Washington, D.C., Jul 8 -

By Jay Heflin; The Hill

National Taxpayer Advocate Pam Olson on Wednesday raised concern in a report to Congress about requiring businesses to document most of its purchases to the IRS.

To improve tax compliance, the recently enacted health reform bill mandates purchases of $600 or more by businesses, tax-exempt organizations, or federal, state and local governments be submitted to the agency using Form 1099.

The new requirement will affect 40 million businesses, including 26 million sole proprietors, and more than 100,000 government entities and could overburden these organizations, she said.

The requirement "may turn out to be disproportionate as compared with any resulting improvement in tax compliance," Olson's report states.  

Her organization plans to study the effect of the requirement on businesses and might propose modifications to make it less burdensome.

Rep. Sam Graves (R-MO) is also concerned about the mandate's effect on companies.

Last month, he sent a letter to IRS Commissioner Doug Shulman asking him to explain how his agency would enforce the new rule, which is slated to take effect in 2012.

Graves argued the requirement will be difficult, if not impossible, for not just businesses to comply with, but also the IRS.

"This provision will result in an enormous number of additional 1099 forms being remitted to the IRS, increasing the processing demand on IRS employees and straining the IRS infrastructure," Graves wrote, adding, "Realistically, it is difficult to envision how this paperwork burden could be implemented."