Senate Blocks Repeal of Burdensome Tax-Filing Requirement on American Businesses

November 30, 2010 - 5:18 AM

Washington (AP) - The Senate on Monday rejected an effort to reduce tax-related paperwork for businesses when lawmakers couldn't agree on whether they would make up the revenue the new requirement was expected to produce.

The filing requirement is part of President Barack Obama's health care overhaul but not related to health care itself. It is expected to help the government collect an estimated $19 billion in taxes on underreported income over the next decade, and that revenue has been slated to help pay for changes in the health care system.

Under the new law, nearly 40 million U.S. businesses would start filing tax forms in 2012 for every vendor that sells them more than $600 in goods. Many Democrats who supported the filing requirement now acknowledge that it would create a paperwork nightmare, but whether to make up for the lost revenue has divided senators who agree it should be repealed.

Senators tried twice on Monday to amend an unrelated food safety bill to repeal the filing requirement. Both proposals, one by Sen. Max Baucus, D-Mont., and another by Sen. Mike Johanns, R-Neb., failed to get the necessary two-thirds majority.

The Johanns amendment would make up the lost revenue by requiring the Obama administration to tap unspent money in various federal accounts.

"Billions of taxpayer dollars sit in unspent accounts and a very small percentage of those funds would give small businesses a much-needed break from the impending tax paperwork tsunami," Johanns said.

The Baucus proposal was not paid for. Democrats argued that the health care law would still reduce federal borrowing, even without the filing requirement.

The nonpartisan Congressional Budget Office estimates that the new health care law will reduce federal budget deficits by $143 billion over the next decade. Repealing the filing requirement would mean smaller savings.

Businesses already must file Form 1099s with the IRS when they purchase more than $600 in services from a vendor in a year. The new provision would extend the requirement to the purchase of goods, starting in 2012.

The goal of the provision was to prevent vendors from underreporting their income to the Internal Revenue Service.

The filing requirement would hit about 38 million businesses, charities and tax-exempt organizations, many of them small businesses already swamped by government paperwork, according to a report by the National Taxpayer Advocate. It would also create an avalanche of paperwork that could strain the IRS itself, wrote the advocate, an independent watchdog within the IRS.

The House voted in July against repealing the requirement, when House members could not agree on how to make up the lost revenue.

The food safety bill would increase Food and Drug Administration inspections of food processing facilities, give the FDA power to order recalls of tainted products and require farmers and manufacturers to follow stricter standards for keeping food safe. Senators voted to move forward with the bill Monday and are expected to vote on final passage Tuesday.

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Associated Press writer Mary Clare Jalonick contributed to this report.