Requiring business taxpayers to report to the IRS payments over $600 that are made to corporations would be “extremely burdensome” and would result in millions of additional 1099 Forms being filed that are of “little value to the IRS,” the American Institute of Certified Public Accountants told the U.S. Department of the Treasury. The AICPA said small businesses would be especially hard hit.
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The AICPA made its recommendations in a comment letter to the Treasury Department regarding administrative tax provisions in the Obama administration’s Fiscal Year 2010 budget.
Here are the AICPA comments on the proposal to require information reporting on payments of $600 or more to corporations:
The AICPA agrees with Treasury that information reporting is generally an effective means for addressing the tax gap. However, we find the Administration’s proposal for imposing information reporting on payments to corporations as extremely burdensome for business taxpayers, resulting in compliance burdens far in excess of any appreciable gains in federal tax revenues.
This proposal generally requires each person (or entity) engaged in a trade or business to file and furnish Forms 1099-MISC reporting expenditures amounts paid of $600 or more during a calendar year. This provision will result in a significant increase in the costs associated with the preparation, mailing and filing of Forms 1099 for many small businesses.
Furthermore, two fundamental issues will result in significant differences between the amounts reported on Forms 1099 to corporations and the amounts reported by those corporations on their income tax returns. First, many corporations operate on a fiscal year basis while Forms 1099 are prepared on a calendar year basis. Second, most corporations report their income on an accrual basis of accounting, while Forms 1099 are prepared on a cash basis. These two fundamental issues would likely result in the filing of tens of millions of information returns that would prove of little value to the IRS, while potentially triggering a burdensome income reconciliation process for corporations in order for them to complete their tax return and/or respond to IRS questions about the difference in amounts reported on their income tax returns and the amounts reported to them on Forms 1099. Given the potential burden resulting from these reporting responsibilities, fairness demands that the IRS be in a position to manage and utilize the additional Forms 1099 that it will receive.