Category: Tax

How Big of a Burden Will the New 1099 Reporting Requirements Be for Small Businesses?

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Slipped into the health care reform bill passed in March was a new tax reporting regulation likely to create a huge burden for businesses, something we wrote about recently. Now a government watchdog, the National Taxpayer Advocate, is questioning the rule’s potential unintended consequences for small companies.

Plus, it looks like the regulation won’t raise a heck of a lot of money anyway.


The rule would require anyone with business income to issue 1099 tax forms to all vendors from whom they bought more than $600 worth of goods and services that year.

In her report, Nina Olson, the Taxpayer Advocate, warned that the rule could prove to be an unacceptable added burden for small businesses, which would face a virtual cyclone of new paperwork to comply with the regulation. “The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance,” she wrote. And the rule could also give an unfair advantage to large suppliers that have the resources to help customers track purchases.

What’s really going on here? The regulation, which would take effect in 2012, seems to be yet another attempt by federal and state government agencies to shore up revenues by cracking down on unpaid tax liabilities–and taking steps that intentionally or unintentionally impact small businesses in particular. For example, a bevy of agencies, plus Congress, are on a regulatory jihad against corporate misclassification of independent contractors. And there are reports that the IRS is especially eyeing small businesses in that crackdown.

Thing is, like that effort, the new 1099 tax reporting regulation isn’t likely to reap a whole lot of money. For example, the nonpartisan Joint Committee on Taxation recently estimated the rule would raise an underwhelming $2 billion annually in added revenue, according to CNNMoney.com.

Will the Taxpayer Advocate’s remarks have any effect? Even before Olson’s report, there were signs that the IRS had started to backtrack. For example, the IRS announced in May that the rule won’t include transactions made through credit and debit cards. As the tax agency addresses all the compliance complexities of the rule, it’s likely to make other changes, as well.

But with government agencies in desperate need of money, the reporting rule isn’t going to disappear completely.

Being a Former 007 Does Not Entitle Sean Connery to a ‘License to Not Pay Taxes’

Meant to get this out there on Friday but you know how it is. Anyhoo, everyone’s favorite Bond-turned-Darrell Hammond impersonated celebrity, Sir Sean Connery is having a bit of tax trouble in the country now known as the World Cup champions:

Legendary James Bond actor Sean Connery is being investigated for alleged tax fraud involving the sale of two large tracts of land in Spain.

Investigators say a property firm linked to the 79-year-old actor failed to pay taxes after he and his second wife sold land they owned on the outskirts of Malaga, Spain

The fact that the Connerys haven’t been arrested and are merely celebrities being investigated because some real estate companies involved in some shady dealings should be enough evidence to indicate that celebrity news is waning in the dog days of summer. Dr. Henry Jones wasn’t quote in the Daily Mail’s story but we’re hopeful that, if asked, it would go more or less go like this:

Man Attempts to Pay $6,400 Tax with Kiddie Pool Full of Pennies

God bless our friends to the North. If you can’t have a sense of humor about this stuff, you’re likely to do something stupid like, say, join the Tea Party:

A Quebec man, fed up with his skyrocketing property taxes, carted more than 200,000 pennies down to City Hall to pay his bill. But he was denied, and asked to simply cut a cheque.

Normand Czepial of Ripon, Que. — less than an hour’s drive northeast of Gatineau — arrived at City Hall on Wednesday with a children’s pool filled with 213,625 pennies.


Now we’re wondering – did Normand roll into his bank that morning to make the withdrawal and demand the smallest denomination possible or had he been saving all the copper coins his entire life for this exact moment?

Whichever it is, we applaud this particular brand of awesome. The only beef we have this move is that he used the kiddie pool to schelp the pennies down to City Hall. What the hell, man? Depriving your kids of fun in the middle of summer? Sure you’re a little bit of smartass (which we like) but it appears also a bit of dick in the Dad Department. Not cool.

Czepial’s property tax bill reportedly rose by nearly $4,000 dollars last year to $6,400. Czepial tried to pay with pennies to protest the hike.

Ripon Mayor Luc Desjardins was surprised to see the stunt, but had to tell Czepial to find another way to pay his bill.

Under the Currency Act, nobody is obliged to accept more than 25 pennies as payment for any product or service. Normand Czepial, unfortunately, was 213,600 over the limit.

Even the Toronto Sun is throwing around the jokes! Everyone that is threatening to move to Canada given a particular election of [insert hated political figure] should take note that it sounds kinda fun up there!

Man tries to pay tax with 200,000 pennies [Toronto Sun via TaxProf]

Add “Slapped with Tax Lien” to Lil Wayne’s Accomplishments While in Prison

Robert Snell over at Tax Watchdog tell us about Lil Wayne’s latest problem. This time it’s a $1.1 million tax lien courtesy of the IRS via Dade County Florida.

It’s probably NBD for LW, as he’s dealt with the Service in the past, paying a $977k lien back in August of ’08.

What is interesting is that this particular legal snag is on top of several other accomplishments that Wayne-o has stacked up while in prison.


