Florida Tax Attorney Blog

The American Taxpayer Relief Act of 2012 was signed into law by President Barack Obama on January 2, 2013. However, many of the resulting tax law changes apply retroactively to the 2012 tax year. As a result, there are going to be delays in this year's filing season as the IRS works to update and modify affected tax forms to account for the new law changes.

Individual Tax Returns

Filing for individual tax returns technically opened on January 30, 2013. However, only the simplest individual returns are currently eligible for electronic filing. The IRS estimates that it will be late February or early March before all forms are available for filing.

Business Tax Returns

The IRS will not be accepting electronic filing for 2012 business tax returns until all forms and systems are updated for the changes. The IRS has not yet indicated when it will begin accepting electronically filed business tax returns, but delays until late February or early March are expected.

Tax-Exempt Entities

The IRS announcement regarding delays in electronic filing of business tax returns also applies to Form 990, "Exempt Business Income Tax Return." In addition, Form 990-T, "Exempt Organization Business Income Tax Return," will be affected. To be clear, Form 990-T is not filed electronically; however, many of the forms needed for completing Form 990-T will not be available until late February or early March.

As a final matter, it should be noted that the IRS has indicated that it will not process paper returns for individual, business, and tax-exempt entities prior to the time that the forms are available for electronic filing.

If someone owes you money that you do not think you will be able to collect, you may have a bad debt for tax purposes. Pursuant to I.R.C. § 162(a), there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In this respect, I.R.C. § 166(a)(1) allows a deduction for any debt which becomes worthless during the taxable year. As a threshold matter, two things must be established in order for a taxpayer to qualify for a bad debt deduction: (1) that the debt was bona fide at the time it was created; and (2) that the debt became worthless within the tax year.

Bona Fide Debt

A debt is "bona fide" if it arises from a valid and legally enforceable promise to pay a fixed or determinable sum of money. As a threshold matter, it is necessary to confirm that the loan at issue is, in fact, debt (as opposed to disguised equity). In this respect, the basic question is: was there was a genuine intention to create a debt, with a reasonable expectation of repayment, and did that intention comport with normal business practices? The answer to this question turns on the application of judicially developed factors to the facts and circumstances of the particular case.

Worthlessness

In order for a bad debt deduction to be claimed for tax purposes, the debt at issue must be "worthless." In this respect, worthlessness is a question of fact to be determined by the totality of the circumstances. In general, a debt is "worthless" if the facts and circumstances indicate: (1) that the debt is uncollectible; and (2) that legal action to enforce payment would in all probability not result in satisfaction on a judgment. Uncollectibility and unlikely recovery must be established by reference to identifiable events that demonstrate worthlessness and justify abandonment of hope of recovering the debt.

Under the general provisions of I.R.C. § 332, no gain or loss is recognized by a parent company upon liquidation of an 80% or more owned subsidiary. However, this result may be changed when a foreign subsidiary is the subject of the liquidation.

To the extent that the foreign subsidiary has accumulated earnings and profits ("E&P") from active foreign business operations, that E&P will be subject to U.S. taxation at the domestic parent company level upon liquidation. This is because these earnings and profits were generated by non-subpart F income that was not "effectively connected" with an active U.S. trade or business. Therefore, these earnings and profits have never been subjected to U.S. taxation. If these earnings and profits were allowed to travel up to the domestic parent company tax-free under Section 332, then untaxed E&P would effectively become available for distribution to the domestic parent company's shareholders.

The way the Internal Revenue Code deals with this is to impose a toll charge of sorts upon repatriation of the foreign subsidiary's assets into the United States. More specifically, the U.S. parent company must include a deemed dividend in income based on something called the "all E&P amount." The "all E&P amount" is basically the untaxed E&P that has accumulated in the foreign subsidiary under the parent company's period of ownership. As a final note, it is worth mentioning that there may be foreign tax credit implications as a result of this inclusion. In this respect, the deemed dividend included by the U.S. parent would be a foreign source dividend. This foreign source dividend, in turn, may carry with it a portion of foreign taxes paid with respect to that E&P and the related foreign tax credits.

