Tax & Accounting Blog

The TAX GAP Act: Changes in 1099 Reporting May Be Considered by Congress

1099, Tax Information Reporting, TIN Compliance, Trust Tax, Withholding Management August 3, 2011

Gap TaxThere’s always something cooking in Congress that has the potential of affecting Form 1099 reporting, and lately we are keeping an eye on the TAX GAP Act (S. 1289). 

Section 401 of the Act would require payers to backup withhold federal tax on several types of reportable payments if the IRS has not provided verification to the payer that the Taxpayer Identification Number (TIN) furnished by the payee is correct (presumably through the IRS TIN Matching Program). 

The same section would authorize voluntary withholding on payments to contractors.  Payers would be required to withhold federal tax from payments to contractors if the contractor requested withholding.

Section 301 of the Act would require reporting of payments by government entities, and agencies and instrumentalities of government entities, for property and services.  The section suggests that tax regulations could exempt payments for real property, payments to tax-exempt entities, payments to foreign governments, intergovernmental payments and payments made under classified or confidential contracts. 

Section 302 of the Act would expand mortgage interest reporting requirements (Form 1098) to include the unpaid balance of the mortgage, the address of the property securing the mortgage and whether the mortgage is a refinancing that occurred in the reported calendar year.

Section 303 of the Act would change Form 1099-INT reporting by eliminating the current $10 threshold for reportable amounts.  The same section would create a new requirement for banks and brokers to report non-interest bearing deposits.  Credit unions, savings associations and similar entities would be included in this new reporting requirement.  

The TAX GAP Act bill was introduced in Congress, referred to the Senate Finance Committee and may or may not ever be enacted into law … but it’s one to watch.