Small-business council rallies support for Johanns's repeal of 1099 rule

In preparation for the upcoming Senate debate on the small-business bill, the Small Business and Entrepreneurship (SBE) Council is asking members to contact their senators and urge them to support an amendment by Sen. Mike Johanns (R-Neb.) that repeals the 1099 rule. 

The new healthcare law requires organizations to fill out Form 1099 for any purchase of at least $600 and report it to the IRS beginning in 2012. 

The requirement was created to improve tax compliance, but several business groups and tax-policy experts have said that it will be onerous and costly on businesses.

"The extent of this new paperwork requirement on business owners is astounding, as businesses estimate that they will have to file hundreds and sometimes thousands of new 1099s per year," the SBE Council stated in a letter Thursday to senators. "The IRS National Taxpayer Advocate Nina Olson stated that the administrative costs of small businesses are so high that it 'may turn out to be disproportionate as compared with any resulting improvement in tax compliance.' The Johanns amendment is the only solution that fully protects small-business owners from this costly new burden."

The Senate is expected to review the reporting requirement when it debates legislation providing tax relief and loan opportunities to small businesses. That bill is expected to be the first issue debated when senators return next week.

Under current law, just about every organization must issue a Form 1099 to the IRS for every unincorporated service provider it pays more than $600 during a tax year. The rule covers payments made for goods and services that cannot be tracked by payments made by credit card.

During debate on the small-business bill before the August break, Johanns sought to repeal the requirement. Sen. Bill Nelson (D-Fla.) suggested amending it by exempting firms with fewer than 25 employees from the rule. Nelson also wanted to raise the reporting threshold to purchases over $5,000, not $600, as is current law. The SBE Council opposes Nelson's approach.

Sen. George Voinovich (R-Ohio) on Thursday signaled he would support the small-business bill if Senate Majority Leader Harry Reid (D-Nev.) allowed a debate on the 1099 rule.

Voinovich's support could mean that Democrats have the 60 votes they need to pass the legislation from their chamber.