Unintended consequences can be as quirky as Zooey Deschanel sometimes. But when it comes to the Internal Revenue Service, quirky means job creators have to spend more time and money ensuring the Feds don’t come knocking on the front door. But following in the illustrious footsteps of three-percent withholding and the 1099-K tax reporting provision, the IRS has come up with a new reporting requirement that will be placed on small businesses next year unless Congress acts now.
Small business owners are just beginning to learn about the 1099-K tax reporting provision. This new requirement requires the IRS to collect a document known as a 1099-K from third-party payment entities, such as credit card companies, that will show all the credit transactions within a merchant’s business for a given year. Unfortunately, the IRS is using the 1099-K to add additional burdens on small business tax forms by requiring them to reconcile this report with the merchant’s own internal numbers, which was not the original intent.
While on the surface this seems like a simple task, as you dig deeper, it becomes immensely more complicated and expensive for our employers. For example, after you swipe your debit card, one of the most commonly asked questions is if you want cash back. The withdrawal of additional cash on top of the purchase price of the sale overstates the overall sale in the eyes of the credit card company. This leads to the IRS asking for flawed information since the sale price and the cash-back option don’t match. The small business is not making more money, it’s just distributed differently.
Merchandise bought on credit and reimbursed with cash when it is returned is another example. This would again lead to gross receipts being overstated between what the cardholder paid for the item and the amount of cash used as the form of reimbursement. This area also gets murky when you consider items that are returned during the next tax year. This is very common around the holiday season and becomes a nightmare for accountants trying to balance their books.
To rectify this problem, I have introduced legislation that would prevent the IRS from placing this latest burden on our nation’s already-struggling small business community. I want to help the thousands of small businesses that don’t have the specialized accounting software, bookkeeping technology, time or personnel to cross-reference and reconcile their own internal numbers with third-party generated numbers—all this leads to increased accounting workloads and additional costs for small businesses.
No one will argue that the IRS shouldn’t have a role to play in ensuring that companies of all sizes adhere to the tax code, but the rules and regulations we have in place have to make sense and must be practical for both the IRS and those from which this bureaucracy collects its taxes. This legislation will restore the original intent of Congress and lessen the burden on employers everywhere. iBi
