By Neil deMause, contributing writerMay 21, 2010: 1:51 PM ET

NEW YORK (CNNMoney.com) -- The massive expansion of requirements for businesses to file 1099 tax forms that was hidden in the 2,409-page health reform bill took many by surprise when it came to light last month. But it's just one piece of a years-long legislative stealth campaign to create ways for the federal government to track down unreported income.

The result: A blizzard of new tax forms that the Internal Revenue Service will begin rolling out next year.

"It was actually something that we were following back under the Bush administration under the 2008 budget -- we started to see these kinds of rumblings about the 'tax gap' and whether or not businesses were paying their fair share," says Tom Henschke, president of the Pennsylvania-based SMC Business Councils, which was one of the first organizations to call attention to the health care amendment when it was introduced last fall. "So two administrations can claim credit for this."

The first tax-reporting expansion was buried in a different bill, the Housing Assistance Tax Act introduced by House Speaker Nancy Pelosi and signed into law by President George W. Bush in July 2008. Best known for its first-time homebuyers' credit, the bill also created a new addition to the family of 1099 tax forms: the 1099-K.

The 1099 is a catch-all series of IRS documents used to report non-wage income from a variety of sources like contract work, dividends, earned interest and pension distributions. The new 1099-K aims to shine a light on a currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year's transactions.

The rule comes with a floor to weed out the most casual retailers: The 1099-K is only required when a merchant has at least 200 payment transactions a year totaling more than $20,000. But it applies to all payment processors, including Paypal, Amazon.com, and others that service very small businesses.

The goal of the new regulations is to catch income that is going unreported to the IRS. The federal government loses an estimated $300 billion each year from the "tax gap" between what individuals and businesses owe and what they actually pay.

"Better information reporting helps the tax system work better by ensuring that everyone pays what they owe," IRS Commissioner Doug Shulman explained last year as his agency unveiled the 1099-K. "The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses."

For companies that currently report all their credit card and Paypal sales to the IRS, the 1099-K requirement will have little impact. All the paperwork will be done by the bank or payment processing service, and business owners will simply receive a form at the end of the year listing their total receipts.

The 1099 changes attached to the health care reform bill are another kettle of fish. These massively expand the requirements for filing the "1099-Misc" form, which companies use for recording payments to freelance workers and other individual service providers. Until now, payments to corporations have been exempt from 1099 rules, as have payments for the purchase of goods.

Starting in 2012, that changes. All business payments or purchases that exceed $600 in a calendar year will need to be accompanied by a 1099 filing. That means obtaining the taxpayer ID number of the individual or corporation you're making the payment to -- even if it's a giant retailer like Staples or Best Buy -- at the time of the transaction, or else facing IRS penalties.

In essence, the 1099-Misc is having its role changed from a form for tracking off-payroll employment to one that must accompany virtually any sizeable business transaction.

"Just with business travel it would include hotels, rental cars," Henschke says. "Phone service: 1099. Computer service: 1099. Whoever does your postage meter: 1099. You do a little advertising, Yellow Pages: 1099. Your landlord: 1099. You might as well just keep them in your pocket and hand them out as you go around every day."

How did this sweeping provision end up hidden in the health reform bill? No one is willing to take credit for introducing the new legislation, which appeared in the Senate Finance Committee's version of the health bill last fall. Committee chairs Don Baucus, D-Mont., and Chuck Grassley, R-Iowa, both referred calls to committee staffers, who wouldn't comment on the record.

But the provision appears to be a long-in-the-works change that was just waiting for the right moment to be attached to legislation.

Back in 2007, the Senate Finance Committee asked the government's General Accountability Office to conduct a tax-gap study. The resulting report estimated that establishing additional 1099 paper trails for income could provide up to $345 billion annually in new federal tax revenues.

Enter the health reform bill. Last fall, as the debate raged over its projected cost, Congressional supporters of the bill began a desperate search for "revenue enhancers" to bring the net cost down -- and eliminating the 1099 exceptions for corporations and goods was seen as an easy way to bring in more cash without raising tax rates.

House and Senate staffers "essentially have a cupboard full of convenient revenue raisers that they can put into bills when they need it," notes Chris Edwards, director of tax policy studies for the libertarian Cato Institute. In the case of the 1099 changes, he says, "this was sitting around, the IRS wanted it and had testified in favor of it, and they needed a revenue raiser. This was just a convenient thing."

Still, the form the new law took was surprising -- especially the requirement that businesses file 1099s when they purchase goods, which hardly anyone saw coming.

Henschke's group had previously surveyed its members and learned that they average 10 filings a year of 1099 forms, each of which takes about half an hour to prepare. That's in line with the GAO report, which found that a typical small business spent between three and five hours per year filing 1099s.

