Tax and financial advice from the Silicon Valley expert.

New information reporting nightmare for American businesses

In its desperation to raise revenue to pay for Health Care Reform without a tax increase, Congress has created a nightmare for American businesses.

Businesses already are required to issue annual information returns for certain payments. Most of us are familiar with the annual statements showing the interest received for our bank accounts and dividends and securities sales for our brokerage accounts. Reports are also required for items like sales of real estate and payments for services to non-corporate taxpayers.

Effective in 2012, the information reporting requirements have been expanded to cumulative payments exceeding $600 per year to corporations and PAYMENTS FOR PROPERTY.

The scope of this requirement is mind-numbing. Imagine, as a business owner, having to sort through all of your credit card payments for the year by payee, and send a report about how much you paid that vendor. The requirements apply to buying gas at the neighborhood gas station for your business use vehicle, buying software or ebooks online, buying office supplies, buying office equipment like computers, printers and copy machines, buying maintenance supplies at the hardware store, and on and on … The business owner will need to get the name, address and identification number for every vendor.

Imagine all of the paper that will be consumed for the mountains of forms that will be mailed. (The postage to mail them could save the U.S. Postal Service, but that is small comfort.) Business and government computers might crash from being overwhelmed by the mass of data.

Complying with this new law will put an enormous drag on productivity for American businesses.

Some people have talked about the burden for small businesses, but imagine the compliance nightmare that will apply to bigger businesses like Cisco Systems, Microsoft, Ford and General Electric.

The IRS suggested this change to Congress in response to pressure to collect taxes on unreported income. In this case, the cure is worse than the disease and should be repealed.

Congressman Dan Lungren has introduced H.R. 5141, The Small Business Paperwork Mandate Elimination Act, to repeal it. Write, call or email your representatives in Congress to support this legislation.

Tax and financial advice from the Silicon Valley expert.