In Thunder Road (the movie, not the Bruce Springsteen song) Robert Mitchum played a Kentucky moonshiner trying to evade federal agents—the "revenuers" trying to collect whiskey taxes. The Patient Protection and Affordable Care Act, a comprehensive overhaul of health care signed into law by President Barack Obama earlier this year, may make us all "revenuers."
There is nothing in the new legislation that directly addresses the horse industry, but that does not mean that the bill will have no impact on how equine businesses operate. As passed, the new legislation threatens to bury everyone, horse owners included, in a mountain of paperwork.
One of the issues raised by the health care bill is the cost—who will pay for it and how will they pay? One idea is to increase compliance with existing tax regulations by making it easier for the IRS to track down taxable income that is not being reported by taxpayers. The theory is that the financial bite of renovated health care will be offset to some extent if everyone actually pays the federal income taxes they owe every year.
Think about the horse industry. How many of your transactions are cash or check only, with no other paper trail to create a record for the IRS if the income is not reported by the individual who receives it?
The drafters of the health care bill tried to fix that problem in a particularly heavy-handed way. Tucked away in the legislation is a requirement that an IRS Form 1099-MISC must be issued to every individual or business from whom you purchase $600 or more in goods or services during the year. This is a significant expansion over current regulations that require you to send a Form 1099-MISC only to independent contractors that provide $600 or more in services annually.
Most farriers, for example, are independent contractors who work for many different people. If your farrier provides more than $600 in services during the year, you already should be sending that person a Form 1099-MISC. February 1 is the deadline for sending out forms for the previous year. A copy of the form goes to the IRS, which allows the government to cross check the income paid to an independent contractor with the income reported by that contractor. (This is not meant to suggest that farriers are tax cheats. They are merely handy examples of independent contractors who provide services to horse owners.)
Filling out a Form 1099-MISC requires the employer—you—to gather a batch of tax information from the recipient, including name, address, and social security number. This typically involves sending a form requesting the necessary information, then tracking it down if the form is not returned. Even after you gather the information, preparing the paperwork is anything but intuitive.
Under the new regulations, you will have to provide a Form 1099-MISC to every entity, not just independent contractors who provide services, from whom you purchase more than $600 in goods or services during a year. This includes farriers, tack stores, feed stores, office supply retailers, veterinarians, independent contractors who build a fence or paint a barn, the kid who mucks stalls for $15 a week—the list is almost endless. The administrative burden on you and on the businesses you deal with will be enormous.
The new regulations are scheduled to take effect on January 1, 2012, so there is time to fix the mess. (One positive note—The IRS apparently already plans to exempt credit card transactions from the onerous reporting requirement.)
Legislation has been introduced in both the Senate and House of Representatives to repeal enhanced reporting. H.R. 5141 was referred to the House Ways and Means Committee; S. 3578 was referred to the Senate Finance Committee. An amendment to the Small Business Jobs and Credit Act of 2010 that would have repealed the requirement was withdrawn before that bill was approved last week.
The IRS has solicited comments from the public about the new regulation. Through September 29 your comments can be sent via e-mail to: Notice.Comments@irscounsel.treas.gov. Include the phrase "Notice 2010-51" in the subject line and hope for the best.