Monday, September 27, 2010

What’s the tax id number of my local Starbucks?

Subject: Notice 2010-51

Dear Sir or Madam:

I run a small publishing business, and I handle the record-keeping and reporting responsibilities for my business. The new requirement under Section 6041 of the Internal Revenue Code would place impossible burdens on my business.

We often pay for computer equipment, book printing, catalog printing, shipping services, advertising, and other items by check. Those expenditures frequently total more than $600 per vendor to numerous vendors in any given year, and so would be subject to the new reporting requirements. I am familiar with the record-keeping and reporting burden of issuing 1099s, because we have to send 1099s to our authors who receive royalties. Having to issue a Form 1099 to each vendor as well would simply take more time and resources than I can afford.

We use accrual accounting for our business, following IRS rules. The new reporting requirements will force us to do a separate and redundant non-accrual accounting for all of our purchases. This added accounting burden is a serious concern and a significant expense for us.

The preferential treatment of credit cards being exempted from the new reporting requirements will introduce further friction into our economy. We currently pay as much as 5% per transaction in credit card fees. The new rules will put tremendous pressure on businesses to use credit cards for purchases and accept credit cards for payments in order to avoid the new reporting requirements. The costs will be enormous, and the only parties that will benefit will be the merchant account servicers collecting their fees.

I have not seen guidance yet on how the exception for credit cards will interact with the $600 reporting floor, but I am sure that the IRS realizes how confusing this will be for businesses. Will the reporting floor be $600 of non-credit-card purchases, or $600 total if the purchases include any non-credit-card purchases? With the exception for credit cards, should the amount reported include credit card purchases or not? When I purchase items from multiple stores in a chain, how do I know whether to combine them? When totaling my annual purchases, what happens if the vendor has changed ownership or tax structure or otherwise wound up with different tax id numbers for different portions of the year? The potential for confusion and error is enormous.

On a practical level, how do I obtain the tax id number for every vendor from whom I make a purchase? Before this goes into effect, will you require every vendor to put their tax id number on every receipt and invoice? That seems necessary if you are going to realistically expect every business to collect the tax id number of every vendor. Please bear in mind that for small businesses which use the owner's Social Security number as their tax id number, this will dramatically increase the risk of identity theft.

Please change the new reporting requirements so that they apply only to larger business entities, such as persons or entities that employ more than 25 people.

Please change the reporting floor to $5000, so that small purchases do not trigger a requirement to issue a Form 1099.

Thank you for your time and understanding.

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