THE TAX ATTIC with Jerry Coon

New, changed forms

Jerry Coon

Just to shake things up a bit for tax professionals, from time to time the Internal Revenue Service changes how a form will look or will even do something more sinister: they develop a new form. For 2011, they did both.

First, they created a new Form 1099-K, Merchant Card and Third Party Network Payments. I have discussed this form in a previous article, but we get clarifications from time to time on what transactions are to be reported. As it stands now, merchant card processors and payment settlement entities such as MasterCard, Visa, Discover, and eBay will be required to report the gross amount of merchant card and third party network payments that they process for taxpayers.

For example, Action Tax Service accepts Visa and MasterCard as payment for services rendered. We are considered an entity that receives payments directly from the processor. We will receive a 1099-K that shows the gross amount of collections paid through our processor, which happens to be PNC Bank. The 1099-K will also show the amount of collections broken down on a monthly basis. We will report that gross amount as a separate line on our tax return so the IRS can tie out the 1099-K and our tax return amounts. Because we are a direct receiver of merchant cards, we will receive a 1099-K even if we only process one transaction during the year.

The sticky wicket appears to come into play when someone uses a third party, such as PayPal through eBay, to accept and process payments. The interpretation we have now is that people selling on eBay will receive a 1099-K only if they process at least $20,000 in gross sales and process a minimum of 200 transactions. A person that sells their boat on eBay for $5,000 will not meet the minimum gross sales threshold or the minimum number of sales threshold, so they won’t receive a 1099-K. Previously, it looked like even that one transaction for $5,000 would result in the receipt of a 1099-K. The difference is being a direct receiver of credit cards, like Action Tax Service, versus having a third party, like PayPal through eBay, process the credit card and just deposit the money into a directed account, like the taxpayer selling a boat.

I’m sure this is not the last clarification we will receive and I will keep posting those clarifications as they occur.

Second, Schedule D, the form used to report Capital Gains and Losses, will look substantially different this year than the previous year’s form. It will be a summary form instead of an input form. All of the information on the Schedule D will flow from other forms. The “other form” in most cases will be a newly created form.

The IRS was forced to create this particular new form, Form 8949, titled Sales and Other Dispositions of Capital Assets, by Congress. Congress, in its infinite wisdom, drastically revamped the rules regarding the 1099-B, Proceeds from Broker and Barter Exchange Transactions. This is the form that brokerage firms such as Fidelity, Pershing, Charles Schwab, and Ameritrade, etc., use to report the details of sales of stocks and mutual funds.

For stock sale transactions occurring in 2011, the brokerage has to report much more detail than was required in 2010. The firm now has to report the sales price, commission paid, long-term or short-term holding period, date of acquisition, and cost or other basis. Much of this information was not previously required to be reported by the firm to the IRS. Many of the firms, such as Merrill Lynch and Edward D. Jones, did report most of these facts to the taxpayer on a supplemental form, but that was for the taxpayer’s eyes only. Now this information has to be provided to the IRS.

I think it’s fair to say the brokerage firms will be far more committed to getting the facts right when that information has to be submitted to the IRS as opposed to just the taxpayer.

Based on the details reported on the newly revised 1099-B, the taxpayer will complete the newly created Form 8949. We are being told as tax professionals that a taxpayer with multiple 1099-B transactions could be required to complete and attach to his return as many as six different Forms 8949. You might be getting the impression that very seldom are the words “paperless society” and “IRS” mentioned in the same sentence. All of these Forms 8949 are then combined on one Schedule D. That information is then used to properly compute the taxpayer’s tax liability.

Congress’ reasoning in revising these reporting rules is they are convinced that many taxpayers do not properly report how much they paid for a particular stock. They believe there is a tremendous amount of understating of profits and overstating of losses that occurs. When taxpayers do either, their tax liability is underpaid.

I’m not so sure Congress is correct in their thinking on this particular subject. It is my experience that taxpayers make very reasonable efforts to be accurate when they sell assets, such as stocks, on their tax returns. We shall have to wait and see if using the new form 1099-K, the revised Form 1099-B, the new Form 8949, and the revised Form Schedule D results in more accurate tax returns or just results in more work for tax professionals like me. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service in Rockford. Contact Jerry at

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