It was an interesting week of media and industry attention around the new 1099 reporting requirementsimposed by the March Healthcare Reform Package.   Much of this flurry of coverage surrounded the mid-year  Taxpayer Advocate Report released to Congress this week.  IRS Taxpayer Advocate Nina Olson commented that “The submitted report expresses concern about the adequacy of IRS taxpayer service, particularly as the IRS begins to implement health care reform, about new information reporting burdens facing small businesses and others, and about certain IRS collection practices”.  Although coverage in many mass media outlets (USA Today, Wall Street Journal, Washington Post) has stimulated public debate on this topic this week, the IRS is looking for formal comment from industry by September 29th, 2010 on the best way to implement these reporting requirements in order to minimize burden to business (click here to learn more about how to comment) .

As of January, 1 2010, it has been a requirement in the state of California to withhold tax on income that was also subject to Federal backup withholding. The logic here is pretty straightforward: if the Federal government sees the need to require withholding because they were not sure if they were going to be able to collect tax in the future, why then should California not act in the same way? In addition, the state has been facing record deficits, and this was a way to increase tax receipts without actually resorting to a tax increase. The law was passed in July 2009 and was scheduled to go into effect starting in January. Of course, most were not prepared to handle the increased withholding.

New Backup Withholding Procedures: Social Security Number Validation following Receipt of Second B Notice…

We recently received a draft copy of the new Forms 3921 and 3922 from the IRS, including the draft instructions for these forms.  The IRS has indicated that these forms will be released and made public on their website later this summer.

The evolution of the California information reporting regime present challenges to the community in several areas, two of which we are going to comment on here. Firstly there is the ongoing work to transition transmittals to an XML filing system. If you have not received a letter from the state of CA asking you to move filings to this system you do not yet need to do anything, but you should be aware that the changes are coming and will eventually be mandatory for everyone (download the implementation guide here). This is a complex set of requirements that will be phased in over time, so it is important that you or your information reporting provider keep on top of this implementation so you can stay in compliance.  NOTE: Convey’s Taxport Service will be accomodating XML transmittals for California.

As mentioned in our blog post yesterday, the IRS has released their tax information reporting form changes for 2010. There are significant changes for some of the forms.   While yesterday’s post covered new forms 3921 and 3922, TIN masking and the elimination of logos, slogans and advertising, today’s post covers in more specificity all changes to existing forms.

The IRS has released their tax information reporting form changes for 2010. There are significant changes for some of the forms. Tax Year 2010 is also the year when the new forms 3921 and 3922 will be required to be reported by all applicable businesses (Note: the 1099-K is also new for Tax Year 2010, but only impacts firms that process credit card transactions on behalf of merchants). In addition to these new forms and existing form layout changes, the IRS has made a couple of sweeping changes across most forms: truncation of SSN, ITIN and ATIN on paper statements to payees for Forms 1098, 1099 and the 5498 series; and no longer allowing logos, slogans and advertising on information returns for Tax Year 2010. This is for forms 1096, or Copy A of Forms 1098, 1099, 5498, W-2G, 1042-S or any Recipient statements. Further information on logos and advertising can be obtained from the IRS Publication 1179, “General rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498 and W-2G (and 1042-S)”.

This week over 1,500 individuals attended a webinar on the sweeping changes to information reporting impacting Accounts Payable professionals.  The event, likely the largest gathering to date of folks trying to learn about the new 1099 reporting changes, was a great first step by many small and large businesses alike to learn more about how Corporate Reporting is likely to impact their organizations. Although the webinar provide new clarity and insights to new 1099-MISC  reporting rules,  the audience also identified a number of unanswered questions that the Treasury has to address as these regulations become implemented over the coming 19 months.

Over the last year Convey has been talking with our Brokerage clients and prospects about what is working and what is broken in their current relationships around tax reporting. The message we heard consistently was that they need a solution that integrates Cost Basis, Non-Resident Alien income reporting, securities factor data, OID (original issue discount) and dividend reallocation along with better consolidated tax statements (both electronically delivered and mailed), all within one solution.

On March 23, 2010, President Barack Obama signed the healthcare legislation into law. Now that the law is done, we are left waiting for the final IRS regulations to define how we are going to comply. For our purposes, the changes we are most interested in surround the expansion of the information reporting program to include corporations and all goods and services.