FiNet, Inc. - A Network of Solutions

The Housing Assistance Tax Act of 2008 included the enactment of Section 6050W of the Internal Revenue Code, a new mandate requiring all processors to report the gross amounts of their merchant customers' payment card transactions to the IRS on a yearly basis. As a result of this legislation, merchants and processors are obligated to the following, effective January 1, 2011:

	Merchants are required to have provided the correct tax identification number (TIN) and tax filing name.
	Processors are required to audit each merchant account and file an annual information return with the IRS. Processors must also provide each merchant payee with a corresponding Form 1099-K, reporting monthly and annual gross sales.

The new 6050W reporting requirement is part of an ongoing IRS program to recoup tax receipts lost to underreporting of income by businesses and individuals. The IRS has estimated the gap between income actually earned and what gets reported to the IRS exceeds $345 billion a year. It also has estimated that the successful implementation of the new regulations could add more than $10 billion to federal tax collection tallies in the first 10 years.

In order to file annual returns and provide merchants with proper documentation, processors must have the correct Tax Identification Number or Employee Identification (TIN/EIN) and Tax Filing Name for every merchant. The IRS requires all taxpayer information to be correct by December 31, 2011.

As of October of 2011, the IRS has agreed to provide a one year extension before any penalties are assessed to merchants with erroneous TIN/EIN information. However, if processors are unable to obtain correct tax information from merchants by December 31, 2012, they are required to perform backup withholding from a merchant's funding by deducting and withholding income tax from reportable transactions. The required percent withheld varies by state, but currently the minimum withholding is 28% and can be held at the request of the IRS until January of 2014.

Processors have been making an effort to contact merchants with incorrect information on file for the past year and will continue to do so until all issues are corrected. Unfortunately, many merchants have been nonresponsive. Merchants should be mindful of any communications received from their processors requesting corrected information, as their account will be impacted if not addressed.

Some processors may assess annual or monthly fees to offset the expense of compiling and auditing the required merchant data. Sage Payment Solutions, FiNet's primary processor, has chosen to suspend billing for this service as of September 2011, so Sage merchants should not be impacted by additional fees at this time.