Washington, D.C., Jun 23 - Today, House Small Business Committee Ranking Member Sam Graves (R-MO) and his Republican colleagues on the Small Business Committee sent a letter to Internal Revenue Service (IRS) Commissioner Douglas Shulman expressing strong concerns about the painful repercussions that the 1099 reporting mandates in the new health care law could have on small businesses, and requesting information on how the IRS plans to help employers comply. Read the letter here.

The health care law requires every business to file a 1099 form for each purchase of goods or services of $600 or more per year from another entity.  This change will levy heavy burdens on business owners, forcing them to complete and file 1099 forms for a range of transactions regarding rent; equipment; furniture; utilities; office supplies; fuel; software; janitorial services; postage, postal metering and package delivery services; beverages, groceries and meals; and any other good or service.  Retail and wholesalers of expensive products would be forced to file hundreds or even thousands of 1099s, solely for ordering inventory.  Because the new law will require the filing of 1099s on goods as well as services, the number of 1099s that must be filed will increase exponentially.  In the letter, Ranking Member Graves and his colleagues outline some of the difficult questions that must be answered in order to help small businesses comply with the costly new tax requirement, including:

Will 1099 reporting include amounts before or after sales tax has been added?  Will there be exemptions to the 28% backup withholding requirements that normally apply to Internal Revenue Code Section 6014 reporting when a business has requested a vendor’s TIN but it has not been provided?  If the business has made a good faith effort to identify a vendor, obtain a TIN and withhold, but cannot do so, would they be subject to a penalty?  How would an employer withhold on routine purchases of services, such as transportation tickets and hotels?  If a company did withhold 28%, would the vendor report the company’s failure to pay to a credit agency?  What process would be employed to resolve discrepancies between the data?

Ranking Member Graves said, “Today’s businesses are facing more uncertainty than ever as they try to determine the real impact that the new health care law will have on their families, their business, and their community.  I am extremely concerned about how the health care mandates and tax regulations will be enforced, and at what cost.  Estimates on this information vary, and no one seems to know the real answers.  Initiating such a massive overhaul of health care without first having a clear understanding of the cost and impact is a recipe for disaster, and so is forcing the small business owners that create the majority of private sector jobs to carry the financial burden.  I hope that this letter encourages Commissioner Shulman to reconsider what’s at stake for small businesses as we move forward.”

June 23rd marks the three month anniversary of President Barack Obama signing the controversial government takeover of health care into law.