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IRS postpones to 2013 backup withholding for payments made in payment card and third-party network transactions, and provides transitional penalty relief for section 6050W filers

October 27, 2011 | No. 2011-527


The IRS on October 31 updated a list of “frequently asked questions” (FAQs) to include the guidance provided under Notice 2011-88 and Notice 2011-89: http://www.irs.ustreas.gov/newsroom/article/0,,id=249029,00.html

The IRS today released an advance copy of Notice 2011-88, which postpones the effective date for backup withholding obligations for payments made in settlement of payment card and third-party network transactions (i.e., section 6050W payments) to payments made after December 31, 2012.

The IRS also released today an advance copy of Notice 2011-89, which provides transitional relief from penalties for a section 6050W information return filer who reports incorrect information on information returns (Form 1099-K) and payee statements. The penalty relief, however, is available for information returns and payee statements to be filed in 2012 only—that is, for payments made in 2011—provided the section 6050W filer makes “a good faith effort to accurately file the appropriate information return and the accompanying payee statement.”

For an electronic version of today’s three-page notices:
Notice 2011-88 and Notice 2011-89

Notice 2011-88 postpones backup withholding

Under rules added to the Code in 2008, information returns are required for payments made in settlement of payment card transactions and third-party payment network transactions when made by certain payors. Payments made to settle third-party network transactions are required to be reported only if the amount exceeds $20,000 and the aggregate number of transactions exceeds 200 for any payee within a calendar year.

The regulations require backup withholding for section 6050W payments made after December 31, 2011.

In response to requests to postpone the effective date for backup withholding on section 6050W payments, Notice 2011 announces that the effective date for application of backup withholding is postponed for payments made after December 31, 2012.

Notice 2011-89 provides transitional penalty relief

Penalties are imposed under sections 6721 and 6722 on a person who fails to include all required information or who includes incorrect information on an information return and payee statement, respectively. The penalties apply to section 6050W payors who must file information returns for payments made in settlement of reportable payment transactions relating to payment card transactions and third-party network transactions.

Notice 2011-89 provides penalty relief to allow time to develop appropriate procedures for compliance with the new reporting requirements. The IRS, therefore, will not impose these penalties on payors that must file information returns and payee statements, provided they make a good faith effort in filing accurate Forms 1099-K and furnish the accompanying payee statements.

Notice 2011-89 states that the penalty relief does not apply to a payor who erroneously fails to file an information return or payee statement, and the relief only applies for reportable payments made in calendar year 2011.

Notice 2011-88 and Notice 2011-89 will appear in Internal Revenue Bulletin 2011-46, dated November 14, 2011.

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