The card industry may have some cleanup work to do before the Internal Revenue Service issues regulations on how merchant acquirers should report their customers' card payments.
A bank or other organization that pays merchants' settlements for their card transactions must begin reporting these payments as of Jan. 1, 2011. To do so, however, the IRS probably will require reporting entities to include a merchant's legal name, rather than its "doing business as" name, said Paula D. Porpilia, a principal at TIN Compliance Consultants in Berkeley Springs, W.Va.
The IRS could penalize omission of the proper legal name, Porpilia said at last month's Midwest Acquirers Association conference in Lombard, Ill.
It also could assess a backup-withholding amount if the legal names do not match IRS records. This could be as much as 28% of the total, which the reporting organization must pay even if the amount cannot be collected from the merchant, she said.
The IRS is working on the regulation for how to report this data but the release date is unknown. The agency has said the reporting requirement could generate $10 billion in additional taxes over the next 10 years from small-business revenues that may be going uncollected.