The burden placed on small businesses to comply with this new mandate will be way out of proportion to the amount of revenue that will be collected If (and it is a mighty big IF) the estimates by the IRS and the NSBA are correct, then it will cost small businesses more in compliance costs, than the government will collect through this onerous mandate. The IRS claims that about 85 million 1099-MISC forms are filed annually. The NSBA claims that the number of 1099-MISC forms for the average business will increase almost five-fold (from 20 today to 95 in 2012, when the measure becomes effective.) If both these estimates are accurate, then the total number of 1099 forms required to be filed in 2012 will be over 400 million. If it costs $5 for each 1099-MISC form to be filed and processed (then audited, for compliance) then the drag on the economy will be greater than the revenue collected.

For the doctor in private, or group, practice the record keeping needed to comply with this new law will be very time consuming. You will need to keep track of where you purchase every item that you use within your practice. If you buy your office supplies from several different sources to take advantage of sales or specific low priced items, you will need to record these purchases and add them up at the end of the year. Is the total more than $600 from Office Depot, Staples, or Sam’s Club? Then you are required to obtain their EIN and fill out and send a form 1099-MISC to them and the IRS. Telephone charges more than $600, how about internet, cleaning service? Get an EIN and file a 1099-MISC. Have you bought a new computer, how about artwork for your office on E-bay, or an antique desk at a garage sale? Be sure to get an EIN or SSN from each vendor and send them their 1099-MISC form, which you are also sending to the IRS.

I, personally, think that this regulation will be hard to enforce without hiring an army of additional IRS agents. But, for the doctor in private practice, this regulation gives the IRS another avenue to intimidate small businesses into tax compliance. The IRS usually targets businesses that have significant amounts of cash transactions for audits. The private practice doctor fits nicely into this category. (Especially, if you follow the advice in my last article) Even if you are meticulous with your tax record keeping, or have hired an accountant to handle the paperwork headaches for you (pay them over $600? Don’t forget to file the 1099-MISC form), compliance with this regulation will be difficult. Miss one vendor (the airline from which you bought the ticket for the out of town seminar, for example) and you are in violation of tax law.

Another potential problem this regulation will cause is the wide spread dissemination of EIN and SSN numbers. You are required by law to disclose your Tax Identification Number to anyone to whom you sell $600 worth of goods or services. Some enterprising young individual will set-up a business, order $600 worth of business, obtain the vendor’s TIN (as required by law), and steal their identity.

Fortunately, there is help on the way. Several Representatives including Dan Lundgren(R-CA) and Jeff Terry (R-NE) have already introduced a bill to repeal this provision before it takes affect in 2012. Sen. Mike Johanns (R – Neb) has introduced a bill on the Senate side of Congress to repeal the bill after calling it a “perverse incentive for companies to consolidate suppliers”. Let’s hope they succeed.

Submitted by Dr. DG Comfort, CO

2 Comments
#1 by Dayna Weary on September 7th, 2010

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It may be wise to check the reform bill again. This 1099 law has been in effect for every business owner whether a physician or electrician for years, but ONLY if the person or business that you purchased services or product was an INDIVIDUAL. If services or goods were purchased from a corporation, LLC or partnership, the law would not apply. I seriously don’t think the IRS wants all of us sending our phone company (Qwest, Verizon, AT&T) a 1099, imagine the avalanche in paperwork that would cause. Additionally, checks written to entities must be deposited into depositories, namely banks, which creates a paper trail. Checks writtent to individuals or sole-proprieters can be cashed. Thus the exception to the 1099 law. I would be interested in knowing if the HC reform bill overtly left out the exception to the 1099 law.
#2 by Chris Carraway, DC DIBCN on September 8th, 2010

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There are plans for an army of new IRS agents. The CBO analysis said the IRS might have to spend $5 billion to $10 billion administering the health-care bill in its first decade. THE IRS????

There is talk of an additional 16,500 new IRS agents.
New federal mandates and fifteen different tax increases totaling $400 billion are imposed under the Democratic House bill.

I am going to have to just hand this new IRS junk over to my accountant.

Where does it all end?