Part III. Administrative, Procedural, and Miscellaneous

Postponement of Backup Withholding Requirement for Payment Card and Third Party Network Payments Made Under Section 6050W

Notice 2011–88

PURPOSE

This notice postpones the effective date for potential backup withholding obligations imposed under section 3406 for payments made in settlement of payment card and third party network transactions (section 6050W payments). The regulations under section 3406 require that backup withholding apply to section 6050W payments made after December 31, 2011, if a payee has not furnished a correct taxpayer identification number (TIN) to a section 6050W payor. This notice will postpone for one year the requirement to apply backup withholding on section 6050W payments. Specifically, the backup withholding requirements of section 3406 will apply only to section 6050W payments made after December 31, 2012.

BACKGROUND

Section 6050W, added by section 3091 of the Housing Assistance Tax Act of 2008, Div. C of Pub. L. No. 110–289, 122 Stat. 2653 (the Act), requires information returns to be made by certain payors with respect to payments made in settlement of payment card transactions and third party payment network transactions. All payments made in settlement of payment card transactions are required to be reported under section 6050W. Payments made in settlement of third party network transactions, however, are required to be reported only if the amount paid exceeds $20,000 and the aggregate number of transactions exceeds 200 with respect to any payee within a calendar year.

Section 3406(a)(1) requires certain payors to perform backup withholding by deducting and withholding income tax from a reportable payment if a payee fails to furnish the payee’s correct taxpayer identification number to the payor. The Act amended section 3406(b)(3) by including payments required to be reported under

section 6050W as reportable payments potentially subject to backup withholding.

The regulations under section 3406 require that backup withholding apply to section 6050W payments made after December 31, 2011, if a payee has not furnished a correct TIN to a section 6050W payor. Treas. Reg. § 31.3406(b)(3)–5(e). In addition, the regulations subject all payments, regardless of any monetary or transactional thresholds, to potential backup withholding. Earlier this year, the Treasury Department and the IRS announced that not all payments made in settlement of third party network transactions are subject to backup withholding. Notice 2011–42, 2011–23 I.R.B. 866. Instead, a payment made by a third party settlement organization (“TPSO”) is a reportable payment potentially subject to section 3406 backup withholding only if the payee has received payment from that TPSO in more than 200 transactions within a calendar year.

DISCUSSION

Requests to postpone the effective date for backup withholding on section 6050W payments have been made by a number of payors. Among the reasons cited in support of this postponement include the payors’ unfamiliarity with procedures for backup withholding because of no prior withholding obligations, the need for additional time to develop systems to enable withholding, unfamiliarity with the IRS’ TIN matching program and general difficulties in matching TINs already obtained with the correct taxpayers.

After careful consideration of these comments, Treasury and the IRS are postponing the effective date for the application of backup withholding on section 6050W payments for an additional year from the current effective date. Thus, backup withholding will be required on section 6050W payments made after December 31, 2012.

DRAFTING INFORMATION

The principal author of this notice is Girish Prasad of the Office of Associate Chief Counsel (Procedure & Administration). For further information

regarding this notice, please contact Girish Prasad at (202) 622–4910 (not a toll-free call).

Transitional Penalty Relief for Information Reporting Relating to Payment Card and Third Party Network Transactions

Notice 2011–89

PURPOSE

This notice provides transitional relief from penalties for a section 6050W filer reporting incorrect information on information returns (Form 1099-K) and payee statements filed under section 6050W of the Internal Revenue Code. The relief provided by this notice is available for information returns and payee statements to be filed only in 2012, based on payments made in calendar year 2011, provided that the section 6050W filer makes a good faith effort to accurately file the appropriate information return and the accompanying payee statement.

BACKGROUND

Under section 6050W, added by section 3091 of the Housing Assistance Tax Act of 2008, Div. C of Pub. L. No. 110–289, 122 Stat. 2653 (the Act), a payment settlement entity (“payor”) making payment to a participating payee (“payee”) in settlement of reportable payment transactions must make an information return for each calendar year to be filed with the Internal Revenue Service setting forth the gross amount of such reportable payment transactions, as well as the name, address, and taxpayer identification number (TIN) of the payee. A similar statement must be furnished to the payee setting forth the gross amount of such reportable payment transactions, as well as the name, address and phone number of the information contact of the person required to make such return.

Section 6050W applies to two types of transactions: (1) payment card transactions and (2) third party network transactions. All payments made in settlement

2011–46 I.R.B. 748 November 14, 2011

of payment card transactions must be reported in the manner described above. Payments made in settlement of third party network transactions need be reported only if gross payments to a payee exceed $20,000 and the number of such transactions exceeds 200 with respect to the participating payee. The information is to be reported to the IRS on Form 1099-K, Merchant Card and Third Party Network Payments .

Section 6721 imposes penalties on a person for, among other things, failing to include all required information or including incorrect information on an information return. Section 6722 imposes penalties on a person for, among other things, failing to include all required information or including incorrect information on a payee statement.

DISCUSSION

Sections 6721 and 6722 are applicable to section 6050W payors that must file information returns for payments made in settlement of reportable payment transactions. Prior to the enactment of section 6050W, payors were not required to file the specific type of information return or to furnish the specific type of payee statement now required by section 6050W. In order to provide additional time to develop appropriate procedures for compliance with these new reporting requirements, the IRS will not impose penalties under sections 6721 and 6722 on payors that must file information returns and payee statements provided that they make good-faith efforts in filing accurate Forms 1099-K and furnishing the accompanying payee statements.

Lines of Business

This notice does not apply to a payor who erroneously fails to file an information return or payee statement. Additionally, the relief provided by this notice only applies to information returns and payee statements pertaining to reportable payments made in calendar year 2011.

DRAFTING INFORMATION

The principal author of this notice is Girish Prasad of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this notice, please contact Girish Prasad at (202) 622–4910 (not a toll-free call).

26 CFR 601.201: Rulings and determination letters. (Also Part I, Sections 846; 1.846–1.)

Rev. Proc. 2011–53