Waiting until the last minute is good drama but lousy tax policy

Year End Tax Dramas and the State of Tax Policy, a recent post by Professor Annette Nellen on her blog, 21st Century Taxation describes the recent flurry of letters between IRS Commissioner Shulman and the various tax-writing committees. It is not pretty, and it probably is not good policy.

Professor Nellen quotes Commissioner Shulman who has some strong opinions about putting off policy decisions.

I want to stress that it would be extremely detrimental to the entire tax filing season and to tens of millions of taxpayers if tax law changes affecting 2010 are deferred and then retroactively enacted in 2011. … it would be an unprecedented and daunting operational challenge to open the tax filing season under one set of tax laws with respect to AMT and extenders, begin accepting tax returns, and then have the law change.

The post then goes on to ask a few very pertinent questions about when tax rules should be set. Many people are dismayed at how Congress functions, and the annual ambiguity about taxes and regulations compounds the problem. This year, in addition to the usual uncertainty about the AMT, taxpayers also have no way to anticipate future tax rates and do not know the likely status of a long list of exemptions, deductions, and credits.

Check out Professor Nellen's blog post for a thoughtful treatment of the issue.
http://21stcenturytaxation.blogspot.com/2010/12/year-end-tax-dramas-and-state-of-tax.html

House Passes Tax Extenders Bill

From the Journal of Accountancy:

Friday, the House of Representatives passed the American Jobs and Closing Tax Loopholes Act (HR 4213) by a vote of 215–204. The bill now goes to the Senate, which will not take it up for consideration until after it returns from its Memorial Day recess on June 7.

The bill as passed by the House extends a large number of expired tax provisions through 2010. These include the IRC § 41 research credit, the standard deduction for state and local property taxes, and the deduction for state and local sales tax.

To read the rest of the article, click on the link below.

House Passes Tax Extenders Bill

Costly IRS Mandate Slipped into Health Bill

A recent post by Chris Edwards on the Cato Institute Blog, Costly IRS Mandate Slipped into Health Bill, reviews a mandate included in the recent health care bill that increases reporting requirements for businesses.

A few wording changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year.

The current law requires businesses to issue 1099's to contractors, however the new law purchases to the requirements. As described by RIA, a firm that provides tax information, and quoted by Edwards,

The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services.

Edwards quotes Chris Hesse of LeMaster Daniels PLLC as saying, "Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases."

The requirements are already being challenged. Representative Dan Lungren (R-Calif.) introduced legislation repealing the requirement. As reported by the On the Money, the Hill's blog on finance and the economy, Lungren thinks that the burden is not particularly wise.

"It is just one of the dumber things I have seen in Congress," he said, adding, "Imagine this: Goods and services purchased by a small business, from a supplier ranging from component parts of every American product, to phone and internet service, to the shipping service of Fed Ex or UPS, will now give rise to a new paperwork burden at tax time."

The proposal is apparently now waiting for the Ways and Means Committee.