As of January 1, 2012, as per reporting requirements set forth by the Patient Protection & Affordable Care Act that passed in March 2010, which provides an Amendment to Section 6041 of the Internal Revenue Code, 1099-MISC reporting will now be required for all payees that receive payments that total $600 or more in a calendar year.
No longer will service providers that were incorporated be exempted, and no longer will companies that provide you with physical goods be exempted. A 1099-MISC must be filed for any payee that receives more than $600 worth of payments in a single calendar year.
For many organizations, this will increase the 1099 filing requirement from about 10% of the supply base to 90% of the supply base, a nine-fold increase in 1099-MISC reporting!
Furthermore, the IRS intends to make sure that everyone complies through the establishment of 16,000 new auditor positions. Right now, the Joint Committee on Taxation is estimated this is going to result in 17 Billion in additional revenues from 2012 to 2019 (which will likely cover the cost of the auditors 3 times over). And this amount does not include the revenue from fines that will be collected from each company not in compliance, which are increasing to $250 for each supplier that is not properly reported (from a current fine amount of $50), to a maximum liability of $1,500,000 in a calendar year (from the current liability of 250,000).
Right now, chances are that your organization doesn’t even have a TIN for most of the suppliers that need to be reported under the new legislation. So what do you do?
As per this recent white paper from Lavante that describes the impending challenge that your organization is about to face as well as a series of steps to become compliant, you could start with good Supplier Information Management (SIM). Not only will this solve your immediate 1099 reporting requirements (when integrated with your ERP / Accounting System), but it will enable a slew of other benefits (as described in previous posts here on Sourcing Innovation).
Lavante is the first to offer a SIM solution that will solve this challenge, which will be the subject of our next post.