Will Congress Ease 1099 Requirements in Health Care Bill?

In their last week of summer legislating, Republicans and Democrats alike — on both ends of Capitol Hill — made gestures toward repealing a new tax-reporting requirement, raising hopes among small-business advocates who have lobbied fiercely against the measure.

But with each side claiming the other’s maneuvers are just feints, the prospects for repealing, or softening, the new law are uncertain at best, The New York Times reported.

The reporting provision at issue is Section 9006 of the Patient Protection and Affordable Care Act, which adds “amounts in consideration for property” to the types of payments over $600 for which a business must file an information return with the Internal Revenue Service.

In addition, the provision also closes a loophole that made payments to corporations exempt from the filing requirement. Under the new law, a company will have to file a Form 1099 with the IRS for every vendor from whom it buys more than $600 in goods.

The section was intended to be a fund-raiser for the rest of the health care bill; it was projected to deliver $19 billion over the course of 10 years by making it more difficult for businesses to keep income unreported. But business groups assailed the new provisions.

“This is absolutely unmanageable,” said Bill Rys, tax counsel for the National Federation of Independent Business, which is leading the effort to overturn the law. “It’s not just the amount of time and money businesses will have to spend, but all that goes with collecting this information. Who do you send it to? What do you do with employees who travel and are making purchases on the road?”

The business groups found an ally in the IRS’s own National Taxpayer Advocate, Nina E. Olson, who expressed alarm that the new law “may present significant administrative challenges to taxpayers and the IRS.”

“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,” Olson wrote in her mid-year report to Congress, released at the end of June.

Those concerns have been percolating up to members of Congress, said Mathew Beck, a spokesman and adviser to Representative Sander Levin, the Michigan Democrat who chairs the House Ways and Means Committee.

“Member offices were getting more questions after the signature was put to the law about what exactly is the provision, and how it would impact small business.”

In the Senate, the latest incarnation of Majority Leader Harry Reid’s small-business jobs bill, proposed late Thursday night, offers his colleagues a choice: they can vote on an amendment by Republican Mike Johanns of Nebraska to repeal the new requirement, or they can vote for a Democratic alternative that scales it back. (Of course, individual senators could also vote to do both or to do neither.)

The Democrats’ measure would raise the threshold for reporting goods purchased to $5,000 from $600 and would exempt businesses with 25 or fewer employees from the requirement altogether. It also excludes purchases made by credit card, because these will be reported separately by credit card payment processors under a different law that takes effect in January.

These revisions, according to a Finance Committee aide, would likely cost the Treasury $10.1 billion in lost revenue.

Both amendments, however, come with a poison pill that will be tough for members on the other side to swallow. The Johanns amendment is paid for with money from health care programs created by the reform law, while the Democratic proposal is offset by eliminating an income deduction for the five largest oil companies.

With each side making offers the other cannot accept, it is difficult to predict where repeal will end up.

A similar dynamic played when the House tackled the issue during the last week of July. Republicans tried to use the Section 9006 repeal to block a Democratic infrastructure spending bill; Democrats quickly countered with their own repeal — paid for in large part with a suite of new taxes on companies with overseas investments.

“The Democrats have created a bill that pits American employers against other American employers, worker against worker, neighbor against neighbor,” complained Representative Dave Camp of Michigan, the ranking Republican of the Ways and Means Committee, in debate on the House floor.

In the end, only two Republicans voted with most Democrats in favor of the bill. (The bill ultimately failed because under a rule special rule it required a two-thirds vote to pass.)

Both chambers are now in recess through the week of Labor Day. (The House will be back briefly on Tuesday to vote on the state aid bill that passed the Senate last week.) The Senate will hold the first vote to end debate, on Johanns’s amendment, on Sept. 14, according to Regan Lachapelle, a spokeswoman for Reid.

But Republicans didn’t agree to Reid’s road map for finishing the bill, so they could once again filibuster the whole bill.

“It takes a lot of effort to make a partisan issue out of a bill that should have broad bipartisan support,” said Republican Leader Mitch McConnell of Kentucky through a spokesman. But Democrats, he added, “have pulled it off.”

If McConnell attempts a filibuster, Reid will have to win the vote of at least one of the two Republicans who have previously expressed support for the small-business jobs bill, Senators George Voinovich of Ohio and George LeMieux of Florida.

If the bill were to pass, it would still have to be reconciled with the House version of the small-business jobs bill, which has no provision for undoing Section 9006. Meanwhile, House Democrats are repackaging the repeal bill that failed in late July.

Said Katie Grant, a spokeswoman for the House majority leader, Steny Hoyer, “Democrats will bring legislation to the floor the week of Sept. 13 that removes onerous 1099 reporting requirements for small businesses, and it will be fully paid for.”