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Partisanship is already dominating the final work week in the Senate. While both Republicans and Democrats agree that a new tax reporting requirement in the health care law should be scaled back, each party defeated the other side?s proposal to accomplish that goal.

Senators just voted 46-52 against an amendment by Sen. Mike Johanns, R-Neb. that would have stripped out the provision, which requires businesses to report to the IRS transactions to anyone or any company that cost more than $600.(This includes self-employed so you know)

The Senate then defeated a similar amendment by Sen. Bill Nelson, D-Fla. Nelson?s measure, which went down in a 61-37 vote, would have raised the reporting requirement to $5,000 and excluded businesses with fewer than 25 employees.

Seven Democrats voted for the Johanns proposal, which most Democrats and the Obama administration said went too far in rolling back a health care provision that was expected to raise about $17 billion to help pay for an expansion in health care coverage. Republicans for the most part refused to back the Democratic bill because they didn?t think it went far enough and did not like that it would be paid for with a $15 billion tax on oil companies.

The amendments were part of a small business tax bill the Senate is expected to vote on in the coming days. Unless the two parties can agree on a compromise, the tax reporting requirement that nobody seems to like is going to remain in the bill. The reporting requirements are set to begin in 2012.

IRS Form 1099-K

IRS Form 1099-K ensures that small business owners who don't declare all of the revenues they receive via credit cards, debit cards, gift cards and services like Paypal will no longer be able to hide those revenues from the IRS.

In the years to come, IRS scrutiny will be more intense for small businesses and entrepreneurs that accept credit cards, debit cards, gift cards, Paypal or similar electronic payments.
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Historically, the revenues that small businesses receive through these payment processors have not been readily visible to the IRS.

That's going to change starting in 2011.

Starting in 2011, the gross amount of payment card and third-party network transactions will be recorded on a new IRS form, form 1099-K.

In rolling out the new 1099-K form, the IRS is attempting to improve voluntary tax compliance by business taxpayers.

Currently, the tax system is more of an honor system than most might like to admit. Without visibility into a small business' credit card revenues, the IRS must take the business owners word that they are reporting all taxable revenues.

In lieu of the IRS having access to information about credit card revenues and other electronic payment processing revenues, the IRS only has one tool to combat tax cheats who underreport revenues: an IRS audit. However, this is not a foolproof system because it requires scarce human resources to conduct a thorough IRS audit.

"Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe," said IRS Commissioner Doug Shulman.

On the IRS website, you can view a draft version of new Form 1099K, Merchant Card and Third-Party Payments, which will be used to make these reports.