Lawmakers Back Bill to Simplify 1099-K Reporting Requirements
By Kenneth Corbin
Online sellers struggling to make sense of a new set of tax reporting requirements have won a few allies in Congress.
On Wednesday, Rep. Aaron Schock (R-Ill.) introduced legislation that would simplify the new 1099-K tax form, which requires payment providers such as credit card companies and online outfits like PayPal, Google and Amazon to submit month-by-month totals of the transactions they processed for individual merchants to the Internal Revenue Service.
The 1099-K Overreach Prevention Act would strike down the IRS rule requiring merchants to reconcile the gross revenue reported by payment providers with the figure that they report on their own tax returns, a bookkeeping exercise that places an excessive burden on small businesses, according to the bill's backers.
"This is an unnecessary IRS requirement that will only lead to more accounting headaches for businesses," Schock said in a statement. "My concern is that the IRS is asking for flawed information from small businesses by requiring them to reconcile their internal numbers with that of third party entities."
Schock has signed up Rep. Bobby Schilling, also an Illinois Republican, as an original co-sponsor of the legislaiton. In a news release, Schock's office said that Sen. John Thune (R-S.D.) would introduce an identical version of the bill in the upper chamber. A spokesman for Thune was not immediately available to confirm his support of the legislation.
The advent of the 1099-K dates to the Housing and Economic Recovery Act of 2008, which included the provision as a mechanism to achieve a more precise tally of electronic transactions.
"This was all started from a well-meaning objective which is let's make sure we're getting the full amount recorded by these small businesses, or anyone who takes electronic payments," said Steven Aldrich, CEO of Outright.com, a provider of tax and accounting software for small businesses.
But the rule requiring merchants to reconcile their gross revenues has resulted in its share of unintended consequences. Discrepancies in the figure that a payment provider reports and a seller's own calculation can arise from a number factors, such as instances of fraud, returns for which the consumer received cash, or fees that might get backed out of a net total but that would still count in the gross figure, the way the IRS's definition is written.
"It's creating a lot of confusion in the small business ranks and I think that's a problem," Aldrich said. The rule "seems like an unnecessary amount of work for the small business owner," he added, noting that the tax a merchant ultimately pays is not assessed on gross revenue, but net income.
It is worth noting that smaller merchants are exempt from the reporting requirements. Payment service providers must submit 1099-K forms only for sellers with $20,000 in annual revenue and 200 transactions in the calendar year. Both conditions must be met to trigger the reporting requirement.
In its initial rollout for the 2011 tax year, the IRS is directing merchants to enter a zero on the new 1099-K line on their business returns, making the gross revenue reconciliation less of an issue, for now.
But down the road, if Schock's bill stalls and the current requirements hold, online sellers could face an accounting headache and a fair measure of uncertainty if they are unable to reconcile the gross balance on their returns.
"That's the fear," Aldrich said. "No one quite knows what will happen if the numbers don't match."
About the author:
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.
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