1099 Information Reporting Requirements and Penalties as Modified by the Patient Protection and Affordable Care Act and the Small Business Jobs Act of 2010

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1099 Information Reporting Requirements
and Penalties as Modified by the Patient
Protection and Affordable Care Act and the
Small Business Jobs Act of 2010

Carol A. Pettit
Legislative Attorney
Edward C. Liu
Legislative Attorney
March 4, 2011
Congressional Research Service
7-5700
www.crs.gov
R41504
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008

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1099 Information Reporting Requirements and Penalties as Modified in 2010

Summary
Generally, taxpayers are more likely to report items of income on their tax returns if they know
that a third party has reported it to the Internal Revenue Service (IRS); therefore, expanding
information reporting requirements under the Internal Revenue Code (IRC) can improve the
collection of federal tax revenue. However, as those requirements are expanded, those who must
comply with the requirements generally will face an increased administrative burden. Recent
expansions of the reporting requirements in IRC § 6041 have been met by protests that the
changes impose too great a burden, particularly on small businesses.
The Patient Protection and Affordable Care Act (P.L. 111-148; PPACA) and the Small Business
Jobs Act of 2010 (P.L. 111-240) both amended IRC § 6041, which requires payments totaling at
least $600 in a single calendar year to a single recipient to be reported to the IRS. The required
returns are generally Form 1099s, which are prepared by the entity making the payment and show
to whom payment was made, the amount of the payment, and the general reason for the payment.
The form is filed with the Internal Revenue Service (IRS) and a copy is provided to the payee.
The form is required only when the payer is considered to be engaged in a trade or business and
has made the payment in connection with that trade or business.
Beginning with payments made in 2011, § 2101 of the Small Business Jobs Act makes most
landlords subject to the reporting requirements of IRC § 6041 by stipulating that, for purposes of
IRC § 6041(a), they are considered to be engaged in the trade or business of renting real property,
with certain exceptions. Landlords generally have not been considered to be engaged in a trade or
business and, therefore, have not been subject to IRC § 6041. The Small Business Jobs Act also
increased the penalties for failure to file an information return (IRC § 6721) and the penalties for
failing to provide a copy of the information return to the payee (IRC § 6722). These changes will
apply to any information returns required to be filed after December 31, 2010.
Beginning with payments made in 2012, § 9006 of PPACA changes the reporting requirements in
two ways. Payments to corporations will no longer be exempt from reporting. Additionally,
§ 9006 expands the types of payments that will trigger the reporting requirement. Until 2012, the
type of payment that most commonly triggers the reporting requirement is payment for services.
Beginning in 2012, IRC § 6041 will also require reporting of payments for goods or other
property as well as gross proceeds.
Various groups have asserted that the reporting requirements will be too burdensome on both the
payer and the payees. For payments made by credit card, the reporting burden may be eased
somewhat by a recent change in the law that will require payment settlement entities to report
credit card payments and payments through third party networks (e.g., PayPal). Under a new
Treasury regulation, if reporting is required under that law, no reporting of the payment will be
required under IRC § 6041 if payments are made after December 31, 2010.
In the 111th Congress, several attempts were made to either repeal or modify § 9006 of PPACA. A
number of bills have been introduced in the 112th Congress that would repeal that section (e.g.,
H.R. 4, H.R. 60, H.R. 144, H.R. 417, H.R. 584, H.R. 705, S. 12, S. 18, S. 72, and S. 223). Some
of these would also repeal the changes made by § 2101 of the Small Business Jobs Act. Both the
House and Senate have passed bills that would repeal § 9006 (H.R. 4 and S. 223), but the two
bills differ on whether the changes made by the Small Business Jobs Act would also be repealed,
and on how the tax revenue estimated to be lost would be offset.
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1099 Information Reporting Requirements and Penalties as Modified in 2010

Contents
Section 9006 of the Patient Protection and Affordable Care Act ................................................... 1
Payments to Corporations ..................................................................................................... 2
Amounts in Consideration of Property and Other Gross Proceeds .......................................... 3
Section 2101 of the Small Business Jobs Act of 2010 .................................................................. 4
Exception for Credit Card and Third Party Network Payments .................................................... 4
Procedures .................................................................................................................................. 5
Enforcement ............................................................................................................................... 5
Civil Penalties for Information Returns Due Before January 1, 2011...................................... 6
Civil Penalties for Information Returns Due After December 31, 2010 .................................. 6
Criminal Penalties in Cases of Willful Violations................................................................... 7
Responses to Changes to 1099 Information Reporting Requirements........................................... 8
Internal Revenue Notice 2010-51─Request for Comments .................................................... 8
The National Taxpayer Advocate........................................................................................... 8
Trade Associations and Others .............................................................................................. 9
Legislative Proposals in Congress ............................................................................................. 10
The 112th Congress.............................................................................................................. 10
The 111th Congress.............................................................................................................. 11
Proposals to Repeal § 9006 of PPACA .......................................................................... 11
Proposals to Modify Provisions of § 9006 of PPACA .................................................... 12
Proposals to Expand Reporting Requirements in IRC § 6041......................................... 12

Tables
Table 1. Penalties for Failure to File Information Return with IRS ............................................... 6
Table 2. Penalties for Failure to Provide Information Return to Payee.......................................... 7
Table A-1. Current Law and Scheduled Changes for Payments Made after 2010........................ 14

Appendixes
Appendix A. IRC § 6041 Reporting Requirements as Amended by PPACA and the Small
Business Jobs Act................................................................................................................... 14
Appendix B. Frequently Asked Questions About the Changes in the 1099 Information
Reporting Requirements......................................................................................................... 15

Contacts
Author Contact Information ...................................................................................................... 16

