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IRS issues final information reporting rules for credit card transactions

The IRS issued final regulations for information reporting for credit card transactions. The rules apply to other payment cards, such as debit cards and gift cards (referred to as stored-value cards). A 2008 law requires credit card companies and electronic payment processors to file reports for their total annual payments, from all transactions, made to individual merchants, if the merchant receives more than $20,000 and conducts more than 200 transactions each year. The law applies beginning in 2011.

The regulations describe when reporting is required for prepaid telephone cards, transit cards, mall cards, and other types of cards. The law does not apply to cash advances or to convenience checks issued to cardholders. The application of the reporting rules to electronic checks, bill paying services and other electronic products depends on the facts and circumstances. The IRS did not exempt private label cards.

The company or processor must report the gross amount of payments. This is the total dollar amount of reportable transactions without adjustments for credits, discounts, refunds or any other amounts. A payment made in foreign currency must be converted into U.S. dollars on the date of the transaction at the "spot" rate.

The required information must be reported on Form 1099-K, Merchant Card and Third-Party Payments. The first forms must be filed with the IRS and furnished to merchants in early 2012. The IRS has posted a draft of the form on its website.

The regulations also provide relief from duplicate reporting, expand penalty provisions for reporting failures, and apply the backup withholding rules to reportable amounts.