If you're reading this article, your corporation has probably experienced some sort of significant change recently and you're wondering whether you need to obtain a new employer identification number ("EIN") from the IRS.

As a general rule, a corporation must obtain a new EIN following an ownership or structure change. Most commonly, this includes:

• Receipt of a new charter from the state;
• A change from a partnership or sole proprietorship to a corporation; and
• Creation of a new corporation as a result of a statutory merger.

On the other hand, a corporation is not required to obtain a new EIN for minor changes such as a corporate name change, a change of the corporation's location, or an election by a c-corporation to be taxed as an s-corporation. In addition, a corporation may be able to retain its EIN following some significant events such as declaration of bankruptcy or a corporate reorganization.

At the end of the day, each case will turn on the particular facts and circumstances of that case. With that being said, anyone who is unsure of whether a new EIN is required should consider consulting with a tax professional who will be able to make a determination and initiate the EIN request process if necessary.

Private equity funds are typically organized as limited partnerships ("LP") in order to obtain both limited legal liability and the tax benefits associated with the flow-through entity structure. In this respect, the limited partnership is often organized in a favorable foreign tax jurisdiction (e.g., the Caymans) rather than in the United States. In addition, private equity funds are making more and more foreign investments, which often involves the acquisition of foreign companies. But although private equity funds are often organized abroad and investing abroad, they continue to be managed out of the United States.

This raises a significant tax question: If a foreign corporation is owned 100% by a foreign limited partnership which is managed by a U.S. general partner does the U.S. general partner taint the corporation so that it constitutes a controlled foreign corporation ("CFC") for tax purposes?

The concern with the U.S. general partner is that the general partner is effectively in control of the foreign corporation by virtue of its status as general partner of the private equity fund. In many ways, a general partner can be analogized to a board of directors. And given this element of control, the foreign corporation would likely be treated as a CFC for tax purposes absent certain unique terms in the limited partnership agreement. As a result, the investors become subject to Subpart F of the Internal Revenue Code. The specific tax implications of Subpart F are beyond the scope of this article, but they may be adverse. This is not to say that a private equity fund should never be structured as described above. And indeed, this structure may be unavoidable in some contexts giving the increasingly globalized investment climate. What's important is that management be aware of the potential tax implications in order to ensure compliance and avoid IRS penalties.

If you would like assistance evaluating the international tax consequences of a potential or existing private equity fund, feel free to contact me via phone or email. Initial consultations are always free!

Following the writing of last week's article discussing the effect of an employee's in-state presence on the state tax nexus determination, I received the following question from a reader:

I am moving to Florida from New Jersey and want to telecommute and continue working for my job in New Jersey. Do Florida laws put my employer at risk?

The state tax nexus determination is a facts and circumstances analysis. Therefore, each case will vary depending on the unique facts and circumstances of that particular case, so it is not possible to definitively conclude one way or the other. Nevertheless, a review of the case law from various states suggests that a single employee's presence in a state will most likely put an employer at risk.

In my opinion, this is the wrong result. As I have previously discussed, United States Supreme Court case law indicates that an employee's mere presence in a taxing state is insufficient to support a finding of nexus by itself. Instead, the nexus determination must be made by reference to the nature and extent of the employee's activities in the taxing states. Eventually, the right case will come along, and the state of the law on this point will be clarified. Until then, however, most state courts will continue to assume that employee presence equals nexus. This is especially true in the current market conditions where states are looking for revenue sources wherever they can find them.

With that being said, it pays to be conservative right now. Although I believe the current trend of equating mere employee presence with automatic taxing nexus to be legally incorrect, I would still not advise any client that they can put a telecommuting employee in a state without becoming subject to the taxing jurisdiction of that state. The reality is that there is a very real possibility that a state would try to assert taxing jurisdiction over the employer as a result of the presence of a telecommuting employee.

