Nonprofit Accounting Basics

New 1099 Requirement and Why It Will Impact Your Organization

The recently enacted Patient Protection and Affordable Care Act contains several major changes to the Form 1099 reporting requirements which will impose a substantial paperwork and record-keeping burden for businesses and nonprofits. To help organizations understand the impact of the new requirements (which are not slated to take effect until 2012), Tate & Tryon’s managing partner, Charles Tate, along with Deborah Kosnett and Subrina Wood recently presented at an ASAE-sponsored seminar on the new 1099 reporting requirements and what organizations can do to prepare.

The following are a few highlights from the presentation.

New Requirements for Form 1099-MISC Reporting:

  1. Payments to Corporations Must Be Reported. Starting in 2012, if your organization pays a corporation $600 or more in a calendar year, you must report the total amount on an information return (Payments to corporations that are tax-exempt organizations will be exempt from this new requirement.)
  2. Payments for Property Must Be Reported. Starting in 2012, if your business pays $600 or more in a calendar year to any party (including an individual) as "amounts in consideration for property," you must report the total payments on an information return for that year. The term "property" means computer equipment, office supplies, raw materials, etc.
  3. Payments of "Gross Proceeds" Must Be Reported. Under a third new rule that will take effect in 2012, payments of $600 or more in "gross proceeds" to a payee in a calendar year must be reported on an information return. At this point, it is unclear what this new reporting requirement is meant to cover. We are awaiting IRS clarification on this issue.

Preparing for 2012 Reporting

Dealing with the new Form 1099 reporting rules will be a challenge for many organizations -- resulting in a flood of paperwork. Your organization will likely have to modify its accounting procedures to capture payee information that will be needed to comply with the new requirements. While it remains possible that the new requirements could be delayed, repealed, or changed, organizations should be prepared to comply in 2012. Early preparation is recommended to ease the transition and lighten the administrative burden.

  1. Identify and train accounting staff on the new regulations
  2. Create written procedures and policies for obtaining TINs and vendor information in order to avoid backup withholding situations
  3. Become familiar with available IRS TIN validation procedures in order to minimize possible penalties for incomplete filings and/or inaccurate TINs
  4. Review current Form 1099 filing procedures to ensure sufficient capacity for the increase reporting requirements
  5. Clean up of master vendor file
  6. E-filing through IRS FIRE system