One of the first regulations out of the gate from the recently passed health care reform bill has small business owners furious and even some Democrat supporters of the bill concerned. One of the few non-healthcare related provisions, this provision is supposed to raise $17 billion dollars to help pay for the bill. Under the premise "the more information reported by a third party to the IRS on a taxpayer, the less likely a taxpayer is likely to underreport income," this new provision requires all businesses to report to the IRS almost all purchases, goods or services, from business taxpayers totaling over $600 a year.

For most businesses, this will result in a paperwork nightmare that will have a chilling effect on business transactions. Can you imagine having to dig up your local chain office supply stores tax ID and send them a 1099 (the form currently used to report income paid to independent contractors) on the amount of business you did with them. Beginning in 2012 business will have to do just that. When this regulation goes into effect, some businesses have reportedly will have to file thousands of more 1099 forms.

The ultimate irony of these new burdens is that the IRS has neither the resources nor the ability to use the new information to reconstruct an accurate picture of a company’s revenues since a large volume of business-to-consumer transactions are not reported. While the vast majority of compliant taxpayers will bear the cost of implementing this regulation, it will only return a minimal benefit to the government in reducing noncompliance.