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1099 Information Reporting Requirements and Penalties as Modified in 2010

s a general rule, taxpayers are more likely to pay taxes on income if the realization of that
income has been communicated to the Internal Revenue Service (IRS). To encourage
A compliance with tax laws, the Internal Revenue Code (IRC) includes a number of
information reporting requirements regarding payments that may result in taxable income for the
payee. One such reporting requirement, contained in IRC § 6041(a), applies to certain payments
made by persons in the course of a trade or business. Under IRC § 6041(a), if the total amount of
payments made to a payee over a year equals at least $600, the payer is required to file an
information return with the IRS providing information identifying the payer, the payee, and the
total amounts paid to that payee over the past calendar year. The information returns required to
be filed under IRC § 6041 are typically versions of Form 1099.1 A copy of this information return
must also be provided to the payee. Although payees may receive copies of information returns,
payees are not required to file any information returns under IRC § 6041.2
Section 6041 was amended twice in 2010: once by § 9006 of the Patient Protection and
Affordable Care Act (PPACA)3 and later by § 2101 of the Small Business Jobs Act of 2010.4 Each
of the amendments potentially increases the number of 1099s that will be filed in the coming
years. The Small Business Jobs Act also revised the penalties that apply when a payer fails to file
an accurate 1099 with the IRS or fails to provide an accurate copy of that report to the payee.
Since the passage of PPACA, numerous bills have been introduced to repeal or modify § 9006.
Some of these would also repeal § 2101 of the Small Business Jobs Act.
This report discusses the amendments, objections to the amendments, and proposed legislation
that may affect IRC § 6041. It also discusses procedures for and enforcement of the information
reporting requirements. In both text and tables, this report outlines the penalties for failure to
comply with the requirements of IRC § 6041, including changes to the penalties that were enacted
by the Small Business Jobs Act. Table A-1 is included in Appendix A as a reference for the
enacted changes in the requirements for filing information returns. The table includes the dates
those changes are scheduled to become effective. Appendix B contains a list of 10 questions that
are representative of questions being raised by constituents.
Section 9006 of the Patient Protection and
Affordable Care Act

For payments made after December 31, 2011, § 9006 of PPACA amended the reporting
requirement in IRC § 6041 in two principal ways. First, payments to corporations will no longer
be automatically exempt from reporting requirements by virtue of the payee’s corporate status,
despite existing regulations to the contrary.5 Second, the types of payments that can trigger the

1 Treas. Reg. § 1.6041-1(a)(2). Payments for trust distributions are made on Form 1096 and employee compensation is
typically reported on Forms W-2 and W-3. Id.
2 Payees, like most individuals, are required to report all income, whether reflected on a 1099 or not, on an annual
federal income tax return if they have sufficient income to meet or exceed the filing threshold. Internal Revenue Code
(IRC) § 6012(a).
3 P.L. 111-148.
4 P.L. 111-240.
5 I.R.C. § 6041(h), as added by P.L. 111-148 § 9006(a), the Patient Protection and Affordable Care Act (PPACA).
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reporting requirement will be expanded to include amounts paid in consideration of property and
other gross proceeds.6 The effect of this amendment is to require those engaged in a trade or
business to report a broader range of payments made to a broader range of payees.
The purpose of this amendment appears to be to reduce the “tax gap”7 because the existence of an
information return generally encourages the voluntary reporting of taxable income and may also
facilitate the enforcement and collection of taxes on income that is not voluntarily reported.8
Although this provision is intended to raise revenue without increasing taxes, Congress has
received significant feedback from constituents who anticipate that the increased reporting will
impose an administrative burden on all payers. In particular, some have commented that the
impact on small businesses will be significant because their bookkeeping systems may need to be
modified to accommodate tracking the aggregate amounts paid to each payee to comply with the
new requirements regarding the types of payments and payees that will trigger 1099 reporting.
They add that the administrative burden is also anticipated to increase due to the time and
expense involved in filing each newly required 1099.9
The $600 reporting threshold has not changed since at least 1954 and is not currently slated to be
increased by law. In contrast, some dollar amounts specified in the IRC have been legislatively
increased over time or indexed for inflation. For example, the personal and dependent exemption
amounts were $600 in 1954, but over time have risen to $3,650 for tax year 2010.10 As the buying
power of $600 decreases, the number of transactions captured may increase as it becomes more
likely that minor expenditures will aggregate to at least $600 and trigger the reporting
requirement.
Payments to Corporations
Historically, although IRC § 6041 did not explicitly exempt payments to corporations from its
reporting requirements, such payments were considered exempt under regulations promulgated
by the IRS, if payments were made to
[a] corporation [as defined in the IRC] except with respect to payments made to a
corporation after December 31, 1997 for attorneys’ fees, and except a corporation engaged in
providing medical and health care services or engaged in the billing and collecting of
payments in respect to the providing of medical and health care services. However, no

