H. Rept. 112-15 - SMALL BUSINESS PAPERWORK MANDATE ELIMINATION ACT OF 2011112th Congress (2011-2012)
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112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-15
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SMALL BUSINESS PAPERWORK MANDATE ELIMINATION ACT OF 2011
_______
February 22, 2011.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Camp, from the Committee on Ways and Means,
submitted the following
R E P O R T
[To accompany H.R. 4]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 4) to repeal the expansion of information reporting
requirements for payments of $600 or more to corporations, and
for other purposes, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
CONTENTS
Page
I. Summary and Background............................................1
II. Explanation of the Bill...........................................2
A. Repeal of Expansion of Information Reporting
Requirements (sec. 2 of the bill and sec. 6041 of the
Code)................................................ 2
III.Votes of the Committee............................................5
IV. Budget Effects of the Bill........................................5
V. Other Matters To Be Discussed Under the Rules of the House........8
VI. Changes in Existing Law Made by the Bill, as Reported............11
I. Summary and Background
A. PURPOSE AND SUMMARY
The bill, H.R. 4 (the ``Small Business Paperwork Mandate
Elimination Act of 2011''), as reported by the Committee on
Ways and Means, provides that section 9006 of the Patient
Protection and Affordable Care Act of 2010 (``PPACA''), Pub. L.
No. 111-148 (March 23, 2010), is repealed. As a result, section
6041 of the Internal Revenue Code is amended to no longer
require reporting with respect to payments to corporations or
with respect to gross proceeds for property. Further, the
additional regulatory authority granted to the Secretary is
repealed.
B. BACKGROUND AND NEED FOR LEGISLATION
Originally enacted in 2010 to help finance the cost of
PPACA, the new provisions requiring expanded tax information
reporting by businesses have generated considerable concern
among taxpayers and policymakers alike. It is now widely
acknowledged that, if allowed to go into effect, the expansion
of these information reporting requirements will impose a
substantial tax compliance burden on small businesses, forcing
them to devote scarce resources to tax filing instead of to
business expansion and job creation. Because the burdens on
small businesses resulting from the imposition of these new
requirements outweigh any potential improvement in tax
compliance, the bill reflects a consensus that these new rules
should be repealed.
C. LEGISLATIVE HISTORY
Background
H.R. 4 was introduced on January 12, 2011, and was referred
to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up the bill on
February 17, 2011, and ordered the bill favorably reported by
voice vote.
Committee hearings
The Committee on Ways and Means held a full Committee
hearing on January 20, 2011, on fundamental tax reform. This
hearing focused on the economic and administrative burdens
imposed by the current structure of the Federal income tax,
including with respect to the burdens associated with the
expanded Form 1099 reporting requirements imposed under section
9006 of PPACA.
The Committee on Ways and Means held a full Committee
hearing on January 26, 2011, on the health care law's impact on
jobs, employers, and the economy, including the impact of
PPACA's expanded Form 1099 reporting requirements.
The Committee on Ways and Means held a full Committee
hearing on February 15, 2011, on the President's Fiscal Year
2012 Budget with Secretary of the Treasury Timothy F. Geithner,
including the President's proposal relating to information
reporting on payments to corporations and payments for
property.
II. Explanation of the Bill
A. REPEAL OF EXPANSION OF INFORMATION REPORTING REQUIREMENTS (SEC. 2 OF
THE BILL AND SEC. 6041 OF THE CODE)
Present law
A variety of information reporting requirements apply under
present law.\1\ The primary provision governing information
reporting by payors requires an information return by every
person engaged in a trade or business who makes payments to any
one payee aggregating $600 or more in any taxable year in the
course of that payor's trade or business.\2\ Reportable
payments include compensation for both goods and services, and
may include gross proceeds. Certain enumerated types of
payments that are subject to other specific reporting
requirements are carved out of reporting under this general
rule by regulation.\3\ Another carveout excepts payments to
corporations from reporting requirements.\4\
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\1\Secs. 6031 through 6060.
\2\Sec. 6041(a). Information returns are generally submitted
electronically on Forms 1096 and Forms 1099, although certain payments
to beneficiaries or employees may require use of Forms W-3 and W-2,
respectively. Treas. Reg. sec. 1.6041-1(a)(2).
\3\Sec. 6041(a) requires reporting of payments ``other than
payments to which section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a) or
6050N(a) applies and other than payments with respect to which a
statement is required under authority of section 6042(a), 6044(a)(2) or
6045[.]'' The payments thus excepted include most interest, royalties,
and dividends.
\4\Treas. Reg. sec. 1.6041-3(p).