But SMC's survey found that extending 1099s just to services purchased from corporations would push that number to at least 200 filings per year for a typical small business -- adding an estimated $6,000 to the cost of preparing the average tax return. And that's without even accounting for the requirement that 1099s be filed for purchases of goods, a provision that Henschke's group didn't see coming when it conducted its survey last year.

"These folks are doing their paperwork in the evenings and on the weekends already," he says. "This certainly adds to the burden substantially."

The IRS has a draft version of the 1099-K form available now for public feedback, and will begin requiring the form's use next year. The additional 1099 requirements take effect in 2012. The agency is in the process of drafting its guidance on them.

BY STU SIRKIN, J.D.
FEB. 14, 2010

Starting in 2010, taxpayers can make rollovers from non-Roth retirement accounts to Roth individual retirement accounts (IRAs) without regard to the former $100,000 modified adjusted gross income (AGI) limit and (in 2010 only) can benefit from a special two-year averaging provision (the taxable portion of the rollover is taxed in 2011 and 2012). In light of the expected attractiveness of such a rollover, the IRS has issued Notice 2009-75 to address the federal income tax consequences of transferring eligible rollover distributions from qualified retirement plans to Roth IRAs.

Notice 2009-75, which applies to rollover distributions from qualified plans under IRC �� 401(a) and 403(b), annuity plans under section 403(a), and eligible governmental plans under section 457(b), supplements regulations under section 408A, which were issued prior to certain legislative changes, and guidance in Notice 2008-30.

Background
Before the Pension Protection Act of 2006, P.L. 109-280 (PPA), an eligible rollover distribution from an eligible employer plan not made from a designated Roth account could be rolled over to a non-Roth IRA and then converted to a Roth IRA. A taxpayer could not roll over eligible rollover distributions to a Roth IRA directly.

Section 824 of PPA amended the definition of �qualified rollover contribution� in IRC � 408A to allow the recipient of an eligible rollover distribution not made from a designated Roth account to roll over the amount of the distribution to a Roth IRA without first contributing that amount to a non-Roth IRA. As a result, under sections 402A and 408A, as amended by PPA, a rollover from an eligible employer plan (other than from a designated Roth account) to a Roth IRA essentially results in the same federal income tax consequences for a participant as a rollover to a non-Roth IRA followed immediately by a conversion to a Roth IRA.

Section 512 of the Tax Increase Prevention and Reconciliation Act of 2005, P.L. 109-222, removed the $100,000 modified AGI limit on rollovers from non-Roth accounts to Roth accounts. It also provided that if a taxpayer makes such a rollover in 2010, the distribution will be treated as having been made ratably over 2011 and 2012 unless the taxpayer elects to have the distribution included in income in 2010. The elimination of the modified AGI limit is permanent. However, special two-year taxation treatment is available only for 2010 rollovers.

Notice 2009-75
To clarify and supplement the regulations under section 408A and guidance in Notice 2008-30, Notice 2009-75 provides the following rules.

Rollovers to a Roth IRA of distributions made from a designated Roth account: The amount rolled over is not includible in the recipient�s gross income, regardless of whether the distribution is a qualified distribution from the designated Roth account. No restrictions based on the modified AGI limitations and joint filing requirements would apply.

Rollovers to a Roth IRA of distributions not made from a designated Roth account: The amount that would be includible in gross income were it not part of a qualified rollover contribution is included in the recipient�s gross income for the year of the distribution. The amount included in gross income would equal the amount rolled over, reduced by the amount of any after-tax contributions that are included in the amount rolled over, as if the distribution had been rolled over to a non-Roth IRA that was the participant�s only non-Roth IRA and that non-Roth IRA had then been immediately converted to a Roth IRA.

Special rules relating to net unrealized appreciation under IRC � 402(e)(4) and certain optional methods for calculating tax available to participants born on or before Jan. 1, 1936, would not apply. For tax years beginning before Jan. 1, 2010, a rollover from an eligible employer plan not made from a designated Roth account is available only to a taxpayer whose modified AGI for the year of the distribution does not exceed $100,000 (and who, if married, files jointly). The $100,000 modified AGI limit and the requirement that a married recipient file a joint return do not apply to distributions made on or after Jan. 1, 2010. If an eligible rollover distribution made before 2010 is ineligible to be rolled over to a Roth IRA either because the recipient�s modified AGI exceeds $100,000 or because a married recipient does not file a joint return, the distribution can be rolled over into a non-Roth IRA, and the non-Roth IRA can be converted, on or after Jan. 1, 2010, into a Roth IRA.