Last month, he pleaded guilty to a laundry list of drug charges – possession of a narcotic drug for sale, misconduct involving weapons, possession of drug paraphernalia, possession of dangerous drugs – related to a stop that occurred outside Yuma, AZ in 2008.

He [pleaded guilty] over a live video feed from Rikers, and will most likely get 36 months of probation in return (the official sentencing is scheduled for June 30). For those keeping track at home, the plea bargain follows sports blogging, life-saving, prison-rule flouting, and rapping as things Wayne has accomplished while in jail.

And now delinquent taxes. Very impressive.

Lil Wayne, big debt [Tax Watchdog]
Famously Hardworking Rapper Pleads Guilty to Drug Charges While Already in Prison [Vulture]

The IRS Is Giving Gulf Oil Spill Victims Their Full and Undivided Attention This Saturday

Attention “self-reliant nonconformists who don’t pay much heed to everyday rules and regulations”! The IRS is offering you help with your nonconformist ways this very Saturday!


If you’re not interested in conforming with, you know, the Internal Revenue Code, then the Service might be a little bit less accommodating. Sure, it’s a Saturday but this is the government offering you help for free. No physical harm intended.

The Internal Revenue Service announced the locations of Taxpayer Assistance Centers in seven Gulf Coast cities that will be open this Saturday, July 17 to provide help to taxpayers impacted by the BP oil spill.

The following locations will be open from 9 a.m. to 2 p.m. Central Time:

1110 Montlimar Drive, Mobile, Ala.
651-F West 14th St., Panama City, Fla.
7180 9th Ave. North, Pensacola, Fla.
2600 Citiplace Centre, Baton Rouge, La.
423 Lafayette St., Houma, La.
1555 Poydras Street, New Orleans, La.
11309 Old Highway 49, Gulfport, Miss.
Individuals who have questions about the tax treatment of BP claims payments or who are experiencing filing or payment hardships because of the oil spill will be able to work directly with IRS personnel at any of these locations on Saturday.

A Couple of Senators, Who Probably Aren’t Yankee Fans, Are Making a Run at This Estate Tax Problem

John Kyl and Blanche Lincoln must have figured that they could not allow one more billionaire (without naming names) get away with dodging the estate tax. The two Senators have introduced a proposal that would set the exemption at $5 million with a tax rate of 35%:

The proposal would require the Senate Finance Committee to amend H.R. 5297, the Small Business Lending bill, to permanently set the estate tax rate at 35 percent, with a $5 million exemption amount phased in over 10 years and indexed for inflation. It would also provide a “stepped up basis” for inherited assets.

“It’s time to take decisive action on the estate tax, and provide the permanent solution that Arkansas’s hardworking farmers and small businesses are desperately seeking,” Lincoln said. “Uncertainty in the estate tax law has caused incredible difficulties for these individuals, which is why I have fought for a quick resolution to the issue that is both permanent and fair. One way to improve upon an already strong legislative initiative that includes tax incentives and a number of other benefits for small businesses is to ensure that we reach a permanent solution on the estate tax to provide small business owners and famers with the certainty they need.”

See how she slipped in the “farmers”? “Small Businesses”? You sure this doesn’t have anything to do with a certain savvy billionaire who figured, “Yeah, 80 is a nice round number. Let’s do this.”

But they’ve got a plan! “The Lincoln-Kyl proposal provides an election for deceased taxpayers to either retain this year’s estate tax rate, which is zero percent with “carry over basis,” or file under the provisions of the new bill.”

[h/t TaxProf]

George Steinbrenner’s Final Win: The Estate Tax?

By now most of you have heard that George Steinbrenner passed away this morning at age 80. We’d ask that you to wait at least a few hours before you start dispensing with the Costanza or GS quotes in Larry David’s voice (“Big Stein wants an eggplant calzone!”) but we realize not every one was a fan of the Boss.

The silver lining in Big Stein’s death is that since the estate tax still remains in limbo among the hallowed walls of Congress, his $1.1 billion fortune (Forbes’ latest ranking) could possibly pass to his heirs tax free.

It’s an especially well-timed passing if you read yesterday’s morbid Wall St. Journal article. If you didn’t happen to read it, the article more or less made the case for every wealthy person to give serious consideration to paging Jack Kevorkian, taking a nice warm bath with a toaster or whatever their preferred method of self-imposed death would be.


Steinbrenner is the third billionaire to pass on to the big baseball diamond in the sky (btw, can someone up there keep him away from Billy Martin?) this year – Walter Shorenstein and Dan Duncan are the others – and if the family is as shrewd about their money as they are about their baseball team, they will likely fight any retroactive provisions in the new estate tax (assuming it ever passes).

As with mentioned in the Duncan post, we hope that the Steinbrenners are able to keep their fortune; not because we’re opposed to taxing the rich (just ask AG), it’s because we’re opposed to an incompetent and impotent Congress who allowed the estate tax to expire in the first place. Besides, GS went out with the Yankees as reigning champs, so it seems fitting that he gets a final win against the tax man as well.