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For payments made after December 31, 2011, the class of
payments subject to reporting was expanded in two ways.\5\
First, the regulatory carveout for payments to corporations was
expressly overridden by the addition of section 6041(i). In
addition, information reporting requirements were expanded to
include gross proceeds paid in consideration for any type of
property. The payor is required to provide the recipient of the
payment with an annual statement showing the aggregate payments
made and contact information for the payor.\6\ The regulations
generally except from reporting payments to exempt
organizations, governmental entities, international
organizations, or retirement plans.
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\5\The Patient Protection and Affordable Care Act, Pub. L. No. 111-
148, sec. 9006 (March 23, 2010).
\6\Sec. 6041(d). Specifically, the recipient of the payment is
required to provide a Form W-9 to the payor, which enables the payee to
provide the recipient of the payment with an annual statement showing
the aggregate payments made and contact information for the payor. If a
Form W-9 is not provided, the payor is required to ``backup withhold''
tax at a rate of 28 percent of the gross amount of the payment unless
the payee has otherwise established that the income is exempt from
backup withholding. The backup withholding tax may be credited by the
payee against regular income tax liability, i.e., it is effectively an
advance payment of tax, similar to the withholding of tax from wages.
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Additionally, the requirement that businesses report
certain payments is generally not applicable to payments by
persons engaged in a passive investment activity. However,
beginning in 2011, recipients of rental income from real estate
generally are subject to the same information reporting
requirements as taxpayers engaged in a trade or business.\7\ 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. Exceptions to this
reporting requirement are made for (i) individuals who rent
their principal residence on a temporary basis, including
members of the military or employees of the intelligence
community (as defined in section 121(d)(9)), (ii) individuals
who receive only minimal amounts of rental income, as
determined by the Secretary in accordance with regulations, and
(iii) individuals for whom the requirements would cause
hardship, as determined by the Secretary in accordance with
regulations.\8\
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\7\Sec. 6041(h); Small Business Jobs Act of 2010, Pub. L. No. 111-
240, sec. 2101 (Sept. 27, 2010).
\8\Treasury has not promulgated regulations defining these
``minimal amounts of rental income'' or ``hardship'' cases.
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Detailed rules are provided for the reporting of various
types of investment income, including interest, dividends, and
gross proceeds from brokered transactions (such as a sale of
stock).\9\ In general, the requirement to file Form 1099
applies with respect to amounts paid to U.S. persons and is
linked to the backup withholding rules of section 3406. Thus, a
payor of interest, dividends or gross proceeds generally must
request that a U.S. payee (other than certain exempt
recipients) furnish a Form W-9 providing that person's name and
taxpayer identification number.\10\ That information is then
used to complete the Form 1099.
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\9\Secs. 6042 (dividends), 6045 (broker reporting) and 6049
(interest), as well as the Treasury regulations thereunder.
\10\See Treas. Reg. sec. 31.3406(h)-3.
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Failure to comply with the information reporting
requirements results in penalties, which may include a penalty
for failure to file the information return,\11\ a penalty for
failure to furnish payee statements,\12\ or failure to comply
with other various reporting requirements.\13\
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\11\Sec. 6721.
\12\Sec. 6722.
\13\Sec. 6723.
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Reasons for change
The Committee understands that there is a significant tax
gap, or difference between the amount of tax owed by taxpayers
and the amount voluntarily paid to the IRS, that must be
addressed. The Committee also recognizes that information
reporting requirements generally improve taxpayer compliance.
However, the Committee is concerned that the expansion of the
information reporting requirements imposes a substantial tax
compliance burden on small businesses, including costs to
acquire new software or pay for additional accounting services.
The Committee believes this burden is disproportionate as
compared with any resulting improvement in tax compliance and
therefore believes that these requirements should be repealed
in their entirety. The Committee will continue to explore other
potential solutions to the tax gap problem.
Explanation of provision
Under the provision, the changes to section 6041 enacted
under section 9006 of the Patient Protection and Affordable
Care Act that provide rules for payments to corporations,
provide additional regulatory authority and impose a reporting
requirement with respect to gross proceeds from property, are
repealed in their entirety.
Effective date
This provision is effective for payments made after
December 31, 2011.
III. Votes of the Committee
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 4, the ``Small Business Paperwork Mandate
Elimination Act of 2011.''
MOTION TO REPORT RECOMMENDATIONS
H.R. 4 was ordered favorably reported by voice vote (with a
quorum being present).
IV. Budget Effects of the Bill
A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS
In compliance with clause 3(d) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 4 as reported.
The bill, as reported, is estimated to have the following
effects on budget receipts for fiscal years 2011-2021:
ESTIMATED REVENUE EFFECTS OF H.R. 4, ``THE SMALL BUSINESS PAPERWORK MANDATE ELIMINATION ACT OF 2011,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS--FISCAL YEARS 2011-2021
[Millions of dollars]
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Provision Effective 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-16 2011-21
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1. Repeal 1099 information reporting requirements DOE ....... -263 -2,785 -1,995 -2,064 -2,135 -2,309 -2,413 -2,523 -2,636 -2,782 -9,242 -21,905
for certain payments of more than $600............
