IRS Casts a Wide Net With New 1099-K Reporting Rules
By Kenneth Corbin
As online sellers prepare for the next federal tax cycle, they can look forward to much closer scrutiny of their transactional information.
That's because a sweeping new reporting mandate will take effect for the 2011 tax year, requiring payment-services providers to submit month-by-month transaction totals for individual merchants to the IRS through the new 1099-K form.
And while the new rules squarely target credit card companies, they are drawn broadly enough to extend the reporting requirements to a host of online payment-services providers, such as Google Checkout.
"We are affected and we will be notifying merchants in the near future," Google spokesman Nathan Tyler told AuctionBytes.
Google and PayPal have already updated their terms of service to reflect the new reporting requirement. Amazon, which did not respond to requests for comment for this story, has yet to update its user agreement for its Payments service, but it will likely be affected by the new rules, as well.
The final rules, published in the Federal Register in August, apply to any "payment settlement entity," which could be either a payment card provider (including gift cards and other value-stored cards) or a "third-party settlement organization," defined as "the central organization that has the contractual obligation to make payment to participating payees of third-party network transactions."
"The purpose for that of course is to capture all this income that online (sellers) are getting" and not reporting, explained Joseph Henchman, tax counsel at the Tax Foundation, a nonpartisan Washington research group.
Under the new reporting requirements, payment-services providers will have to report the monthly gross transaction total for each merchant in the calendar year. And the IRS means "gross" literally: the amount to be reported is the tally of all applicable payment transactions, and does not account for credits, discounts, fees or other adjustments that would affect net revenue. For the monthly reporting, payment-services providers are directed to calculate revenues according to the transaction date, rather than the settlement date.
The new rules won't apply to all sellers. The IRS set a minimum threshold, requiring payment-service providers to submit the 1099-K form only for merchants with 200 or more transactions in a year that totaled at least $20,000. Both conditions must be met to trigger the reporting requirement.
"This won't catch all of it," Henchman told AuctionBytes. "I have to think your sort of average eBay seller is under that threshold."
Sellers that do meet the minimum threshold for the 1099-K can also expect new reporting obligations from their own payment-service providers.
The terms of service for Google Checkout, which were updated last month, require merchants to submit relevant documentation to Google Payment Corp. (GPC), the search giant's payments subsidiary. Section 6.6 of the agreement reads: "Seller will promptly provide GPC with original or certified copies of all tax payments or other sufficient evidence of tax payments at the time the payments are made by Seller pursuant to the Agreement."
The upshot might be more accurate and detailed reporting, but merchants and payment providers should brace for a more involved - and likely costlier - accounting exercise for the 2011 tax cycle.
"I imagine it will be a pretty hefty compliance cost to gear up and keep track and do all this," Henchman said.
About the Author
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects for more than four years, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs.
About the author:
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.
You may quote up to 50 words of any article on the condition that you attribute the article to EcommerceBytes.com and either link to the original article or to www.EcommerceBytes.com.
All other use is prohibited.