Form 1099-K

THE TAX ATTIC with Jerry Coon

September 8, 2011 // 0 Comments

New, changed forms 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 […]