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New Law Repeals Expanded Information Reporting Requirements

TaxAlerts Tax Article

May 2011 | Written by: Karen Reed, EA

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Last year’s Health Care Bill included a controversial revenue raiser that required businesses, beginning in tax year 2012, to file an information reporting document with the IRS any time $600 or more in total payments were made to an individual or business during a tax year. The expansion of the reporting requirements to include all payments for goods and property as well as services would have created an avalanche of paperwork, opponents of the new rules said, but efforts to repeal the provision were unsuccessful at first. Then the Small Business Jobs Act modified the reporting requirements even further to include payments made to service providers by rental property owners. Both of these new provisions were repealed last month with the passage of the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.

The 1099 reporting requirements remain the way they were before the enactment of the 2010 bills, which means that payments made in the course of a trade or business are required to be reported on Form 1099–MISC when a single recipient is paid $600 or more for services during the tax year. Most payments to corporations do not need to be reported, though some exceptions do apply. For example, payments of $600 or more made to incorporated law firms are not exempt from the requirement.

Under existing rules, only a rental activity that is considered to be a trade or business is subject to the information reporting requirements. Though the law is not crystal clear about when a rental activity is considered to be a trade or business, the general rule is that a rental activity rises to the level of a business when substantial services, such as regular maid service, are provided to earn the income. Property owners who do not provide significant services to their renters generally are not subject to the 1099 reporting rules.