August 2011

The New Form 1099–K for Merchants and Third Party Payments
Written by: Karen Reed, EA

If you accept credit cards or use an electronic payments service such as PayPal to process your sales transactions, you may be receiving the new IRS Form 1099–K in early 2012 for tax year 2011. Beginning with tax year 2011, banks and other payment processing services will be required to file Form 1099–K to report gross receipts, both to you and to the IRS.

The new form will be used by the IRS to make sure the income you report on your tax return matches with the information they receive. Since the amount reported to you on Form 1099–K will be the gross amount, not including adjustments for charge backs, refunds, discounts, credits or fees, make sure you have good records to support any discrepancies between the amount you report on your return and the amount reported to you on 1099–K.

The new reporting requirement applies to merchants who receive more than $20,000 in gross payments AND over 200 payment transactions. If you meet both of these thresholds, you should receive your 1099–K by early February of next year. Issuers are required to mail the forms by January 31, 2012. Failure to furnish a valid taxpayer identification number (TIN) to the bank or payment processor could subject you to backup withholding, according to the new rules.

This information is being provided to the taxpayer as required by the Internal Revenue Service and follows the guidelines for best practices for tax advisors per Circular 230 §10.33(a)(1–4), and § 10.35(b)(2), (8), and (10). As by definition, this written statement may be considered to be a “covered opinion” as defined by the Internal Revenue Service. This statement(s), along with subsequent correspondences, is not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding lawful penalties that may be imposed on the taxpayer by the Internal Revenue Service. The principal purpose of any stated tax advice included here has as its purpose to claim tax benefits in a manner consistent with the statutes and Congressional intent.