CUNA Regulatory Comment Call

August 6, 2010

Expanded IRS Information Reporting of Payments – Form 1099-MISC

EXECUTIVE SUMMARY

Please e-mail your comments to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop and Regulatory Counsel Luke Martone at lmartone@cuna.coop. You may also contact Luke Martone at (800) 356-9655, ext. 6743, if you have questions. Click here to access the IRS notice.

BACKGROUND

Section 6041 of the IRC generally requires information returns to be filed by any person engaged in a business (payor) that makes certain payments aggregating $600 or more in any taxable year to a person (payee) in the course of the payor’s trade or business. The payor must file information returns—typically IRS Form 1099-MISC, Miscellaneous Income—with the IRS and must send corresponding statements to each payee.

Currently, section 6041 contains two exceptions that do not require the payor to file Form 1099 for the following:

  1. Most payments made to corporations, exempt organizations, governmental entities, international organizations, and retirement plans. (Note that certain payments to corporations currently must be reported, such as payments for healthcare and attorneys fees.)
  2. Most payments made for purchases of goods.

BRIEF DESCRIPTION OF THE PROPOSED RULE

The Patient Protection and Affordable Care Act of 2010 (Act) changed the reporting requirements in two primary ways which will take effect in 2012.

First, the Act amended section 6041(a) to require reporting of payments of “amounts in consideration for property” (i.e. goods) and “gross proceeds.”

Second, the Act added new section 6041(h) that specified that the requirements would not apply to “an organization exempt from tax under section 501(a)” of the IRC and credit unions are exempt under that section. See I.R.C. §§ 501(a), (c)(1), (14); 12 U.S.C. § 1768.

More specifically, section 6041(a) requires “persons engaged in a trade or business . . .” to file Form 1099s but section 6041(h) defines the term “person” to not include “an organization exempt from tax . . .” such as a credit union. Technically, these amendments to section 6041 are broad enough that they could possibly exempt credit unions from all types of Form 1099 reporting in the year 2012, unless Congress again changes these reporting requirements (as is possible).

However, the IRS notice proposes to apply the tax-exempt organization Form 1099 exemption only with respect to payments made to a payee that is a tax-exempt organization, and not to payors which are tax-exempt organizations.

It is likely that the IRS’s proposed guidance is therefore not reasonable because the plain terms of section 6041(h) exempt tax-exempt organizations from both the payor and payee requirements.

Lastly, the Act added new section 6041(i) authorizing the Secretary of the Treasury to establish regulations to implement these changes, as well as rules to prevent duplicative reporting of transactions. According to the notice, the IRS intends to issue guidance that will implement the changes in a way that minimizes burden and avoids duplicative reporting.

For example, in light of a separate forthcoming final regulation regarding reporting for payment card transactions, the IRS has indicated that purchases made with payment cards will be exempt from information reporting under section 6041.

The new reporting requirements under these amendments apply to payments made after December 31, 2011.

QUESTIONS TO CONSIDER REGARDING THE NOTICE

  1. Is it reasonable to apply this requirement to tax-exempt organizations such as credit unions when section 6041(h) specifically excludes tax-exempt organizations from section 6041’s requirements?
















  2. Aside from the exception noted for purchases made by payment card, are there any other circumstances in which duplicative reporting might otherwise occur under section 6041 and another section of the IRC?
















  3. How burdensome might the process of implementing the new reporting requirements be for a credit union if IRS concludes that these requirements apply to credit unions (despite the plain language of the statute)? How will the burden vary based on asset size of the credit union?
















  4. What is an appropriate scope of the terms “gross proceeds” and “amounts in consideration for property” in section 6041(a), as amended? How might the IRS interpret these terms in order to minimize the reporting burden and avoid duplicative reporting?
















  5. What is an appropriate time and manner of reporting to the IRS? What, if any, changes to existing practices for Form 1099 information reporting are needed to minimize the burden of compliance with the new reporting requirements?
















  6. Do you have any other questions or issues of concern regarding the new reporting requirements described in the notice?
















  7. Other comments?
















Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 • lmartone@cuna.com