Feds Issue New Reporting Rules for Lawyers and Merchants Accepting Credit Cards

By Jeralyn, Section Economy
Posted on Fri Sep 02, 2011 at 07:45:00 AM EST
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Many lawyers offer their clients the convenience of paying by credit card. The Feds have just instituted new reporting rules (available here) on such paymnts.

The IRS has implemented new compliance requirements through Internal Revenue Code Section 6050W that will affect all merchants (including government and non-profit entities). Beginning in calendar year 2011, all merchants will be required to report gross payments received through debit or credit card transactions to the IRS on an annual basis. To verify this reporting, banks and merchant service providers will be required to provide both merchants and the IRS with Form 1099-K by January of 2012.

From now on, your merchant name on your credit account at the bank must match your legal name on your tax ID number. Banks will be instituting compliance measures to check.

Here are the final regulations.

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Feds Issue New Reporting Rules for Lawyers and Merchants Accepting Credit Cards | 13 comments (13 topical)

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Any idea why the IRS is issuing (none / 0) (#1)
by caseyOR on Fri Sep 02, 2011 at 02:08:06 AM EST

new reporting rules? Are people somehow cheating where the reporting is concerned?

Vacuuming up unreported income... (5.00 / 0) (#3)
by Anne on Fri Sep 02, 2011 at 09:25:20 AM EST

Per CNN Money:

The first tax-reporting expansion was buried in a different bill, the Housing Assistance Tax Act introduced by House Speaker Nancy Pelosi and signed into law by President George W. Bush in July 2008. Best known for its first-time homebuyers' credit, the bill also created a new addition to the family of 1099 tax forms: the 1099-K.
The 1099 is a catch-all series of IRS documents used to report non-wage income from a variety of sources like contract work, dividends, earned interest and pension distributions. The new 1099-K aims to shine a light on a currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year's transactions.
The rule comes with a floor to weed out the most casual retailers: The 1099-K is only required when a merchant has at least 200 payment transactions a year totaling more than $20,000. But it applies to all payment processors, including Paypal, Amazon.com, and others that service very small businesses.
The goal of the new regulations is to catch income that is going unreported to the IRS. The federal government loses an estimated $300 billion each year from the "tax gap" between what individuals and businesses owe and what they actually pay.
"Better information reporting helps the tax system work better by ensuring that everyone pays what they owe," IRS Commissioner Doug Shulman explained last year as his agency unveiled the 1099-K. "The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses."

kdog's all-cash/only cash is looking better and better, don't you think?


So much for the little guy (5.00 / 2) (#4)
by mmc9431 on Fri Sep 02, 2011 at 09:32:35 AM EST

Several of my artist friends have already stopped accepting credit cards at the art fairs because of this.

My problem with this whole deal is that again they're targeting a lot of people that are just trying to get by. Yet they continue to allow corporate America to use any and every dodge to get out of paying any tax at all.

If G.E. can waltz along without paying any tax, why are they worried about my pittance?


But that's the whole point, mmc9431 (5.00 / 2) (#6)
by Zorba on Fri Sep 02, 2011 at 12:07:47 PM EST

They have to squeeze every penny they can out of the little guy, to try and make up for what they're not getting out of the big guy. Besides, I'm sure that they want the artists, farm stand owners, small merchants at craft and antique shows, etc, to set a good example for G.E. and other large companies that pay no taxes. Or something. ;-)


Do you sympathies extend to (none / 0) (#7)
by oculus on Fri Sep 02, 2011 at 12:09:38 PM EST

lawyers?


: Oh, why not? (none / 0) (#8)
by Zorba on Fri Sep 02, 2011 at 12:20:42 PM EST

Although we always pay our lawyer by check. And our accountant. And our dentist. And our doctors. They all make good livings, but nothing like what large corporations do. Do the banks have to report all the checks and cash they deposit, too? Or is that next? I see this as something that will increase our costs eventually, though. The banks and merchant service providers will have to pay something extra for someone to handle the increased paperwork and compliance measures, which means they'll increase their fees. Any fee increases for the merchants means that they'll have to charge us more.

$20k is a Pretty High Threshold (none / 0) (#12)
by ScottW714 on Fri Sep 02, 2011 at 04:09:30 PM EST

To me, not reporting everything is fine, but if someone under reports more than $20k they are committing tax fraud.

In all likelihood, the $20k would amount to about a thousand dollars of actual income, depending on related expenses.

I'm actually surprised that this is new, with computers most of the numbers on a return are easily traceable.

We can discuss Corps and their taxes, but that is no excuse for anyone to not report legitimate income.


So much for editing (none / 0) (#9)
by jbindc on Fri Sep 02, 2011 at 12:31:41 PM EST

Here's my favorite paragraph of that link:

How did this sweeping provision end up hidden in the health reform bill? No one is willing to take credit for introducing the new legislation, which appeared in the Senate Finance Committee's version of the health bill last fall. Committee chairs Don Baucus, D-Mont., and Chuck Grassley, R-Iowa, both referred calls to committee staffers, who wouldn't comment on the record.

See if you can find the error. :)


: Is "Don" Baucus perhaps (5.00 / 1) (#13)
by Peter G on Sat Sep 03, 2011 at 07:30:47 PM EST

a title of honor given to Senator Max Baucus in Montana's Italian community?

This will have a large impact (none / 0) (#2)
by mmc9431 on Fri Sep 02, 2011 at 09:21:31 AM EST

I think this ruling has more to do with the underground business done in the country more than anything else. The ruling includes "all merchants".

If I'm reading this right (none / 0) (#5)
by gyrfalcon on Fri Sep 02, 2011 at 11:40:46 AM EST

it's the banks that have to keep track of this stuff, then report the amounts to the merchants (and IRS) on a form the merchants have to file along with their tax returns, much like individuals do with a W-2 or a 1099, no?

If so, there's certainly no big paperwork burden to the merchants, it's all on the banks, which are set up to do this sort of thing pretty easily.

So why would small vendors at farmers' markets and the like be prompted to refuse credit cards as a result, unless they've been in the habit of underreporting their income?

Maybe there's something I'm missing here. Just askin'.

Of course (none / 0) (#10)
by mmc9431 on Fri Sep 02, 2011 at 12:41:33 PM EST

They're under reporting their income. As precarious as business is at art fairs in today's world. most are just trying to stay afloat

The little amount they can be fudging will certainly not cure our financial woes. It's like spitting in the Pacific ocean.


: True enough, but (5.00 / 1) (#11)
by gyrfalcon on Fri Sep 02, 2011 at 03:52:14 PM EST

given that my crummy income gets reported on 1099s and I therefore have no ability to underreport and pay less than I owe in taxes and particularly FICA contributions, my sympathy is somewhat limited.
If you make enough income to be subject to taxes, you oughta pay them, IMO, just like the rest of us.