Recently Burr, Pilger & Mayer LLP published an article discussing the new 1099 tax laws that were passed in this year’s Patient Protection and Affordable Care Act (PPACA).  The new law is an expansion of Internal Revenue Code 6041, which currently requires Form 1099-MISC only for purchases of services and specifically excludes reporting transaction with corporations. For goods purchased after 2011, Form 1099 will be required if annual purchases of business supplies, materials or other tangible goods exceed $600.

The changes will affect approximately 40 million businesses of all sizes, including 26 million sole proprietorships and 1million non-profit organizations.  These companies  will be forced to change how they currently keep accounting records and perfrom tax reporting.   The article goes into more detail on necessary changes to accounting systems, additional tax reporting demands, anticipated compliance issues, and the difficulty that will face many small businesses.

The BPM piece does a good job demonstrating how challenging it will be for companies to keep up with the upcoming spike in 1099 reporting demands.  Though the actual changes do not go into effect until Jan 1, 2012 companies are already finding themselves far behind.   BPM states plainly that companies will be required to “acquire a vendor TIN collection software system during 2011 in order to avoid the difficulty of reconciling purchase information after the a transaction has occurred.” 

BPM also spells out a number of common scenarios which  may lead to erroneous assessments by the IRS.  These erroneous assessments will add time and expense to rectify.  The IRS has made the point that they will monitor the changes to access the impact on tax collection and burden to the taxpayer.  Unfortunately these assessments may come too late when many small and large business have become crippled by the increased and potentially unreachable labor demands.