Final regs. released for payment card and third-party network information reporting.

• Author: Nevius, Alistair M.

The IRS has issued final regulations regarding the new information reporting requirement under Sec. 6050W for payment card and third-party network transactions (T.D. 9496). Starting January 1, 2011, banks and similar transaction settlement entities must file annual information returns for each participating merchant or other payee reporting aggregate gross receipts for the calendar year from credit and debit card sales or third-party network transactions. The final regulations adopted with several modifications--some in response to numerous comments--proposed regulations issued in November 2009 (REG-139255-08).

The final regulations provide implementation guidance and amend existing regulations under Secs. 6041 and 6041A to provide relief from duplicate reporting for certain transactions. They also amend the regulations under Secs. 6721 and 6722 to reflect penalties applying to failures to file correct information returns and payee statements required by Sec. 6050W. In addition, the final regulations adopt without change proposed amended regulations under Sec. 3406 to provide that amounts reportable under Sec. 6050W are subject to backup withholding (effective for amounts paid after December 31, 2011).

Explanations of Common Types of Payment Cards

The final regulations included explanations and examples of several common types of payment cards and related instruments that were asked about by commenters but do not meet statutory requirements for reporting, the IRS said. For example, purchases made with a payment card issued by a retail merchant that may be used only with that merchant are not reportable, nor are ATM withdrawals or similar transactions. The IRS noted that reportable payment card transactions must involve use of a card that is accepted as payment (Sec. 6050W(c)(2)) by a network of unrelated persons (Sec. 6050W(d) (2)(B)). Thus, it classified these common transactions as shown in the exhibit.

Exhibit: Classification of common transactions under Sec. 6050W regulations Type of instrument or transaction Reportable Single retailer (private label) No card Limited network (quasi-private Yes label) card Multi-retailer (e.g., mall) card Yes, except if any of the merchants in the network are related to the issuer, no reporting is required for any transaction in which the related merchant accepts the card as payment. Government benefits card (food Yes, if used for purchase of goods stamps, welfare, or unemployment) or services and...