The House Ways and Means Committee approved two separate pieces of legislation on Thursday to repeal the onerous 1099 reporting provisions enacted in 2010, with Republicans and Democrats sharply divided over how the bill would be paid. The committee began markup work on the two bills earlier in the day (see House Panel Works on Repealing 1099 Requirements). H.R. 4, the “Small Business Paperwork Mandate Elimination Act of 2011,” repeals the new Form 1099 information reporting requirements that were imposed on small businesses to help pay for the health care law.
H.R. 705, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011,” introuduced by Rep. Dan Lungren, R-Calif., repeals the new Form 1099 information reporting requirements that were imposed last year in the Small Business Jobs Act on owners of rental real estate; and reduces improper overpayments of exchange subsidies established under the health care law.
The committee voted 21-15 to send the bill to the full House for consideration. However, Democrats on the committee registered their disapproval of the way the repeal would be funded, claiming it would lead to increased taxes on low-income and middle-class Americans who had received tax credits for health insurance under the health care reform bill.
More than 175 organizations support 1099 repeal, including the American Institute of CPAs, and many in the small business community signed a letter calling for Congress to repeal the 1099 reporting provisions.
At the conclusion of the markup and approval of both bills, House Ways and Means Committee Chairman Dave Camp, R-Mich., hailed passage of the bills.
“The legislation approved by the committee today is a victory for America’s small businesses, families and individuals,” he said. “Congress should make every effort to reduce the heavy burden of paperwork that takes time, energy and resources away from creating jobs. Families and individuals who do something as common as rent out a room and either replace an appliance at their rental property or pay a lawn service should not have to worry about the added headache of reporting that transaction to the IRS.”
The Senate approved a repeal amendment earlier this month as part of a larger bill modernizing and reauthorizing the Federal Aviation Administration (Senate Passes 1099 Repeal Amendment). The Senate passed the FAA bill on Thursday night. It includes provisions repealing the 1099 requirements in the health care reform law, but not the provisions in the Small Business Jobs Act applying to rental property. The cost of the Senate version of the repeal is offset with unspecified cuts in discretionary spending, as opposed to more specific offsets in the House legislation.
Democrats on the House Ways and Means Committee registered their disapproval with the way the repeal would be offset in their bill. They claimed it would raise taxes on low-income and middle-class families by forcing them to pay the IRS billions of dollars in increased taxes.
The Affordable Care Act makes advanced tax credits available for people with incomes below 400 percent of poverty to assist with the cost of obtaining affordable health insurance. During tax-filing season, there is a reconciliation process comparing actual income versus income upon which the tax credits were advanced. This process of reconciling actual income vs. tax credits received is often called “true up.”
The Affordable Care Act protected people receiving subsidies from having to pay the IRS the entire difference in their tax credit level if they saw a change in income. Under the law, the payment amount for individuals with incomes below 400 percent of poverty was capped at $250 for an individual and $400 for a family. However, people whose income changed even slightly above 400 percent of poverty would suddenly owe the IRS 100 percent of any tax credits they received.
In December, Congress changed the policy to a graduated income approach that protects those with lower incomes, while evening out the cliff that faced people at the 400 percent threshold.
The structure of the repayment caps is one of the few health reform issues agreed to on a bipartisan basis, according to committee Democrats. Every member of the Ways and Means Committee who was in Congress last year voted for this policy when it passed by a vote of 409-2 in December, Democrats on the committee pointed out. Committee Democrats noted that they voted last July to repeal the 1099 requirements in a revenue-neutral way, and all the Republicans voted no at the time because of the offsets that Democrats wanted to use to pay for the repeal.
To offset the cost of the 1099 repeal on Thursday, Republicans proposed reinstating the cliff at the 400 percent threshold and collapsing the repayment caps more broadly below the 400 percent threshold.
Democrats complained that Republicans had rejected an amendment offered by Rep. Joe Crowley, D-N.Y., which would repeal the “true up” provision proposed in the Republican bill. “This is a tax increase plain and simple,” said ranking member Sander M. Levin, D-Mich., in a statement. “Republicans are proposing to pay for 1099 repeal on the backs of middle-income families. They can dance around the issue all they want, but it is clear as day that this would raise taxes.”
President Obama’s budget proposal, which the White House released on Monday, proposes to remove the expanded 1099 reporting requirements for goods, but not for services of over $600 a year paid to corporations.

The Minnesota Society of CPAs has released its list of the most outrageous tax deductions proposed by clients.

The list came from member submissions. After compiling the list, the society asked MNCPA member Scott Kadrlik, who moonlights as a comedian at local comedy clubs, how he might respond in his role as a comedian.
Entertainment expense?
An over-the-road truck driver wanted to deduct the cost of female companionship while traveling.
Scott says: I thought people became over-the-road drivers to avoid females telling them how to drive.
Contracted services?
The cost of a tattoo on the client’s derriere.
Scott says: That’s called putting a billboard on the moon.
Protection services?
All the expenses associated with a dog, because it served as the owner’s security system.
Scott says: Man’s best friend is not a good tax deduction. That’s the accountant’s best friend.
A home office?
A corporate executive wanted to deduct 60 percent of the exec’s home as an office, when almost no business activity occurred at the home.
Scott says: Home/office is an oxymoron just like accountant/comedian, nice toupee, Senate Ethics Committee and tax return.
Dependent?
A woman wanted to claim her spouse as a dependent.
Scott says: He probably depends on her for everything. Just what she needs, another child.
Entertainment expense?
A realtor who sells lake property wanted to deduct the full cost of a personal pontoon boat.
Scott says: The Vikings tried to do this on Lake Minnetonka.
Business expense?
A doctor wanted to deduct his hair styling costs, including hair dye.
Scott says: We are recommending a hat.
Business expense?
A woman in sales wanted to write off the cost of hair care, manicures and jewelry because she needed to look good.
Scott says: I guess beauty is skin deep, and ugly is not deductible.
Cost of living?
A client thought it was acceptable to claim personal living expenses, including utilities, auto insurance and gas.
Scott says: If everything was deductible, there would be no tax dollars available to print the Internal Revenue Code. But then again, we wouldn’t need an Internal Revenue Code. Then what would we do with all of the out-of-work Statue of Liberty performers by the side of the road?
Charitable donation?
A client wanted to take a substantial deduction for used designer suits donated to a charity.
Scott says: He may have to replace these suits with ones with stripes.
By day, Scott Kadrlik works as managing partner with the CPA firm of Meuwissen, Flygare, Kadrlik & Associates in Eden Prairie, Minn. With more than 30 years of public accounting experience, he focuses on tax and financial planning. Kadrlik is a member of the MNCPA. In his spare time, Kadrlik performs at the Comedy Gallery, Minnesota Comedy Club, The Laugh Pit, Minnehaha Comedy Club and other regional comedy venues. He has opened for such Minnesota comedy legends as Louie Anderson and Scott Hansen.