Implications
The need for Notice 2009-75 is driven by the expectation that many high-income individuals will want to convert their non-Roth accounts to Roth IRAs in 2010. Prior to 2010, a $100,000 modified AGI income limit prevented conversion. The combination of lower defined contribution plan balances as a result of the market problems in 2008 and the expectation of higher tax rates in the future have led many taxpayers to plan to take distributions from their non-Roth plans (to the extent they can) and non-Roth IRAs and roll over the distribution amounts into Roth IRAs in 2010 (and pay the tax in 2011 and 2012).

Stu Sirkin is with Ernst & Young LLP in Washington, D.C.

This article originally appeared in the January 2010 issue of The Tax Adviser, the AICPA�s monthly journal of tax planning, trends and techniques. AICPA members can subscribe to The Tax Adviser for a discounted price. Call 800-513-3037 or e-mail taxsection@aicpa.org for a subscription to the magazine or to become a member of the Tax Section.

Deduction for domestic production activities increases. For tax years beginning after 2009, the Code Sec. 199 deduction for domestic production activities increases. Taxpayers will be able to claim a deduction generally equal to 9% (up from 6% for tax years beginning in 2007-2009) of the lesser of: (1) the taxpayer's �qualified production activities income� (QPAI) for the tax year or (2) taxable income (modified adjusted gross income, for individual taxpayers) without regard to this deduction, for the tax year. (Code Sec. 199(a); Reg. � 1.199-1(a)) The deduction is further limited to 50% of the W-2 wages of the employer for the tax year.

Nonspouse beneficiary rollover option mandatory for qualified plans. Under Sec. 108(f) of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA, P.L. 110-458), qualified retirement plans must offer nonspouse beneficiaries the opportunity to roll over an inherited plan account balance to an IRA set up to receive the rollover on the nonspouse beneficiary's behalf, effective for plan years beginning after Dec. 31, 2009. For earlier plan years, could, but were not required to, offer nonspouse beneficiaries this rollover option.

Increased penalty for failure to file partnership or S corporation returns. Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is a statutory dollar amount times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months. The base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, increases from $89 to $195 per partner or shareholder. (Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1))

Electronic filing changes go into effect. Beginning in 2010, IRS will allow the electronic filing of Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, using the Employment Tax e-file System. Schedule R is a new form that must be completed by consolidated Form 941 filers, beginning with the first quarter 2010 Form 941. Form 2678, Employer/Payer Appointment of Agent, must be mailed to the applicable address listed on the instructions for the agent to be eligible to file Schedule R. After receiving IRS approval, the agent must file one Form 941 return for each tax period, using the agent's own employer identification number (EIN), regardless of the number of employers for whom the agent acts. The agent must maintain records that will disclose the full wages paid for each of his or her clients, as reported on the Schedule R. (IRS Publication 3823, Employment Tax e-file System Implementation and User Guide)

Standard mileage rate changes. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 50� per mile for business travel after 2009 (5� less than the 55� allowance for business mileage during 2009). For 2010, the depreciation component of the mileage rate is 23� per mile (up from 21� per mile for 2009 and 2008).

Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed 50� per mile for employment-connected business mileage during 2010 (down from 55� per mile for 2009), whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos during 2010 may be valued at 50� per mile if the conditions specified in Reg. � 1.61-21(e)(1) are met. (Rev Proc 2009-54, 2009-51 IRB)

Many business tax breaks expired at the end of 2009. Unless Congress acts to retroactively revive them, all of the following business tax breaks won't be available this year because they expired at the end of 2009.

