Jan
9
New 1099 rules for Landlords
January 9, 2011 | 1 Comment
NEW RULES AFFECT RENTAL PROPERTY OWNERS FILING OF FORM 1099
By: Gregory D. DuBrock, CPA
Two Acts recently passed through Congress present significant burdensome compliance reporting requirements on businesses and Rental Property Owners.
The following are summary excerpts from the Journal of Accountancy, dated November 11, 2010, and response to the members of Congress regarding the two new Acts as prepared by the American Institute of Certified Public Accountants (AICPA) on November 16, 2010.
The Small Business Jobs Act of 2010 (SBJA) contains the provision whereby owners of property who receive rental income will be required to issue Forms 1099 to service providers for payments of $600 or more during the year. The Internal Revenue Code currently requires only “persons engaged in a trade or business” to satisfy reporting requirements. The SBJA subjects recipients of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a “trade or business”. This would be the first time that individual taxpayers owning rental property who are not “engaged in a trade or business”, would be required to provide Forms 1099-MISC. For example, many individuals who own a vacation property that is rented part of the year to help defray their cost would be subject to the provisions of the SBJA. The AICPA in response to Congress questioned the need for sending information forms to certain providers of services, such as to utility companies. While rental property owners will not actually issue the required 1099’s until early 2012 (for year 2011), they need to start maintaining adequate records of payments starting January 1, 2011, so they will be prepared to issue correct 1099s. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or similar form. This includes, but is not limited to, plumbers, painters, handymen, etc. of any nationality.
The Patient Protection and Affordable Care Act (PPACA) made significant changes to the compliance reporting law that will take effect in 2012. These changes were addressed by the AICPA in response to Congress. “First, the PPACA overturns a long standing tax regulation providing that corporations were generally exempt recipients for reporting purposes, i.e. compliance Forms 1099 were not issued to Corporations. Second, the provisions of the PPACA expands information reporting requirements to business payments for Property (which is in addition to business payments for only services as required by current law). Thus, beginning in 2012 (compliance Forms 1009 reports due in 2013 for 2012 payments), if a business (including, now, individuals who receive rental income) generally purchases $600 or more in Property or Services from another entity (including a corporation), it must provide the vendor and the IRS with a Form 1099-MISC.” It will be interesting to see how many compliance Forms 1099-MISC Lowe’s Home Improvement, Inc. receives!
There are to be ‘exceptions’ issued by the IRS. However, such ‘exceptions’ have not been issued yet, thus there is no current additional guidance.
Taxpayers should be aware that penalties for non compliance not only exist, but have been increased significantly, i.e. 100% +, for failure to file a correct information return. The increased penalties apply to information returns required to be filed on or after January 1, 2011.
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