Final Regulations on Payment Card Reporting to IRS

Merchant gross sales collected via credit and debit cards to be reported to IRS starting January 2011. On August 16, 2010, the IRS issued final regulations (Treasury Decision 9496) related to Internal Revenue Code Section 6050W, which generally requires information reporting on payment card transactions occurring after December 31, 2010. In general, these requirements apply to government entities as well as private businesses.

Section 6050W, enacted by the Housing Assistance Tax Act of 2008, requires a payment settlement entity to report payments made to merchants for goods and services in settlement of payment card and third-party payment network transactions.

A “payment settlement entity” is either the issuer of a payment card, or, in the case of a third-party network transaction, the third party settlement organization.

“A payment card” generally means a credit card, debit card, transit card, governmentally-issued electronic benefit transaction (EBT) card, or any other card which is accepted as payment by a network of persons unrelated to the issuer of the card and to the other merchants who accept the card as payment. The settlement entity must report the gross amount paid, reduced by any fees, rebates, etc.

“A third-party payment network” does not provide for the issuance of cards, but rather involves the establishment of accounts with a central organization by a substantial number of providers of goods or services who are unrelated to the organization and who have agreed to settle transactions through the arrangement. It guarantees payment to the providers according to the terms of the agreement.

Governmental entities that accept payment cards for goods and services that they provide may receive new Form 1099-K, Merchant Card and Third-Party Payments, from card-issuers. This statement will indicate the amount of gross proceeds paid to them for the transactions. In most cases, no tax-related action by the governmental entity will be necessary, because of governmental exemption from income tax. However, if the entity has unrelated business income subject to tax, these amounts should be accounted for in any required tax filing.

Any governmental entity that is acting as a payment settlement entity, as defined in the regulations, will be responsible for issuing Form 1099-K to recipients of goods and services under this provision.

More information will be available later, and full details on the reporting procedures will be contained in the Instructions for Form 1099-K, to be released later this year. View the final regulations.(PDF download)

Page Last Reviewed or Updated by IRS: August 25, 2010

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IRS Issues Proposed Regulations on Reporting Requirement for Payment Card and Third-Party Payment Transactions

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