Bill requires landlords to report work payments on rentals

Neil Downing
The Providence Journal
9/18/2010

PROVIDENCE — Owners of rental real estate will soon be required to gather information from plumbers, landscapers and others who do work on their property, and report that information to the Internal Revenue Service.

The requirement is part of a bill (H.R. 5297) approved by the U.S. Senate on Thursday and on track to pass in the House as soon as next week. President Obama supports the legislation, which includes tax breaks and other elements intended to help small businesses.

But under a little-publicized provision in the bill, mom-and-pop owners of triple-deckers, duplexes, condos and other such rental real estate will have to obtain the names, addresses and federal tax identification numbers of many of their snowplow operators, electricians, painters and other such service providers.

If the landlord pays such a contractor a total of at least $600 for the year, the landlord will generally have to issue that contractor a special tax form, called a Form 1099 (or “ten ninety-nine” by tax professionals). The landlord will have to list on the form the amount the contractor was paid for the year, and send a copy of that form to the IRS.

The idea behind the new provision is to help ensure that service providers list all of their income on their tax returns as required, said Patricia A. Thompson, vice chairwoman of the American Society of Certified Public Accountants’ national tax executive committee. If people receive a Form 1099 showing how much they were paid during the year, she said, “they’re more likely to report it” on their returns.

The requirement will probably also help the IRS crack down on landlords who claim deductions for services they did not buy, said Grafton H. “Cap” Willey IV, former chairman of the National Small Business Association. “I suspect that if you [as a landlord] do not provide the [Form] 1099, you will not get the deduction,” said Willey, managing director in charge of the Newport office of CBIZ Tofias, an accounting firm…

…Some property owners and others say it will be burdensome, burying them in a blizzard of paperwork.

“This certainly creates a paperwork extravaganza,” said landlord Alan H. Litwin, of Providence. “It’s a nightmare.”…

…The Form 1099 reporting requirement already applies to companies whose main business is rental real estate, Thompson said. The new provision will extend that requirement to just about everybody who receives rental income from real estate, including mom-and-pop landlords.

“In particular, rental income recipients making payments of $600 or more to a service provider (such as a plumber, painter or accountant) in the course of earning rental income are required to provide an information return (typically Form 1099-MISC) to the IRS and to the service provider,” Congress’s Joint Committee on Taxation said in a new report.

U.S. Sen. Jack Reed, who voted in favor of the bill, said the Form 1099 provision will generate tax revenue to help pay for other provisions that will aid small businesses and create jobs. But he added, “We’ll have to work on it” so that small mom-and-pop landlords are not unduly burdened. U.S. Sen. Sheldon Whitehouse’s vote on a separate but related issue involving the Form 1099 suggests that he, too, favors exceptions for landlords with small holdings…

Read the complete article at The Providence Journal.

Learn more about H.R. 5297: Small Business Jobs and Credit Act of 2010 , sponsored by Congressman Barney Frank of MA.

Update: One of our favorite sites,OpenCongress, has more information about the bill.

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