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This article appears in the August 13, 2009, edition of ISO&Agent Weekly.
ISOs may have some clean-up work to complete before the Internal Revenue Service issues its regulations about how acquirers should report merchant card payments. A bank or other organization that pays merchants settlements for their card transactions will have to begin reporting those payments beginning Jan. 1, 2011.
To do so, however, the IRS likely will require entities reporting this data to include a merchant's legal name, Paula D. Porpilia, principal at TIN Compliance Consultants, a Berkeley Springs, W.Va.-based firm, said at last month's Midwest Acquirers Association conference in Lombard, Ill. That means acquirers, or whichever entity has to report the data to the IRS, will have to check account details of existing merchant portfolios to verify the merchant's legal name and not its "doing business as" name, she said. The legal name must match IRS records for the business.
Though an ISO may not pay the settlement amounts, it may still have to clean
up its existing portfolio to ensure the reporting organization has the correct information.
ISOs also may have to adapt to asking for taxpayer identification numbers and similar data on the merchant account application, Porpilia said.
Verify The Data
The IRS could assess penalties for not having the proper legal name, Porpilia said. It also could assess a backup-withholding amount if the legal names do not match. That 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, Porpilia said.
Payers also have to report the merchant's mailing address, taxpayer identification number and the gross amounts paid to merchants.
No merchants appear to be exempt, though some uncertainty exists over how the IRS will handle foreign-based merchants, Porpilia said. "That is not yet defined," she said.
All of the data should be verified against the IRS records, especially the taxpayer identification number, which is a primary credential the IRS uses to track businesses and their tax information.
To help, the IRS has a taxpayer identification number matching program. If the taxpayer identification number the acquirer has for a merchant matches the one held by the IRS, nothing needs be done. If the match is incorrect, the business should contact the merchant for the correct information, Porpilia advised.
The key is having good data in one's merchant portfolio, she said. The IRS is working on the regulations for how to report this data, but when it will release them is unknown.
The IRS has said the measure could generate $10 billion in additional taxes over the next 10 years from small-business revenues that may be going uncollected.
