Several days ago we called it a rumor without merit when we were told that there was a provision hidden within the new health care bill that could have devastating tax consequences for small businesses. After some research, advice and hearing a couple of Sunday commentators, we have decided there is probably some merit after all.
The basis of the information, which we have obtained, comes directly from the IRS, through the National Taxpayer Advocate Nina Olson, who is supposedly an independent operative within the agency.
The gist of the whole program is that our friends in high places have decided that small businesses are cheating them out of about $300 billion each year by not paying taxes on some products and services. Knowing that requiring businesses to fill out another ream of paper each tax season would not be a popular plan in the current political environment, the money grubbers slipped the provision into the health care reform bill that passed earlier this year.
The IRS has been staying up nights to draft regulations, which will enable the law. The new regulations will become effective for the 2012 tax year and will require anyone with business income to issue 1099 forms to all vendors from whom they have received or purchased more than $600 worth of either goods or services. The IRS has decided the new regulation is a priority for the upcoming year.
We will not be surprised when our accountants begin to tell us that the regulation is ambiguous and almost impossible to comply with. We will also not be surprised to learn in the very near future that some small businesses, especially those owned by a single person or small family, have thrown their hands in the air and walked away from the failed concept of entrepreneurism.
The cost of compliance alone could be devastating from what we are being told, and the additional tax burden could well be the death knell for small businesses.
In a typical government fashion, the information indicates that the IRS will exempt transactions made through credit and debit cards. That may sound like a usable loophole until we begin to figure what kinds of monitoring devices will be put into place to track those purchases so our great lawmakers and regulators can decide in the future that those transactions must also be taxed. And we are betting that the credit card companies will get their fair share when they are confronted with additional reporting requirements.
One CPA we talked to said he had a lot more questions at this point than he had answers and used one example of how this new “health care provision” will create a bookkeeping nightmare: “What happens if you purchase a $600 service, issue the 1099 form, then one party or the other defaults on the service?” he asked.
We think the service we are getting in this convoluted health care bill should be outlawed as deviant behavior.
