Panicked about those new form 1099-K (Merchant Card and Third Party Network Payments) requirements? Take a breath. The IRS has already figured out that things aren’t going terribly smoothly and is, as a result, offering “special transitional relief” for taxpayers and service providers.
Contrary to some internet rumors, this isn’t the same as a free pass. The law is still effective, just bits of it are delayed. As a result of concerns about the new law, the IRS will delay penalty provisions and withholding requirements for a full year, until January 1, 2013. However, the filing requirements are still in place, meaning that reporting for 2011 is still going to happen.
Under the current rules, information reporting for applicable payment card and third party network transactions are due to the IRS by February 28 each year (or March 31, if filed electronically) for the prior calendar year. That means that the first forms 1099-K for calendar year 2011 must be submitted to the IRS by February 28, 2012 (or April 2, 2012, since March 31, 2012, falls ons a Sunday, if filed electronically).
And just like a form 1099-MISC or 1099-DIV, those statements also need to be furnished to the payee. The form 1099-K must be provided to each participating payee by January 31 of each year for the prior calendar year. That means that forms 1099-K for the calendar year 2011 must be furnished to payees by January 31, 2012.
There are some tricky withholding rules that accompany the reporting requirements. Specifically, backup withholding of 28% is required if a payee fails to furnish a correct taxpayer identification number to the payor. The IRS noted that they had received requests to postpone the due date for backup withholding from a “number of payors” due to concerns about the procedure and difficulties in matching TINs to taxpayers in order to comply with the new rules. As a result, the IRS is postponing the effective date for backup withholding (as it applies to section 6050W payments) for an additional year. This means that backup withholding will be required on section 6050W payments made after December 31, 2012.
The IRS is also granting accuracy-related penalty relief. Under section 6050W, forms 1099-K must include the gross amount of reportable payment transactions, as well as the name, address and taxpayer identification number (TIN) of the payee. Penalties apply for failing include all required information or including incorrect information on the form 1099-K sent to the IRS or to the payee – just like with other forms 1099. However, payors were concerned about the potential penalties in light of the new reporting requirements and asked IRS for a break. As a result, the IRS will not impose accuracy-related penalties on payors that file forms 1099-K provided that the payors make good-faith efforts in filing accurate forms. This relief is only applicable to payments made in the calendar year 2011 and doesn’t apply to payors who simply don’t file.
Also on tap? The IRS has indicated that they might have some solutions for those pesky gross income reporting issues. Many practitioners had expressed concern about the requirement to report gross receipts paid out without regard to chargebacks, fees or other adjustments with many worried that such discrepancies would raise flags at IRS. Future guidance on this issue is expected to be released.
In the meantime, you can read more about the relief offered so far in IRS Notice 2011-88 and Notice 2011-89 (each will download as pdf) or check out the FAQ page on the IRS web site.
(Hat tip: @eligabiff)
