According to a recent blog post from Dr. Darren Hudson, Larry Combest Chair in Agriculture Competitiveness at Texas Tech University, the "hidden" 1099 issue in the Obama Administration's recently passed health care reform bill is an issue that needs to be dealt with by Congress before it creates significant headaches for U.S. farmers and ranchers.
Fortunately, the provision is not slated to go into effect until the 2012 tax year. That means producers won't have any new responsibilities in this regard in 2011, but would have to begin keeping track of the expenditures for purposes of issuing 1099's to any person or entity that they pay $600 or more for services rendered between January 1 and December 31, 2012.
Hudson wrapped up his post by saying that the good news for producers, and other small businesses that would be similarly affected, is that industry groups are already on the job and there are already efforts to get something through Congress that would repeal this onerous provision. Hudson also noted that even if Congress is unable to get a bill repealing the provision passed this fall, a new Congress, regardless of make-up, should have many opportunities to get the job done beginning in the spring of 2011.
NCC urges repeal
The cotton industry, acting through the National Cotton Council, has joined 25 state and national farm, livestock and commodity groups urging Congress to repeal the provisions before it is slated to go into effect. The NCC says the new provision differs from current law in that instead of a producer only having to issue 1099's to so-called "unincorporated" vendors with whom they spend $600, the new provision would expand that to any person or business with whom a grower spends at least $600.
In a letter the groups sent to Senator Mike Johanns (R-Neb) and Representative Dan Lungren (R-CA) urging repeal of the provision the groups noted: "Virtually all business-to-business transactions will be covered, creating a new major paperwork burden for the farms, ranches and related agri-businesses. The business of producing food, fiber and fuel is a hands-on venture where productivity and competitiveness is compromised by government rules and regulations that turn producers into bookkeepers. Prompt action is needed by Congress to reverse this onerous tax-reporting requirement."
According to Hudson, the new health care bill essentially mandates generation of a 1099 statement to anyone with whom a grower spends more than $600 during the year.
Hudson explains the issue as follows: "What does the health care bill have to do with your purchases of parts at the John Deere house, you ask? Good question.
"This is first and foremost about revenue. By inserting that provision in the bill, it was believed that it could generate $300 billion per year, according to the IRS. That goes a long way to covering the costs of the health care bill if it were possible...but, it is not. Revenue is only one side of the equation."
Hudson further explained the impacts of the provision saying: "First, you have the direct costs of the administration of this provision (more IRS agents/workers to handle the flood of 1099s, etc.). And then you have the massive indirect costs on businesses that will damage the long-term competitiveness of firms. Can you imagine how many 1099s the average farm would have to issue? Insane..."
From Plains Cotton Growers, Inc., newsletter