Public Law 111-148, the Health Care Reform Act, contains a number of revenue raising provisions buried in the back of the legislation. In my judgment, the new IRS Form 1099 requirements found in Section 9006 of this law will have the unintended consequence of leading to an explosion of identity theft!
The basic changes to Form 1099 requirements incorporated in this law take effect at the beginning of 2012. They require that all businesses tabulate payments for goods and services from non-governmental agencies and send a 1099 Form to the recipient if the total exceeds $600 for the entire calendar year.
Current 1099 law exempts sending of 1099 Forms to most corporations, but the new law requires accumulating and reporting payments to corporations as well. Further, current law is largely limited to the reporting of payments for services, not goods. The new law expands coverage to all goods and services. It appears that 1099 Forms will now be required to report the same information provided on W-2 Forms that report employee compensation.
What this means for the millions of businesses in the US is that they will have to obtain confidential tax information from almost anyone who provides a good or service, even if the first transaction in a calendar year is under $600, in order to avoid paying a penalty if a 1099 Form is eventually required. Once this information is obtained, each of the businesses must follow the legal requirements for protecting this confidential information in order to avoid a penalty for violating these regulations.
Other provisions of this new law require businesses to withhold part of the payment if the other party refuses to supply this confidential tax information. The withheld funds are then to be transmitted directly to the Internal Revenue Service for credit to the tax liability of the other party (if it is even possible to match up in the absence of the confidential tax number).
For some businesses with few suppliers, these new paperwork requirements may not be quite so burdensome. However, for coin and precious metals dealers, these new requirements are going to be a nightmare. A high percentage of inventories acquired by most dealers come from the general public. Literally, that means that the dealer would have to obtain confidential tax information from every customer who comes in and sells merchandise, regardless of the amount. The dealer would then be required to track transactions by customer name so that those exceeding $600.00 at the end of the year can have 1099 Forms prepared and filed. In addition, many coin dealers will have to obtain this confidential tax information from the hotels where they stay, the airlines they fly, their insurance companies, the vendors of office supplies, the restaurants where they eat on business, phone service providers, FEDEX or UPS, private utility companies, and on and on.
I did an analysis just for my own company. Just the merchandise we purchase from the public and other dealers would require us to file 10,000-20,000 1099 Forms every year! That doesn’t include the 1099 Forms for all the other purchases of goods and services. To comply with all this paperwork would take approximately two full time employees. The extra overhead costs from this added bureaucracy means that my company simply would be unable to pay our customers as high prices for their merchandise as we do now.
Strictly from the standpoint of the burden on businesses, the new 1099 law should be repealed or extremely modified. The reasoning for all this extra paperwork is that it would force more honesty by some parties in reporting taxable income, which might generate enough additional income for the US government to exceed the costs of compliance by the private sector.
However, think about the implications of millions of businesses having to obtain confidential tax information from a massive number of sellers of goods and services. Can the US government guarantee that 100% of them will competently protect this information from identity theft? NO! Can the US government guarantee that absolutely none of these millions of businesses (especially those in dire financial straits) will see the opportunity to increase cash flow by selling lists of confidential customer information to identity thieves? NO WAY!
Instead, in my judgment, the tremendous increase in the gathering of confidential tax information just about guarantees soaring increases in identity theft!
I am confident that once members of Congress realize the potential identify theft nightmare contained in Section 9006 of the Health Care Reform Act, that it will be quickly repealed or severely restricted. Already, Rep. Dan Lundgren (R-CA) has introduced HR 5141 calling for repeal of Section 9006. In advocating this repeal, Lundgren noted that the Internal Revenue Service has designated that the Department of Health and Human Services (not the IRS!) will interpret the provisions of Section 9006. Those so inclined may want to contact their member of the House of Representatives to urge they become a co-sponsor HR 5141 (now assigned to the Ways and Means Committee) or their Senators with a request that they sponsor companion legislation in the Senate. You can contact the legislators by email, with their addresses available at either, www.house.gov or www.senate.gov.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes "Liberty's Outlook," a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles". His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.