Obama Administration to use health care law to increase tax enforcement

Most people understand that the IRS is likely to need thousands of new agents to enforce the Obama Administration’s new health insurance mandate – starting in 2014, you can either buy health insurance or the government will confiscate your tax refund, at least.

But hidden deep within the 2,000 plus page law is a vast new authority for the IRS that proponents admit has nothing at all to do with health care.

Instead, its purpose is to squeeze more and more tax dollars from businesses to eliminate the so-called “tax gap” – bureaucratese for every red cent Americans owe the IRS but don’t pay up come April 15.

In section 9006 of the health care law, many businesses will be required for the first time to report every expense they incur over $600.

Right now, businesses must report the wages they pay employees. But they are exempt from reporting payments to other businesses and for merchandise.

Even small businesses can easily incur thousands of business expenses over $600 each year. Critics say the requirement will inundate businesses with new red tape and cost them huge sums preparing paperwork.

“This is an enormous and costly new paperwork burden that likely hit about every business, regardless of how small,” Sen. Kit Bond (R-MO) said in a December floor statement about the section.

A Democratic aide who spoke on the condition of anonymity said Sen. Max Baucus (D-MT), chairman of the pivotal finance committee, was a key backer of including the section in the health care law.

The aide defended the provision as a “voluntary” way of increasing tax revenues without raising tax rates, adding that then President George W. Bush’s administration supported the requirement.

“Voluntary information reporting improves tax compliance without raising taxes on small businesses, which is why Presidents . . . Bush and Obama both proposed similar policies to this one,” the aide said.

The information will give the IRS new ammo against businesses that under-report their income or overstate their expenses. If the IRS wants to audit that business, it can roughly calculate its income by analyzing reported payments to that business and its expenses by the payments the business reported.

The Democratic aide said the requirement merely extends the reporting requirement beyond corporations to other types of businesses like limited liability companies (LLC). But the language of the statute makes no apparent distinction between the different types of businesses. Instead it says the requirement applies to “any corporation.”

Either way, many small businesses are going to need to file thousands more 1099 forms to the IRS – on top of the new requirements and fees they already face in the health care law.

The National Federation of Independent Businesses has been leading the charge against the language and calls the new requirement “a tremendous new paperwork burden for small business.”

House Republicans are already scrutinizing the language and considering legislation that would repeal it.

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  • plarenuts

    For me this will add around 150 1099’s I have to compile and mail out.

    This is all unnecessary paper work that cost me money so the Government can trace our every move.

    Hey Joe Biden, this is a BFD.

  • mfloyd

    Interestingly enough, in February the IRS put out a bid for about 60 new tactical shotguns… Wonder why they need more weapons?

    Who do you think they will be using them against?

  • ojfl

    And they were screaming of the top of their lungs that the Bush administration was the intrusive one…

  • silvercreeklady

    buried also in the fine print is a clause that makes family member employees and the owners ineligible for the tax credit. Another dagger in the heart of small family business owners..

    “13. If an owner of a business also provides services to it, does the owner count as an employee?

    A. Generally, no. A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.

    14. Do family members of a business owner who work for the business count as employees?

    A. Generally, no. A family member of any of the business owners or partners listed in Q/A-13, or a member of such a business owner’s or partner’s household, is not considered an employee for purposes of the credit. Thus, neither their wages nor their hours are counted in determining the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.


  • grayzel

    This is news? Most of us knew this before it became law. The only trouble was the Royalty wasn’t listening.