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Net total...................................... ......... ....... -263 -2,785 -1,995 -2,064 -2,135 -2,309 -2,413 -2,523 -2,636 -2,782 -9,242 -21,905
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Joint Committee on Taxation.
Note: Details may not add to totals due to rounding.
Legend for ``Effective'' column: DOE = date of enactment.
B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX EXPENDITURES BUDGET
AUTHORITY
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority.
C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, February 18, 2011.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4, the Small
Business Paperwork Mandate Elimination Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The staff contacts are Kalyani
Parthasarathy (CBO) and Pamela Moomau (JCT).
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 4--Small Business Paperwork Mandate Elimination Act of 2011
H.R. 4 would repeal certain scheduled expansions in
information reporting requirements. The staff of the Joint
Committee on Taxation (JCT) estimates that enacting the
legislation would increase federal budget deficits by $21.9
billion over the 2011-2021 period, reflecting reductions in
revenues.
The legislation would repeal an expansion currently
scheduled to take effect in 2012 of information that businesses
must report to the recipients of certain payments, as well as
to the Internal Revenue Service, on form 1099. Beginning in
2012, certain payments not previously subject to 1099 reporting
requirements, including those made to corporations and those
made for property, will become subject to the reporting
requirements. The repeal of this expansion would reduce
revenues by an estimated $21.9 billion over the 2011-2021
period, as shown in the following table. Because enacting H.R.
4 would affect revenues, pay-as-you-go procedures apply. (All
effects are on-budget.)
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By fiscal year, in millions of dollars--
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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-2016 2011-2021
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Estimated Revenue Effect..................................... 0 -263 -2,785 -1,995 -2,064 -2,135 -2,309 -2,413 -2,523 -2,636 -2,782 -9,242 -21,905
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JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Kalyani
Parthasarathy. The estimate was approved by Frank Sammartino.
D. MACROECONOMIC IMPACT ANALYSIS
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: The effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
V. Other Matters To Be Discussed Under the Rules of the House
A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning the tax compliance burden on
taxpayers that the Committee concluded that it is appropriate
to report the bill favorably to the House of Representatives
with the recommendation that the bill do pass.
B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. INFORMATION RELATING TO UNFUNDED MANDATES
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. APPLICABILITY OF HOUSE RULE XXI 5(B)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.
E. TAX COMPLEXITY ANALYSIS
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
staff of the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses. The staff of the Joint Committee on Taxation has
identified only one such provision, which is discussed below.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, a summary description of that
provision is provided, along with an estimate of the number and
type of affected taxpayers, and a discussion regarding the
relevant complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and Treasury.
REPEAL OF EXPANDED INFORMATION REPORTING FOR PAYMENTS WITH RESPECT TO
PROPERTY OR PAYMENTS MADE TO CORPORATIONS
Summary description of provision
Under the provision, section 6041 is amended to delete
references to gross proceeds from property, a requirement that
payments to corporations be reported, and a grant of additional
regulatory authority. Accordingly, the changes to section 6041
enacted under section 9006 of the Patient Protection and
Affordable Care Act are repealed in their entirety.
As a result of the repeal, taxpayers are not required to
file an information return for all payments aggregating $600 or
more in a calendar year to any single corporation payee (except
a tax-exempt corporation). Second, the payments to be reported
do not include gross proceeds paid in consideration for
property.
Number of affected taxpayers
It is estimated that the provision will affect more than 10
percent of individual or small business tax returns.
Discussion
According to the Government Accountability Office, only
eight percent of approximately 50 million small businesses with
less than $10 million in assets filed miscellaneous information
return Form 1099-MISC.\14\ If greater reporting from small
businesses were available, it is possible that the IRS could
more readily identify areas of underreported income of the
payees. In general, the more payments to which information
reporting and/or withholding applies, the greater the
improvement in compliance.\15\ However, since the reporting
requirements were expanded, numerous critics have pointed to
disproportionate additional administrative burden on those
required to comply with the reporting obligations. Thus,
requiring information reporting for all payments aggregating
$600 or more in a calendar year to a corporation and for
payments for property may outweigh the enhanced taxpayer
compliance.
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\14\Government Accountability Office, IRS Could Do More to Promote
Compliance by Third Parties with Miscellaneous Income Reporting
Requirements, GAO-09-238 (January 2009).