In closing, consider a recent case out of New Jersey. In Telebright v. Director, Division of Taxation, the New Jersey Division of Taxation effectively used a single employee's act of telecommuting as the jurisdictional hook to tax the income of a Delaware corporation. Significantly, the corporation maintained no offices in the State of New Jersey. The corporation's only contact with New Kersey came in the form of this one employee who telecommuted to work in Delaware from her home in New Jersey. Based on this indirect contact, the Delaware corporation was held to be "doing business" in New Jersey. As a result, its income was subject to taxation in New Jersey.

Bottom Line: Employers must be mindful of their telecommuting policies in this modern age of technology. Your employer may already be aware of this and may have already considered this if it is willing to allow you to telecommute. There is also the possibility that your employer already has contacts with the State of Florida so that your telecommuting will not create any additional exposure to taxation.

A reader emailed me the following question after reading yesterday's article:

You said that "reasonable estimate" is a term of art when it comes to estimating E&P. So what does the IRS consider to be a "reasonable estimate"?

Unfortunately, there is no clear cut answer here. The only clear guidance that the Treasury Regulations provide is that this reasonable estimate is to be made on the basis of facts and circumstances. As such, what constitutes a "reasonable estimate" can and often will vary from corporation to corporation.

Note, however, that while this reasonable estimate concept may not be a picture of clarity, the consequences of under-withholding are clear. To the extent that a corporation fails to withhold sufficient tax, that corporation is liable to the IRS for that amount. To further complicate things, if the corporation pays the obligation itself, that could potentially be considered income to the foreign shareholder. Moreover, there could in theory be a withholding obligation with respect to that additional income.

Bottom Line: If Management is going to rely on an estimate of earnings and profits to justify withholding at a reduced rate, it will want to make sure that the estimate is reasonable because the corporation will be on the hook for under-withholding.

In order to ensure proper U.S. taxation of dividends received by non-U.S. taxpayers, I.R.C. § 1441 imposes a withholding obligation on the corporation that is paying the dividend. More specifically, Section 1441(a)(1) requires the corporation that is paying the dividend to withhold a tax equal to 30% of the gross dividend amount.

Significantly, however, the determination as to whether a corporate distribution constitutes a taxable "dividend" subject to withholding cannot be made until yearend. This is because the Internal Revenue Code characterizes a corporate distribution as a taxable "dividend" only to the extent that it is paid out of the corporation's earnings and profits. See I.R.C. § 317. In some cases, a corporation may make a distribution at a point in time when yearend earnings and profits are unclear. Consequently, the extent to which the distribution constitutes a taxable "dividend" is also unclear. But if the amount of the dividend is unclear at the payment date, how does the corporation satisfy its withholding obligation?

Pursuant to I.R.C. § 1.1441-3(c), the corporation must withhold 30% of the entire distribution amount, unless the corporation can establish that the distribution is not coming out of the corporation's earnings and profits based on a reasonable estimate of yearend earnings and profits. In this respect, it should be emphasized that this reasonable estimate concept is a defined term of art under the Treasury Regulations. As such, a corporation should seek an opinion from a competent tax firm prior to withholding at less than 30%.

The Treasury Regulations tell us when to value stock issued in a reorganization for purposes of evaluating continuity. Curiously, however, these same regulations are silent as to how to value such stock.

With respect to the valuation date, stock will be valued at the agreement date if: (1) there is a binding merger agreement; and (2) the number of shares to be issued and the non-stock consideration are fixed. Otherwise, stock must be valued at the date on which the transaction closes. But once the valuation date is determined to be either the signing date or the closing date, how do you value the stock? On a typical trading day, a stock will trade within a range of prices, so which price is the relevant price for valuation purposes? The high? The low? The closing price? The weighted average? Curiously, the regulations provide not guidance on this subject.

