Information Reporting

New 1099 Reporting Requirements

After 2011, merchants conducting credit card, debit card or gift card transactions will receive a Form 1099-K from the card processing company, who will also file a copy with the IRS. Payments made through a third party such as PayPal or eBay, will be reported only if the payee receives more than $20,000 in aggregate and the total number of payment transactions exceeds 200. Although the 1099-K reporting requirement does not oblige merchants to file any new information with the IRS, the reporting requirement will increase the information the IRS receives with respect to merchants and requires merchants to establish new accounting procedures. Backup withholding may apply to a merchant if the merchant does not provide a correct taxpayer identification number (TIN), such as an employer identification number (EIN), to the card processing company, but the IRS has delayed this requirement until after 2012.

Businesses were almost subject to two other new reporting requirements, but after pushback from the business community, the AICPA and others, these rules were repealed before they could come into full effect. The first provision would have required that businesses who make payments to a service provider aggregating $600 or more to report payments (on 1099 MISC) to corporations starting in 2011. The second provision would have required individuals receiving rental income from real estate to file information returns for payments made after Dec. 31, 2010.

Downside: The IRS will have more information on the gross receipts of merchants who accept credit cards.

New 1099 Reporting Penalties

A penalty may be imposed for persons who fail to file a correct and timely information statement with the IRS or who fail to furnish a correct and timely payee statement. The amounts of these penalties have increased for returns filed on or after Jan. 1, 2011. Both penalties are now $100 per return, reduced to $30 for returns fewer than 30 days late and to $60 for returns 30 or more days late that are filed before Aug. 1. The penalties are capped at a certain amount, depending on the amount of the per-return penalty and the gross receipts of the business. The penalties may be waived for reasonable cause or increased in cases of intentional disregard.

Downside: Businesses may be subject to increased penalties.