a084  1036  16 Jan 87
PM-Business Mirror, Adv 19,0772
For Release PMs Mon., Jan 19
IRS Asks the Impossible
By JOHN CUNNIFF
AP Business Analyst
    NEW YORK (AP) - If you think business tax returns are becoming
simplified you might consider these two situations, from which
extrication may be possible only through hard work, sweat, tears and
maybe the payment of a fine.
    The first involves small companies that in 1986 paid dividends and
interest to more than 50 people, and which are compelled, therefore,
to issue to these same people, by January 31, more than 50 form
1099s.
    If the company issues fewer than 50 such forms, it is allowed to
report its action to the Internal Revenue Service in the
old-fashioned, written form. But if it issues more than that, it is
required to use a specific computer format.
    Many small companies do not know this, says Michael Perry, an
adviser to small businesses, and a partner in the accounting firm of
McGladrey Hendrickson & Pullen (MH&P), specialist in firms with sales
of up to $50 million.
    You might think, of course, that when companies learn of this
requirement they will rush to comply with the IRS requirement, since
close to two weeks remain before the Jan. 31 deadline.
    Your assumption may be incorrect. The IRS must pre-approve the
specific computer format a company uses and issue a reporting number.
And it can take up to 90 days before issuing approval.
    For practical purposes, therefore, a lot of companies that have not
yet obtained IRS approval for their computer format will be subject
to fines of $50 for each 1099 document that is involved.
    Perhaps, you think, an exception might be made. But no, the deadline
for waiver applications was last Nov. 22. Moreover, says Perry, the
IRS has been getting tougher; assessing of penalties has become
almost automatic.
    There is a way out, but time is short. Computer service bureaus
already may have approval of formats, and therefore can report to the
IRS for the laggard company. MH&P (30 So. Wacker, Chicago, Ill.
60606) also has software to do it.
    While this problem cannot be blamed on the Tax Reform Act of 1986,
Perry says the new law presents a dilemma of perhaps equal magnitude
for one sector of the small-business community, that being real
estate.
    Beginning January 1 of this year, those involved in transactions
might be required to file sales information with the IRS. This new
reporting requirement will disclose directly to the IRS the
significant data in a transaction.
    Someone will have to file the information. But, depending on the
transaction, it can be any of several people.
    The onus falls first on the individual, including any attorney or
title company, responsible for closing the transaction, then on the
mortgage lender, seller's broker, buyer's broker, or any person
designated in the regulations.
    This doesn't seem too difficult  -  until you contemplate the
problems, the first and biggest of which originates with the IRS,
which hasn't specified what information will be required, and
probably won't do so for many more weeks.
    Therefore, the real estate broker - or lawyer or title company, et
al - must compile a mass of information in case it is required.
    This might mean the maintaining of data not ordinarilly kept, and
which mightn't be available months after the transaction is closed.
Remember, the requirement applies to all deals closed after Dec. 31,
1986.
    To be safe, Perry suggests that for every transaction a record be
kept of the seller's name, address, and taxpayer identification
number, along with the sale price, commission, and buyer's name and
address.
    But potential difficulties do not end there. If you happen to be the
one responsible for reporting, says Perry, ''the filing must be
accomplished using magnetic media, that is, floppy disks or magnetic
tape.''
    In his opinion, later regulations might include exemption from the
magnetic filing requirement where a limited numbers of returns is
involved. But beware: ''Failure to report properly can result in
penalties.''
    Those penalties aren't minor.
    Incomplete or incorrect information, or failure to provide taxpayer
identification numbers, can mean a $5 penalty for each return, up to
a maximum of $20,000.
    Failure to file on time, or to furnish 1099 forms to another party
by Jan. 31, 1988 - the most likely party being the seller - can mean
a $50 penalty for each offense.
    And, Perry warns, intentional disregard of reporting requirement can
result in even heftier penalties.
    End Adv PMs Mon., Jan. 19.
    
AP-NY-01-16-87 1336EST
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