The most conservative approach would be to use the lowest trading value for the relevant valuation date. So long as continuity requirements are satisfied based on the lowest trading value, you can rest assured that the requisite continuity of interest exists. However, the correct answer is probably less conservative. In the estate tax context, publicly traded securities are valued on the basis of the mean between the highest and lowest quoted selling prices on the valuation date. See Treas. Reg. § 20.2031-2(b). With that being said, there appears to be no reason in law or logic to believe that the same principles would not apply to stock valuation in the reorganization context.

If you need assistance in properly structuring a business reorganization under Section 368 of the Internal Revenue Code, please contact me.

Under the continuity of proprietary interest doctrine, a substantial part of the proprietary interest in the target corporation must be preserved in the reorganization. As to what constitutes a "substantial part," the treasury regulations indicate that 40% is sufficient. See Treas. Reg. § 1.368-1T(e)(2)(v), Example (1). That is, the requisite level of continuity is preserved if at least 40% of the value received for the target stock is in the form of stock in the acquiring company. While there are cases out there finding the requisite level of continuity where stock of the acquiring company constitutes less than 40% of the total merger consideration, taxpayers are well-advised to structure the transaction to satisfy the 40% threshold.

But even then, the transaction may be subject to fluctuations in value. Historically, where the merger consideration consisted of a fixed number of shares, the risk was that the stock would decline in value between the signing of the merger agreement and the closing date and, thereby, cause the merger consideration to consist of less than 40% of the total merger consideration. These types of valuation issues have been largely mitigated by the signing date rule under which valuation occurs at the close of the day before the signing of the merger agreement in cases where it applies. However, valuation concerns have not been eliminated, especially in the private company environment.

Unlike public company stock for which an active market exists, there is no established market for stock of privately held companies. As a result, valuation of the shares is a subjective determination to which the IRS is not bound. Thus, even in cases where the signing date rule applies, the actual value of the shares on the day before signing is susceptible to challenge by the IRS. Consequently, valuation risks continue to persist in the private restructuring environment.

Although valuation risks cannot be eliminated in the private restructuring environment, restructuring transactions can be proactively structured so that a successful valuation challenge by the IRS doesn't turn into a double-level tax disaster. In this respect, the reverse forward merger structure is one of the soundest forms of protection. Here's how it works:

Step 1: acquiring company sets up two subsidiaries, Sub1 and Sub2.

Step 2: reverse merger of Sub1 into target company.

Step 3: forward merger of target company with and into Sub2.

Under this structure, if the share valuations are respected, the separate steps would, more likely than not, be integrated, and the steps would, collectively, qualify as a tax-free reorganization. Obviously, this is the desired result. However, if the share valuations are successfully challenged, the reverse merger would constitute a qualified stock purchase of the target shares, while the forward merger would constitute a good (A) reorganization. The result? A single layer of tax at the shareholder level. Thus, while the transaction is not tax-free in its entirety, the reverse forward structure avoids the double layer of taxation (i.e. at both the shareholder and corporate levels) that would otherwise be triggered by a successful valuation challenge.

In general, a shareholder purpose does not satisfy the business purpose requirement imposed in the corporate reorganization context, at least not in the 355 context. Treas. Reg. § 1.355-2(b)(2). However, in some cases, a shareholder purpose may be "so nearly coextensive" with a corporate business purpose as to preclude any distinction between them. In this spirit, enhancement of shareholder value is often a valid business purpose insofar as the corporation benefits by reason of the enhanced shareholder value. Namely, enhanced shareholder value provides a more valuable currency to the corporation for purposes of post-spin acquisitions and equity compensation programs. Increased share value means that less shares are needed to fund equity compensation programs and potential future acquisitions.