6 PPACA § 9006(b).
7 See CRS Report R40219, Tax Gap, Tax Enforcement, and Tax Compliance Proposals in the 111th Congress, by James
M. Bickley.
8 GAO-09-238, IRS Could Do More to Promote Compliance by Third Parties with Miscellaneous Income Reporting
Requirements
(January 2009). The Joint Committee on Tax has estimated that this provision would raise $17.1 billion
between 2012 and 2019. JOINT COMM. ON TAX, Estimated Revenue Effects Of The Amendment In The Nature Of A
Substitute To H.R. 4872, The “Reconciliation Act Of 2010,” As Amended, In Combination With The Revenue Effects Of
H.R. 3590, The “Patient Protection And Affordable Care Act (‘PPACA’),” As Passed By The Senate, And Scheduled
For Consideration By The House Committee On Rules On March 20, 2010
at 1 (March 20, 2010).
9 The IRS has estimated the average time needed to complete a single Form 1099-MISC at 16 minutes, although the
actual time “will vary depending on individual circumstances.” IRS, 2010 General Instructions for Certain Information
Returns
at 15, available at http://www.irs.gov. In addition to possible increased costs for paper, envelopes, filing
software, and toner or ink, payers may also incur postage expense in providing each payee with the required copy of the
1099.
10 Rev. Proc. 2009-50.19 (see 26 U.S.C. § 1 note).
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reporting is required where payment is made to a hospital or extended care facility described
in section 501(c)(3) which is exempt from taxation under section 501(a) or to a hospital or
extended care facility owned and operated by the United States, a State, the District of
Columbia, a possession of the United States, or a political subdivision, agency or
instrumentality of any of the foregoing.11
PPACA § 9006 adds a new subsection (h) to IRC § 6041. For payments made after December 31,
2011, the new subsection provides that “[n]otwithstanding any regulation prescribed by the
Secretary before the date of the enactment of this subsection, for purposes of this section the term
‘person’ includes any corporation that is not an organization exempt from tax under section
501(a).”12
PPACA § 9006 supersedes the IRS regulations. Thus, payments made to corporations after
December 31, 2011, will no longer be automatically exempt from information reporting
requirements unless the corporation is a tax-exempt entity.
Amounts in Consideration of Property and Other Gross Proceeds
IRC § 6041(a) specifies a list of payments that can trigger its information reporting requirements.
For payments made before January 1, 2012, these include “rent, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, or other fixed or determinable gains,
profits, and income.”13 If the aggregate amount of these payments to a single payee equals $600
or more, then IRC § 6041(a) requires the payer to report the amount of those payments and the
identity of the payee to the IRS.
For payments made after December 31, 2011, PPACA § 9006 amended this list of payments to
add “amounts in consideration for property” and other “gross proceeds.”14 Because of these
additions, reporting will be required for some payments that previously were not subject to
reporting. For example, payments for merchandise, telegrams, telephone, freight, and storage
have been exempt under IRS regulations.15 However, those payments may be considered amounts
in consideration for property or gross proceeds under the amended IRC § 6041(a) and could
potentially be subject to reporting when the amended language goes into effect. As part of its
general request for comments on guidance to be provided regarding the new reporting
requirements, the IRS has specifically requested comments on the scope and interpretation of the
terms “gross proceeds” and “amounts in consideration for property” so that the reporting burden
is minimized and duplicate reporting is avoided.16

11 Treas. Reg. § 1-6041.3(p)(1).
12 I.R.C. § 6041(h).
13 I.R.C. § 6041(a).
14 P.L. 111-148, § 9006(b). As amended, the language would read: “rent, salaries, wages, amounts in consideration for
property,
premiums, annuities, compensations, remunerations, emoluments, or other gross proceeds, fixed or
determinable gains, profits, and income.” (emphasis added).
15 Treas. Reg. § 1.6041-3(c).
16 Notice 2010-51. Definitions of the terms were not included in PPACA § 9006. Additionally, property is not defined
in the IRC. In a 1993 Field Service Advisory (FSA 1177), the IRS addressed the meaning of property for purposes of
IRC § 351. It noted that in the absence of “specific Congressional indication to the contrary, statutory terms are
generally given their ordinary meaning. “Property” has been defined as “something owned or possessed.” Merriam-
Webster’s Collegiate Dictionary, (10th Ed. 1999). Case law has broadly defined “property” to generally include assets;
FSA 1177 (citing E.I. DuPont de Nemours & Co. v. United States, 471 F.2d 1211, 1218 (Ct. Cl. 1973)); or “whatever
(continued...)
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Section 2101 of the Small Business Jobs Act of 2010
Amidst proposals to repeal the expansion of the § 6041 reporting requirements enacted by the
PPACA, § 6041 was amended again. Section 2101 of the Small Business Jobs Act expanded the
payers who would be required to comply with the section’s reporting requirements to include
landlords.
Generally, those receiving rental income from real estate have not been considered to be engaged
in a trade or business; however, the recent amendment of § 6041 will, barring further amendment
or repeal, change this. Effective for payments made after December 31, 2010, and solely for
purposes of § 6041(a), most landlords are to be considered to be engaged in the trade or business
of renting real estate and, therefore, may be required to file Forms 1099 to report payments made
in conjunction with their rental properties.
The amendment added a new subsection (h) to § 6041. The subsection includes three exceptions
to its general rule that those receiving rental income from real estate will be considered engaged
in the trade or business of renting real estate for purposes of § 6041(a).
The first exception is for those who receive substantially all of their rental income from renting
their principal residence on a temporary basis would not be considered to be engaged in a trade or
business. However, it appears that if an individual were receiving rent from both a principal
residence and other properties, the individual would be subject to § 6041’s reporting requirements
for the expenses of all properties, including the rented principal residence unless the rental
income from the other properties was very small.
A second exception provided in § 6041(h) is for an individual receiving “rental income of not
more than the minimal amount, as determined under regulations prescribed by the Secretary.”17
Similarly, the third exception is somewhat undefined. It exempts individuals from being
considered engaged in the trade or business of renting property if “the requirements of this
section would cause hardship, as determined under regulations prescribed by the Secretary.”18
Exception for Credit Card and Third Party
Network Payments

The changes made by PPACA and the Small Business Jobs Act may be affected by recently
promulgated regulations19 implementing IRC provisions that require reporting of credit card and
third party network transactions.20 For payments made after December 31, 2010, there is a
regulatory exception to the IRC § 6041 requirements to file an information return with the IRS
and provide a copy to the payee. Treasury Regulation § 1.6041-1(a)(1)(iv) states that any

