Independent sales organizations and agents should hire lawyers to help draw up contracts and navigate the revenue split from merchant transactions, as such legal advice can help ward off unpleasant surprises, observers agree.
Last year, for example, the Internal Revenue Service hired thousands of operatives to investigate whether businesses were correctly classifying workers as employees or independent contractors, says Holli Hart Targan, an attorney and partner at Jaffe Raitt Heuer & Weiss PC, a Southfield, Mich.-based business law firm. The two categories carry vastly different tax consequences, she says.
Simply labeling a contract as an “Independent Contractor Agreement” will not suffice, Targan cautions. “If there are clauses within the contract that would push the relationship into more of an employee relationship rather than an independent-contractor relationship, then that really puts the ISO at risk,” she says.
If the IRS rules that employees have been treated as independent contractors, perhaps because of the way they were paid or where they set up their laptop computers, an ISO could owe money to the IRS and to the employees, Targan says.
A regulation about to take effect could raise contractual issues, too, and agents could suffer as a result, says Adam Atlas, a Montreal-based attorney with Adam Atlas Attorney at Law.
The IRS will compel acquirers to submit annual reports, beginning with the current tax year, on each of their merchant’s credit and debit card revenue. The reports are filed with the merchant and the IRS, he notes.
“We have to expect merchants are going to be charged for this,” Atlas predicts. Although creating the reports will not require any data not already on hand, the fees ISOs charge merchants for providing it could come to $10 a month or $2 a year–no one knows yet, he says.
However ISOs decide to price the IRS-reporting services, the fees appear unlikely to benefit agents initially because they were not mentioned in most of the contracts now in force, Atlas says. The contracts were signed before the fees were ever assessed.
So agents may find themselves with another tough sales job to perform, no share in the proceeds and no say in setting the amount of the fee, Atlas says. Having the foresight to mention those fees in the contracts written now will help agents protect their interests, he notes.
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