There are four issues that should be addressed in modernizing IRC Sec. 6041 on information reporting.
1. In the discussion of repeal options for the expanded reporting for goods and services purchases enacted in the PPACA health care reform legislation, it was suggested that the historic $600 annual payment threshold for reporting had not been updated for inflation. Although some suggested a reporting threshold as high as $5,000, we believe this is too high given the nature of independent contract work. Some contractors can work for 10 or 20 businesses in a year which at such high a threshold could result in as much as $50,000 to $100,000 in non-reported payments. We would suggest partially increasing the general reporting threshold for inflation to $1000 per calendar year.
2. The Administration and the IRS have indicated they believe there is a need for better payer reporting of personal service payments to incorporated entities. Although we have not seen research that there is currently a significant level of unreported income because of the current “corporate” reporting exemption, we support this change, if it is properly targeted. If the general “corporate” exemption is removed, Sec. 6041 needs to be changed to require payment reporting only for the types of payments that IRS research shows are being underreported. Although the “corporate” exemption was made by regulation, it has long been accepted by Congress, so any change should be made in statute.
We suggest amending Sec. 6041(a) to read:
“All persons engaged in a trade or business and making payments in the course of such trade or business to another person, or personal service corporation ( as defined in IRC Sec.???), of rent, services, salaries, wages,…”
Because there are several alternative definitions of a personal service corporation in the code, Treasury should suggest which definition is most appropriate for requiring reporting.
3. In 2010 Congress changed the definition of what constitutes “…a trade or business …” for purposes of information reporting under Sec 6041, to include property rental businesses, with specific exclusions for casual rental activity. We believe this was a good change because of the high propensity of rental property managers to use independent contractor labor for maintenance and modifications. The amended version of H.R.4 which is currently the base legislation for repeal of the PPACA requirements, would also repeal this expanded definition of a “…trade or business…”
If H.R.4 is approved by the Congress with this provision, we suggest amending Sec. 6041 to read:
“All persons engaged in a trade or business, including property rental, and making payment in the course of such trade or business to…”
Incidental or limited time rental activity, such as rental of a personal residence, should then be defined and exempted by regulation, or in an added subsection of the statute.
4. To better clarify the statute reporting requirements, Sec. 6041(c) should also be amended to read:
“(c) Requirement to furnish name and address
When necessary to make effective the provisions of this section, the name [and], address, and taxpayer identification number of the recipient of income shall be furnished upon demand of the person paying the income.”
National Small Business Network
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