SECTION 2. BACKGROUND

.01 Section 6050W, Returns relating to payments made in settlement of payment card and third party network transactions Section 6050W was added to the Code by section 3091 of the Housing Assistance Tax Act of 2008, Div. C of Public Law 110-289, 122 Stat. 2654, 2908, and requires payment settlement entities to file an information return for each calendar year with respect to payments made in settlement of certain reportable payment

transactions. Under section 6050W(a), the annual information return must set forth (1) the name, address, and taxpayer identification number (TIN) of the participating payee to whom payments were made and (2) the gross amount of the reportable payment transactions with respect to that payee in that calendar year. Section 1.6050W-1(a)(6) defines “gross amount” to mean the total dollar amount of the aggregate reportable payment transactions for each participating payee, without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

Payment settlement entities required to make annual information returns under section 6050W do so by filing Form 1099K, Payment Card and Third Party Net- work Transactions with the IRS. They are also required to furnish Form 1099-K to the participating payee. Forms 1099-K must be furnished to the participating payees on or before January 31st of the year following the calendar year for which the return was made. Forms 1099-K must be filed with the IRS on or before February 28th (March 31st if filed electronically) of the year following the calendar year for which the return was made. See § 6050W(f); § 1.6050W-1(g).

Pursuant to section 6050W(c), section 6050W covers two types of reportable payment transactions: (1) payment card transactions and (2) third party network transactions. Section 6050W(c)(3) states that a third party network transaction is any transaction for the provision of goods or services that is settled through a third party payment network. Under section 6050W(b) and § 1.6050W-1(c)(2), a TPSO is the payment settlement entity that must report third party network transactions – that is, the transactions for goods or services that are settled through the TPSO’s third party payment network – on Form 1099-K.

Section 6050W(b)(3) defines a TPSO as the central organization that has the contractual obligation to make payment to the participating payees of third party

network transactions. Pursuant to section 6050W(d)(3), a third party payment network is any agreement or arrangement that (i) involves the establishment of accounts with a central organization by a substantial number of providers of goods or services who are unrelated to the central organization and who have agreed to settle transactions for the provision of goods and services with purchasers according to the terms of agreements; (ii) provides standards and mechanisms for settling such transactions; and (iii) guarantees payments to the providers of goods and services in settlement of transactions with the purchasers.

Under section 6050W(d)(1)(A)(ii), a participating payee, in the case of a third party network transaction, is any person who accepts payment from a TPSO in settlement of such transaction.

As originally enacted in 2008, section 6050W(e) provided that a TPSO is not required to report third party network transactions with respect to a participating payee unless the gross amount that would otherwise be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200.

.02 Section 3406, Backup withholding Section 3406(a) requires certain payors to perform backup withholding by deducting and withholding income tax from a reportable payment when, among other circumstances, the payee fails to furnish the payee’s TIN to the payor or the IRS has notified the payor that the TIN furnished by the payee is incorrect. Pursuant to section 3406(b)(3)(F), a reportable payment includes payments made by a TPSO that are required to be shown under section 6050W on a Form 1099K. Section 31.3406(b)(3)-5 provides that whether payments made in settlement of third party network transactions are subject to withholding under section 3406 is determined without regard to the statutory monetary or transactional thresholds found in section 6050W. Those monetary and transactional thresholds are considered solely for determining whether a

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1), or to the Employment Taxes and Collection of Income Tax at Source Regulations (26 CFR part 31).

Bulletin No. 2024–51 1349 December 16, 2024

TPSO has an information reporting obligation under section 6050W for payments made to a payee. Accordingly, under the regulations, TPSOs are required to obtain a TIN from every payee in a third party payment network, even the occasional small volume seller, to avoid backup withholding.

A payor is required to report the amount of deducted and withheld Federal income tax amounts on Form 945, Annual Return of Withheld Federal Income Tax, and on the information return filed with the IRS and furnished to the payee. In the case of the Form 1099-K, withheld income tax is reported in box 4. The payee may then claim credit for the amount of income tax withheld on the payee’s Federal income tax return.