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HOUSING BILL ENACTS 1099 REPORTING FOR CREDIT-CARD AND E-PAY VENDORS
July 31, 2008
One revenue-raising provision of the new tax bill is aimed at the online economy. HR 3221 will required credit-card companies and online payment processors like PayPal to make 1099 reports to vendors recieving remittances over $10,000. This new rule takes effect starting in 2011. The Wall Street Journal describes the provision:
The new reporting requirement is similar to a proposal the Bush administration has put forward in its most recent budgets as a way to ensure that taxes owed are being collected. It also applies to intermediary banks that process card payments for restaurants and brick-and-mortar retailers. Congressional tax estimators predict the reporting change will help the IRS collect an additional $9.5 billion in taxes owed by online and traditional businesses over the next 10 years.The payment processors will be required to file a 1099 form for each merchant to the IRS and to the merchant. They won't have to file for merchants with less than $10,000 in gross sales and less than 200 transactions in a given year.
The payment processing companies and credit card companies will now have to begin collecting tax identification numbers from the vendors to prepare for this. Vendors who don't provide that information will find their remittances garnished, in effect, through "backup withholding" starting in 2012.
The IRS has always had the ability to obtain payment information from these providers as part of an investigation, but only through the cumbersome summons process, which can be dragged out in the courts for years. 1099 matching provides, at least in theory, a much more reliable way for the IRS to ferret out unreported income.
Still, lots of questions remain. Recent attempts to extend matching, like the K-1 matching program, have not gone smoothly. Will the IRS just send out blanket assessments if the top line of a tax return falls short of the 1099 amounts? Will there be lots of just erroneous assessments based on 1099s? And will new payment methods evolve that bypass these reporting rules?
The tax blogs are responding to the signing of HR 3221, including the following:
TaxProf Blog
Roger McEowen
The Wandering Tax Pro
Tax Guide for Investors
Tax Info Blog
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