AP Journal Online - American Accounts Payable Association

In The News

Payment Card and Third-Party Network Payments
Backup Withholding Requirement Postponed

Penalty Relief Provided for Incorrect Information Reporting

The IRS has postponed for one year the effective date for potential backup withholding on payments made in settlement of payment card and third-party network transactions (IRC §6050W payments). Specifically, the backup withholding requirements of IRC §3406 will apply only to §6050W payments made after December 31, 2012 (Notice 2011-88, 10-27-11).

The IRS has also provided transitional relief from penalties for a §6050W filer reporting incorrect information on Form 1099-K, Merchant Card and Third Party Network Payments, and payee statements filed under §6050W. The relief is available for information returns and payee statements to be filed in 2012, based on payments made in 2011, provided that the §6050W filer makes a good-faith effort to accurately file the appropriate information return and accompanying payee statement; it does not apply to a payer that erroneously fails to file an information return or payee statement (Notice 2011-89; 10-27-11).

In addition, the IRS has updated related frequently asked questions on §6050W. The updated FAQs are divided by subject matter: merchant card transactions, third-party network transactions, and general issues.

Backup Withholding Postponed

The Housing and Economic Recovery Act of 2008 (Pub. L. No. 110-289) enacted new IRC §6050W, which requires information reporting on payment card and third-party payment transactions. The act also amended §3406 to provide that amounts reportable under §6050W are subject to backup withholding requirements when a payee’s taxpayer identification number is not provided or is obviously incorrect.

All payments made in settlement of payment card transactions are required to be reported under §6050W. However, payments made in settlement of third-party network transactions are required to be reported only if the amount paid exceeds $20,000 and the aggregate number of transactions exceeds 200 with respect to any payee within a calendar year.

Under final regulations issued in 2010, backup withholding for amounts reportable under §6050W was applicable to amounts paid after December 31, 2011.

The IRS cited the following reasons for postponing the effective date for backup withholding:
Payers’ unfamiliarity with procedures for backup withholding because of no prior withholding obligations, the need for additional time to develop systems to enable withholding, unfamiliarity with the IRS’s TIN-matching program, and general difficulties in matching TINs already obtained with the correct taxpayers.

Transitional Penalty Relief Provided

Section 6050W requires an information return to be filed for each calendar year setting forth the gross amount of reportable payment transactions, as well as the payee’s name, address, and TIN. A similar statement must be furnished to the payee setting forth the gross amount of reportable payment transactions, as well as the name, address, and phone number of the person required to make the return.

IRC §§6721 and 6722 are applicable to §6050W payers that must file information returns. They impose penalties for, among other things, failing to include all required information or including incorrect information on an information return or payee statement.

The IRS said it was offering transitional relief in order to provide additional time to develop procedures for compliance with the new reporting requirements. Prior to the enactment of §6050W, payers did not have to file the specific type of information return or furnish the specific type of payee statement now required.

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