Information Reporting for Payments Made in Settlement of Payment Card and Third Party Network Transactions

Editor's Note – if you facilitate electronic transactions, gift cards, credit cards, or payments between unrelated entities you may be required by this section 6050W to file form 1099-K. Our organization IRS Compliance can help you with your determination if you are impacted and if you need to file form 1099-K. The following information while 'dry' will give you a better idea of your exposure.

The final regulations implement section 6050W and related statutory changes enacted by the Housing Assistance Tax Act of 2008 that require payment settlement organizations to report payments in settlement of payment card and third party network transactions for each calendar year.

The final regulations provides guidance to implement section 6050W, which requires information reporting for payments made in settlement of payment card and third party network transactions. Additionally, the final regulations amend the regulations under sections 6041 and 6041A in proving relief from duplicate reporting for certain transactions. When a reporting requirement exist within both sections 6041 and 6050W the transaction will be reported under section 6050W

Section 6050W requires that each payment settlement entity must report the gross amount of reportable payment transactions for each participating payee. For reporting purposes, the gross amount is the total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments.

For reporting purposes a payment card transaction is any transaction in which a payment card is accepted as payment. The proposed regulations further provided that a payment card includes, but is not limited to, all credit cards, debit cards, and stored-value cards (including gift cards).

Section 6050W(c) (3) defines third party network transaction as any transaction that is settled through a third party payment network. Thus, section 6050W(d)(3) defines third party payment network as any agreement or arrangement that: (A) involves the establishment of accounts with a central organization by a substantial number of persons who (i) are unrelated to such organization, (ii) provide goods or services, and (iii) have agreed to settle transactions for the provision of such goods or services pursuant to such agreement or arrangement; (B) provides for standards and mechanisms for settling such transactions; and (C) guarantees person providing goods or services pursuant to an agreement or arrangement that those persons will be paid for providing those goods and services.

This final regulation could impact your organization if your business is to act as a third party issuing payments on the behalf of other U.S. payers. State reporting and withholding regulations may also apply.

The proposed and final regulations include an example to demonstrate that health insurance networks are outside the scope of section 6050W because a healthcare network does not enable the transfer of funds from buyers to sellers.

Two effective dates that you will have to deal with are Information returns required under section 6041, 6041A, 6050W, 6051, 6721 and 6722 are reportable for calendar years beginning after December 31, 2010. The regulations under section 3406 apply to amounts paid after December 31, 2011.

The good news is that reporting required under section 6050W will allow matching Taxpayer Identification Numbers (TINs) under the procedures established by Rev. Proc 2003-9.

If your organization is interested in 1099 software and services to comply with these regulations for tax year filing 2011 and beyond, contact IRSCompliance at 1-877-tax-regs ext 0 or 410-914-5470 and ask to speak to someone regarding our 1099 Pro software products and services to comply with IRS Code Section 6050W. Email us at compliance@irscompliance.org