Tucked away in the legislation that made Obamacare into law is a tax provision that will be a compliance nightmare for small businesses if it ever goes into effect. The provision calls for all businesses to file 1099 forms with the IRS for all transactions with other businesses over $600.

Businesses are not like individuals. They purchase lots of items in large quantities. As a result, if the Obamacare reporting requirement goes into effect as scheduled in 2012, it would create an enormous compliance burden on businesses. Businesses would have to file millions of new forms with the IRS. Small businesses would be especially hard hit, because they do not have large accounting departments that can absorb more bureaucracy like larger businesses.

Businesses large and small have made their position clear to Congress: Repeal this burdensome new requirement. The House of Representatives voted on a bill that would’ve done that recently but failed to pass the measure.

The Senate is working on its own version of repealing the 1099 rule now. Senator Mike Johanns (R–NE) is leading the effort and has garnered support from Democratic Senator Blanche Lincoln (AR).

The catch in both the House and the Senate will be how to replace the $17 billion in revenue the 1099 provision is estimated to bring in. Congress passed the 1099 rule under the mistaken belief that businesses will pay more income taxes if they report more of their transactions. In reality, the 1099 rule won’t bring in a fraction of that revenue—if any at all. This is just another example of the unrealistic offsets used to “pay for” the new health care law. All the more reason to repeal this provision—and the entire law itself.