(...continued)
may be transferred”; FSA 1177 (quoting H.B. Zachary Co. v. Commissioner, 49 T.C. 73, 80 n.6 (1967)).
17 Id.
18 Id.
19 Treas. Reg. § 1.6041-1(a)(1)(iv), (v), 75 Federal Register 49827, August 16, 2010.
20 I.R.C. § 6050W (added by P.L. 110-289).
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transaction that is subject to reporting under § 6050W, without regard to the third party network
de minimus threshold, will not be reported under § 6041. Thus, if payments are made by credit
card or through a third party network,21 the payer generally will not be required to report them on
an information return.
Procedures
The deadline for filing an information return with the IRS is February 28 of the year following
the calendar year in which payments were made, or March 31 if filed electronically. Copies of
information returns must be provided to payees no later than January 31 of the year following the
calendar year in which the payments were made.
Information returns must accurately identify both the payer and the payee of the payments as well
as the total amount paid. The payees are required to provide their names, addresses, and taxpayer
identification numbers22 to payers in order to facilitate information reporting. The information
return must include all of these as well as the address and telephone number of the payer. It is the
payer’s obligation to request information from the payee, and the payee is required to provide it.23
The payer may use Form W-9 to request the information from U.S. persons. If the payee does not
provide a taxpayer identification number, the payer is generally required to collect backup
withholding from payments due to the payee. For 2010-2012, the backup withholding rate is
28%.24 A payee is subject to a penalty of $50 for each failure to provide the correct taxpayer
identification number to a payer who has requested it.
Enforcement
Both the failure to submit an accurate information return to the IRS and the failure to provide a
copy of the information return to the payee are subject to monetary penalties assessed by the IRS.
As a unique information return is required with respect to each payee, penalties are assessed on
each deficient information return. Both § 6721 (pertaining to failure to file accurate returns with
the IRS) and § 6722 (pertaining to failure to provide payees with correct copies of the information
returns) of the IRC have been amended by the Small Business Jobs Act to revise the amounts of
the penalties. Section 6722 has been amended to change the structure of the penalty so that it is
similar to the structure of the § 6721 penalty. In so doing, the effect is that the amended penalty
may be lower than it previously would have been where corrective action is taken. The changes to
both sections are scheduled to become effective for returns required to be filed after December

21 See Treas. Reg. § 1.6050W-1((b)(3), (c)(3). One example of a third party network is PayPal.
22 For individuals, the taxpayer identification number (TIN) is generally their social security number.
23 Section 6041(c) of the IRC requires the recipient to provide both name and address upon demand by the person
paying the income. IRC § 6109(a)(1) requires the payer to report the TIN of the recipient. IRC § 6109(a)(2) requires the
recipient to provide the TIN to the payer.
24 The backup withholding rate is currently defined in IRC § 3406 as being the fourth lowest tax rate under IRC § 1(c),
making it 28% for 2010. This definition was enacted in § 101(c)(10) of P.L. 107-16, the Economic Growth and Tax
Relief Reconciliation Act of 2001 (EGGTRA). The provisions of EGTRRA, due to expire December 31, 2010, were
extended by P.L. 111-312 through December 31, 2012. If allowed to expire at that time, on January 1, 2013, the backup
withholding rate will revert to 31%—its pre-EGTRRA rate.
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31, 2010. Thus, the new penalty amounts are expected to apply to returns that report payments
made during calendar year 2010.
Civil Penalties for Information Returns Due Before January 1, 2011
For information returns that are due before the amendments take effect, the penalty for failing to
file a correct and timely return with the IRS is $50 for each defective return not to exceed
$250,000 for a single payer.25 If the deficiency is corrected within 30 days of the due date, the
penalty is reduced to $15 per return, not to exceed $75,000. If corrected later than 30 days, but
before August 1, the penalty is $30 per return, not to exceed $150,000.26 No penalty will be
assessed against a person if defects are corrected by August 1, and the total number of defective
returns does not exceed the greater of 10 or one-half percent of the total number of information
returns required to be filed by the person.
Some small businesses may be able to take advantage of reduced ceilings on aggregate penalties
for payers with gross receipts of less than $5 million. For these payers, the ceilings are $100,000
(for uncorrected violations), $25,000 (if corrected within 30 days), and $50,000 (if corrected after
30 days, but on or before August 1). Higher penalties may also be assessed where persons
intentionally disregard their duty to file an information return. (See Table 1.)
Failure to provide a correct and timely statement to a payee is also subject to a $50 penalty per
return, not to exceed $100,000 per payer. Higher penalties may also be assessed where persons
intentionally disregard their duty to provide a payee with a copy of an information return. (See
Table 2.)
Civil Penalties for Information Returns Due After
December 31, 2010

Section 2102 of the Small Business Jobs Act modified the penalties for failing to provide
information returns to the IRS or to the appropriate payee in a timely fashion. The penalties for
failing to file information returns with the IRS were increased across the board, as described in
Table 1. These amounts will also be updated in 2017, and every five years after, to account for
inflation.
Table 1. Penalties for Failure to File Information Return with IRS
IRC § 6721

Returns Due Before 2011
Returns Due After Dec. 31, 2010
Base penalty
Lesser of $50/return or $250,000
Lesser of $100/return or $1,500,000
($100,000 for smal businesses)
($500,000 for smal businesses)
Corrected within 30 days
Lesser of $15/return or $75,000
Lesser of $30/return or $250,000
($25,000 for smal businesses)
($75,000 for smal businesses)

25 I.R.C. § 6721(a)(1).
26 I.R.C. § 6721(b).
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Returns Due Before 2011
Returns Due After Dec. 31, 2010
Corrected by August 1
Lesser of $30/return or $150,000
Lesser of $60/return or $500,000
($50,000 for smal businesses)
($200,000 for smal businesses)
Due to intentional disregard
$100/return without limit
$250/return without limit
Source: Compiled by CRS
Notes: As used in this chart, small businesses are those with gross receipts of not more than $500,000 in the
calendar year for which an information return is required. I.R.C. § 6721(d).
Section 2102 of the Small Business Jobs Act also modified the penalty scheme for failures to
provide copies of information returns to payees. As described in Table 2, the amended penalties
mirror the amounts that would be assessed for a failure to file information returns with the IRS
and are similarly indexed for inflation. In addition to raising the base penalty, the amendments
also provide reduced penalties if corrective actions are taken. Because the prior penalty scheme
did not take corrective action into account, penalties under the amended provision may actually
be less than what would have been assessed under the old scheme if corrective action is taken.
Table 2. Penalties for Failure to Provide Information Return to Payee
IRC § 6722

