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IRS intends to amend regulations on information reporting and backup withholding requirements for payment card and third-party network transactions

August 19, 2011 | No. 2011-397


The IRS today released an advance copy of Notice 2011-71, providing interim guidance relating to information reporting requirements, information reporting penalties, and backup withholding requirements for payment card and third-party network transactions pursuant to section 6050W.

The IRS stated that Notice 2011-71 was being issued in response to comments concerning the administrative burdens associated in implementing the final regulations (August 2010).

For an electronic version of the IRS notice (seven pages): Notice 2011-71

Notice 2011-71

Notice 2011-71 states that Treasury and the IRS intend to amend the regulations under section 6050W to provide that a payment settlement entity that is a U.S. payor will only be required to file an information return with respect to a payment made outside the United States to an offshore account if any of four circumstances apply:

  • There is a U.S. address associated with the participating payee (whether a residence address or a correspondence address).
  • The payment settlement entity has standing instructions to direct the payment to a bank account maintained in the United States.
  • The participating payee submits for payment in U.S. dollars.
  • The payment settlement entity knows or has reason to know that the participating payee is a U.S. person.

An information return under section 6050W will not be required for a payment made outside the United States to an offshore account under any one of these four circumstances if it obtains from the participating payee a Form W-8 or documentary evidence establishing that the participating payee’s non-U.S. status, and the payment settlement entity does not know that the participating payee is a U.S. person. Notice 2011-71 provides the dates by which the Form W-8 or other information must be obtained by the payment settlement entity.

Notice 2011-71 states that the special rule in the final regulations, for a participating payee that has a name that indicates it is a foreign per se corporation, is being retained.

Notice 2011-71 further states that Treasury and the IRS intend to amend the regulations to clarify that a payment settlement entity that is not a U.S. payor and that has reason to know, but not actual knowledge, that a participating payee is a U.S. person will not be required to make an information return under section 6050W if a Form W-8 or other documentary evidence is obtained from the participating payee.

Background

Section 6050W—added to the Code by the Housing Assistance Tax Act of 2008 (Pub. L. No. 110-289)—requires annual information returns by merchant acquiring entities and third-party settlement organizations reporting payments made in settlement of payment card transactions and third-party network transactions during a calendar year. The section 6050W information return requirement is effective for returns for calendar years beginning after December 31, 2010.

In August 2010, final regulations under section 6050W were issued, to require information reporting for payments made in settlement of payment card and third-party network transactions. For a discussion and text of the final regulations, see TaxNewsFlash 2010-368.

 

Notice 2011-71 will appear in Internal Revenue Bulletin 2011-37, dated September 12, 2011.

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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