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New IRS Reporting Requirements for Business

By Darrin T. Mish, PA, August 27, 2010

Introduction & Overview

The Housing and Economic Recovery Act of 2008 is a new federal regulation that requires "merchant acquiring entities" to report the gross amounts of their merchant customers' electronic payment transactions to the IRS. These new requirements will apply to transactions beginning on January 1, 2011, with required reporting and tax withholding to begin in 2012. All merchant acquiring entities must collect and verify the Tax Identification Number (TIN) and associated legal business name and address for each of their merchants on file.

Legislative Overview

The Housing and Economic Recovery Act of 2008 created new payment transaction reporting requirements intended to help the IRS identify underreported sales. At year-end, the reporting entity (i.e. the "merchant acquiring entity") will be expected to file a Form 1099-K, an information return, with the IRS and provide a copy to you, reporting the gross amount of the credit card, debit card, gift card, and e-commerce transactions associated with your business.

New Reporting Requirements Summary

IRS Requirements:

• We must collect and verify your TIN and associated legal name and address for your merchant business.
• Beginning with the 2011 tax year, we are responsible for collecting your total annual dollar amount of payment card transactions to report to the IRS in 2012.
• In January 2012, we must file a Form 1099-K, an information return, with the IRS and provide a copy to you for the 2011 tax year.
• Beginning in 2012, if your TIN/legal business name combination that was provided to us does not match the information on file with the IRS, you will be subjected to IRS mandated backup withholdings.

IRS Requirements for Merchants:

• You must ensure that the TIN/name combination that was provided to us for payment card transactions matches the information on file with the IRS.
• When you receive a copy of the annual information return, you should compare that information with your own records to validate the accuracy of the information.

Requirements & Implications

The new reporting law - which was opposed by business associations, banks, industry associations before it was ultimately signed into law - also requires us to collect and verify each merchant's Tax Identification Number (TIN) and the legal business name and address associated with that number.

If you fail to provide us with your TIN, or if there is a discrepancy between your TIN and the legal business name in our records and the IRS' records, you will be subjected to IRS mandated backup withholdings. This withholding provision goes into effect for transactions starting in 2012 (unlike the reporting provisions of the legislation, which apply to transactions beginning on January 1, 2011).