Significantly, all of this and more was acknowledged by the IRS in Revenue Ruling 2004-23. Spin-offs more often than not result in enhanced share value because the market for the shares becomes much larger when a controlling corporate shareholder is eliminated. Thus, this ruling opens the flood gates for satisfying the corporate business purpose requirement with a shareholder purpose. Thus, after Revenue Ruling 2004-23, the business purpose requirement can almost always be satisfied.

One word of caution: while Revenue Ruling 2004-23 provides substantial leeway in the business purpose department, it is not carte blanche. For instance, the logic and theory of the revenue ruling is really only relevant in the public company context. Private companies typically do not diversify equity ownership or provide equity-based employee compensation. As a result, citing a more valuable currency for use in equity compensation programs and future acquisitions would probably be an impermissible shareholder purpose. Even in the public company context, a company with no substantial equity compensation program and/or no history of acquisitions and no legitimate plans of acquisition would probably be a poor candidate for a 2004-23 type business purpose.

Corporate officers and directors are denominated under the law as fiduciaries. As a result, they must always place the company's interests before their own. To this end, the law imposes two specific duties upon corporate officers and directors: (1) a duty of care; and (2) a duty of loyalty.

The duty of care generally requires that corporate officers and directors act on an informed basis in good faith and in honest belief that their action is in the best interests of the company. Brane v. Roth, 590 N.E. 2d 587 (In. Ct. App. 1993). The duty of loyalty requires that corporate officers and directors place the best interests of the corporation before his or her own interests. E.g., State Ex Rel. Hayes Oyster Co. v. Keypoint Oyster Co., 64 Wash. 2d 375 (Wa. 1964).

Notwithstanding these duties, a fundamental tension exists in the sense that a corporate officer or director may arguably act unlawfully without breaching the duties of care and loyalty. That is, a corporate officer or director may act with due care and in the best (economic) interests of the company, but in a manner which contravenes the law.

As a result of the foregoing, criminality in the corporate context has, in essence, become a business decision. In this respect, the decision-making criteria can be summarized in three words: does crime pay? For instance, in some cases, the fine associated with violation may be less costly than compliance. This is often true in the environmental context where it is often cheaper to pay the fine than to comply with environmental regulations. This may also be true with respect to corporate operations abroad. In many nations, official bribery is an accepted part of doing business. In this respect, the U.S. consequences of engaging in this bribery may be less costly than the loss of revenue from foreign operations that would result in the absence of the bribe.

Thus, the current state of the law appears to be this: if crime pays, then the criminal act is committed, and the corporate actors have complied with their duties of care and loyalty insofar as they have acted on an informed basis and in the best economic interests of the company. On this basis, U.S. companies are increasingly electing to knowingly violate the law. This is confirmed by a recent survey conducted by Deloitte which reveals that one in five executives fear management override of compliance systems. According to the survey, it appears that this increasing trend of corporate criminality can be largely attributed to unrealistic revenue goals and a lack of defined roles and accountability.

Pursuant to the treasury regulations under I.R.C. § 355, a spin-off must be undertaken for a purpose that is "germane" to the business of either the distributing corporation, the controlled corporation, or the affiliated group of which the distributing corporation and the controlled corporation are a part. In this respect, the IRS has long taken the position that a shareholder purpose is not a valid business purpose. But is this correct? Arguably, no.

Significantly, this issue has not been addressed by a court. That is, this position does not necessarily have any basis in the law (or in logic for that matter). My personal opinion is that a court would, more likely than not, squarely disagree with the IRS on this issue because I believe this general disallowance of shareholder purpose as a valid business purpose to be inconsistent with fundamental principles of corporate governance. The most basic theory of corporate governance is that a corporation exists for its shareholders. E.g., Dodge v. Ford Motor Co., 170 N.W. 668 (N.J. 1919). Indeed, a corporation is organized and carried on primarily for the profit of its shareholders. Id. Thus, any purpose which enhances shareholder value is consistent with the corporation's existence for its shareholders. Why, then, is a shareholder purpose insufficient by itself to support a 355 transaction?

