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Small business tax rule repealed

Industry News

Congress voted to reverse course on a tax provision that would have required all businesses to file forms for every person or company with whom they did more than $600 worth of business in a year.

L.A. Times | April 7, 2011

Congress has repealed a tax provision that small businesses said would have buried them in paperwork and forced them to pay for hours of extra accounting services.

The provision, passed last year as a way to raise money to pay for healthcare reform, would have forced all businesses to file special tax forms to report anyone with whom they did more than $600 worth of business in a given year.

The repeal was welcomed by small-business owners and advocates across the nation, who had fought hard to push Congress and the White House to withdraw support from a measure that President Obama had initially favored.

"This would have been an administrative nightmare for small business," said Scott Hauge, a small-business advocate who runs an insurance brokerage in San Francisco. Had it gone into effect as planned next year, Hauge's firm would have had to process 700 of the forms, up from 25 that he has to file currently, he said.

Hauge said he had never seen an issue galvanize the small-business community as quickly or as powerfully as this.

When the provision was initially passed, the Obama administration said the additional paperwork would help the IRS track down people and companies who were not paying all of the taxes that they owe, and would raise $17 billion over 10 years to help pay for the massive healthcare overhaul.

But small-business owners reacted immediately, saying that the measure was unwieldy and unfair. It would have required businesses to send a tax form known as a 1099 to vendors, retailers, utility companies and any other entity they'd contracted with. They also would have had to file a copy of the form with the IRS.

By contrast, the law had previously only required that such forms be filed for freelance workers and others who had been hired as independent contractors.

Because of the outcry, the administration reversed course and agreed to support a repeal. Obama spokesman Jay Carney suggested that the president would sign the bill when it reaches his desk.

To read the full story, click here.

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