Get Rid of This Business-Crushing IRS Filing Mandate

Sen. Mike Johanns (R-NE) has been leading an admirable charge against a bizarre, anti-business provision of the new federal health care law, the requirement that tax filers — including businesses, non-profits and charities — file an IRS Form 1099 anytime they purchase more than $600 from a vendor.

A cloture vote on the Senator’s amendment (No. 4531) to repeal the provision, Sec. 9006 of the health care law, will be considered on the Senate floor on Tuesday as part of the debate on the small business lending bill, H.R. 5297.

Senator Johanns discussed the issue in a conference call with bloggers today, noting that the provision is potentially so burdensome that the even National Taxpayer Advocate at the IRS has expressed serious concerns about its impact on business. In its mid-year report in July, the advocate cited IRS data from 2009: “[About]  40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, four million S corporations, two million C corporations, three million partnerships, two million farming businesses, one million charities and other tax-exempt organizations, and more than 100,000 government entities.   All of these nearly 40 million businesses and other entities are subject to the new reporting requirement.”

Forty-million businesses! Johan related a conversation he had over the August recess with a constituent who told him the paperwork and other burdens would cost him $23,000, money his business just didn’t have.

Sen. Bill Nelson (D-FL) is offering a separate amendment (S.Amdt. 4595)  in an attempt to make the provision more palatable, exempting businessees with 25 or fewer employees and raising the reportable purchase amount from $600 to $5,000. But millions of entitities would still be hit by the mandate, and they would still have to follow their purchases in the expectation of reaching $5,000.

Johanns also posed this obvious dilemma about the Nelson amendment: If you’re a small business owner with 24 employees, are you going to expand if the additional hires mean suffering the new paperwork burden? Doubtful.

If this reporting requirement is so horrible, why is the Administration so intent on it? (Beyond the billions of dollars it raises.) One reasonable assumption is that passage would represent the first thread being pulled on the health care law, with the possibility of a full unraveling to follow. Johanns described the political dynamic:

The White House is nervous about this. They don’t want their health care bill touched. They don’t care how much it impacts business. They made that clear when they were trying to get this thing passed. They will be here in the next 24 hours breaking every arm of every Democrat they possibly can. I think this will be regarded as a loyalty vote to President Obama. It’s not about protecting businesses, and I think the White House is going to demand absolute loyalty on this one, so we have to just do everything we can to make the case: Don’t want the plank. Don’t do that. Stand up for your small businesses. Stand up for your businesses, large and small. They’re having a tough time out there. Do everything you can to help us get the votes necessary to get it passed.

The National Association of Manufacturers had previously sent a “Key Vote” letter to the Senate in support of the Johanns amendment, informing Senators that their votes on the measure could be included in the NAM’s year-end tallies of their voting record on manufacturing issues.

The full audio of Sen. Johanns’ call with the bloggers is available here.

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