On March 4, the House of Representatives by a vote of 314 to 112 passed H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011,” clearing the bill for Senate consideration. The bill would retroactively repeal the new and unpopular Form 1099 information reporting rules carried in recent legislation.
Observation: Although the bill is numbered H.R. 4, the text of the bill passed by the House is actually the text of H.R. 705. On February 17, the House Ways and Means Committee passed both H.R. 4 (the “Small Business Paperwork Mandate Elimination Act”) and H.R. 705 (the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011”), which both dealt with information reporting requirements. However, on March 1, the House Rules Committee essentially stripped out the language of H.R. 4, and substituted the language of H.R. 705.
Background. Effective for payments made after 2011, Sec. 9006 of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) adds payments of amounts in consideration for property and gross proceeds—i.e., it adds payments for goods—to the list of payments subject to reporting. It further provides that starting in 2012, payments to corporations (that are not tax-exempt)—which had previously been exempt from the reporting requirement—will be subject to information reporting. (Code Sec. 6041(i))
Effective for payments made after 2010, the Small Business Jobs Act of 2010 (P.L. 111-240) provides that subject to limited exceptions, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property for information reporting purposes. (Code Sec. 6041(h)) In particular, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income must provide an information return to the service provider and IRS.
Bill cleared for Senate. H.R. 4 would repeal the provisions in Sec. 9006 that provide rules for payments to corporations and impose a reporting requirement with respect to gross proceeds from property. It would also repeal Code Sec. 6041(h)’s application of information reporting requirements to recipients of rental income from real estate who are not otherwise considered to be engaged in the trade or business of renting property.
H.R. 4 also provides a controversial offset for the lost revenue from repealing the new information reporting provisions. The bill would increase the amount of “excess advance payments” of the premium assistance credit (enacted as part of the 2010 health care reform legislation to help lower-income individuals acquire affordable health insurance coverage) that a taxpayer must repay under Code Sec. 36B(f)(2) for tax years ending after Dec. 31, 2013. The credit is available for a taxpayer who doesn't receive health insurance through his employer (or his spouse's employer) and whose income falls between 100% and 400% of the federal poverty line (FPL), based on the most recently filed tax return. Under current law, if the taxpayer's income increases such that the credit exceeds that to which his current income level actually entitles him to, but his income is still under 500% of FPL, Code Sec. 32B(f)(2) “caps” the amount that the taxpayer must repay. The limit ranges from $600 to $3,500 under current law. Under H.R. 4, the repayment caps would be increased for many taxpayers by $500, with full payment required of any taxpayers whose incomes exceed 400% of FPL. According to the JCT, the net effect of these changes over the 2011–2021 period would be a positive $166 million.
Observation: The Administration and several Democratic members of the House have registered their displeasure with the revenue offset contained in H.R. 4. “This bill would saddle hundreds of thousands of middle-income taxpayers with a hefty tax increase. We all favor repealing 1099, but to do so on the backs of the middle class is irresponsible” said Ways and Means Committee Ranking Member Sander M. Levin (D-MI). The Administration said the offset “would result in tax increases on certain middle-class families that incur unexpected tax liabilities, in many cases totaling thousands of dollars....” It remains to be seen if the President would veto the bill, if approved by the Senate in its present form.