Obamacare and the "Rat Tax" - a 1099 NIGHTMARE!

Another Obamacare Surprise... "The Rat Tax"

Why is this provision being coined "The Rat Tax" ? Because it requires companies to "Rat" to the IRS on the companies they do business with. Beginning in 2012, under the new law, businesses will be required to issue form 1099 to every business,  for virtually all purchases.

Changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year.

In a recent summary, tax information firm RIA [1] notes the types of transactions covered by the new 1099 rules:

The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services.

Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity, within in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys $601 of office supplies from Staples, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small business owner pays his material suppliers, he will have to send a 1099 to the supplier and IRS.

Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.

This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result. What the HECK does this have to do with HEALTHCARE!

In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold federal income tax on your payments.

This will most certainly become an administrative and bureaucratic nightmare. No doubt it will waste huge amounts of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. Just the thing our struggling economy needs. If your not irate yet, what will it take?

Highlights of New IRS "Authority"

A client has graciously sent this to my attention. The House, Ways and Means Committe report outlining some of the new "Authority" the healthcare bill grants to the IRS. This is a must read. Do you believe it? Yes, right here in America!  I don't want to believe it!! But it's true.


***Highlights of New IRS Authority***

• IRS agents verify if you have “acceptable” health care coverage
• IRS has the authority to fine you up to $2,250 or 2 percent of your income (whichever is greater) for failure to prove that you have purchased “minimum essential coverage”
• IRS can confiscate your tax refund 
• IRS audits are likely to increase  
• IRS will need up to $10 billion to administer the new health care program this decade
• IRS may need to hire as many as 16,500 additional auditors, agents and other employees to investigate and collect billions in new taxes from Americans
• Nearly half of all these new individual mandate taxes will be paid by Americans earning less than 300 percent of poverty ($66,150 for a family of four

Get a copy of the complete report here http://bit.ly/dqzbXL

"A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicity."
  Thomas Jefferson, First Inaugural Address.

Is your contractor really an employee? Beware! IRS Announces Extensive Employment Tax Audits;

QUICK SUMMARY: Over the past few months, the IRS has provided insights into some of the new, so called "initiatives"( I prefer the word "TARGETS) it will focus on during 2010 and beyond. In connection with these "initiatives", the IRS has been hiring and training many new agents. So, be sure you keep detailed and accurate records, report your employees as employees and not as independent contractors and be prepared to support any position you take on your employment tax returns.  


Care to see where you stand and what your exposure may be? The easiest thing to do is give us a call. But, if you'd like some "light" reading drop me an email at thomas@abbelamarco.com. I'll send you a copy of the IRS's own training manual for auditing this issue. But be warned - it's some nasty reading!

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As you can imagine, with the economy still reeling and tax collections dropping like a stone, the importance of the governments’ oversight of our system of taxes becomes ever more critical.
From both the federal and state levels we continue to read about new and improved compliance measures being put in place. Take one of the recent announcements at the end of 2009 from the IRS as an example.
The IRS has announced it will conduct intensive employment tax audits under its National Research Program (NRP) starting in 2010. This is a multi-year program with random audits scheduled to begin in February 2010. The IRS has said it will audit U.S. companies under this program. The NRP is a study and data collection project that helps the IRS update its noncompliance estimates and update its computer-based audit programs. “Normal” audits do not yield as valuable compliance data as random audits because the IRS, in normal audits, is intentionally targeting the taxpayers they believe have noncompliance problems. NRP audits on the other hand, are random to allow the IRS to statistically measure the total amount of noncompliance in a specific area. The IRS then uses this data to update its computers and estimates of the tax gap—the difference between total taxes owed and the amount actually paid by taxpayers.
The NRP audits are also much more intense and less targeted than a typical audit. The NRP audits allow the IRS to identify where the compliance problems lie in a specific population and to better target tax returns for audit in the future.
The goal of the employment tax audit program is to gather information in five categories:

1. Worker classification
2. Fringe benefits
3. Non-filers
4. Reimbursed expenses, and
5. Officer/owner compensation

Various government agencies have recommended that the NRP be implemented for employment taxes to study and access the impact of worker misclassification on the employment tax gap, which has become a high priority of the government.  And why shouldn’t it be. At stake with worker classification issues are tremendous potential uncollected taxes for Social Security, Medicare and income taxes since much of the miss-classification is what makes up the underground — and off the tax rolls — economy.
The administration has been quiet thus far on the issue of worker classification, but Obama was a supporter of reform efforts while in the Senate. If Congress enacts a health care reform bill with a “pay-or-play” provision for employers, it could put even more pressure on the worker classification rules.

Seven Things You Should Know About Checking the Status of Your Refund

Are you expecting a tax refund from the Internal Revenue Service this year? If so, here are seven things you should know about checking the status of your refund once you have filed your federal tax return.

1. Online Access to Refund Information Where’s My Refund? or ¿Dónde está mi reembolso? are interactive tools on IRS.gov and the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. savings bonds or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information nearly 24 hours a day, 7 days a week. It’s quick, easy and secure.

2. When to Check Refund Status If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.

3. What You Need to Check Refund Status When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:

* Your Social Security Number or Individual Taxpayer Identification Number
* Your filing status which will be Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)
* Exact whole dollar refund amount shown on your tax return

4. What the Online Tool Will Tell You Once you enter your personal information, you could get several responses, including:

* Acknowledgement that your return was received and is in processing.
* The mailing date or direct deposit date of your refund.
* Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where’s My Refund?.

5. Customized Information Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you may be able to start a refund trace.

6. Visually Impaired Taxpayers Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

7. Toll-free Number If you do not have internet access, you can check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you must provide your or your spouse’s Social Security number, filing status and the exact whole dollar refund amount shown on your return.

Refund checks are normally sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back."

10 Facts About Capital Gains

Have you heard of capital gains and losses? Here's what the IRS wants you to know.

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may deduct capital losses only on investment property, not on property held for personal use.
5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13of Form 1040."

The Ultimate IRS "Gotcha"

Imagine a " Special Tax" on people who have "too many deductions". That's the Alternative Minimum Tax, (AMT). With one hand they giveth, and the other, they take it AWAY!

"Seven Facts to Help You Understand the Alternative Minimum Tax

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.

Here are seven facts the Internal Revenue Service wants you to know about the AMT and changes to this special tax for 2009.

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

* $70,950 for a married couple filing a joint return and qualifying widows and widowers;
* $46,700 for singles and heads of household;
* $35,475 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents' tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is also allowed as a deduction for the AMT."

New York No Longer Sending Out Form 1099-G

The state of New York is no longer mailing out Form 1099-G to report how much of a state income tax refund a person received. Not mailing out this document will save the state 'approximately $700,000,' according to an email notification sent by the Department of Taxation and Finance.

Form 1099-G reports how much of a refund a person received last year from their state government. State income tax refunds are usually taxable income for people who itemized their deductions in the previous year. Taxpayers and accountants alike often rely on these 1099-G forms.

New York does provide the ability for taxpayers to view their 1099-G information online or to call a toll-free hotline at (866) 698-2946. Taxpayers calling from outside the state of NY will need to use the non-toll-free number of (518) 485-0799.

http://www.tax.state.ny.us/pit/1099g.htm