IRS Will Get Report on Your Client's Merchant Account Sales
Well my friends,
The inevitable has happened.
Buried in the Housing Assistance Act of 2008 was a new Internal Revenue Code Section 6050W.
(If you didn't know this from reading the law or hearing the news, read the notice from your merchant account - or the ones sent to your clients' merchant accounts. I just got my notice last week.)
That requires "payment settlement entities" to send out a new Form 1099-K showing monthly and annual gross sales.
Monthly? Holy cow!
Beware! Gross sales to the credit card processor, probably means the sales before chargebacks and refunds.
Be sure to do a reconciliation of the refunds and adjustments, rather than using that report at face value.
Since they used the term "payment settlement entities", that means, in addition to the credit card processors, the requirement extends to companies like PayPal, ClickBank and other online services that accept payments for Internet sales. For the first time, your clients with purely Internet-based businesses will be getting reports of their sales.
Any mechant not providing a TIN will face back-up withholding of 28%. Though I cannot imagine how you can open a merchant account without a valid TIN in the first place, can you? Make sure that you and your clients update your data in your merchant accounts. If you cannot figure out how to do it online, check with your bank or First Data (the company who is probably handling the processing for your bank).
Incidentally, your clients who have been selling on eBay have never gotten annual statements from eBay before. In fact, it wasn't easy to get a 12-month report - only 3 months at a time. Since eBay bought PayPal, that is the default payment processor for eBay sellers. Suddenly, IRS will be getting a report of their gross sales.
Convince your eBay sellers, even if they are only using it as a garage sale, to keep track of basis on their items sold.
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.