CBJ - April 2012 #02. New IRS Section 6050W What is it, and How it Affects Attorneys.

Author:By Amy Porter

California Bar Journal


CBJ - April 2012 #02.

New IRS Section 6050W What is it, and How it Affects Attorneys

The California LawyerApril 2012New IRS Section 6050W What is it, and How it Affects AttorneysBy Amy PorterIt is estimated there are over 10,000 credit card transactions made every second around the world. This astonishing number results in over $7.5 trillion in credit card payments per year (American Bankers Association). If you are one of the lucky businesses processing these transactions, congratulations, you are now subject to the newest IRS requirement - Section 6050W.

What is 6050W?

Section 3091(a) of the Housing Assistance Tax Act of 2008 (the "Act") added section 6050W to the Code requiring merchant acquiring entities and third party settlement organizations to file an information return for each calendar year reporting all payment card transactions and third party network transactions with participating payees occurring in that calendar year. It was created in an effort to further reduce the estimated $345 billion tax gap from the business sector by providing additional information to the IRS on aggregate credit card transactions. Effective January 2012, all credit card processors (LawPay, First Data, TSYS, etc) and third-party payment aggregators (PayPal, Square) will be required to report gross card transactions to the IRS. This means the gross dollar amount of all transactions will be reported on a special 1099-K, regardless of returns or any processing fee deductions.

The amount to be reported to the IRS with respect to each lawyer is the total gross amount of all of the transaction made for that lawyer in the calendar year. The preamble to the final regulations under section 6050W makes clear that the amount reported is to be the total gross amount "without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts." 75 FR 49821-01, 2010 WL 3207681 (August 16, 2010).

Commentators on the final regulations had suggested "defining 'gross amount' as net sales, taking into account credit transactions, chargebacks and other adjustments, on the ground that gross amount is not a true indicator of revenue." Id. The Treasury rejected these suggestions because "[t]he information reported on the return required under these regulations is...

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