IRS heeds small business, drops paperwork proposal

It’s not often that small businesses look favorably upon the Internal Revenue Service.

Typically, the entrepreneurs of Main Street respond to any IRS directive with fearful uncertainty. Such was the reaction displayed upon learning that the nation’s tax collector had issued a new costly and time-consuming paperwork requirement. 

It began as a new line slipped on the annual small business income tax return. IRS regulators decided that the government was being short-changed by businesses not reporting or underreporting their electronic payments and they proposed to close the gap by forcing small businesses to reconcile gross receipts with the figures reported on a new form: The 1099-K. 

Perhaps the IRS thought no one would notice, but the National Federation of Independent Business exists primarily to prevent just such encroachments by state and federal governments. Sometimes they’re huge assaults, such as President Obama’s unconstitutional health reform law, but more often they’re little legal ditties that can cause big headaches for the free enterprise sector. 

As it has done for nearly 70 years, NFIB maintains an especially close eye on federal revenuers — no easy task given the workforce of more than 100,000 tax examiners, revenue agents and collectors. Upon discovering that new 1099-K paperwork mandate, NFIB immediately called on the IRS to eliminate it, warning officials that this could further undermine the sagging confidence of small-business owners and create yet another paperwork headache — taking time and expenses away from running their businesses. 

NFIB shared small business’ concerns that something as simple as a customer’s request for a cash-back transaction on a debit card purchase could significantly increase owners’ paperwork burdens. In addition, the demand could task them unnecessarily with sorting through payment certificates to subtract state and federal point-of-sale taxes that third-party processors aren’t always able to separate. 

To its credit, the IRS agreed that the taxes captured wouldn’t be worth the damage inflicted on the nation’s job creators. Not only did the agency drop the requirement for the 2012 tax year, but officially stated that it had no intention of requiring such reconciliation in the future. 

Without this victory, the choices facing millions of entrepreneurs would have been painful. Customers would be lost if their payment options were limited. Owners would have been forced to invest scant earnings in unnecessary accounting systems, waste countless hours of management time sorting through receipts or pay professional tax services to handle the chore. 

Also contributing to this win for Main Street were friends of small business on Capitol Hill. The rollback was supported by U.S. Sens. John Thune of South Dakota and Maria Cantwell of Washington state, and Illinois Reps. Aaron Schock and Bobby Schilling.

And to ensure the IRS will not threaten small firms in the future with such nuisance paperwork, protective legislation has been introduced in both chambers. 

This small, but important victory isn’t likely to change small-business owners’ opinion of the IRS, but it does offer some much-needed encouragement for those who bear the responsibility of serving as the backbone of the nation’s economy.

Dan Danner is president and CEO of the National Federation of Independent Business, which represents 350,000 small-business owners.