RIP Big Stein.

George Steinbrenner, Yankees’ Owner, Dies at 80 [NYT]

Patch This or: How to Learn to Stop Worrying and Love the Alternative Minimum Tax

Congress has been twisting itself into knots to pass 70-odd special interest “expiring provisions” this spring, though without success. These provisions that have come within one or two votes of being extended one more time are almost all special-interest provisons, providing tax breaks or direct cash subsidies to folks like biodiesel producers and race-track operators.

Meanwhile, the grandaddy of all expiring provisions goes largely unmentioned. Without new legislation, 24 million additional taxpayers will pay alternative minimum tax this year. That will happen because the AMT exemption for joint returns will fall from $70,950 to $45,000, and from $46,700 to $33,750 for single filers.


The AMT is a shadow tax system with fewer deductions and credits and a different rate schedule; it only applies when it gives a higher tax than the “regular” income tax. The reduction of regular tax rates in 2001 brought the regular and AMT brackets much closer, threatening to bring millions of voters into the AMT system. Congress has been passing “patches” to raise the AMT exemption for a year or two at a time since 2001 to avoid that. The last “patch” expired at the end of 2009.

An unpatched AMT would hit hardest taxpayers in the $100,000-$500,000 income range. Congress doesn’t want to anger that many potential campaign contributors. But where will Congress find the $68 billion or so of income that the AMT is budgeted to raise next year without a patch? The six month unemployment extension failed yesterday in the Senate because it would have increased the deficit by $34 billion.

So what will happen? Presumably an AMT patch will pass to appease voters as the election approaches, deficits be damned. Still, that’s not certain, especially in the current political environment.

So what can taxpayers do? They should start by projecting their tax for 2010. If you have one, your tax preparer is likely to have software to enable you to run the projection. If you use home tax software, it may also include a tax projection feature. Otherwise, you will have to use a 2009 copy of Form 6251, but using the reduced 2010 exemption amounts. Then you should fiddle with some items that affect AMT:

• The timing of your state and local tax payments.
• The timing of your miscellaneous itemized deductions.
• The timing of your capital gains, including capital losses.

Don’t be surprised if you find you have alternative minimum tax no matter what you do, especially if you live in a high-tax state. Then call your Congresscritter and ask for your patch.

Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.

That Orangey Glow Will Be a Little More Expensive Today as Tanning Tax Takes Effect

Everyone in the melanoma-for-sale business is perplexed about the tanning tax that goes into effect today and the Journal reports that the hella confusion is mostly about why some businesses are able to dodge the tax while others are not.

Case in point, health clubs get to offer their George Hamilton specials tax free while video stores (?) that offer tanning do not.

When Jeanne Chamberlain turns up at work Thursday, she’s going to have to grapple with America’s first federal tax on tanning services, a 10% levy designed to help pay for Congress’s health-care overhaul.

Ms. Chamberlain runs a video-rental store.

These would normally be unrelated facts, but 20 years ago, Ms. Chamberlain followed a number of her peers in adding tanning services to smooth out the bumps in her Rice Lake, Wis., business. Today, she wants to offer one free tan for every three rentals. Should that freebie be taxed? Ms. Chamberlain doesn’t know, and even if she did, she doesn’t yet have the software in place to help with the calculations.

For starters, video stores still exist? We had just assumed that they had gone out with powdered wigs. Netflix, Hulu, etc. etc. And since when do they offer tanning services? “Oh I see you’ve got Gigli there, great choice. Would like to hop in one of our tanning beds while I rewind the tape?”

Anyway, back to the tax:

Among the new details: “qualified physical fitness facilities” that include access to tanning beds as part of their membership fee won’t be subject to the tax.

That means customers at Sun Tan City in Owensboro, Ky., will pay 10% more for a dose of ultraviolet rays. But if they go to Anytime Fitness 100 yards away, and tan inside one of its two beds, they’ll escape.

“My jaw dropped,” said Rick Kueber, founder and chief executive of Sun Tan City, a 124-outlet chain based in Elizabethtown, Ky. Then he got to thinking. “If I had six treadmills in each of my stores, can I call myself a health club?”

Can anyone explain this? Our best guess is that since health clubs force you to get you off your ass, while video stores put you back on them, they’re getting a break. That seems to be pretty advanced for Congress logic but we’ll assume that it’s in the ballpark.

But It’s really NBD for the committed to skin cancer crowd however, “[Fifteen-year-old Grace] McCleary and others who lounged last week in the notorious Land of the Tanned – see MTV’s Jersey Shore – said a few dollars tacked on wouldn’t deter them.”

Fortunately, the IRS has advice (as it always does) for those affected and our resident tax sage, Joe Kristan has the details. So, there’s no risk to the industry as a whole – thank god – just a little extra bureaucracy in the pot in the form of Form 720. Enjoy!

Federal Tan Tax Burns Some Badly but Keeps Everybody in the Dark [WSJ]
Tanning-bed enthusiasts say tax won’t deter them [Philadelphia Inquirer]