Tax News

CCH (cch.taxgroup.com) reports:

The Treasury and IRS have issued proposed regulations that would modify the backup withholding rules for payment card transactions that are made through a Qualified Payment Card Agent (QPCA) (Proposed Reg. §§31.3406(g)-1(f)(2)(vi)(A), (vii), (f)(3)
and 301.6724-1(e)(1)(vi)(H)). In general, a limited exception to the backup withholding rules applies for payments made by a payor (cardholder) through a QPCA to a qualified payee (the merchant) (Reg. §31.3406-1(f)). Under the general rules that apply, a payee is considered to be a qualified payee, with respect to a particular payment, if, at the time of the payment, the QPCA has validated the payee's TIN or the payment is made within a six-month grace period. A QPCA must notify the cardholder/payor of any merchant/payees that are not qualified payees. A cardholder or payee may establish good faith reliance on the QPCA to avoid penalties for failure to file information returns or furnish correct payee statements. In particular, a cardholder may rely on a QPCA to solicit, validate and furnish a payee's TIN (Reg. §301.6724-1(e)(1)(vi)(H)).
The proposed regulations introduce the concept of participating and nonparticipating payees. Under the proposed regulations, a qualified payee is a participating payee with respect to a reportable payment if (1) it has authorized the QPCA to act on its behalf in furnishing its name, TIN and corporate status or (2) the payment is made before January 1, 2008. Thus, for payments made before January 1, 2008, all payees are considered participating payees. The IRS states that it will be issuing rules for a merchant.payee to opt out of the QPCA program in a proposed revenue procedure. For those merchants that opt out of the QPCA program, payments will continue to be treated as made to a qualified payee for the six-month grace period. After that period, the QPCA is required to notify the payor that the payee is not a participating payee. The notification should also inform the payor that the IRS rules and regulations require the payor to solicit the payee's TIN if the payor has made a reportable payment to the payee (Proposed Reg. §31.3406(g)-1(f)(2)(vi)(A), (vii)).
The notification of payee status and participation may also be furnished in electronic format, provided certain requirements are met. In particular, the rules put in place requirements that assure consistency with the Electronic Signatures in Global and National Communications Act. For example, the payment card organization must obtain certain consents from, and make certain disclosures to cardholders/payors and merchant/payees Proposed Reg. §31.3406(g)-1(f)(3).
For purposes of establishing good faith reliance on the QPCA, the TIN solicitation requirements will be met with respect to nonparticipating payees as long as the the filer does not receive notification that the payee is not a participating payee more than 30 days before the last annual solicitation period (301.6724-1(e)(1)(vi)(H)).
Written or electronic comments on these proposed regulations must be received by October 9, 2007.
CCH Comment. The IRS estimates that there are 5,200,000 merchant/payees and 26,054,000 cardholder/payees that qualify as small entities and that the rules will have an impact, but not a significant impact, on a substantial number of these entities.
Proposed Regulations, NPRM REG-163195-05, 2007FED ¶49,751
Other References:
Code Sec. 3406
CCH Reference - 2007FED ¶33,641MC
Code Sec. 6724
CCH Reference - 2007FED ¶40,279E
Tax Research Consultant
CCH Reference - TRC FILBUS: 18,058
CCH Reference - TRC FILEBUS 18,106