The IRS’ Form 1099-K cost small businesses $10 billion in 2011, claims Outright CEO Steven Aldrich claims.
That’s not taxes paid, but rather money spent on compliance.
By law, merchant processors and third-party payment processors who handle online transactions must report money paid as income to the IRS. (PayPal is a good example of such a network.) The IRS estimates that 53 million 1099-K forms were sent out last year, Aldrich notes in a guest column at TechCrunch. He goes on to label the obligation “a big reporting and reconciliation burden on law-abiding entrepreneurs using online and mobile payment solutions.”
Even more confounding is the fact that 1099-Ks show gross sales, without adjusting for exceptions like fees or refunds. One of Aldrich’s customers said to him, “The IRS is being told that we’re literally generating double the revenue that we actually are.”
While the IRS has said it expects to generate $9.5 billion in new revenues from this law over the next decade, Aldrich estimates that compliance costs the business community $10 billion in 2011 alone.