The Value Added Tax (VAT) is one of the most sinister and hard to track tax schemes around. It is not designed to be as apparent as personal income, property, and sales taxes.

The Obama Administration appears to be continuing its pattern of laying peripheral regulatory groundwork just prior to enacting the real center piece of their regulations/laws. These practices have proven deceptive yet effective in delivering on their agenda.

Collecting information on suppliers (and eventually distributors) from all product and service providers in the U.S. creates a CHILLING tax proposition -- build the framework to estimate and levy VAT across the ENTIRE economic "go-to-market" process:

Supplier-->Production-->Distributor-->End Customer. Each stage gets a new tax under this approach.

Essentially, by starting at the end of the process and working backwards, virtually all participants of the economic product / service delivery cycle become suppliers of sort in the overall chain of events.

Some predictable results from VAT schemes:

  • Instant inflation as companies pass their new tax on to customers in the form of price increase.
  • Virtually untraceable taxes/product costs from the end customer standpoint since they are embedded in pricing throughout the chain.
  • It will prove difficult to ascribe the piecemeal yet massive VAT taxation scheme to its rightful source -- the U.S. government, not
  • Excessive tax flows from VAT will fuel additional government spending due to perceived new revenues.
  • Regressive taxation -- the poor will have to pay the same tax as the rich, but with less income thereby creating "tax pains" for
  • Product price increases will make American products even less competitive internationally than they are now thereby hurting exports.
According to the attached business columnist's article, the mechanism to lay the groundwork for collection information for potential VAT was apparently slipped into the recent gargantuan Health Care Bill that sported well over 2,000 pages. This was NOT done by accident and the ramifications extend well beyond any health care applications.

A supporting source article and link on the potential beginning of another government growth plan follows. Read between the line and relate to everything else that's going on. The insatiable big-government need for money to support its overspending rages on. Correspondingly, the need for citizens to be vigilant and aware of trends and patterns of note grows as well; as does the need for electing the right people this November.



Posted: June 6, 201, Detroit Free Press

Businesses can expect to tell IRS about suppliers

Overshadowed by all the other provisions in the health care reform legislation passed by Congress this year was a new Internal Revenue Service reporting requirement for businesses that's supposed to help close what the IRS calls the tax gap -- money lost when taxpayers manage to game the system.

"You're going to have to gear up for this thing," advises James Jenkins, president of Jenkins & Co., a tax firm in Southfield.

"It's a lot of bookkeeping; it's a lot of tracking."

Right now, when a business pays $600 or more during a calendar year for services from an independent contractor, the business must issue a form 1099-MISC to the contractor and furnish a copy to the IRS. Starting in 2012, the requirement will apply to goodsas well as services.

As Jenkins reads it, this means companies will have to issue 1099s to dozens or maybe hundreds of other
companies. If you run a restaurant, for example, the company that supplies your bread could need a 1099. Such payments to corporations are now exempt from the 1099 Miscellaneous filing requirement, according to CCH Principal Tax Analyst Mark Luscombe.

Of course, businesses can only do so much preparing for this new requirement since the details of the reporting
requirements are still being worked out. IRS Commissioner Douglas H. Shulman has said he wants to "minimize the burden and avoid duplicative reporting." So, over the next several months, the IRS will seek opinions from business owners and leaders before proposing rules to implement the law, Shulman said in a May 27 speech to the American Payroll Association and the American Accounts Payable Association.

Proving tax deductions

When third parties provide more data to the government through 1099s and other means, it becomes harder to skirt the IRS. Jenkins said some small companies could now be running under the radar but the new reporting requirement "is going to drive them out of the woodwork." Jenkins said business owners would be wise to obtain taxpayer identification numbers from a supplier before writing a check or making the payment.

"On audit, if you don't have the 1099s, they won't give you the deductions," he said. Plus, there are financial penalties for failing to file required 1099s.

Amy Johnson, senior manager for Gordon Advisors, a Troy accounting firm, said businesses need to understand the rules, even though there is always a chance that a new regulation could be delayed or changed. U.S. Rep. Dan Lungren, R-Calif., has introduced legislation to repeal the new 1099 requirements, saying small businesses do not have the resources to do all the extra paperwork.

However, even if the rules are scaled back, it's clear that the federal government wants more data from businesses.

Credit card changes, too

Under an earlier change in law, the IRS will have new reporting rules involving credit card processors, too.
For sales beginning Jan. 1, 2011, a merchant bank must send the business a 1099 reporting the annual dollar figure from credit card and debit card purchases made by its customers. The same information goes directly to the IRS.

If a merchant has at least $20,000 in sales on credit cards or at least 200 credit card transactions, Luscombe
said, the credit card issuer would have to report that information to the IRS the next year. In his prepared remarks at the end of May, Shulman said the IRS plans to use its administrative authority to exempt business-to-business transactions conducted with payment cards from the new requirement to report the purchase of goods.

"These transactions will already be covered by reporting requirements on payment card processors, so there is no need for businesses to report them as well." He said. "So, whenever a business uses a credit or debit card, there will be no new burden under the new law."

While such rules could help deal with credit and debit card sales, Johnson noted that businesses would still have the 1099 requirement when a company pays a supplier by check. Right now, she said many businesses may not be aware of the upcoming change.

"I think they will be surprised," Johnson said. But better to be surprised by a reporting requirement than an IRS

Contact SUSAN TOMPOR: 313-222-8876
or stompor@freepress.com.

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