Returns Due Before 2011
Returns Due After Dec. 31, 2010
Base penalty
Lesser of $50/return or $100,000
Lesser of $100/return or $1,500,000
($500,000 for smal businesses)
Corrected within 30 days
Same as base penalty
Lesser of $30/return or $250,000
($75,000 for smal businesses)
Corrected by August 1
Same as base penalty
Lesser of $60/return or $500,000
($200,000 for smal businesses)
Due to intentional disregard
$100/return
$250/return
Source: Compiled by CRS
Notes: As used in this chart, small businesses are those with gross receipts of not more than $500,000 in the
calendar year for which an information return is required. I.R.C. § 6722(d).
Criminal Penalties in Cases of Willful Violations
It is a misdemeanor for any person to willfully fail to make an information return as required by
law.27 Persons convicted of this offense may be punished by a fine of up to $25,000,
imprisonment for up to one year, or both. A willful violation occurs when there is “a voluntary,
intentional violation of a known legal duty.”28 However, a violation that results from a good-faith
misunderstanding of the requirements of the IRC is not a willful violation, as that term has been
interpreted by the courts.29 Neither the Small Business Jobs Act nor PPACA changed the criminal
penalties applicable to the willful failure to make an information return.

27 I.R.C. § 7203.
28 Cheek v. U.S., 498 U.S. 192, 200 (1991).
29 Id. at 202.
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Responses to Changes to 1099 Information
Reporting Requirements

Those in favor of the expanded 1099 reporting requirements argue that they are a means through
which tax revenue can be generated without raising taxes.30 At the same time, opponents to the
measure have expressed concern about the potential financial and administrative burdens that
businesses may experience. The following sections describe points that have been raised by
various stakeholders in the debates surrounding these issues.
Internal Revenue Notice 2010-51─Request for Comments
On July 1, 2010, the IRS announced its request for comments31 on the expanded § 6041 reporting
requirements that are to be effective for payments made after December 31, 2011. Within less
than a week, reportedly “scores of taxpayers and certified public accountants”32 had responded,
calling for the repeal of the changes enacted by PPACA § 9006. Some expressed concern that
they would need additional personnel to handle the recordkeeping needed to comply with the new
requirements. Others referred to additional costs required to obtain and compile the required
information—at least one indicated that businesses should not be required to undertake such
reporting for free and proposed a refundable income tax credit that would be based on a per return
processing fee.
Some, however, offered suggestions rather than simply expressing disapproval of the changes.
These included suggestions as to what should be excluded from “gross proceeds” for reporting
purposes and a staggered reporting process that would allow payers and payees to reconcile the
reported payments before they were reported to the IRS.
A number recognized the intent to reduce the tax gap and encourage or enforce the reporting of
income received. While several suggested increasing the reporting threshold from $600, one
suggested lowering it to $100 to account for more otherwise unreported income.
The National Taxpayer Advocate
The National Taxpayer Advocate’s office is an independent office within the Internal Revenue
Service whose mission is to help resolve taxpayers’ problems with the IRS and recommend
changes to eliminate problems. Each year, it must prepare an annual report identifying its
objectives for the coming fiscal year. The June 30, 2010, Fiscal Year 2011 Objectives Report
(Objectives Report) included examination of the administrative challenges presented by the
expanded information reporting requirements. The report expressed concern “that the new

30 The Joint Committee on Tax has estimated that this provision would raise $17.1 billion between 2012 and 2019.
JOINT COMM. ON TAX, Estimated Revenue Effects Of The Amendment In The Nature Of A Substitute To H.R.
4872, The “Reconciliation Act Of 2010,” As Amended, In Combination With The Revenue Effects Of H.R. 3590, The
“Patient Protection And Affordable Care Act (‘PPACA’),” As Passed By The Senate, And Scheduled For
Consideration By The House Committee On Rules On March 20, 2010 at 1 (March 20, 2010).
31 IR-2010-79 (announcing Notice 2010-51).
32 BNA Daily Tax Report, 128 DTR G-2 (July 7, 2010).
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reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate
as compared with any resulting improvement in tax compliance.”33
Since 2004, the National Taxpayer Advocate has recommended including corporate service
providers in the 1099 reporting requirements as a means of addressing the tax gap and the cash
economy, but has not recommended extending the requirements to include vendors. Among the
concerns expressed in the Objectives Report are issues involving collection of tax identification
numbers (TINs). Sole proprietors who have no employees generally use their Social Security
numbers as their TINs, opening the opportunity for identity theft. An additional concern involving
TINs is the backup withholding requirement if a TIN is not provided. This presents issues
involving administrative expenses on the part of the taxpayer who must collect the withholding
and remit it to the IRS. Further, vendors who have refused to provide a TIN may then refuse to
sell their products to anyone who does not pay the entire price (i.e., withholds the required 28%
from the payment due).
Other concerns expressed in the Objectives Report involve the volume of information that will be
received by the IRS. The report anticipates challenges in making productive use of the
information reporting involving payments to vendors because amounts reported on the
information returns may not match amounts reported on tax returns: vendors are required to
report all income received, but payers are only required to report payments aggregating $600 or
more. Additionally, for goods, there is often a high rate of returned items. These returns and their
refunds may not be adequately reflected in the payer’s records of payments made to the vendor.34
A final concern expressed in the Objectives Report is that the expanded reporting requirements
could distort taxpayer behavior. If payers are able to get year end computer generated summaries
of their purchases from vendors, they may be more likely to make their purchases at those
vendors. Those vendors who do not have the ability to track customer purchases may lose
customers, reducing local competition and favoring large, national vendors.
Trade Associations and Others
The American Numismatic Association and the Numismatics United for Political Action called on
coin collectors and dealers to contact their Members of Congress to repeal § 9006 of PPACA.
They cited the burden the additional paperwork would impose on dealers as well as the potential
for identity theft of those collectors who sell coins or collections.
The National Association of Realtors issued a “Call for Action” regarding proposals to treat those
receiving income from renting real property as “engaged in a trade or business” for purposes of
§ 6041. The additional burden that the reporting requirements would impose on landlords, many
with only one property, was cited as cause for opposition.

