SECTION 2. BACKGROUND

.01 Payment card transactions. A payment card transaction is a transaction in which a cardholder/payor uses a payment card (as defined in section 4.03 of this revenue procedure) to purchase goods or services and a merchant agrees to accept a payment card as a means of obtaining payment. A payment card organization (as defined in section 4.04 of this revenue

quest a QPCA determination, the requirements that a payment card organization must meet, including the TIN solicitation activities that a payment card organization must undertake, to obtain a QPCA determination and avoid revocation of the determination.

The IRS requests comments on this proposed revenue procedure. Written comments must be received by May 5, 2003. Comments should be submitted to: CC:PA:RU (NOT–122617–02), Room 5526, Internal Revenue Service, Ben Franklin Station, Washington, DC 20224. Alternatively, comments may be hand delivered between the hours of 8:00 AM and 5:00 PM to CC:PA:RU (NOT–122617–02), Courier’s

APPENDIX (PROPOSED REVENUE PROCEDURE)

procedure) sets the standards and provides the mechanism, either directly or indirectly through members and affiliates, for effecting the payment.

.02 Reporting requirements. In general, § 6041 requires a person engaged in a trade or business and making a payment in the course of the trade or business of $600 or more during a calendar year of fixed or determinable income to file an information return with the IRS and to furnish an information statement to the payee. Section 1.6041–3(p) of the Income Tax Regulations provides exceptions to these requirements, including, for example, exceptions for payments made to a payee that is a corporation.

Section 6109(a)(2) provides that any payee, with respect to whom a return is required to be made by another person or whose identifying number is required to be shown on a return of another person, must furnish to the other person the identifying number prescribed for securing the proper identification of the payee. Section 6109(a)(3) provides that any person required to make a return with respect to a payee must ask the payee for the identifying number prescribed for securing the proper identification of the payee and must include that number in the return.

.03 Backup withholding. Section 3406(a)(1) requires a payor to withhold on

February 24, 2003 513 2003–8 I.R.B.

(2) The name of the department or office of the payment card organization that will serve as the information contact.

(3) The name of the department or the names and titles of the officers or employees that will be responsible for the performance of the TIN solicitation activities described in section 6.

(4) A list of the systems, business lines, or card products that will be covered by the TIN solicitation activities described in section 6.

(5) An explanation of the account opening procedures and documents the payment card organization uses, or requires its members or affiliates to use, to establish merchant account relationships.

(6) The approximate number and the type of merchants (individuals, corporations, etc.) enrolled by the payment card organization.

(7) An explanation of the payment card organization’s systems and controls for—

(a) Obtaining merchant/payee data either directly or indirectly through its members or affiliates or from other sources;

(b) Validating the accuracy of the merchant/payee data;

(c) Ensuring the accuracy and reliability of the merchant/payee data;

(d) Maintaining the merchant/payee data; and

(e) Supplying the merchant/payee data to the cardholder/payor.

.03 Requirements for QPCA determina- tion. A payment card organization must meet the following requirements to obtain a QPCA determination:

(1) Express authorization to act on be- half of cardholder/payors and on behalf of merchant/payees. The payment card organization must establish that cardholder/ payors have expressly authorized it, or its members or affiliates, to act on their behalf in soliciting, collecting, and validating merchants’ names and TINs and to assist the cardholders in meeting their information reporting obligations under §§ 6041 and 6041A. The payment card organization must also establish that merchant/ payees have expressly authorized it, or its members or affiliates, to act on their behalf in furnishing their names and TINs to cardholders and to assist the merchants in meeting their obligations under § 6109(a)(2).

(2) TIN solicitation activities. The payment card organization must establish that

the authority in § 31.3406(j)–1 permits all payors (and authorized agents described in § 31.3406(j)–1T) to participate in TIN matching.

Section 31.3406(g)–1(f) of the proposed Employment Tax Regulations would provide that the backup withholding requirements of section 3406 do not apply to payments made through a QPCA if the payments are made to a qualified payee (as defined in proposed § 31.3406(g)–1(f)(2)(v)) or during a grace period for determining whether the payee is a qualified payee. Section 31.3406(g)–1(f)(3) of the proposed regulations would require a QPCA to notify the cardholder/payor when payments are made to a merchant/payee who is not a qualified payee.

.04 Information reporting penalties and waivers for reasonable cause. Section 6721 provides that a payor may be subject to a penalty for failure to file a complete and correct information return. Section 6722 provides that a payor may be subject to a penalty for failure to furnish a complete and correct information statement to a payee. A failure subject to the §§ 6721 and 6722 penalties includes a failure to include correct payee TINs.

Section 6724 provides that the penalties under §§ 6721 and 6722 may be waived if the filer shows that the failure was due to reasonable cause and was not due to willful neglect. Section 301.6724–1(e)(1)(vi)(H) and (f)(5)(vii) of the proposed Procedure and Administration Regulations would provide that a cardholder/payor in a payment card transaction may establish reasonable cause based on its reliance on a QPCA.