The Honorable Dave Camp

The Honorable Dave Camp Chairman Committee on Ways and Means U.S. House of Representatives Washington, D.C. 20515

The Honorable Sander Levin Ranking Member Committee on Ways and Means U.S. House of Representatives Washington, D.C. 20515

The Honorable Max Baucus Chairman Committee on Finance U.S. Senate Washington, D.C. 20510

The Honorable Charles E. Grassley, Ranking Minority Member Committee on Finance U.S. Senate Washington, D.C. 20510

Copies to:

The Honorable Douglas Shulman Commissioner of Internal Revenue 1111 Constitution Avenue, N.W. Washington, D.C. 20224

The Honorable Michael Mundaca Assistant Secretary (Tax Policy) Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, DC 20220 February 3, 2011

Gentlemen:

As President of the National Society of Tax Professionals (NSTP), I want to urge each of you to support and advance the bill, H.R. 4, the Small Business Paperwork Mandate Elimination Act of 2011, and its companion bill in the Senate. These measures would repeal the expanded Form 1099 reporting requirements enacted as part of the Patient Protection and Affordable Health Care Act (P.L. 111-148). Our membership, including over 5000 certified public accountants, attorneys, enrolled agents, financial planners, and other tax professionals will be on the front lines of this issue. Based on our day-to-day interaction with taxpayers, particularly small businesses, we believe we are uniquely qualified to bring to your attention the technical problems with implementation of this requirement.

The administrative burdens and costs of complying with the Form 1099 reporting rule will dramatic. These burdens will fall most heavily on “mom and pop” businesses who will have to approach every vendor with a Form W-9 for names, addresses, and taxpayer identification numbers. Then, the business will likely have to pay an accountant to handle preparation of the 1099s. The economics of small businesses are such that they do not have the profit margins to absorb this increase in their administrative costs, and, if they fail to comply despite a good faith effort, the penalties could rapidly put them out of business.

Let us offer you a scenario. A subcontractor working within the construction industry frequently has to drive all over town each day, visiting construction sites and buying and bringing back supplies. To keep track of all of the vendors and gather the necessary information to file Forms 1099, the subcontractor will literally have to carry W-9s around and have them filled out at each stop. The time spent gathering information and keeping records during just one working day could be significant.

Both the failure to submit an accurate information return to the IRS and the failure to provide a copy of the information return to the payee are subject to monetary penalties under the new rule. Further, penalties are assessed on each deficient information return. Therefore, again considering a subcontractor who, even with a relatively small operation, buys from numerous vendors, the penalty exposure would be substantial.

Finally, the Joint Committee on Taxation has estimated that this provision would raise $17.1 billion between 2012 and 2019. However, there is no indication from this revenue estimate exactly where the money would come from. It is our sense that the bulk of the projected revenue would come from the imposition of penalties rather than from an increase in reportable income. The logistical complexity and the time burdens of compliance set up small business taxpayers for failure. Taxpayer failures equal IRS success and an increase in revenue for the federal government. This is a troubling equation for our membership and for our clients.

We appreciate efforts to close the tax gap, but we believe there are better ways to increase compliance than imposing a very difficult reporting protocol on small businesses. On behalf of the NSTP membership, I want to thank you for consideration of our views on this important issue. Respectfully submitted,

Greta Barncord President National Society of Tax Professionals

National Society of Tax Professionals 910 NE Minnehaha Street, Suite 6 Vancouver, Washington 98665 (800)367-8130 (phone) (360)695-7115 (FAX)