The President recently signed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (the 1099 Act). This new act retroactively repeals the expanded Form 1099 information reporting rules added by 2010 legislation.
The 1099 Act repeals the Health Care Act’s extension of the Form 1099 reporting requirements for payments made to corporations and payments made for the purchase of property. The Form 1099 reporting rules for businesses do not change after 2011. Thus, businesses will have to report payments of $600 or more to service providers. However, payments to corporations will not need to be reported, nor will payments for property.
Currently, businesses are required to file a Form 1099-MISC to report payments of $600 or more made to persons who provide non-employee services to the business.
Effective for payments made after 2011, the Health Care Act extended this 1099 reporting requirement to include gross payments of $600 or more for the purchase of any type of property. It also did away with the exception for corporations. Starting in 2012, businesses were going to have to report all payments of $600 or more for the purchase of property and services, even those made to corporations.
Businesses quickly cried foul on this recordkeeping and reporting nightmare in the making—not even the IRS liked this provision. Congress and the President agreed on the need for its repeal. The 1099 Act repeals the Health Care Act’s extension of the Form 1099 reporting requirements for payments made to corporations and payments made for the purchase of property.
Repeal of Expanded 1099 Reporting Rules for Rental Real Estate
The 1099 Act repeals the SBA extension of the 1099 reporting requirements to landlords who are not otherwise considered to be engaged in a trade or business of renting property. As a result, landlords making payments of $600 or more to a service provider (such as a plumber, painter, or accountant) will not be required to file Form 1099-MISC, unless their rental activities rise to the level of a trade or business.
The 1099 reporting rules for landlords do not change after 2010. Thus, no 1099 reporting is required unless the landlord’s rental activities rise to the level of a trade or business.
Before 2011, the 1099 reporting requirements applied only to payments made in the course of a trade or business. Payments made in a passive investment activity were not subject to these requirements. For payments made after 2010, the Small Business Jobs Act of 2010 (SBA) provided that any person receiving rental income from real estate (landlords) would be considered to be engaged in a trade or business and, thus, would be subject to the same 1099 reporting requirements that apply to businesses. Accordingly, for 2011, landlords would generally be required to file Form 1099-MISC to report payments of $600 or more made to non-corporate service providers (for things like yard care, painting, and accounting). And, for payments after 2011, they would be required to report payments made to corporations and payments made for the purchase of property.