To be clear, I would never recommend supporting a 355 transaction solely with a shareholder purpose. The IRS has clearly stated its position with respect to this issue, and the stakes are simply too high in this type of transaction to challenge the IRS. However, I do think that this is an issue to watch. Eventually, this issue will make its way into the court system, and when it does, I predict that the IRS' position will be invalidated.

Often, a divisive D reorganization precedes a Section 355 spin-off for the reason that the corporation must first segregate the assets and liabilities of the business to be spun off in a separate entity before it can spin off the business. Thus, the spin-off is actually comprised of two steps. Step 1: the parent corporation ("P") transfers the assets representing the business to be spun off to a subsidiary corporation ("S") in exchange for consideration including stock of the subsidiary. Step 2: P spins off the business by distributing the S stock received in the exchange to its shareholders so that after the transaction, the P shareholders own stock in two corporations: P and S.

The corporate level exchange that occurs in step 1 is governed by I.R.C. § 361. In this respect, P recognizes no gain or loss if it receives back solely corporate stock or securities. I.R.C. § 361(a). But often, the consideration consists of cash or "boot" in addition to stock or securities of S. One way to avoid gain recognition despite the receipt of boot is for P to distribute the boot received to its shareholders or creditors under I.R.C. § 361(b). With respect to the latter, an interesting question arises in the context of defeasance.

Defeasance

Defeasance is a financial accounting concept whereby a company can eliminate indebtedness from its financial statements without actually paying it off. At the most basic level, the company establishes an independent trust which is funded with high-grade government securities (AAA). Upon maturity, those securities will be sufficient to satisfy the entire amount of the debt. In essence, then, the company is collateralizing its debt with government securities rather than satisfying them. In any event, if properly structured, the company may treat the collateralized indebtedness as satisfied for financial accounting purposes. Such treatment allows the company to remove the liability represented by the collateralized indebtedness from its financial statements (with a corresponding reduction in assets, of course) which, in turn, favorably impacts financial ratios. That's the financial accounting treatment. But financial accounting and tax consequences often vary.

Is Defeasance a Distribution to a Creditor Under I.R.C. § 361(b)?

In the spinoff context, the question ultimately becomes whether use of the cash boot to collateralize a debt as described above constitutes a distribution to a creditor under I.R.C. § 361(b) which purges the transaction of the boot taint and preserves non-recognition treatment. It depends.

More specifically, it depends on the type of defeasance involved. As a matter of law, there are two types of defeasance: (1) legal defeasance; and (2) covenant (aka in substance) defeasance. In the case of a legal defeasance, the creditor no longer has a claim against the debtor corporation once the securities have been deposited into the trust. That is, the debtor corporation is released from liability, and the creditor must look solely to the trust for repayment. In the case of a covenant defeasance, on the other hand, the corporate debtor remains technically liable for the debt. That is, while the debt will be repaid from the trust, privity remains between the debtor corporation and the creditor such that the debtor corporation remains liable on the debt despite the collateralization.

Because a legal defeasance results in extinguishment of the creditor's rights against the debtor corporation, the tax law treats a legal defeasance as if the corporate debtor used the assets which were used to fund the trust as currency to satisfy the debt. By contrast, because a covenant defeasance does not result in extinguishment of the debtor corporation's liability or the creditor's rights against the corporation, the tax law treats a covenant defeasance as not in repayment of the debt.

Conclusion

A legal defeasance is treated as a distribution to a creditor, but a covenant defeasance is not. Thus, P's use of the boot received to effect a legal defeasance is sufficient to purge the transaction of the boot taint and preserve non-recognition treatment. By contrast, P's use of the boot received to effect a covenant defeasance is not sufficient to purge the transaction of the boot taint, and P would be subject to gain recognition despite the defeasance.

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.