This article appeared in the Providence Journal and written by Niel Diamond. You can look at the full article here: http://www.projo.com/news/content/Form_1099_09-18-10_4SJUS8L_v22.2461b94.html
PROVIDENCE — Owners of rental real estate will soon be required to gather information from plumbers, landscapers and others who do work on their property, and report that information to the Internal Revenue Service.
The requirement is part of a bill (H.R. 5297) approved by the U.S. Senate on Thursday and on track to pass in the House as soon as next week. President Obama supports the legislation, which includes tax breaks and other elements intended to help small businesses.
But under a little-publicized provision in the bill, mom-and-pop owners of triple-deckers, duplexes, condos and other such rental real estate will have to obtain the names, addresses and federal tax identification numbers of many of their snowplow operators, electricians, painters and other such service providers.
If the landlord pays such a contractor a total of at least $600 for the year, the landlord will generally have to issue that contractor a special tax form, called a Form 1099 (or “ten ninety-nine” by tax professionals). The landlord will have to list on the form the amount the contractor was paid for the year, and send a copy of that form to the IRS.
The idea behind the new provision is to help ensure that service providers list all of their income on their tax returns as required, said Patricia A. Thompson, vice chairwoman of the American Society of Certified Public Accountants’ national tax executive committee. If people receive a Form 1099 showing how much they were paid during the year, she said, “they’re more likely to report it” on their returns.
The requirement will probably also help the IRS crack down on landlords who claim deductions for services they did not buy, said Grafton H. “Cap” Willey IV, former chairman of the National Small Business Association. “I suspect that if you [as a landlord] do not provide the [Form] 1099, you will not get the deduction,” said Willey, managing director in charge of the Newport office of CBIZ Tofias, an accounting firm.
Congress estimates that the provision will generate more than $2.5 billion in federal tax revenue over the next 10 years.
Some property owners and others say it will be burdensome, burying them in a blizzard of paperwork.
“This certainly creates a paperwork extravaganza,” said landlord Alan H. Litwin, of Providence. “It’s a nightmare.”
Under the bill, landlords will not have to start issuing Form 1099 until early 2012, said Litwin, who owns two three-family residential buildings and two commercial buildings in Providence.
But landlords will have to start gathering and sorting the required information as of Jan. 1, 2011, less than four months from now, said Litwin, who is also managing director at Kahn, Litwin, Renza & Co., Ltd., a CPA firm based in Providence. “This is really going to surprise people,” he said.
Bill Harty of Pawtucket, who owns three residential rental properties in that city, said, “I respect the fact they need more revenue” and want to “eliminate the cheaters.” But for landlords, the new requirement will be “one more piece of bureaucracy,” and sorting payments by vendor throughout the year “an imposition,” he said.
Jennifer Freitas, of Lakeville, Mass., who owns three residential rental properties in Taunton, said, “I know for a fact it’s going to be an added burden to any landlord out there.”
Many landlords will not be aware of the requirement, she said. “We’ve never had to do this before,” said Freitas, a manager at Piccerelli Gilstein & Co. LLP, a CPA firm in Providence.
And because landlords may not know early in a given year how much they will wind up paying a particular vendor for the entire year, landlords may have to collect names, addresses and taxpayer ID numbers from nearly every service provider they hire. “This whole thing … it’s nuts,” she said.
The Form 1099 reporting requirement already applies to companies whose main business is rental real estate, Thompson said. The new provision will extend that requirement to just about everybody who receives rental income from real estate, including mom-and-pop landlords.
“In particular, rental income recipients making payments of $600 or more to a service provider (such as a plumber, painter or accountant) in the course of earning rental income are required to provide an information return (typically Form 1099-MISC) to the IRS and to the service provider,” Congress’s Joint Committee on Taxation said in a new report.
U.S. Sen. Jack Reed, who voted in favor of the bill, said the Form 1099 provision will generate tax revenue to help pay for other provisions that will aid small businesses and create jobs. But he added, “We’ll have to work on it” so that small mom-and-pop landlords are not unduly burdened. U.S. Sen. Sheldon Whitehouse’s vote on a separate but related issue involving the Form 1099 suggests that he, too, favors exceptions for landlords with small holdings.
KEY POINTSNew rules
A bill passed by the Senate on Thursday, and on track to clear the House soon, includes tax breaks and other provisions intended to help small businesses.
One provision, however, would require owners of rental real estate — including mom-and-pop landlords — to track how much they pay each contractor and issue a Form 1099 to the contractor if payments for the year are $600 or more.
There are about 150,000 rental apartments in Rhode Island, according to U.S. Census Bureau figures for 2008. The exact number of landlords is not known, but there are rental properties and landlords throughout the state.