Obamacare is not just about health care. It’s also about making the IRS omniscient.
The problem is the IRS is not God. Before it can know anything, people have to report to the agency. Thus, buried deep inside the more than 2,000 pages of the Obamacare bill is a requirement that will have Americans reporting as never before.
The health care law amends code section 6041 to provide that the definition of the term “person” includes any corporation that is not a tax-exempt organization under code section 501(a). This will vastly expand the tax reporting and record keeping burden.
Americans reported to the IRS about 1.883 billion times in 2008 alone. That’s the total number of information returns that businesses and individuals filed with the IRS. That number does not include the federal income and employment tax returns. There are a couple of hundred million of those.
Information returns are the reports that people file with the IRS telling the agency how much they paid and to whom. These returns include Forms W-2, Wage and Tax Statement, which reveal the amount your employer paid to you and how much was withheld for state and federal taxes. Forms 1099 are included in the count, which report amounts paid to individuals in the course of business. There are dozens of different information returns reporting nearly every imaginable transaction.
Two Billion Not Enough
Even with nearly 2 billion information returns annually, the IRS wanted more. Until now, information reporting was required only in the case of payments to individuals. The new law changes that.
As the Obamacare law now stands, any corporation that pays another corporation (other than a tax-exempt corporation) more than $600 in a year will have to file a report with the IRS. The law is effective for payments beginning in January 2012. The report is required for any of the following payments:
- salaries, wages, or other compensation or remuneration,
- annuities or pensions,
- interest, rents, or royalties, and
- any other fixed or determinable gain, profit, or income.
Number Could Double
There’s no telling how many additional information returns will hit the IRS’s computers after this law takes effect. I have to believe the number will at least double. There is no question this is going to put a substantial additional burden on businesses to comply with a tax code that is already choking them.
Consider this: According to the National Taxpayer Advocate’s 2008 Annual Report to Congress, businesses and individuals spent approximately 7.6 billion hours meeting the tax code’s filing requirements in 2006. That is equivalent to 3.8 million full-time workers. These numbers will skyrocket if this new information-reporting requirement stays on the books.
The cost of compliance in dollars is likewise shocking. Currently, the out-of-pocket cost associated with filing tax returns is estimated by National Taxpayer Advocate Nina E. Olsen—whose office is a part of the IRS—to be $193 billion annually.
‘Staggering Percent of Receipts’
“This is a staggering 14 percent of aggregate income tax receipts,” she noted in her 2008 Annual Report to Congress, Vol. 1, page 4. This number too will skyrocket if the new law stays on the books.
How does Congress not see that a tax system requiring this kind of expenditure in time and money is sorely in need of radical reform? As a nation, how can we continue to tolerate this deadly hemorrhaging of our productivity and recourses? I fail to see how this can continue.
Upon the passage of the health care bill, California Rep. Dan Lungren (R) promised to introduce legislation to repeal this portion of the bill. In late April he stated the requirement puts an “unnecessary and expensive paperwork burden on U.S. small businesses and needs to be repealed.”
I couldn’t agree more.
Dan Pilla ([email protected]) is a tax litigation consultant and executive director of the Tax Freedom Institute, a national association of tax and finance professionals based in Stillwater, Minnesota. He is also a bestselling author of 11 books on how to solve tax debt problems.