Hear that sound? That is the sound of all your profits being swept away from you paying for additional accounting.
I just got this letter this morning from my accountants (who, by the way, are the best I have had over the last 30 years). It is outrageous what the IRS is going to require of all businesses. Rarely do I post things like this but it affects all of our businesses in the USA and will be a huge burden. Can you imagine all the money you expense that will now require this new paperwork? It will cost us many times what we pay for accounting. This is a nightmare for everyone.
The letter:
August 11, 2010
Dear Client,
Under IRC 6041(a) and (h) as amended by the Patient Protection Act, beginning Jan. 1, 2012, virtually all payments by a trade or business aggregating $600 or more to any single vendor during any calendar year will have to be reported at the end of each calendar year on Form 1099. Vendors include almost everyone a trade or business pays in the course of doing business, other than its employees.
Currently reporting on Form 1099 applies only to certain financial transactions (for example, dividends, interest, sales of securities and loan transactions), targeted transactions (for example, bartering, prizes and qualified plan distributions) and amounts paid to unincorporated businesses generally understood to be independent contractors for services.
Depending on any relief granted, the new provisions will require businesses to track all payments made directly or through their employees or owners. The Code even includes repeated business meals at the same restaurant, office supplies and equipment, or inventory for resale.
Now is not too soon to start thinking about the massive increase in record-keeping that will be required of you if you own a business. All transactions will have to be identified and re-sorted by vendor, summarized, and reported to the IRS on form 1099. You will be required to record the taxpayer identification number (TIN) of the payee, or some other unique identifier.
This increased recordkeeping could weigh particularly heavily on you and your business, but now is the time to begin preparing for this overwhelming task. At a minimum, significant amounts of training and extra time to input additional data will be required to provide sift-and-sort capabilities necessary to comply with the new rules. In some cases, entirely new software and accounting procedure will be required.
Ignoring the requirements could lead to expensive penalties for failure to comply. A business could face a $50 penalty under section 6721 for each required 1099 it fails to file, or that it files with incomplete or incorrect information. For an intentional disregard of the requirement, the penalty could increase to $100 or more.
Nevertheless, meeting these requirements will be a far less daunting task for those who plan ahead and who maintain a good expense database from which they can aggregate purchases by vendor and retrieve full vendor information.
While the IRS is still expected to provide guidance on the section 6041 requirements, the drafting, exposure and finalization of any regulation of this magnitude typically can take a year or more to complete. We can only hope there will be enough time for the business community to react. You will certainly have a greater chance of making a timely transition if you give attention to the reporting requirements now.
We recommend an assessment of your readiness to ensure that your current record keeping will be adequate for this new provision and then after the assessment we can help you implement any needed compliance measures.
This new transaction reporting regime looms as a new hurdle for business accounting. It’s a real business-to-business challenge, but we are confident that we will be able to work with you through any difficulties. In order to discuss your business and possible solutions, please feel free to call our offices to schedule an appointment.
We look forward to visiting with you soon.
With Warm Regards,
J. Weston Lunsford
Lunsford & Peck LLC
5132 N. 300 W. #200
Provo, UT 84604
801-225-8474
www.lunsfordpeck.com
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