WESTON, Fla.–Certain details surrounding new Internal Revenue Service rules requiring payment processors and acquirers to track merchants’ transactions and report them to the IRS remain unclear, but help is on the way.
The IRS “within the next few months” is expected to release a “frequently asked questions” document online to help clarify the final rule it published in August that went into effect Jan. 1, Paula D. Porpilia, principal at TIN Compliance Consultants, a Great Cacapon, W.Va.-based firm, told attendees of the Southeast Acquirers’ Association’s 10th annual conference in Weston, Fla., on March 22.
Signed into law in 2008, the IRS reporting measure is designed to ensure merchants report all of their sales for proper tax collection. The legislation covers credit, debit and gift card and automated clearinghouse transactions (
“Acquirers, processors, ISOs and many merchants have been aware of these new rules for a few years, but only now that the law has gone into effect are they are finally taking a closer look and discovering they aren’t completely up to speed on it,” Porpilia said. “This is causing a lot of questions to surface, and the IRS is compiling some answers.”
The new IRS rule requires merchants and acquirers to report merchants’ gross transaction amounts for each calendar year, but they cannot charge customers separately for performing this service, Porpilia said. One area causing confusion is how to handle the task of gathering and reporting the gross amount of transactions made to each merchant, she said.
“There have been quite a few questions about how acquirers will provide this service, but it is very important to note that IRS rules do not allow firms to surcharge merchants for it,” Porpilia said.
An acquirer’s “pricing model,” for example, could include the cost of delivering a merchant’s gross transactions for the year, but it cannot be a separate line-item charge to the merchant, Porpilia said. “In other words, you can bury the cost of providing this service in your overall pricing, but it cannot be a standalone charge,” she said.
Another challenge acquirers and processors face in complying with the new IRS rules is adjusting systems and business models to track merchant transactions for a longer period of time, Porpilia said.
“Many acquirers and processors previously tracked merchants’ transaction data for the last three to six months, but under the new rules they will need at least 12 months worth of transaction data,” Porpilia said. “We recommend that acquirers and processors affected by this rule to expand their systems so they can track 15 to 18 months worth of merchant transaction data.”
Further specifics about this rule, and others, likely will be among the clarifications the IRS will issue soon, Porpilia said.
“The rules were finalized and issued, and anyone can see them online. But there are a lot of complexities and gray areas that are still causing people confusion, and hopefully these will be further clarified when the IRS releases its ‘FAQ’ very soon,” she said.
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