\15\See e.g., ``Tax Year 2001 Individual Income Tax Underreporting
Gap,'' at 2,
finding that information reporting is the primary differentiator in
compliance rates. See also, Joseph Bankman, ``Eight Truths About
Collecting Taxes from the Cash Economy,'' 117 Tax Notes 506, 511
(2007).
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At the time the expanded provisions were under
consideration, a complexity analysis\16\ suggested that the
widespread use of computer technology to process and store
business information should minimize the burden associated with
generating and transmitting the information necessary to comply
with the provision, regardless of the extent to which the
taxpayer is currently subject to information reporting.
Although the additional burden of expanded reporting would have
depended on the extent to which taxpayers subject to the
provision already had adequate procedures and systems in place
to comply with existing information reporting requirements,\17\
uncertainty about the scope of the expansion, and the lack of
administrative guidance to date has made it difficult for
taxpayers to determine what steps would be necessary to comply
with the expanded reporting. Repeal of the additional
information reporting requirements avoids the need for small
businesses to develop new bookkeeping systems necessary in time
for implementation of the expanded reporting in 2012. In
addition, it relieves the IRS of the need to develop new forms
and outreach programs to educate the public about the changes
in reporting obligations.
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\16\See, Senate Finance Committee, ``America's Healthy Future Act
of 2009,'' S. Rep. 111-89 (October 19, 2009), pp. 365-366.
\17\See e.g., Government Accountability Office, Costs and Uses of
Third-Party Information Returns, November 2007, GAO-08-266, available
at , wherein the GAO, based on
its case studies, found the compliance costs associated with filing
information returns to be ``relatively low.''
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Comments from IRS and Treasury
No guidance would be required.
The relevant forms and instructions would not need to be
modified (Forms 1099, 1098, 3921, 3922, 5498, and W-2G), and
the instructions for certain other information returns and
publications would not need to be revised to reflect the
elimination of the exception for payments to corporations and
the exception for payments other than for services.
The IRS would not need to modify existing tax systems to
reflect this provision.
F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND LIMITED TARIFF
BENEFITS
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
VI. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets and
existing law in which no change is proposed is shown in roman):
PATIENT PROTECTION AND AFFORDABLE CARE ACT
* * * * * * *
TITLE IX--REVENUE PROVISIONS
Subtitle A--Revenue Offset Provisions
* * * * * * *
[SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS.
[(a) In general.--Section 6041 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
subsections:
[``(h) Application to corporations.--Notwithstanding any
regulation prescribed by the Secretary before the date of the
enactment of this subsection, for purposes of this section the
term `person' includes any corporation that is not an
organization exempt from tax under section 501(a).
[``(i) Regulations.--The Secretary may prescribe such
regulations and other guidance as may be appropriate or
necessary to carry out the purposes of this section, including
rules to prevent duplicative reporting of transactions.''.
[(b) Payments for property and other gross proceeds.--
Subsection (a) of section 6041 of the Internal Revenue Code of
1986 is amended--
[(1) by inserting ``amounts in consideration for
property,'' after ``wages,'',
[(2) by inserting ``gross proceeds,'' after
``emoluments, or other'', and
[(3) by inserting ``gross proceeds,'' after ``setting
forth the amount of such''.
[(c) Effective date.--The amendments made by this section
shall apply to payments made after December 31, 2011.]
* * * * * * *
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SECTION 6041 OF THE INTERNAL REVENUE CODE OF 1986
SEC. 6041. INFORMATION AT SOURCE.
(a) Payments of $600 or more.--All persons engaged in a trade
or business and making payment in the course of such trade or
business to another person, of rent, salaries, wages, [amounts
in consideration for property,] premiums, annuities,
compensations, remunerations, emoluments, or other [gross
proceeds,] fixed or determinable gains, profits, and income
(other than payments to which section 6042(a)(1), 6044(a)(1),
6047(e), 6049(a), or 6050N(a) applies, and other than payments
with respect to which a statement is required under the
authority of section 6042(a)(2), 6044(a)(2), or 6045), or $600
or more in any taxable year, or, in the case of such payments
made by the United States, the officers or employees of the
United States having information as to such payments and
required to make returns in regard thereto by the regulations
hereinafter provided for, shall render a true and accurate
return to the Secretary, under such regulations and in such
form and manner and to such extent as may be prescribed by the
Secretary, setting forth the amount of such [gross proceeds,]
gains, profits, and income, and the name and address of the
recipient of such payment.
* * * * * * *
[(i) Application to corporations.--Notwithstanding any
regulation prescribed by the Secretary before the date of the
enactment of this subsection, for purposes of this section the
term ``person'' includes any corporation that is not an
organization exempt from tax under section 501(a).
[(j) Regulations.--The Secretary may prescribe such
regulations and other guidance as may be appropriate or
necessary to carry out the purposes of this section, including
rules to prevent duplicative reporting of transactions.]