The  new US administration has just passed a new law that will present corporate America with a new set of corporate delimeas . This new challenge will cost finance departments millions of dollars to address. Beginning in 2012, buried as a mandate within the health care reform legislation, businesses will be required to report the aggregate amount of payments made to suppliers provided the sum of the payments are in excess of $600. This reporting function will require a massive expansion of Form 1099 submission for services or merchandise to the Internal Revenue Service .

The IRS has imposed  this legislation on American businesses in an effort to raise additional revenues and will probably lead ultimately to the creation of an American VAT tax structure. This new requirement will force companies to report with Form 1099 on all corporations except non-profits.  

It is estimated that the new 1099 reporting legislation could increase taxes on corporate america  as much as $17 billion over the first 10 years. The IRS speculates that many corporations are currently under-reporting on their tax returns and this legislation could close the GAP .

As unpopular as the healthcare bill may have been in many areas of the country this 1099 reporting mandate has the distinction of being the first provision of the health care bill to be challenged in Congress. U.S. Rep. Daniel Lungren (R-CA) introduced legislation on April 26 to repeal this business reporting provision of the new health reform law.

The main reason Congressman Lundgren  opposes the legislation is because he feels that small businesses do not have the resources to comply with the reporting requirement. When you considder that small and mid size business accounts for the creation of 75% of all new jobs in America one can see where an increase in taxation to this group could lead to further cuts in jobs.

Under current law, businesses send Forms 1099 for payments in excess of $600 for rent, interest, dividends, and non-employee services when these payments are made to entities other than corporations. Payments made to a corporation and payments for merchandise are not required to be reported.

To comply with the new legislation a company will have to first reach out to all of it’s suppliers to collect a Taxpayer Information Number (TIN) from the vendor. This TIN number is reported on Form W9. If a company fails to report the proper TIN to the Federal Government they will be fined $250.00 with a corporate cap of $1.5 million.

There is no doubt that compliance to this new legislation will be very problematic for many companies . Most companies will have to build   new processes that will enable them to collect W9 forms and validate the accuracy with the IRS before the submission of the 1099 to the IRS  at the end of the year. This will require companies to re-think how they are handling their supplier information management, SIM. Currently there are only a handful of companies that have the capacity to help companies manage this legislation.

Companies like San Jose, CA. based Lavante who have a mature SIM application will most likely lead the way toward developing solutions to this and other related problems.