SECTION 5. APPLICATION

.01 Payment Card Organizations . A payment card organization may assign MCCs, or equivalent Industry Codes, to merchant/payees and notify cardholder/payors of the MCCs or equivalent Industry Codes assigned to merchant/payees. If the MCC or equivalent Industry Code assigned to a merchant/payee is not listed in section 5.03 (an unlisted code) and the payment card organization determines that merchants within the assigned code are similar to merchants within an MCC or equivalent Industry Code that is listed (a listed code), the payment card organization may notify cardholder/payors that they may treat payments to the merchant in the same manner as payments to merchants within the listed code. If the payment card organization determines that merchants within the assigned code are not similar to merchants within any listed code, it should notify cardholder/payors that the treatment of payments to the merchant depends on whether, under the facts and circumstances, information reporting is required with respect to the payments. The payment card organization and its members, affiliates, and licensees must exercise due diligence in verifying the type of business that a merchant conducts. In addition, the payment card organization and its members, affiliates, and licensees must exercise reasonable business judgment in assigning MCCs or equivalent Industry Codes and in determining whether

the foregoing. Section 1.6041–3(p)(2) provides that reporting is not required for payments to an organization exempt from taxation under section 501(a) or an individual retirement plan. Section 1.6041–3(p)(3) provides that reporting is not required for payments made to the United States. Section 1.6041–3(p)(4) provides that reporting is not required for payments made to a State, the District of Columbia, a possession of the United States, or any political subdivision of the foregoing.

If a person is engaged in a trade or business and, in the course of that trade or business, pays any person $600 or more for services during a calendar year, section 6041A(a) generally requires the payor to file an information return with the Service and to furnish an information statement to the service provider. In general, the exceptions to reporting under section 6041 apply to reporting under section 6041A. However, section 6041A(d)(3) provides that reporting is generally required for payments made by a Federal executive agency to a corporation.

Revenue Ruling 81–232, 1981–2 C.B. 231, involved an insurance company making payments to an automobile repair shop for the repair of an insured automobile. The repair contract required payment of $300 for labor and $700 for parts. The ruling held that the entire payment was reportable under section 6041 because the portion of the payment attributable to parts was merely incidental to the obligation to repair the automobile. The ruling further held that no part of the payment was excepted from the reporting requirements of section 6041 as a payment of a bill for merchandise.

.02 Payment card transactions . A payment card transaction is a transaction in which a cardholder/payor uses a payment card (as defined in section 4.05 of this revenue procedure) to purchase goods or services and a merchant agrees to accept the payment card as a means of obtaining payment. A payment card organization (as defined in section 4.06 of this revenue procedure) sets the standards and provides the mechanism for effecting the payment.