Obama budget retains part of health reform's 1099 tax reporting requirement

By Julian Pecquet - 02/14/11 07:03 PM ET

The White House budget proposal released Monday scales back but does not entirely eliminate a controversial provision of the healthcare reform law that has come under attack from Democrats and Republicans alike.

The healthcare law requires businesses to report to the IRS annual purchases of goods and services of more than $600 from each vendor. The budget proposal would eliminate the requirement for goods but retain it for services.

The National Federation of Independent Business immediately blasted the new 1099 proposal as a "bait and switch."

"We are disappointed that the President has not clearly heard what small businesses are saying," NFIB Senior Vice President of Federal Public Policy Susan Eckerly said in a statement. "We at NFIB remain committed to helping the President and Congress understand the needs of small business as the budget process moves forward."

An administration official said the scaled-down proposal isn't as controversial as the healthcare reform law provision and has been proposed in the past.

Still, the administration's budget proposal has tax attorneys scratching their heads; the president himself criticized the healthcare law's reporting requirement in his State of the Union address and the Senate has already voted to repeal it. The Ways and Means Committee is due to mark up the House version of repeal legislation on Thursday.

"This proposal seems like it may be backing off the Obama position of supporting repeal," said Christopher Hatcher, a tax attorney with the Williams and Jensen law firm.

The White House Office of Management and Budget explained the rationale in its Analytical Perspectives.

"The Administration recognizes the burden that this expanded information reporting provision will put on small businesses and proposes to repeal the provision," the document says. "Instead, the Administration proposes that a business be required to file an information return for payments for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation (except a tax-exempt corporation); information returns would not be required for payments for property."

The proposal is expected to raise about $10 billion over 10 years.