IRS Strikes Out Again

By JIM COYLE 

A couple weeks ago I received a Form 1099K in the mail from one of the companies that processes the chamber’s credit cards. It looks pretty much like any other 1099. The  form reports the charges that were processed by this company and, due to the Housing Assistance Act of 2008, all businesses that accept credit cards are supposed to  receive it.

Upon reviewing the form a little more carefully, I was immediately disconcerted because not only did it contain the chamber’s business information, it also had my personal name and tax ID. Most credit card processors require the tax information of the principals of a business just as a bank does when they open an account. The problem is that when I do my personal tax return, the IRS is going to have information indicating I had all this  income from these credit card transactions.

I have a really good accountant and I am sure I can get all this worked out on the  personal side. The business side is another story, however.

Because of this new law, all  business tax returns are going to become much more  complicated. In fact, I’m not sure a business will be able to balance their 1099K with their other income. With charge backs, cash refunds and credited accounts, this is going  o be an accounting nightmare.

And this is really the story. The process of filing and paying taxes is becoming more and  more complicated. I’m pretty astute but several years ago I threw in the towel and started having my taxes prepared professionally. It costs a good amount of money and I still have to spend time pulling everything together, but it is well worth it.

So why do we have the new 1099K and why are taxes getting more complicated? The answer is easy.

The government is broke and they need to squeeze as much blood out of the stone as  they can. So Congress comes up with neat programs like the Housing Assistance Act or the Affordable Care Act that need to be paid for. They then start with the premise that  everyone cheats on their taxes and they have the IRS design a new reporting program  that prevents cheating, thereby raising the revenue needed to cover the program.

The key to this strategy is that the government does not pay the cost of compliance. So if they’re maximizing their tax revenue, they will tax to the point that additional revenue  equals additional cost. Since the government does not pay the expensive accounting  bills to comply with these regulations, revenue is pretty much pure profit, at least until  the additional deduction caused by increased accounting costs is taken into account.

So if a business pays an additional $1,000 to comply and pays the government an  additional $1, the government comes out ahead.

This is the third time in the last year these kind of crazy rules have come out. The first was from the Affordable Care Act that was going to mandate 1099s be issued to anyone who received money from a business, including all vendors. The second was a mandate  that federal, state and local governments would be required to withhold 3 percent of  payments to any government vendors.

The uproar from the business community deep-sixed both of these. New legislation, the  1099K Overreach Protection Act, was just introduced to deal with the most recent. I  have no doubt that Congress will come to its senses and pass this legislation, as well. However, I would recommend that you contact your congressman and senators to  encourage them to do so.

I continue to be troubled by the premise of many in our government that people in  general and business people in particular are dishonest and that there is a need for ever  more onerous reporting requirements. With a fair and simple tax system, compliance would be much better.

However, a system where nearly half the population pays no federal income tax and 1  percent pays 40 percent is not sustainable, as we are rapidly finding.