with the new requirements, and that “it is highly likely that the IRS will improperly assess penalties” for not filing forms.
  • The Taxpayer Advocate has also noted that “the IRS will face challenges making productive use of this new volume of information reports” required by the health care law, because “the amounts on the information reports and the tax returns” will not match for a variety of technical reasons.
  • The amendment fully repeals the 1099 reporting requirements, and does so by reducing federal spending.