Florida Tax Attorney Blog

Two new questions appear on the corporate tax return (Form 1120) for the 2011 tax year:

(1) Did the corporation make any payments in current year that would require it to file Form(s) 1099?

(2) If "Yes," did the corporation or will the corporation file all required Form(s) 1099?

These questions are found on Schedule K as items 15a and 15b, respectively.

So what's this all about?

In 2010, Congress expanded 1099 reporting requirements and increased penalties for failure to file required 1099s when it enacted The Small Business Jobs Act (PL 111-240) and the Patient Protection and Affordable Care Act (PL 111-148). The specific 1099 reporting expansions which each Act effectuated are not important because both expansions were repealed in 2011 when the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (more commonly known as the "1099 Act") was signed into law.

As a result of the repeal, the 1099 reporting rules remain largely unchanged for the 2011 tax year. Pursuant to I.R.C. § 6041(a), "[a]ll persons engaged in a trade or business and making payment in the course of such trade or business to another person" of $600 or more must report the amount and the name and address of the recipient to the IRS and to the recipient. The Code applies this requirement to payments of "rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income," and the Treasury regulations add, "commissions, fees, and other forms of compensation for services rendered aggregating $600 or more" as well as interest (including original issue discount), royalties and pensions. Treas. Reg. § 1.6041-1(a)(1)(i).

Note, however, that the 1099 Act did not operate to repeal the increased penalties for failure to file a required 1099. Under the Small Business Jobs Act, the first-tier penalty under I.R.C. § 6721 for failure to timely file an information return was increased from $15 to $30, and the calendar-year maximum was increased from $75,000 to $250,000. The second-tier penalty was increased from $30 to $60, and the calendar-year maximum was increased from $150,000 to $500,000. The third-tier penalty was increased from $50 to $100, and the calendar-year maximum was increased from $250,000 to $1,500,000. For small business filers, the calendar-year maximum increased from $25,000 to $75,000 for the first-tier penalty; from $50,000 to $200,000 for the second-tier penalty; and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard of the reporting requirement was increased from $100 to $250.

The retention of the enhanced penalties, together with Schedule K's explicit inquiry regarding 1099 reporting obligations tends to suggest an intent on the part of the Treasury to crack down on the enforcement of the1099 reporting requirements. Thus, items 15a and 15 b on Schedule K appear to be an unsubtle reminder to businesses of their 1099 reporting obligations.

Key Takeaway: The IRS has indiciated an intent to crack down on enforcement of 1099 reporting requirements. So make sure your business complies with all relevant 1099 reporting requirements for the 2011 tax year.