The President has signed the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.” This new law retroactively repeals unpopular Form 1099 information reporting rules added by 2010 legislation. Here are highlights of the tax changes in the Act.
Original information reporting rules. Before amendment by the Small Business Jobs Act of 2010 and the Patient Protection and Affordable Care Act (PPACA), payments totaling at least $600 in a single calendar year to a single recipient were required to be reported to IRS. Reporting on Form 1099 was required only when the payor was considered to be engaged in a trade or business and has made the payment in connection with that trade or business. The type of payment that most commonly triggered the reporting requirement was payment for services. Payments to corporations were exempt from these reporting requirements.
Pre-Act law—changes made by 2010 legislation. Beginning in 2012, payments of amounts in consideration for any type of property and gross proceeds—i.e., it added payments for goods or other property—to the list of payments subject to information reporting. Also, beginning in 2012, payments to corporations—which had previously been exempt from the reporting requirement—would be subject to information reporting. Additionally, for payments made after 2010, a person receiving rental income from real estate would be treated as engaged in the trade or business of renting property for information reporting purposes. In particular, rental income recipients making payments of $600 or more to a service provider (for example, a painter or plumber) in the course of earning rental income would have to provide an information return to the service provider and IRS.
New law. For payments made after Dec. 31, 2011, the Act repeals the provisions that impose a reporting requirement for payments to corporations and payments for goods or other property. And for payments made after Dec. 31, 2010, the Act also repeals application of the information reporting requirements to recipients of rental income from real estate who are not otherwise considered to be engaged in the trade or business of renting property. In other words, the information reporting rules effectively revert to the way they read before enactment of PPACA and the Small Business Jobs Act of 2010, as noted in the ‘original information reporting rules’ paragraph above.