THE TAX ATTIC with Jerry Coon

Tax Amnesty, new 1099-K

Jerry Coon

Most of what we have been reading about the State of Michigan lately concerns Governor Snyder’s quest to get a budget passed as soon as possible. It looks like he will successful, too. We might not all like the final result, but at least a budget will be in place before October this year.

Michigan has other programs currently going on, such as Tax Amnesty. Every few years Michigan gives individual taxpayers and business taxpayers the opportunity to catch up on any delinquent taxes they might owe without having to pay the penalties associated with the tax. This year’s version started on May 15 and lasts through June 30, 2011. Michigan hopes to collect an extra 60 million dollars or so this time around.

Tax Amnesty applies to only 2009 and earlier returns such as Michigan Business Tax returns; Single Business Tax returns; Sales, Use, and Withholding Tax returns; and Income Tax returns. It does not apply to 2010 returns. Tax Amnesty applies only to the penalties associated with these returns.

In order to qualify for amnesty, Michigan must receive full payment of all tax due and 100% of all interest due. They have designed a special amnesty form, Michigan Tax Amnesty Application Form 3855, that must accompany the check. The taxpayer will not be granted tax amnesty if a completed Form 3855 does not accompany the check. The package must be postmarked by the June 30 date. If the form is right, the tax paid is right, and the interest is right, all applicable penalties will then be forgiven. There is an online calculator for the interest due. I would recommend using that calculator.

Evidently the law that created this year’s amnesty mandates that 100% of the interest must be paid. If the taxpayer is only $1 short on the interest, amnesty will not be granted and the penalties will not be forgiven. With that in mind, it might pay to add a few dollars of interest to the check just to be sure the interest is covered. Michigan has stated they will refund any overpayments. The online calculator can be accessed at or their telephone number is (855) 466-4829.

Tax amnesty does not apply to city income tax returns, real estate taxes, or Michigan Unemployment Insurance tax returns.

Michigan is promoting tax amnesty through some rather clever television, radio and print advertisements using the theme “All Excuses Welcome.” They are trying to show they are all-inclusive and will forgive most penalties for all reasons. If a taxpayer owes taxes on several returns, he can pick and choose which ones he wants tax amnesty to apply to. If Michigan knows about an outstanding penalty, they took the liberty of pre-filling out the application and sending it to the taxpayer. As of last week, Michigan had received 1,421 individual, 54 SBT, 299 SUW, 165 MBT, and 140 “other” amnesty applications. I’m sure they are well on their way to collecting that 60 million dollars.

I have written previously about a provision of the Health Care Reform bill that greatly expanded the reporting requirements for 1099s. The bill as written would have required upwards of an additional 42 million 1099s to be filed beginning in 2012. There was a tremendous outcry against this bill and the costs associated with complying with issuing those 42 million additional 1099s. Our legislators evidently heard this outcry.

The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 was recently passed, repealing the provision requiring the additional 1099 reporting. Hooray! However, there was another 1099 reporting provision that was not repealed. That provision created a new form: 1099-K.

Effective for payments processed as of January 1, 2011, banks and financial service companies who act as processing agents are required to report to the IRS annual gross payments processed by credit or debit cards on a taxpayer by taxpayer basis. The total gross amount is reported and then broken down on a month-by-month basis. Taxpayers will be required to provide the processing agent their name, address and federal identification number. If the taxpayer refuses to provide the required information, the processing agent is required to withhold a 28% tax and remit it to the IRS.

The idea behind the 1099-K is to find those taxpayers who have been selling items and then perhaps not reporting the income. Taxpayers will receive 1099-Ks in early 2012 for sales that occurred during 2011 on a month-by-month basis. I believe this form of reporting is directed at the online auction sales industry, perhaps specifically eBay. Since there is no de minimus exception, anyone who has sold even one item on eBay and received that payment via PayPal will receive a 1099-K. The IRS will be expecting to see that number on a tax return. This could make next year’s tax season quite interesting. For those interested, we have the final version of the 1099-K available upon request. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact Jerry at


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