But 1099 Mandate Repeal Left out of GOP/Obama Tax Deal

The Federal Estate Tax that expired on January 1, 2010 under the terms of Bush-era Economic Growth and Tax Relief Reconciliation Act of 2001 has been reinstated as part of the The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that became law on December 17, but with a higher exemption and lower tax rate than would have been the case if the tax had reverted to its pre-Bush-era level, as it was scheduled to do under the terms of the 2001 Act.

Specifically, the new law sets the exemption at $5 million per person and $10 million per couple, with a top tax rate of 35 percent for the estate, gift and generation-skipping transfer taxes for two years, through 2012, and the exemption amount is indexed beginning in 2012. But unless Congress and the President act to make these new levels permanent, on January 1, 2013 the law will revert to the pre-2001 structure, with a 55 percent top marginal rate and an individual exemption of only $1 million, with no inflation adjustment.

Although opposed to the concept of the Estate Tax, NPES and other small business advocates have supported a 45 percent tax rate on estates above $3.5 million per individual and $7 million per couple, a total permanent repeal of the Estate Tax not seeming to be politically likely.

The two key objectives of NPES and other opponents of the tax have been: 1) to give relief to the vast number of small entrepreneurial businesses whose competitiveness and sustainability are impeded by the Estate Tax itself, along with the unnecessary and counterproductive estate planning expenses it fosters; and, 2) to provide the certainty of a permanent reduction of the Estate Tax rate.

The law signed by President Obama is actually more favorable than that sought by NPES and its allies, having higher exemption amounts and a lower tax rate, but it is deficient in that it is not permanent, putting off to another day a further reckoning on the matter.

The new law is effective January 1, 2010, but allows taxpayers to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. It also sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.

Left out of the GOP/Obama tax deal was repeal of the onerous new IRC Section 1099 mandate that is part of the new healthcare law which requires that in 2012 every business must issue an IRS Form 1099 to any and all vendors to whom the business has paid more than $600 a year for services or property. The Form 1099 must also be sent to the Internal Revenue Service.

In addition to issuing the forms, a business will have to get Taxpayer Identification Numbers (TINs) from all of those vendors and withhold payments to any such vendor until it receives the TIN. Penalties apply if a business fails to issue 1099 forms as mandated.

Under the existing law, businesses issue 1099 forms only to individuals who provide services greater than $600 to a business. The new law makes two changes: first, the Form 1099 must be issued to corporations as well as to individuals, and second, it must also be issued to individuals and corporations that provide property to a business.

Although the effort to repeal the new Form 1099 mandate fell short in the Lame Duck session of the 111th Congress, it is certain to be the target of a continued and concerted repeal effort in the 112th Congress.

For more information contact NPES Government Affairs Director Mark J. Nuzzaco at phone: 703//264-7235 or e-mail: mnuzzaco@npes.org.