New 1099 Requirements Take Affect in 2012

In a recent article in The Nonprofit Times, Mark Hrywna addresses a certain provision in the healthcare reform bill that will affect accounting for nonprofits in the U.S. According to the new provision, which will take affect December 31, 2011, all companies are required to submit a Form 1099-MISC to contractors and vendors that are paid a minimum of $600.00 for goods and supplies during the accounting year. Nonprofits are not exempt from these requirements; they will have to follow the same rules as any other company.

Currently, companies are required to submit reports on payments of $600.00 or more to the IRS, however, in the current rules, goods and supplies are exempt from the 1099 requirements. However, it is important to note that payments made by credit or purchase cards are exempt from the new provision.

Nonprofit directors and professionals are concerned that the new provisions will put an overload of paperwork on their organizations. Richard Tierney, a director of finance for a New York based nonprofit, estimates that his organization currently sends about 100 Form 1099s to the IRS each year, with the new provisions; he estimates that number will increase to around 800. The organizations predicted to be the most affected are the largest nonprofits that use a lot of vendors.

For nonprofits worried about the change, Mike Sorrells, the national director of nonprofit tax services advises all organizations to request payees Tax Identification Numbers and information upon entering an agreement with them and definitely before they are paid or else the end of the year accounting could be a complete mess.

There are many questions surrounding the inclusion of nonprofits in this new provision. Since nonprofits list all payments in their form 990 at the end of every quarter, the extra paperwork will simply be superfluous. However, it looks as though the provision will not be changed to exclude nonprofits and it is being suggested that all organizations begin training their staff and changing their accounting to prepare for the change.