IRS 1099 Reporting. Linda McGee, Vice President. Commercial Solutions Visa USA, Inc. September 20, 2007

Transcription

1 IRS 1099 Reporting Linda McGee, Vice President Commercial Solutions Visa USA, Inc September 20,

2 Objectives of the Session To understand 1099 Compliance and the basics of 1099 reporting Discuss challenges relating to 1099 reporting Discuss and understand the QPCA Program Parameters of QPCA Program QPCA Timeline QPCA Benefits Discuss how US Bank delivers the information 2

3 Reporting - The Beginning IRC section 6041 passed in 1942 to help fund WWII Scope is very broad Regulations adopted in 1950 s TIN requirements added 1980 s 3

4 Basic Concept Statute: Report when you pay anyone anything for any purpose unless you know an exception applies Regulations provide some exceptions for merchandise for freight, telephone for corporations (unless payor is a federal agency) If part of a payment is reportable and part is not, report everything When in doubt, report 4

5 Paid or Credited You must report all payments made in a calendar year if total is at least $600 For cash, when given or made available For check, when sent or made available For card, date of transaction Aggregate all transactions to see if $600 or more Challenge: Late-year transactions not billed until January but reportable for earlier year Run reports after January Challenge: Aggregating checks and card transactions If aggregating only have to file for those over the threshold; if not aggregating must file all 5

6 Merchandise/Service You must report all payments unless you KNOW that the payment was for merchandise Challenge: How to tell if card transaction was for merchandise? review paperwork use MCC IRS has released optional list of Merchant Category Codes to be used as an indicator of whether the payment was for merchandise or service 6

7 Payees Report payments to all types of payees unless you know an exception applies Exceptions include payments to tax-exempt organizations, government entities Challenge: How to tell what type of entity the payee is? Information provided by Visa and delivered through U.S. Bank 7

8 Sole Proprietorships, Partnerships and LLCs Sole Proprietorships No exception applies--report all service payments Use name of the owner, not the business name Use SSN if you can; IRS will accept EIN Partnerships and LLCs Report all partnership transactions Report most Limited Liability Company transactions LLCs not reportable if they tell you they are treated as a corporation (and cardholder is not a federal agency) 8

9 Names and Addresses Payee s legal name--not DBA name-- is the one IRS wants Sole Proprietor = individual s name (1040) Entities = name as shown on SS4 when applied for EIN IRS prefers the legal address (one shown on taxpayer s tax return) 9

10 Accurate TINs IRS matches name/tin combination on info return with master file First four letters of name are critical Some typos tolerated If no match, B Notice generated Challenge: How to ensure accuracy of TINs? Utilize data provided by QPCA 10

11 B Notices Frequent Causes The IRS will issue a B Notice if the payor s name does not match the TIN on IRS files Frequent causes for a mismatch DBA name used instead of sole proprietor name Name misspelled or abbreviated Missing TIN TIN not 9 digits long TIN contains alpha characters or hyphens Paper reporting IRS scanning errors 11

12 Payee Statements Must be sent to payee by January 31 or penalties apply Extension of time (EOT) available Penalties may apply 12

13 Information Returns Due to IRS by February 28 if filing on paper or magnetically Due by March 31 if filing electronically Penalties apply for late or inaccurate filing Challenge: How to meet this deadline and deal with penalty notices IRS Martinsburg West VA Payor Call Site (866) or (304) :30 4:30pm EST No Charge for Service Anonymous 13

14 Why Visa Sought Changes to IRS Regulations for 1099 Reporting Needed a method to easily determine which transactions are subject to 1099 reporting. Access to IRS TIN (Taxpayer Identification Number) Matching Program Current IRS Regulations do not provide a waiver for the backup withholding requirement on card payments. Payment Card systems unable to meet backup withholding requirements. Visa Merchant Profile Database created to support the commercial card product regulatory reporting needs. 14

15 Fundamentals of the QPCA Program QPCA relieves cardholders of certain IRS burdens and opens card programs to full benefits. QPCA authorizes card brand companies to obtain and validate TIN on behalf of p-card customers. Provides a back-up withholding waiver when transacting with validated merchants. Only a Card Brand Company (Visa, MasterCard, American Express) can become a QPCA, NOT the Bank/Issuer. Currently, you should be doing exactly what you have always been doing to comply with 1099 until IRS approves QPCA applications. 15

