1099 requirement threatens small businesses, oil and gas industry

As many businesses are in the throes of 1099 season right now, here’s an interesting piece to keep your eye on this spring that perhaps you missed in the news last fall when it sprung up amid all the political hubbub and recession drama of November 2010.

1099 requirement threatens small businessesTucked away in President Obama’s Patient Protection and Affordable Care Act (read: The Health Care Bill everyone’s still buzzing about) was an expanded 1099 reporting requirement that will smother small businesses and strangely, affect the oil and gas industry if it’s successfully repealed.

The provision, which is scheduled to take effect in 2012 and was written into the health care bill despite the fact that it has nothing to do with health care, will require businesses to report to the IRS all purchases from ANY vendor of goods or services worth $600 or more during the calendar year.

The federal government, who initially backed up the requirement by saying it would bring the government $17 billion in additional tax revenue over the next 10 years and increase tax compliance, has since changed its tune since angry small business owners and the organizations they are a part of and support, such as the Small Business Administration and the American Institute of CPAs, have denounced the absurd requirement that will essentially drown businesses, particularly small businesses, with worthless paperwork.

I’m not even a small business owner and I know how much paperwork we would have to track, store and calculate amounts for each year on the larger purchases we make at SherWare, Inc. to keep our hardware and computer systems up-to-date. Imagine having to report to the IRS every time you purchase equipment for new wells you’re exploring, or if you have a trucking business that has to keep track through receipts how much gas they spend for each gas station on cross-country commutes so each of those individual station’s parent company can receive a 1099. It’s chaos just imagining scenarios, and we’re still a year away from implementation.

Multiple times last fall several senators filed amendments to repeal all or part of the 1099 reporting requirement, but none have been successful getting through the Senate yet. Sen. Mike Johanns (R-Neb.) introduced an amendment to repeal the expanded reporting, while an amendment from Sen. Bill Nelson (D-FL) and another from Sen. Max Baucus (D-MT) would repeal the information reporting requirement for all businesses with less than 25 employees and change the threshold for reporting from $600 to $5,000.

Despite having been stalled thus far in the Senate, even President Obama realizes that the provision is out of line. In a press conference in early November he said, “The 1099 provision in the health care bill appears to be too burdensome for small businesses. It just involves too much paperwork, too much filing. It’s probably counterproductive.”

One of the hang-ups the Senate appears to have with killing the provision altogether is agreeing on another place to pull that $17 million in tax revenue from. One such suggestion from the Democrat’s bills to compensate for taking out the 1099 requirement is to repeal tax breaks for the five largest oil companies, such as BP. The tax break currently allows them to deduct 6 percent of their income from oil and gas production from their tax liability. The senators say the repeal would only apply to the largest corporations with more than $1 billion of before-tax income.

As the Senate session gets underway in 2011, it will be interesting to see how this 1099 requirement plays out. How far will the oil and gas industry be pulled into the battle and what does it mean for the industry as a whole?

How will this affect your business? What do you foresee happening in the oil and gas industry as a result? Send me a comment or e-mail at [email protected].


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