This description is based upon the discussion at page 334 in S. Report 111-89, final Committee Report of the Senate Finance Committee on “America's Healthy Future Act of 2009,” published October 21, 2009.

Present Law

Present law imposes a variety of information reporting requirements on participants in certain transactions.  These requirements are intended to assist taxpayers in preparing their income tax returns and to help the IRS determine whether such returns are correct and complete.

Secs. 6031 through 6060.

The primary provision governing information reporting by payors requires an information return by every person engaged in a trade or business who makes payments aggregating $600 or more in any taxable year to a single payee in the course of that payor's trade or business. Payments subject to reporting include fixed or determinable income or compensation, but do not include payments for goods or certain enumerated types of payments that are subject to other specific reporting requirements. The payor is required to provide the recipient of the payment with an annual statement showing the aggregate payments made and contact information for the payor. The regulations generally except from reporting, payments to corporations, exempt organizations, governmental entities, international organizations, or retirement plans. However, the following types of payments to corporations must be reported: Medical and healthcare payments;  fish purchases for cash; attorney's fees; gross proceeds paid to an attorney; substitute payments in lieu of dividends or tax-exempt interest; and payments by a Federal executive agency for services. 

Sec. 6041(a). The information return is generally submitted electronically as a Form-1099 or Form1096, although certain payments to beneficiaries or employees may require use of Forms W-3 or W-2, respectively. Treas. Reg. sec. 1.6041-1(a)(2).

Sec. 6041(a) requires reporting as to “other fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a) or 6050N(a) applies and other than payments with respect to which a statement is required under authority of section 6042(a), 6044(a)(2) or 6045)[.]” These excepted payments include most interest, royalties, and dividends. Sec. 6041(d).

Treas. Reg. sec. 1.6041-3(p). Certain for-profit health provider corporations are not covered by this general exception, including those organizations providing billing services for such companies.

Sec. 6050T.

Sec. 6050R.

Sec. 6045(f)(1) and (2); Treas. Reg. secs. 1.6041-1(d)(2) and 1.6045-5(d)(5).

Ibid.

Sec. 6045(d).

Sec. 6041(d)(3).

Failure to comply with the information reporting requirements results in penalties, which may include a penalty for failure to file the information return, and a penalty for failure to furnish payee statements or failure to comply with other various reporting requirements.

Sec. 6721. The penalty for the failure to file an information return generally is $50 for each return for which such failure occurs. The total penalty imposed on a person for all failures during a calendar year cannot exceed $250,000. Additionally, special rules apply to reduce the per-failure and maximum penalty where the failure is corrected within a specified period.

Sec. 6722. The penalty for failure to provide a correct payee statement is $50 for each statement with respect to which such failure occurs, with the total penalty for a calendar year not to exceed $100,000. Special rules apply that increase the per-statement and total penalties where there is intentional disregard of the requirement to furnish a payee statement.

Sec. 6723. The penalty for failure to timely comply with a specified information reporting requirement is $50 per failure, not to exceed $100,000 for a calendar year.

Detailed rules are provided for the reporting of various types of investment income, including interest, dividends, and gross proceeds from brokered transactions (such as a sale of stock). In general, the requirement to file Form 1099 applies with respect to amounts paid to U.S. persons and is linked to the backup withholding rules of section 3406. Thus, a payor of interest, dividends or gross proceeds generally must request that a U.S. payee (other than certain exempt recipients) furnish a Form W-9 providing that person's name and taxpayer identification number. That information is then used to complete the Form 1099.

Secs. 6042 (dividends), 6045 (broker reporting) and 6049 (interest) and the Treasury regulations thereunder.

See Treas. Reg. sec. 31.3406(h)-3.

Explanation of Provision

Under the provision, a business is required to file an information return for all payments aggregating $600 or more in a calendar year to a single payee (other than a payee that is a tax-exempt corporation), notwithstanding any regulation promulgated under section 6041 prior to the date of enactment. The payments to be reported include gross proceeds paid in consideration for property or services. However, the provision does not override specific provisions elsewhere in the Code that except certain payments from reporting, such as securities or broker transactions as defined under section 6045(a) and the regulations thereunder.

Effective Date

The provision is effective for payments made after December 31, 2011.

© 2010 Thomson Reuters/RIA. All rights reserved.