Tax News

CCH (cch.taxgroup.com) reports:

  Proposed regulations relating to information-reporting requirements under new Code Sec. 6050W for issuers of credit, debit, gift and similar payment cards have been issued. The regulations provide guidance to interpret the definitions used in the statute and contain numerous illustrative examples.

 
Code Sec. 6050W, as added by the Housing Assistance Act of 2008 (P.L. 110-289), requires payment settlement entities (e.g., a bank) to annually report payments to participating payees (e.g., a merchant) in settlement of reportable payment transactions (e.g,. a credit or debit card transaction). The reporting requirement also applies to transactions settled through third-party payments networks, such as third-party organizations that settle online transactions (e.g., PayPal).

  Information reporting will begin to apply to 2011 transactions. Form 1099-K has been proposed for this purpose and is now available in draft form.

  Form 1099-K will be prepared for each calendar year and report the gross amount of reportable transactions for the year and for each month of the year. The inclusion of monthly amounts on the return filed with the IRS and the copy furnished to the payee will help fiscal-year payees reconcile payment carD and third-party network transaction receipts. The gross amount of a transaction is not reduced by fees, chargebacks, refunds, or any other amount.

  Payees may be given an electronic version of the form but only pursuant to current rules which require affirmative written consent.

  Individuals who use payment cards are not affected by the reporting requirements. No personal information regarding a payment card user is given to the IRS.

  Under the proposals, a payment card includes, but is not limited to, credit cards, debit cards, and stored-value cards (e.g., gift cards or similar cards with a prepaid value). A payment card also includes the acceptance as payment of any account number or other indicia associated with a payment card. A payment card issued in connection with a flexible spending arrangement or a health reimbursement arrangement is not exempted from the reporting requirements.

  Transactions using a stored-valued card that a network of persons has agreed to accept as payment (such as card issued by a college that may be used at specified local merchants) are subject to reporting. However, transactions involving a person (e.g., merchant) related to the issuer are excepted from the reporting requirements.

  A payment settlement entity may be a domestic or a foreign entity. A payment settlement entity that is not a U.S. payor or U.S. middleman is not required to report payments to participating payees that do not have a U.S. address so long as the payment settlement entity neither knows nor has reason to know that the participating payee is a U.S. person. Other payment settlement entities are exempt from the reporting requirements only if they obtain specified documentation from a payee with a foreign address establishing that the payee is a foreign person.

  An electronic payment facilitator (i.e., a person that contracts to make payments on behalf of a payment settlement entity) is subject to the reporting requirements and is liable for any penalties for failure to comply with those requirements. The facilitator's failure to comply with the reporting requirements will not cause the payment settlement entity to be liable for penalties.

  Under a de minimIs rule, a third-party settlement organization must report payments made to a participating payee only if its aggregate payments to that payee from third-party network transactions exceed $20,000 and the aggregate number of those transactions with the payee exceeds 200. This de minimIs exception does not apply to payments in settlement of payment card transactions. The IRS is seeking comments on whether the de minimIs exception should be mandatory or voluntary.

  Payments made to governmental units are subject to the reporting requirements under the proposals. No exception is provided for payments made using transit cards, electronic tool collection systems, and similar electronic payment mechanisms. The IRS seeks comments on the impact the regulations would have on government units that use such payment methods.

  The proposals clarify that health carriers operating health care networks, in-house accounts payable departments, and automated clearinghouse networks are not subject to the reporting requirements under the third-party payment network rules.

  Pursuant to rules for aggregated payees, the proposals require a corporation that receives payment from a bank for credit card sales transacted at its independently owned franchise stores to report the gross amount of the reportable transactions settled through the corporation. The corporation is required to separately report the gross amount of reportable transactions allocable to each franchise store.

  Under the proposals, any payment card transaction that would otherwise be reportable under both Code Sec. 6041 (relating to information at source) and new Code Sec. 6050W are excepted from the Code Sec. 6041 reporting requirements. This relief, however, does not apply to third-party network transactions. No further exceptions from duplicating reporting are provided.

  The proposed regulations also provide guidance on backup withholding requirements for reportable amounts that are paid after December 31, 2011.

  The proposals would be effective on the date published as final regulations in the Federal Register and would generally apply to returns for calendar years beginning after December 31, 2010.

  Comments on the proposed regulations must be received by January 25, 2010, and may be submitted electronically by mail or hand-delivered to the IRS.

  A public hearing on the proposals is scheduled for February 10, 2010.

IR-2009-106,
2009FED ¶46,535

Proposed Regulations, NPRM REG-139255-08, 2009FED ¶49,437

Other References:

 
Code Sec. 3406

  CCH Reference - 2009FED ¶33,640AD

  CCH Reference - 2009FED ¶33,640CD

  CCH Reference - 2009FED ¶33,641BG

  CCH Reference - 2009FED ¶33,641EC

 
Code Sec. 6041

  CCH Reference - 2009FED ¶35,821C

 
Code Sec. 6050W

  CCH Reference - 2009FED ¶36,381C

 
Code Sec. 6051

  CCH Reference - 2009FED ¶36,424AC

 
Code Sec. 6721

  CCH Reference - 2009FED ¶40,213C

 
Code Sec. 6722

  CCH Reference - 2009FED ¶40,232C

  Tax Research Consultant

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