IRS Code 6050W = 1099s
The Internal Revenue Code 6050W is an important new measure that requires obligated entities to report the gross amounts of their merchant customers’ payment card and third party network transactions to the Internal Revenue Service. In short, this new legislation requires ABC Financial and all other merchants that process your credit card payments to provide each club (individual locations) with a 1099 that reports gross revenues collected. Gross revenues collected is defined as the total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other credit. This will require clubs to report all of those adjustments on their tax returns in order to properly reflect income.
These new requirements will apply to all credit card transactions beginning on January 1, 2011 with required reporting to begin in with your 2011 1099. All individual clubs are obligated to provide their tax identification number (TIN) and tax filing name to their reporting entity, ABC Financial as an example. If you are not hearing this from other processors of your credit card payments, you will be very soon. This is an IRS requirement that will impact everyone.
Here’s the kicker, so pay close attention. If an individual club fails to provide its TIN OR if the IRS sends notices to the reporting entity (ABC Financial) that there is a discrepancy between the information provided by the merchant and the IRS records, the reporting entity will be required to withhold tax on the merchant’s future funding amounts. Backup withholding, which is currently 28%, will start in 2012. In plain English, if you don’t comply with 6050W, we are required to hold 28% of the credit card payments we collect for you until you do.
Bottom line for club owners is that the IRS is looking to make sure that the revenue you report is accurate and matches what we, as the credit card merchant, is collecting. If we don’t already have your tax identification number (TIN) on file, you can expect us to reach out to you in the very near future to obtain that. Last point for you to consider is that this is on credit cards only. This does not include checks, cash or ACH payments.
Stay tuned to the ABC Insider as more information becomes available on this critical new IRS legislation.