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2011 Instructions for 1099 Make P-card Reporting Changes Final

Submitted by administrator_rgb on Tue, 01/25/2011 - 11:09.

New purchase card reporting rules are now in effect!

When I first learned that the IRS was taking the burden of reporting p-card payments on a 1099 away from the payers and into the hands of the payment processors, like many of you I figured it was too good to be true.

However, the 2011 Instructions for Form 1099-MISC have just been released. Included in the “What’s New” section is a description of Form 1099-K. This new form is where payment settlement entities will report to the IRS the gross amounts of payments cleared over their networks.

The instructions go on to say that, because settlement entities are now reporting these payments on 1099-K, there is no need for payers to report credit card, p-card, or other third-party network payments on form 1099-MISC.

These changes are part of IRS Section 6050W, which was approved as part of the Housing Assistance Tax Act of 2008. This section requires third-party payment processors to issue an information report to the IRS listing all payments processed through their networks. In the case of p-card payments, this means the merchant acquiring bank must report all card payments to the IRS.

When 6050W first passed, the merchant banks were expected to report card payments alongside the buyers' own 1099s, meaning the same transactions would be reported twice. However, the final regulations eliminate this duplicate reporting. As enacted, the merchant bank or third-party payment network - and not the buyer - bear the full 1099-reporting responsibility.

The Housing Assistance Tax Act of 2008 also amended IRS section 3406, which requires organizations to perform backup withholding if their reportable vendors fail to provide an accurate taxpayer ID number. Under the new rules, merchant banks and third-party payment networks become responsible for performing backup withholding.

I talk more about the benefits of 6050W in my blog entry 1099 Changes: Look on the Bright Side.

While Form 1099-K has not yet been finalized, the IRS has a draft copy on their website that payment processors can look over. When officially released, there is little reason to think that the final version will differ much from the draft.

In addition to highlighting the new p-card reporting rules, the 2011 Instructions for Form 1099-MISC also describe new rental property reporting rules. Under these rules, owners of rental property that pay more than $600 in rental property expenses must now report those on a 1099.

Previously, people receiving income from a rental property were not considered participating in a trade or business. A new law taking affect this year changes that.

Finally, the 2011 instructions also announce the end of a pilot program that previously allowed payors to truncate individual taxpayer identification numbers. The program must not have been a huge hit, as 1099 filers must again show the payee’s entire TIN on the document.

While the rental property and TIN truncation provisions serve to make 1099 filing a bit more difficult than in previous years, the announcement of Form 1099-K reduces the burden for many organizations. However, with the elimination of the corporate and property exemptions coming up next year, these benefits may only be short lived.