Notice 2011-42, 2011-23 I.R.B. 866

(June 6, 2011) provided interim guidance on backup withholding under section 3406 with respect to reportable payments made in settlement of third party network transactions that are required to be shown under section 6050W on a Form 1099K. Specifically, the notice established that the section 6050W statutory transactional threshold for determining information reporting obligations should be met before any section 3406 withholding obligations arise with respect to TPSOs. In other words, section 3406 withholding obligations did not begin with respect to a particular payee until that payee received payments from a TPSO in more than 200 transactions within a calendar year.

.03 Section 6721, Failure to file correct information returns, and section 6722, Failure to furnish correct payee statements

Section 6721 imposes a penalty for any failure to file an information return on or before the required filing date, and for any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

Section 6722 imposes a penalty for failure to furnish a payee statement on or before the required furnishing date to the person to whom such statement is required to be furnished, and for any failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information.

.04 Sections 6651 and 6656

A payor who fails to withhold and pay backup withholding tax when required may be subject to civil penalties under sections 6651 and 6656. Section 6651 generally imposes an addition to the tax owed by a taxpayer for the failure to pay the amount shown as tax, including backup withholding tax, on a return required to be filed by the taxpayer unless the failure is due to reasonable cause and not due to willful neglect. Section 6656 provides that in the case of any failure by any person to deposit taxes on the prescribed date in an authorized government depository, a penalty applies unless the failure is due to reasonable cause and not due to willful neglect. A failure to deposit backup withholding tax as required under section 6302 would generally subject a payor to the section 6656 penalty.

.05 American Rescue Plan Act of 2021 Section 9674 of the ARP amended section 6050W(e) to provide that, for Forms 1099-K for calendar years beginning after December 31, 2021, a TPSO is required to report payments in settlement of third party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.