WASHINGTON–A new House bill aims to ease the tax-reporting requirements for retailers that rely on card purchases, which could stave off a wave of confused phone calls from merchants to their processors, according to the bill’s supporters.
The Republican-sponsored bill comes in response to a new IRS regulation that will require merchants to reconcile their own internal credit card sales figures with the sales numbers that merchant processors are required to report to the IRS.
“While on the surface this may seem like a simple task, (but) as you dig deeper it becomes immensely more complicated and expensive,” Rep. Aaron Schock, an Illinois Republican who is sponsoring the bill, wrote in a blog post this week.
The bill would overturn a proposed IRS regulation that would require merchants to reconcile their processor’s calculation of their sales with their own internal figures.
There are numerous potential reasons for discrepancies between the two numbers, according to the bill’s supporters, including returns of merchandise, purchases where the customer receives cash back, and disputed transactions.
The IRS regulation is part of the implementation of a 2008 law that requires merchant processors and other payment firms such as PayPal Inc. to file a new form, known as a 1099-K, that lists each merchant’s sales figures. The law is intended to cut down on tax evasion by businesses (see story).
“Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe,” IRS Commissioner Doug Shulman said in a November 2009 press release. “The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses."
Under the proposed IRS regulations, payment firms are required to submit 1099-Ks only when sellers have both $20,000 in annual revenue and 200 transactions over the course of the year.
But the bill’s supporters, which include the U.S. Chamber of Commerce and the National Federation of Independent Businesses, say that the proposed IRS regulation, issued in August, will create headaches for small businesses.
They argue that many small businesses do not have the necessary accounting software, time or personnel to reconcile the two sets of numbers.
The regulation doesn’t take effect until January 2013. But the bill’s supporters worry that it will be costly to merchants.
“For small companies, the cost of tax compliance is already $1,584 a year,” Rep. Bobby Schilling, an Illinois Republican who is co-sponsoring the legislation, said in a press release. “If not overturned, this IRS requirement will undoubtedly add to that cost.”
The bill’s proponents also are concerned that when retailers find discrepancies between their own internal accounting and the 1099-K forms they receive, they will flood their processors with phone calls to resolve the issues.
The introduction of 1099-Ks has already been costly and time-consuming for payment firms. The first 1099-Ks were sent out last month, and the industry spent more than a year preparing for that step.
Mary Bennett, director of government and industry relations at the Electronic Transactions Association, a trade group for payment firms, said that the industry struggled to find the correct IRS taxpayer identification numbers for many merchants.
“That isn’t necessarily information that payment processors would have on file for every merchant,” Bennett said. “So we had to go out and get it, and getting it was often difficult.”
The House legislation has been referred to the Ways and Means Committee, which has jurisdiction over the tax code.
Sen. John Thune, a South Dakota Republican, plans to introduce a Senate version of the bill sometime in the near future, according to a spokesperson.
An IRS spokesperson said that the agency does not comment on pending legislation.
The IRS is expected to issue its final regulations on the issue this summer, and supporters of Schock’s bill believe there is a chance that the agency will back off the proposed new reporting requirement for small businesses, which would eliminate any reason for Congress to act.
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