Tax Reporting for Merchants IRC Sec. 6050W

Transcription

1 Tax Reporting for Merchants IRC Sec. 6050W

2 MAC MAC is an organization of Bankcard professionals involved in the risk management side of Card Processing. We have members from Banks, ISOs, Card Associations and others related to the risk management side of the industry. MAC s mission is to strengthen the payment ecosystem through ongoing education, communication and cooperation among acquirers, card brands and enforcement agencies.

3 Agenda Legislation Review Implications for Settlement Entities Recent Questions to the IRS TIN Matching Anecdotes/Best Practices Can Merchants be charged for reporting? Open Discussion

4 Review: IRC 6050W, Tax Reporting Payment Settlement Entities Reportable Payment Transactions Backup Withholding Penalties Effective January 1, 2011 (Reporting) Effective January 1, 2015 (Withholding)

5 Implications for Acquirers/ISOs Merchant Education Customer Service (similar to PCI) Backup Withholding or Attrition? IRS Penalties Special Categories Aggregators Puerto Rico & US Territories Foreign Merchants

6 Recent Questions to the IRS Question 1) When defining the term Gross Amount the regulation states it is the total dollar amount of aggregate reportable transactions without regard to any adjustments for credits, cash equivalents, etc. Would you please define for the term cash equivalents? Answer: Per the IRS Chief Counsel s office, cash equivalents were not defined in the regulation. However, anything that can be used as cash, e.g. stored value or virtual coins cannot reduce the Gross Transactions amount. The only reduction allowed is outlined in Question 2, below.

7 Recent Questions to the IRS Question 2) The final regulation states that when a card is being used to obtain funds from the cardholder s own account that transaction is excluded from Reportable Transactions. Examples are to obtain a loan, a cash advance, a withdrawal from an ATM, and the use of a benefits card to obtain cash. When a consumer uses his pin based debit to pay for a transaction and also obtains cash back from the merchant is the cash back similar to the above examples and therefore excluded from Reportable Transaction? Answer: Convenience checks and loans are the only exceptions to the Gross Amount reported but it does need to be reported to the merchant for the deduction for taxable income. However, if an acquirer can identify the cash back it could reduce the Gross Amount paid to the merchant but most acquirers cannot identify these amounts or it can make sure the merchant knows this information for tax reporting purposes.

8 Recent Questions to the IRS Question 3) This question relates to the example where a payees account may have insufficient funds available for backup withholding. If the payor cannot locate another source of funds, the payor may defer its obligation to backup withhold until the earlier date on which the payee s account has sufficient funds or the close of the fourth calendar year. The payor, however, has no direct access to the payees account to determine if sufficient funds are available. A payor can only resubmit ACH debits and hope that there are available funds. How often during the four year period should the payor initiate ACH debit attempts? Answer: The IRS encourages Acquirers to use their good business judgment take more from the merchant as you are able to. The IRS publication 1335 Q & A on backup withholding and Circular E are good sources for additional information.

9 Recent Questions to the IRS Question 4) Where can a get a copy of the 1099k form? Answer: Next page has sample.

10

11 Recent Questions to the IRS Question 5: Can B notices (both first and second notices) be received electronically? In some cases there will be thousands of the notices. Answer: IRS contact will be forwarded. Notices have to be sent the address of record of the payor.

12 TIN Matching/Best Practices Where is the industry? On the 20 driving 80 yards for the TD 30%+/- invalid TINs Most common mismatch: Sole Proprietors & the Merchant s personal SSN Focus? Large Merchants Profitable Merchants rank them by revenue

13 TIN Matching/Best Practices (cont.) Solutions In-house Operations/Call Center Firms with outbound telemarketing solutions Your processor? W-9 it protects you get them for your new merchants What s the fastest way to get them to fix the issue? Turn their terminal off but be prepared get a W9 if need be. Consequences B Notices you have 30 business days to respond.

14 Can Merchants be charged for reporting? Yes however, you need to word the fee carefully do not list it as 1099-K Fees In S for Real Estate Transactions Fee Prohibited later recanted,. IRS in its next FAQ 1099-K will Do more for your merchant Educate them Help them with their Taxes

15 Conclusions 1. TIN Matching Target your merchants K Educate your Merchants. 3. Recoup your expenses could be the new statement fee. 4. As far reaching as the Patriot Act and PCI being morphed into one mandate.

16 Questions?

17 Join MAC Today! MAC Mission Statement Strengthen the payment ecosystem through ongoing education, communication and cooperation among acquirers, card brands and enforcement agencies. Who we serve: Acquiring Bank Acquiring Savings & Loan Acquiring Credit Union Gateway Provider Internet Service Provider ISO/MSP Merchant Acquirer Processor Risk Management Professional Your membership in MAC is an investment that should not be overlooked. If you are not a member of MAC JOIN TODAY!