Form 1099’s Reporting Requirements
Help your colleagues, customers, or friends be well-informed.
Get Ready for More Paperwork with this Year’s 1099!
By Leah Powell, CPA, Principal
Seeking ways to improve voluntary compliance and increase tax collections, the IRS is making it more transparent about who should be reporting income on their tax returns. With this in mind, they have implemented a number of far-reaching reporting requirements that will take effect over the next several years. While the new reporting requirements will not result in increased tax liabilities for most law-abiding businesses and individuals, it will significantly increase their paperwork burden. Businesses and individuals need to take note now so as not to be caught off-guard.
Section 6041 of Form 1099 requires information returns to be filed by persons engaged in a trade or business and making payment of $600 or more to another person for rent, salaries, wages, premiums, annuities, compensations, remunerations, other fixed or determinable gains, profits and income.
Not only do the upcoming changes increase the paperwork burden, it also significantly increases the exposure for additional backup withholding and failure to withhold penalties. If Form W-9, which certifies the recipient's taxpayer identification number, is not obtained prior to payment, then backup withholding is required.
Increased Penalties:
First up, with a concerted effort to curb late and non-filing of required Form 1099s, the IRS has doubled the related penalties. A person who is required to file a correct information return who fails to do so by the date required is subject to increased penalties. The failure to furnish a payee statement has also been revised to reflect a similar increase. While there are "reasonable cause" exceptions to the reporting deadlines, businesses should implement the steps necessary to comply.
New Penalties Effective for Delinquent 2010 Form 1099s
| Penalty | Filing Date | Penalty for Failure to File with IRS | Penalty for Failure to Provide 1099 to Payee | Maximum Calendar Year Penalty | Maximum Calendar Year Penalty for Small Business Filers* |
| 1st Tier | Filed within 30 days of due | $30 | $30 | $250,000 | $75,000 |
| 2nd Tier | Filed before August 1st | $60 | $60 | $500,000 | $200,000 |
| 3rd Tier | Filed August 1st or later | $100 | $100 | $1,500,000 | $500,000 |
| Intentional Disregard | $250 | $250 | No maximum | No maximum |
* Lower limitations for persons with gross receipts of not more than $5,000,000 during such calendar year.
Rental Property Expenses:
Beginning in 2011, the IRS is expanding the definition of those subject to the 1099 reporting requirements. Persons who receive rental income from real estate (including individuals) who make reportable payments after 12/31/10 in excess of $600 will now need to file Form 1099s. This will require businesses and individuals to obtain the required information including name, address and social security numbers from those who help with their rental property.
Payments to Corporations:
Before 2012, payments to corporations were exempted from the 1099 reporting requirements. Not so anymore. Information returns will now be required for payments made to corporations in excess of $600 after 12/31/11. This does not apply to payments to tax-exempt corporations.
Payments for Property: It gets even more interesting. Starting in 2012, the information reporting requirements are expanded to include business payments for property (instead of just services, as required under current law). This would include payments for merchandise, equipment, inventory and raw materials. This will require businesses to obtain the necessary information (name, address, taxpayer ID) and maintain a detailed payment tracking system to file correct 1099s. As noted earlier, the non-filing or deficient filing penalties can be costly.
So let's recap. Below are the upcoming changes and steps that should be taken to comply:
| Payments Made In | Issue | Steps to be Taken |
| 2010 | Penalties double late or non-filing of 2010 Form 1099s | Review your payee list now to determine if you have all the information needed to timely file Form 1099s due early next year. |
| 2011 | Payments made by rental property owners are now reportable | Request W-9 prior to making payment to avoid backup withholding exposure and to assist in year-end reporting. |
| 2012 |
Payments to corporations are now reportable Reportable payments now include payments for consideration for property |
Stay Tuned…
Due to the compliance burden this will place on businesses and rental property owners, the AICPA is urging Congress to repeal the new requirements. There are sure to be some legislative proposals submitted in the upcoming months addressing these concerns. In the meantime, if you have any questions regarding these new requirements, be sure to give us a call at 1-800-487-7624.
About the Author: Leah Powell, CPA, is a Principal in Bonadio’s Tax Division. She has nearly 25 years of experience providing tax consulting and compliance services for a wide-variety of closely-held commercial companies throughout Upstate New York.
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