If you’re in business in America, it’s likely you have information reporting requirements—that is, you have to send statements to the IRS reporting payments you make to others, on forms such as W-2 and 1099.
How did this flood of paperwork get started?
Gathering tax information began in earnest after the Current Tax Payment Act of 1943. As you may know, that act established the “pay as you go” plan of reporting and collecting income taxes. Since employers had to withhold federal income tax from employee’s paychecks and pay those taxes to the government, Forms W-2 were necessary to report the amounts to both the IRS and the employee.
Reporting of dividends and interest came next, under the Revenue Act of 1962. That was followed by required reporting of tips and other income. As of 2010, there are forms for everything from Abandonment of Secured Property to Vacation Allowances for Non-Employees. There are also international information reporting requirements designed to facilitate the exchange of information between revenue agencies in various countries.
And there’s more in store for the future. Next year, US reporting requirements will include the bases of investments and credit and debit card transactions, and in 2012 Forms 1099 will be required for rental income as well as goods.
As the quest for improving tax compliance continues, reporting requirements will continue to grow as well.