Congress tries to fix new tax law

July 31, 2010 at 12:00a.m.

Associated Press

WASHINGTON

Talk about a paperwork nightmare: Tucked into the massive new health-care law is a demand that nearly 40 million U.S. businesses file tax forms for every vendor that sells them more than $600 in goods.

House Democrats now want to repeal it. Republicans, too. But nothing is that simple in an election year.

The House on Friday rejected a bill that would have repealed the filing requirement. Democrats and Republicans disagreed on how to make up the lost revenue.

The goal of the provision was to prevent vendors from underreporting their income to the Internal Revenue Service.

Businesses already must file Form 1099s with the IRS when they purchase more than $600 in services from a vendor in a year. The new provision would extend the requirement to the purchase of goods, starting in 2012.

The requirement would hit about 38 million businesses, charities and tax- exempt organizations, many of them small businesses already swamped by government paperwork, according to a recent report by the National Taxpayer Advocate.