• Additional first-year 50% bonus depreciation for qualified property under Code Sec. 168(k)(2) (but note that certain aircraft and long-production-period property continues to be eligible if placed in service in 2010). In addition, the $8,000 increase in the first-year depreciation limit for passenger automobiles that are qualified property also expired at the end of 2009.
• For tax years beginning in 2010, (a) the maximum amount that may be expensed under Code Sec. 179 is $134,000 (down from $250,000 for tax years beginning in 2008 or 2009); and (b) the maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of Code Sec. 179 property placed in service during the tax year in excess of $530,000 (down from $800,000 for tax years beginning in 2008 or 2009).
• Election to accelerate AMT and research credits in lieu of additional first-year depreciation under Code Sec. 168(k)(4).
• Credit for construction of new energy efficient homes under Code Sec. 45L.
• Suspension on the taxable income limit for purposes of claiming depletion deductions on a marginal oil or gas well. (Code Sec. 613(c)(6))
• * Incremental research credit under Code Sec. 41.
• * Five-year depreciation for farming business machinery and equipment under Code Sec. 168(e)(3)(B)(vii).
• * Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements under Code Sec. 168(e)(3)(E)(iv), Code Sec. 168(e)(3)(E)(v), and Code Sec. 168(e)(3)(E)(ix).
• * Deduction allowable for income attributable to domestic production activities in Puerto Rico under Code Sec. 199.
• * Expensing of �brownfields� environmental remediation costs under Code Sec. 198(h).
• * Encouragement of contributions of capital gain real property made for conservation purposes under Code Sec. 170(b)(1)(E) and Code Sec. 170(b)(2)(B).
• * Enhanced charitable deduction for contributions of food inventory under Code Sec. 170(e)(3)(C).
• * Enhanced charitable deduction for contributions of book inventories to public schools under Code Sec. 170(e)(3)(D).
• * Enhanced deduction for corporate contributions of computer equipment for educational purposes under Code Sec. 170(e)(6)(G).
• * The active financing exception from Subpart F of the Code. (Code Sec. 953, Code Sec. 954)
• * The look-through treatment of payments between related controlled foreign corporations. (Code Sec. 954(c))
• * Seven-year straight line cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes. (Code Sec. 168(i)(15))
• * Accelerated depreciation for business property on an Indian reservation. (Code Sec. 168(j))
• * The railroad track maintenance credit. (Code Sec. 45G)
• * Film and television producers' election to expense the first $15 million of production costs incurred in the U.S. ($20 million if the costs are incurred in economically depressed areas in the U.S.). (Code Sec. 181)
• * The credit for training mine rescue team members. (Code Sec. 45N)
• * Election to expense 50% of the cost of qualified underground mine safety equipment. (Code Sec. 179E)
• * The credit for eligible small business employers equal to 20% of the sum of differential wage payments to activated military reservists. (Code Sec. 45P)
• * The tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated investment companies (RICs). (Code Sec. 871(k))
• * The new markets tax credit. (Code Sec. 45(f)(1))

Everyone who files a federal tax return must determine which filing status applies to them. It�s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple�s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
6. A married couple may elect to file their returns separately. Each person�s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

There�s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

• Publication 501, Exemptions, Standard Deduction, and Filing Information (PDF 196K)

Taxpayers who need their past tax return information can obtain it from the IRS. Here are nine things to know if you need copies of your federal tax return information.

1. There are two easy and convenient options for obtaining free copies of your federal tax return information � tax return transcripts and tax account transcripts.
2. he IRS does not charge a fee for transcripts, which are available for the current year as well as the past three years.
3. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions, such as those offering mortgages and student loans.
4. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data � including marital status, type of return filed, adjusted gross income and taxable income.
5. To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.
6. To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.
7. You should receive your tax return transcript within 10 working days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript.
8. If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current year as well as the past six years.
9. Visit the IRS Web site, IRS.gov, to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be found at IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

Link:

• Form 4506-T, Request for Transcript of Tax Return (PDF 45.3K)
• Form 4506, Request for Copy of Tax Form (PDF 42.3K)

A provision in the recent Stimulus Act provides that qualified motor vehicle taxes are deductible as either an itemized deduction or as a component of the standard deduction. The Stimulus Act establishes a temporary itemized deduction equal to the amount of state and local sales and excise taxes paid on a qualified vehicle purchase between February 17, 2009 and December 31, 2009. However, the additional itemized deduction is limited to taxes allocable to the first $49,500 of the purchase price.

The new law also establishes a temporary add-on standard deduction with similar conditions and limitations for individual taxpayers who don't itemize. The add-on standard deduction, but not the itemized deduction, is allowed for both regular tax and AMT purposes.

The new itemized and add-on standard deduction write-offs are only available for state and local sales and excise taxes on new (not used) (1) passenger autos and light trucks with gross vehicle weight ratings of 8,500 pounds or less, (2) motorcycles, and (3) motor homes.

Note the additional itemized deduction is not allowed to an itemizing individual who elects to deduct state and local sales taxes in 2009 in lieu of deducting state and local income taxes. Electing taxpayers can effectively claim itemized deductions for state and local sales taxes on new (or used) vehicle or motor home purchases anyway--without regard to the $49,500 purchase price limitation. So the new itemized deduction privilege under the Stimulus Act is generally redundant for these individuals. However, the new add-on standard deduction provision is allowed for AMT, whereas the amount deducted in lieu of state and local income taxes is not.

The additional itemized deduction or new add-on standard deduction (whichever applies) is subject to phase-out provisions. The phase-out range for unmarried individuals and married individuals who file separately is between modified adjusted gross income (MAGI) of $125,000 and $135,000. The phase-out range for married joint-filing couples is between MAGI of $250,000 and $260,000. For this purpose, MAGI is regular adjusted gross income (AGI) increased generally by tax-exempt income from outside the U.S.