Information Reporting Under the Amendments to Section 6041
September 29, 2010
Internal Revenue Service
CC:PA:LPD:PR (Notice 2010-51)
Room 5203, PO Box 7604
Ben Franklin Station
Washington, DC 20044
|RE:||Information Reporting Under the Amendments to Section 6041|
To Whom It May Concern:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Internal Revenue Services (IRSs) comment request regarding Notice 2010-51 (Notice), titled Information Reporting Under the Amendments to Section 6041 for Payments to Corporations and Payments of Gross Proceeds and With Respect to Property, which is intended to facilitate public input to be used by the IRS as it drafts official guidance. The Notice, and anticipated guidance, is necessary to implement amendments made to section 6041 of the Internal Revenue Code (IRC) under the Patient Protection and Affordable Care Act of 2010. By way of background, CUNA is the largest credit union trade organization in the country, representing approximately 90 percent of our nations nearly 7,800 state and federal credit unions, which serve approximately 92 million members.
Summary of CUNAs Views
- CUNA does not support the Notice as issued for comment because we believe it is inconsistent with the plain language of section 9006 of the Patient Protection and Affordable Care Act that tax-exempt organizations be exempt from the new requirement.
- If the reporting requirement is construed to apply to tax-exempt organizations, we believe the burden and overhead costs associated with complying with the requirement would exceed any benefit.
- We strongly urge the IRS to use its authority fully to establish regulations to prevent duplicative reporting of transactions in an effort to reduce the compliance burden associated with the new requirement.
- CUNA believes this rule will be very onerous for both taxable and tax-exempt organizations because it will produce massive amounts of data that will likely be of limited use.
- Additionally, we believe the requirement will be burdensome to recipient-payees as they try to reconcile mass quantities of 1099-MISCs to ensure accuracy.
Discussion of CUNAs Views
CUNA does not support the Notice as issued for comment because we believe the Notice is inconsistent with the plain language of section 9006 of the Act that tax-exempt organizations be exempt from the new reporting requirement. In addition, we do not support the Notice because we believe the requirement will create unreasonable regulatory burdens for payors.
Section 6041 of the IRC generally requires an information return to be filed by any person (payor) engaged in a business that makes certain payments aggregating $600 or more in a taxable year to a person (payee) in the course of the payors business. Currently, IRS regulations provide an exception from the section 6041 reporting requirement for the following payments:
- Most payments made to corporations, exempt organizations, governmental entities, international organizations, and retirement plans.
- Most payments made for the purchase of goods.
The Patient Protection and Affordable Care Act (Act) amended section 6041 of the IRC. Specifically, section 9006 of the ActExpansion of Information Reporting Requirementsclarifies that for purposes of [section 6041 of the IRC] the term person includes any corporation that is not an organization exempt from tax under section 501(a) [of the IRC]. In addition, section 6041 was amended to add amounts in consideration for property and gross proceeds to the list of payments for which reporting is required.
We believe that the reporting requirement established by the Act and described in the Notice should not apply to credit unions because: (1) the plain language of the Act excludes tax-exempt entities, such as credit unions; and (2) the compliance burden and overhead costs to the payor would exceed any benefit.
Discrepancy Between Act and Notice
Section 9006 of the Act specifies that [n]ot withstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of [section 6041 of the IRC] the term person includes any corporation that is not an organization exempt from tax under section 501(a) [of the IRC]. Credit unions are tax-exempt organizations under section 501(a) of the IRC. See I.R.C. §§ 501(a), (c)(1), (14)(A); Rev. Rul. 69-283, 1969-1 C.B. 156 (1969).
Section 6041 of the IRC states that, [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 in any taxable year shall render a true and accurate return to the Secretary. Emphasis added.
The plain language of the Act revises the definition of person to exclude tax-exempt organizations and we believe this new definition applies equally to payee and payor. The Notice, however, applies the revised definition of person to only the payee and not the payor. If, as we think it should, the Notice were to apply the revised definition to both the payee and payor, tax-exempt payors would be exempt from the reporting requirement described in section 6041 of the IRC.
Other General Comments
In addition to the substantive changes noted above, the Act authorizes the IRS to establish regulations to prevent duplicative reporting of transactions. We strongly urge the IRS to use this authority fully to reduce the compliance burden associated with the new reporting requirement. In advance of this Notice, the IRS issued guidance earlier this year providing that paymentswhich otherwise would need to be reported under this Noticethat are made by a credit card are exempt from 6041 reporting. While we support this exception as it applies to the payor, we believe further guidance to exempt other payment types may be necessary to avoid duplicative reporting and we encourage the IRS to look into this further.
As described in the Notice, the reporting requirement will increase overhead costs for the payoreven if the payor fails to meet the $600 reporting threshold. In addition, the requirement will likely be very onerous, as it will increase the number of IRS form 1099-MISCs the payor must file. For some payors, this may mean having to purchase programs to automate filing as well as to file electronically. Even with automation, significant oversight is necessary to ensure the amounts reported are correct. This may require additional accounts payable or tax reporting staff, and at a minimum, it diverts resources away from other value added activities. Also, additional reporting requirements expose the payor to potential penalties for incorrect or missed filings. There will also be costs to the payor associated with mailing the 1099-MISC forms.
We also have concerns with the tracking and recording of employee expenditures which are later reimbursed by the employer. We encourage the IRS to consider an exemption from the reporting requirement related to reimbursements made to employees. We believe it will be quite challenging for the payor to track and report payments that are not made directly by the payor to the vendor-payee.
In addition to the cost and burden the reporting requirement will have on the payor, the requirement will be burdensome to recipients as they try to reconcile mass quantities of 1099-MISCs to ensure accuracy. This will not only increase the workload for the payee, but will likely also result in additional calls to the payor that sent the 1099-MISC, and will require time and resources to research and reply to such inquiries.
Thank you for the opportunity to express our views to the IRS on this extremely important topic. If you have any questions about our letter, please do not hesitate to give Senior Vice President and Deputy General Counsel Mary Dunn or me a call at (202) 508-6743.