33 National Taxpayer Advocate, “Report to Congress: Fiscal Year 2010 Objectives,” 9 (June 30, 2010).
34 Although not mentioned in the Objectives Report, another reason income tax returns may not match the payments
reported on 1099s is because the 1099s are based on calendar year payments, but many companies report their income
on a fiscal year basis. Discrepancies are also likely when the vendor is an accrual basis taxpayer and reports income
when it is earned rather than when it is received.
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On August 17, 2010, the U.S. Chamber of Commerce announced that “more than 1,099 local
chambers of commerce, associations, and businesses of all sizes”35 were sending a letter to
Congress to call for the repeal of PPACA § 9006. The letter asserted that the new requirements
would “impose substantial paperwork and reporting burdens on the backs of governments,
nonprofits, and businesses—especially small businesses.”36 The letter also stated that the
reporting requirements would alter the behavior in the marketplace, potentially harming smaller
merchants.
On January 25, 2011, the president of the National Association of Enrolled Agents (NAEA) sent a
letter to the House Committee on Ways and Means encouraging passage of H.R. 4 to repeal
§ 9006 of PPACA, saying that the section “places an unprecedented burden on small
businesses.”37 The letter also addressed expressed concern about implementation of § 2101 of the
Small Business Jobs Act of 2010, foreseeing non-willful compliance problems and suggesting
either legislative or regulatory action to provide a transition period.
Other responses regarding the landlord provision in § 2101 have mentioned the possibility of
identity theft. Some have expressed concern that contractors were going to be required to provide
their personal information to the landlords and were concerned that individual landlords might
not be trustworthy. Others are concerned that landlords must provide personal information on the
1099 that is issued to the payee. This information includes the address, taxpayer identification
number, and phone number of the landlord. Those who have only one or two rental properties
may not have a business address, business phone, or employer identification number. In those
cases, the individuals would need to provide contractors with their home address, home (or cell)
phone number, and their Social Security number.
Legislative Proposals in Congress
The 112th Congress
In the 112th Congress, myriad bills have been introduced to repeal § 9006 of PPACA.38 The House
and Senate have each passed bills that would repeal § 9006 (H.R. 4 and S. 223). However, the
two bills differ on whether the changes made by the Small Business Jobs Act would also be
repealed, and also on how to offset the tax revenue estimated to be lost as a result of repeal.
The House passed the text of H.R. 705, as an amendment in the nature of a substitute to H.R. 4,
on March 3, 2011.39 H.R. 705 would also repeal the changes made by § 2101 of the Small

35 “U.S. Chamber Leads Effort to Repeal Burdensome Reporting Requirement Impacting Small Businesses,” press
release, available at http://www.uschamber.com/press/releases/2010/august/us-chamber-leads-effort-repeal-
burdensome-reporting-requirement-impacting.
36 Letter “To the Members of the United States Congress,” September 2010, available at http://www.uschamber.com/
issues/letters/2010/national-sign-letter-repeal-1099-provision-health-care-law.
37 Letter from Gina Jones, EA, President, National Association of Enrolled Agents, to Representative Dave Camp,
Chairman, Committee on Ways and Means, and Representative Sander Levin, Ranking Member Committee on Ways
and Means (Jan. 25, 2011). Available at http://www.naea.org/MemberPortal/Advocacy/Comments/
Camp_Levin_Letter_01252011.htm.
38 E.g., H.R. 4, H.R. 60, H.R. 144, H.R. 417, H.R. 584, H.R. 705, S. 12, S. 18, and S. 72.
39 H.Res. 129.
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Business Jobs Act, and would amend IRC § 36B to relax the existing restrictions on the extent to
which excess advance payments of health insurance premium credits can be recaptured by the
IRS from taxpayers with income below 500% of the federal poverty level.40 In this way, H.R. 705
would offset the cost of repeal with increased tax revenue.41
The Senate passed S. 223 on February 17, 2011, including an amendment42 that would repeal
§ 9006, but not the amendments made by the Small Business Jobs Act.43 The cost of this repeal
would be offset by rescinding $44 billion of unobligated, appropriated discretionary funds. The
Director of the Office of Management and Budget would be directed to identify, within 60 days,
from which accounts the rescinded funds would be deducted. However, S. 223 also specifically
provides that the rescinded funds could not come from unobligated funds of the Department of
Defense, the Department of Veterans Affairs, or the Social Security Administration.44
Other proposals have also included either spending cuts or alternative revenue sources to offset
the cost of repealing § 9006, such as S. 18 (rescinding $39 billion in unobligated, appropriated
discretionary funds) and S.Amdt. 28 (amending tax provisions related to gas and oil production).
H.R. 1, which does not propose repealing § 9006 of PPACA, instead would allow no funds made
available through the bill’s Full-Year Continuing Appropriations for Fiscal Year 201145 to be used
to implement or enforce the amendments to § 6041 that were made by § 9006.46
The 111th Congress
After the passage of PPACA, there were a number of proposals to repeal or modify its § 9006, but
there were also proposals to further expand the reporting requirements in IRC § 6041.
Proposals to Repeal § 9006 of PPACA
Numerous bills were introduced in the 111th Congress that would have repealed § 9006 of
PPACA. In addition to introducing a bill (S. 3578) to repeal the provision, Senator Johanns
repeatedly introduced amendments to H.R. 5297 calling for repeal. However, that amendment
was not included in the Senate’s substitute amendment to the bill. The bill was subsequently
passed by the House and enacted as P.L. 111-240, the Small Business Jobs Act of 2010. Proposals

