IRS to require information reporting for sales of farm products?

June 8, 2007 | Roger McEowen

 

On June 8, the IRS released a fact sheet on the reporting of farm income and expenses. The fact sheet, for the most part, is fairly innocuous. But, the last paragraph of the fact sheet is quite troubling, and inaccurate. In that paragraph, IRS says that business owners, including farmers, who pay at least $600 in rents, services and other miscellaneous payments in the course of their business to an individual who is not an employee or incorporated, must file an IRS Form 1099-MISC that reports the income to the recipient and the IRS. IRS says that payments include those made for the purchase of farm products such as grain, crops and milk. 

The 1099 requirement is contrary to a Treasury Regulation that is effective for sales after December 31, 1992. That Regulation exempts spot or forward sales of agricultural commodities from the information reporting requirements. So what’s the big deal about the IRS’ statement in the fact sheet? For starters, such a requirement would appear to apply to almost everything farmers pay for. Farmers using any manual recordkeeping system will have to produce a list of all payments by vendor, determine which are corporations and obtain an address and ID number for all non-corporate vendors. Farmers with a computerized recordkeeping system will be better off, but will still have to take the time to find addresses and ID numbers. Tax preparers will also likely (if they aren’t already) start charging for each 1099 that has to be prepared for their farm clients. Also, buyers of grain and livestock will have to issue Form 1099s to farmers. That could be quite a bother especially for milk buyers who tend to do reports showing payments for the milk that is picked up in December, but is paid for in January. 

The bigger question is how IRS can change a Treasury Regulation via the issuance of a fact sheet that is not subject to the normal notice and comment procedure that applies to the issuance of Regulations. Keep an eye on this one. Some in the Congress may have an interest in getting involved in this issue. IRS Fact Sheet, FS-2007-20 (Jun. 8, 2007).