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1099s: Do You Need to Give Them This Year?

Much has been written about the changes in filing requirements for 2011 Forms 1099. Interestingly, the most invasive provisions were repealed late last year, but the Internal Revenue Service still expects an increase from 2.175 to 2.855 billion (!)  forms to be filed for the year 2012. And you thought you had a lot of paperwork to do!

Last year, Congress repealed the dreaded requirement to issue Forms 1099 for every business purchase and add all landlords to the list of included businesses. Nevertheless, the increased reporting required on Forms 1099-B from investment advisors, and the new Form 1099-K to be issued by merchant services companies, will add substantial volume to the filing burden. The 1099, which has been in place for more than 25 years, has become a significant part of the income tax reporting and compliance process for the IRS.

The Emergency Economic Stabilization Act of 2008 requires increased information on the 1099-B. Previously, brokerage clearing houses only indicated the proceeds from your sale of stock; now, whoever sold the stock on your behalf must also tell you (on the 1099-B) what your cost basis was. If the stock you sell was purchased over a period of time and reflects a different cost basis for each acquisition, you can expect a separate 1099-B for each purchase.  The IRS will use this information to confirm the gains or losses you received from the sale of that stock.

As a result of the Housing Assistance Tax Act of 2008, companies that process credit card payments for merchants and businesses must now file a 1099-K for all their credit card proceeds. Convey (developer of software for automating 1099 reports) Executive Vice President Troy Thibodeau indicated 1099-K reporting will account for the filing of another 50+ million forms each year.

The increased information reporting requirements are intended to help the IRS reduce its recently-expanded estimates for the tax gap between money owed to the IRS and money collected (see Tax Gap Widens to $450 Billion). According to Thibodeau, the IRS’s goal is “to chip away at this tax gap of money owed . . . through third-party reporting.” He goes on to say, “If they receive third-party reports of income, then the likelihood that taxpayers are going to report properly goes up significantly and compliance goes up. There’s a lot of additional third-party reporting that the Service and Congress has been looking for, and that will continue to be the case as we move forward.”

In addition to the increased volume of 1099’s being submitted to payees, every single corporation and partnership, plus any individual with a Schedule C, E or F will need to answer two simple new questions:

  1. Were you required to issue any 1099s?
  2. If so, did you?

We recommend you address these questions immediately and honestly because noncompliance penalties are high, starting at $30 per information return not filed correctly within 30 days of the due date (end of February). The penalty increases as the months past due increase, so it’s time to get serious about this important obligation.

As the rules change, we’re available to help. Contact Patrick and Robinson CPAs at Office@CPAsite.com or 904-396-5400.

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