40 H.R. 705, § 4. Under the current IRC § 36B, the recapture of excess advance-payments of health insurance premium
credits is subject to a ceiling for taxpayers with income below 500% of the federal poverty line. The applicable ceiling
varies based on income. H.R. 705 would remove the recapture ceiling for these taxpayers who had income at or above
400% of the federal poverty line, and would also change the ceiling amounts for these taxpayers with income below
400%.
41 S. 12 also proposes repeal of both § 9006 of the PPACA and § 2101 of the Small Business Jobs Act of 2010. It
differs from H.R. 705 in its “pay for” provision. The bill proposes rescission of unspent federal funds. S. 12, § 103(b)
(rescinding $39 billion in unobligated, appropriated discretionary funds).
42 S.Amdt. 9.
43 S. 223, § 1101(a).
44 S. 223, § 1101(b).
45 H.R. 1, Div. B.
46 H.R. 1, § 1516.
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to repeal § 9006 were also offered as amendments to S. 510, the FDA Food Safety
Modernization Act.47
A review of bills that were introduced in the 111th Congress to repeal § 9006 appears to indicate
bipartisan support in the House for repeal.48 However, there was disagreement over how to pay
for repeal.49 S. 3946 would have repealed § 9006 of the PPACA without requiring either spending
cuts or an alternative revenue source.
Proposals to Modify Provisions of § 9006 of PPACA
There were two proposals to increase the $600 reporting threshold in IRC § 6041(a). S. 3783
proposed increasing the threshold amount to $5,000. A Senate amendment to H.R. 5297 proposed
increasing the threshold amount to $5,000, but only for “payments in consideration of property.”50
The amendment also would have exempted certain small businesses51 from the requirement to file
1099s to report property transactions. In addition, it would have provided a statutory exception to
the § 6041 filing requirements for credit card transactions and would have allowed regulatory
exceptions for transactions with low risk of noncompliance.
Proposals to Expand Reporting Requirements in IRC § 6041
The TAX GAP Act of 201052 would have required information return reporting for certain
government payments for property and services. Further, presumably to increase compliance with
the requirements of IRC § 6041, the bill would have required sole proprietors53 to include
additional information on their Schedule Cs regarding both the 1099s they received and those
they issued.54

47 See S.Amdt. 4702 and S.Amdt. 4713. Generally, repeal proposals have taken the form of repealing § 9006 of PPACA
in its entirety. However, at least one proposal, S.Amdt. 4713 to S. 510, employed a more piecemeal approach, perhaps
in an effort to accommodate the intervening amendments made by the Small Business Jobs Act. Despite this difference
in approach, the end result would appear to be the same as a complete repeal of § 9006. All bill and amendment
references are for the 111th Congress.
48 See H.R. 6367, § 201; H.R. 6213, § 1; H.R. 5982; and H.R. 5141. All bill references are for the 111th Congress.
49 Robb Mandelbaum, Will Congress Repeal the 1099 Expansion? YOU’RE THE BOSS: THE ART OF RUNNING A SMALL
BUSINESS (November 18, 2010), http://boss.blogs.nytimes.com/2010/11/18/will-congress-repeal-the-1099-expansion/?
scp=1&sq=repeal%209006&st=cse.
50 S.Amdt. 4595 (the “Nelson Amendment,” authored by Senator Bill Nelson) (111th Congress).
51 These businesses were defined as those that had no more than 25 employees at any time during the year.
52 S. 3795 (111th Congress).
53 It appears that single-member Limited Liability Companies (LLCs) choosing to be taxed as sole proprietors would be
subject to the requirements that would have been imposed by the bill, but those single-member LLCs choosing to be
taxed as corporations and multiple-member LLCs would not have been affected by the legislation since the bill did not
extend the requirements to either corporate or partnership returns. Other entities filing as either corporations or
partnerships apparently would not have been required to comply with these requirements.
54 The required information would have included both the number of 1099s received and the total amount reported on
them as well as the number of 1099s filed by the sole proprietor and the total amount reported on them. Taxpayers
would have been required to state, under penalty of perjury, that they had filed all information returns required by IRC
§ 6041.
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Another bill55 would have amended § 6041 to require information reporting of payments made to
or on behalf of a person due to that person’s liability to pay punitive damages.56 The change
coordinated with the bill’s general purpose of disallowing the deduction of punitive damages and
requiring inclusion in gross income of amounts paid “to or on behalf of a taxpayer as insurance or
otherwise by reason of the taxpayer’s liability (or agreement) to pay punitive damages.”57 Similar
language was included in a Senate bill.58


55 H.R. 5994 (111th Congress).
56 This amendment to § 6041 differed from others in that it would be the logical result of another provision in the bill
that would disallow deduction of punitive damages and require amounts paid.
57 H.R. 5994 § 2(b) (111th Congress).
58 S. 3793 § 422(b)(2) (111th Congress).
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Appendix A. IRC § 6041 Reporting Requirements as
Amended by PPACA and the Small Business Jobs
Act

Table A-1. Current Law and Scheduled Changes for Payments Made after 2010
Changes to IRC § 6041 as Amended by P.L. 111-148 and P.L. 111-240
Currently
Changes Applicable for Payments
Applicable Law
for Payments
Made Before
Made After
Made After