16 What QPCA is Not QPCA does not create more Form 1099-MISC requirements or hurdles for purchasing card customers Provides resources, clarity, and a framework to comply Nothing changes until a QPCA exists The reporting requirements are the same P-Card customers should currently do the same thing they have been to comply QPCA is NOT mandatory for either cardholders or the Card Associations 16

17 QPCA Definition Qualified Payment Card Agent (QPCA) is an IRS designation granted to payment card organizations which meet IRS Standards surrounding: Data Collection Validation Maintenance Distribution Affiliates, members, licensees (including Acquirers, Issuers, and Processors) assist the QPCA in meeting IRS requirements but are not the QPCA No timeframe for IRS to make determinations 17

18 Basic QPCA Duties Apply to IRS Notify Merchants about QPCA program Notify cardholder entities about QPCA program Process opt-out responses Do TIN Matching Send cardholder entity s Merchant data reports indicating qualified vs. non-qualified merchants Provide telephone number for merchant and cardholder entity s questions Respond to IRS audit requests 18

19 Basic Cardholder Entity (Agency) Duties Opt out if so desire If participating / monitor merchant status through reports delivered by QPCA If notified of a non qualified merchant, solicit name/tin within 2 months If unsuccessful in solicitation, either B/W on future transactions or stop doing business with that merchant You may choose to stop doing business with non qualified merchants. If continued to use a non-qualified merchant must B/W, take own money and deposit with IRS File Information returns annually (no change) 19

20 Basic Merchant Duties Provide name/tin to Acquirer Opt out if unwilling to have QPCA validate TIN info 20

21 Backup Withholding Under QPCA Simplest way to state this rule is: Companies under QPCA never have to B/W on P-Card transactions unless notified by QPCA that merchant is non qualified and two month solicitation period expires unsuccessfully. 21

22 Cardholder Merchant Qualification Reports QPCA must send reports to cardholder entities about merchant data including non-qualified merchant list Reports required no later than 4 months after transactions occur Visa will report on quarterly basis quarterly report due one month after end of quarter 22

23 Cardholder Merchant Qualification Reports Cardholder entity will receive and process merchant qualification reports Records data provided to use for year-end filing Solicit Non Qualified Merchants Must do within 2 months of being notified Solicitation must be done in accordance with current procedures If get TIN within 2 months great, continue to use merchant, no B/W needed If not, must either B/W or stop doing business with that merchant 23

24 QPCA Agency Benefits Provides grace period before any backup withholding required Most merchants not subject to B/W TIN matching will be done by Visa TIN solicitation requirements minimal Receives status of merchant s TIN qualification on Form 1099-MISC report Expanded penalty protection by relying on QPCA s data 24

25 QPCA Milestones Presented a proposal to IRS requesting reporting and withholding guidance for purchasing card transactions November 1999 IRS issues Regulations and a Revenue Procedure detailing QPCA - August 2004 Visa submits QPCA application - March 2005 Formed a Steering Committee of largest acquirer organizations - October 2005 Visa forms working group with Master Card and American Express to address common issues with IRS Revenue Procedures - January

26 QPCA Milestones (con t) Joint conference calls with card associations and IRS - April 2006 Formal request for QPCA Project to remain in FY07 IRS Business Plan - May 2006 IRS releases revised Regulations and Revenue Procedures with effective date of January 1, 2008 in July Hearing scheduled for November

27 The Bottom Line for Reporting Year 2007 Questions for payor to to ask: When was payment? For how much? Is the transaction for merchandise or services? Is the merchant a corporation (except federal agencies) or other exempt recipient? To meet IRS requirements, you need: merchant s legal name merchant s address merchant s TIN annual totals 27

28 Socio-Economic Reporting Data maintained in the Visa Merchant Profile Database Data collected post transaction Use third party data providers Austin Tetra, SBA Not validated against CCR Utilize Federal designations Some fields are a combination of Certified and Self-Certified data (i.e, woman owned) In future data will be provided to FPDS on a quarterly basis Excluding Minority categories 28

29 Questions? 29