Part III. — Internal Revenue Bulletin 2007-30

Qualified Payment Card Agent Determination

Notice 2007–59

This notice provides a proposed revenue procedure that would supersede Rev. Proc. 2004–42, 2004–2 C.B. 121 (August 2, 2004). In general, Rev. Proc. 2004–42, establishes a procedure for a payment card organization to request a determination that it is a Qualified Payment Card Agent (QPCA) for purposes of the regulations under section 3406 and section 6724 of the Internal Revenue Code. A QPCA may act on behalf of cardholder/payors in soliciting, collecting, and validating merchants’ names, taxpayer identification numbers (TINs) and corporate status (collectively referred to as merchant/payee data) and on behalf of merchant/payees in furnishing merchant/payee data to cardholder/payors. Under section 301.6724–1(c) and (e) of the Regulations on Procedure and Administration, cardholder/payors are relieved of certain TIN solicitation requirements for payments made through a QPCA. Section 31.3406(g)–1(f) of the Employment Tax Regulations provides a limited exception from the backup withholding requirements for payments made to certain merchant/payees through a QPCA.

In response to the request in Notice 2005–25, 2005–1 C.B. 827 (April 4, 2005), for recommendations of publication items for the 2005–2006 Guidance Priority List, some businesses subject to the payment card rules and procedures recommended that Rev. Proc. 2004–42 and section 31.3406(g)–1(f) of the regulations be modified to reflect the current electronic business operations of the payment card industry and to permit the use of payment cards by merchant/payees that opt out of the QPCA program. Specifically, they requested the following changes to the procedures in Rev. Proc. 2004–42:

Modification of the requirements in section 5.03(1)(b) and (c) of Rev. Proc. 2004–42 (relating to the written notices that payment card organizations are required to provide to merchant/payees and cardholder/payors when obtaining authorizations to act on their behalf) to permit payment

card organizations to furnish the notices electronically.

Further modification of the requirements in section 5.03(1)(b) and (c) to allow payment card organizations to include the notification of important tax information either on the outside of the envelope containing the written notices or on the subject line of the electronic communication through which the notice is furnished.
Modification of the requirements in section 6.04 (relating to merchant/payee data reports) to provide specific authority for furnishing the merchant/payee data report electronically, including by posting on a secure website.
Modification of the content of the written notice required by section 5.03(1)(c) (relating to the notice that payment card organizations are required to provide to merchant/payees) to eliminate the requirement that the notice inform merchant/payees that they will be treated as participants in the QPCA program if they continue to accept the organization’s payment card. Instead, require that the notice inform merchant/payees that they may opt out of the QPCA program by completing and returning a written statement to the payment card organization and that they may continue to accept the organization’s payment card even if they opt out of the QPCA program.

The Service and Treasury Department agree that it is appropriate to modify the requirements of Rev. Proc. 2004–42 and the regulations to reflect the current electronic business operations of the payment card industry. Proposed amendments to the regulations under section 3406 would authorize electronic furnishing of notifications regarding payee status and participation in the QPCA program if certain conditions are satisfied. In addition, the proposed revenue procedure set forth as an attachment to this notice would adopt the first and second recommendations regarding the electronic furnishing of notices.

The proposed revenue procedure also responds to the third recommendation by authorizing the electronic furnishing of merchant/payee data reports if both the cardholder/payor and the merchant/payee consent.

The Service and the Treasury Department also agree that a merchant/payee that does not want to participate in the QPCA program should be allowed to opt out of the program by completing and returning a written statement to the payment card organization and should be permitted to continue accepting the payment card even if it opts out of the QPCA program. The proposed revenue procedure would make this change.

Although QPCAs would not act on behalf of nonparticipating payees in furnishing payee data to cardholders, the Service and the Treasury Department have concluded that a QPCA should be required to furnish certain information to cardholders that use the QPCA’s card to make reportable payments to nonparticipating payees. Specifically, the QPCA should be required to inform the cardholder that the payee is not a participant in the QPCA program and is not a qualified payee. Proposed amendments to the regulations under section 3406 would adopt this rule. In addition, the proposed revenue procedure would change the content of the written notice that payment card organizations are required to provide to merchant/payees so that the content is consistent with the proposed regulations relating to payees that opt out of the QPCA program.

The Service requests comments on the proposed revenue procedure. Written comments must be received by September 24, 2007. Comments should be submitted to: CC:PA:LPD:PR (NOT–2007–59), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, comments may be hand delivered between the hours of 8 am and 4 pm to CC:PA:LPD:PR (NOT–2007–59), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC. Comments may also be transmitted electronically via the following email address: Notice.Commments@irscounsel.treas.gov .

July 23, 2007 135 2007–30 I.R.B.

dure) sets the standards and provides the mechanism for effecting the payment.

.02 Reporting requirements . In general, section 6041 of the Code 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 Internal Revenue Service (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 6041A of the Code imposes similar requirements with respect to payments of remuneration for services and direct sales.

Section 6109(a)(2) of the Code 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 reportable payments (as defined in section 3406(b)(1)) if the payee does not provide a TIN to the payor in the manner required, if the Secretary notifies the payor that the TIN furnished by the payee is incorrect, or if certain other circumstances exist. Section 3406(i) provides that the Secretary shall prescribe the regulations necessary or appropriate to carry out the purposes of section 3406.

Section 31.3406(j)–1 of the Employment Tax Regulations provides that the Commissioner has the authority to establish TIN matching programs through revenue procedures or other appropriate guidance. Under the regulations, a payor or a payor’s authorized agent may participate in a TIN matching program that permits the payor or authorized agent to contact the IRS with respect to the TIN furnished by a payee before the payor files an information return for reportable payments

Please include “Notice 2007–59” in the subject line of any electronic communication.

For further information regarding this notice, contact Michael Hara of the Office of Associate Chief Counsel (Procedure and Administration). Mr. Hara may be contacted at (202) 622–4910 (not a tollfree call).

APPENDIX (PROPOSED REVENUE

PROCEDURE)