January 1, 2011
December 31, 2010
December 31, 2011
Who must file 1099 for
Persons engaged in a trade
Those who receive rental
Both the types of payments
reportable payments?
or business who, in the
income from real estate are that are reportable and the
course of their trade or
considered engaged in the
payees for whom payments
business, make reportable
trade or business of renting must be reported are
payments
real estate and become
expanded
subject to the reporting
requirements in § 6041(a)
of the Internal Revenue
Code (IRC)a
What are “reportable
Payments aggregating at
Change in who must file
Change in definition of
payments”?
least $600 during the
(see above)b
“payments made for
calendar year per
reportable purposes” (see

reportable payee if the
below)
payment is made for
reportable purposes
Who are “reportable
Generally, any individual or
No change
1099s must also be filed for
payees”?
entity that is not a
payees that are
corporation and for whom
corporations (unless they
payments are not
are organized under IRC
otherwise reportable
§ 501(c))
What are “payments
Payments for rents,
No change
1099s must also be filed for
made for reportable
premiums, annuities,
payments for goods and
purposes”?
compensation, or other
other property and
fixed or determinable gains,
payments that are gross
profits, and income
proceeds
Source: Compiled by CRS.
a. There is an exception for property that is the taxpayer’s principal residence and is being rented on a
temporary basis. Two other exceptions (for minimal rent and undue hardship) will be defined by regulation.
b. Although not due to a change in § 6041, for payments made after December 31, 2010, information
reporting under § 6041 will generally not be required if the payment was made by credit card (but not by
“convenience check”) or through a third party network. Treas. Reg. § 1.6041-1(a)(1)(i ). The amounts of
these transactions general y would be reported instead by the “payment settlement entity” that made
payments to the vendor or service provider who had initially received payment via a credit card, etc. See
IRC § 6050W (Added by the Housing Assistance Tax Act of 2008, P.L. 110-289 § 3091).

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Appendix B. Frequently Asked Questions About the
Changes in the 1099 Information Reporting
Requirements

1. I own two rental houses. Do I need to file 1099s for payments I made to plumbers, electricians,
landscape services, etc., in calendar year 2010?
No. For calendar year 2010, you are not considered to be engaged in the trade or business of
renting real estate. However, that will change for calendar year 2011 and beyond.
2. I own my own business and am confused by all the talk about what has to be reported and
when the changes take place. Do I have to do anything differently for the amounts I paid in 2010
than I did for the amounts I paid in 2009?
Assuming that you complied with the existing law in reporting the payments you made in
2009, you will not have to do anything differently for payments made in 2010. The changes
that will affect you begin with payments made in 2012.
3. I have a small business that I run out of my home. In 2011, I expect to spend more than $600
for office supplies from one store. Will I need to file a 1099 to report those payments made in
2011?
No. Purchases of supplies in calendar year 2011 will not have to be reported on a 1099.
However, that will change for calendar year 2012 and beyond. Treasury regulations create an
exception for payments made by credit card (but not by “convenience checks”).
4. I’m the treasurer of a nonprofit organization. Do I have to file 1099s?
Yes. Nonprofit organizations are subject to the same reporting requirements as others who
are engaged in a trade or business.
5. There are only two things that I need to file 1099s for. Surely the IRS doesn’t expect me to file
just two 1099s. Isn’t there a minimum number that is a threshold?
There is no minimum threshold. If you made reportable payments to reportable payees
within the calendar year, you must file a 1099 for each such payee, even if there is only one.
6. I know I’m supposed to put the payee’s “TIN” on the 1099, but I don’t know what that is. How
do I get it?
For individual payees the TIN (Taxpayer Identification Number) may be the individual’s
Social Security number (SSN). However, for any individual or business entity that has
employees, the TIN is the Employer Identification number (EIN). You should request each
payee’s TIN by providing a Form W-9 and asking that it be filled out and returned to you.
This should be done before making the first payment to the payee.
7. What if someone doesn’t want to fill out a W-9? What do I do then?
Anyone who refuses to complete a W-9 is subject to “backup withholding.” This means that
if a payee will not complete a W-9 after you have requested it, you must withhold 20% of the
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amount that the payee is owed and submit it to the IRS. When you file the 1099, you will
provide as much information as you have about the payee and show the backup withholding
on the 1099. You will report 100% of the amount that was owed to the payee as income on
the 1099. That is the 80% that you actually paid to the payee and the 20% that you withheld.
You will also use the 1099 to report the amount that was withheld for the year.
8. I just contracted with an individual to paint my house. This will cost a lot more than $600. Do I
need to file a 1099 to report these payments?
Unless this is a house that you are renting out to someone else, you will not need to file a
1099 for the amount that you pay to have the house painted. If it is a rental house, you will
need to file a 1099 if some portion of the contracted price is paid in 2011 and that portion is
at least $600.
9. I am a collector and buy a lot of stamps each year. Someone said that I’m going to have to start
filing 1099s for the amounts that I pay for the stamps I collect. Is that true?
No. Those who are engaged in a trade or business will need to file 1099s for payments made
in 2012 or later to purchase goods or property if the total amount paid during the year to a
payee is at least $600. However, those who are not engaged in a trade or business will not
need to file 1099s for purchases. Thus, as a collector, you will not have to file 1099s. If you
were to begin a business of buying and selling collectible stamps, you would become
responsible for filing 1099s.
10. I’m a coin collector. Are these new rules on 1099s going to affect me?
It is possible that you may be affected by the new rules even though you are not engaged in a
trade or business; however, you would not be required to file any 1099s. Instead, it is
possible that you might receive a 1099 if you were to sell coins to a coin dealer. The dealer
would be required to report the purchase of the coins if the total amount paid to you during
the year was $600 or more. You would report the amount on your tax return for the year, but
would offset the sales price by your basis in the coins. Your basis is generally what you paid
for the coins when you acquired them.

Author Contact Information

Carol A. Pettit
Edward C. Liu
Legislative Attorney
Legislative Attorney
cpettit@crs.loc.gov, 7-9496
eliu@crs.loc.gov, 7-9166


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