Merchant Acquirers Oppose IRS Proposal To Collect Receipts
Merchant acquirers and small-business advocates told lawmakers today that an Internal Revenue Service proposal that would require acquiring banks to report credit card receipts paid to merchants would have devastating effects on their industries. The hearing before the House Committee on Small Business explored the implications of a proposal that surfaced last year and that the IRS has said could generate an additional $10 billion in taxes over the next 10 years from small-business revenues that may be going uncollected (CardLine, 3/30/07). Kim Stubna, director of public policy at First Data Corp., testified that the proposal would require merchant acquirers to report the aggregate value of electronic transactions received by every merchant annually. Stubna said the proposal would require merchant acquirers to begin linking transactions that currently are associated with merchant identification numbers with merchants' tax identification numbers. That would pose costly operational changes, Stubna said, in addition to the fact that under the proposal, the merchant identification numbers associated with a merchant's branch or franchise locations would need to be linked to a single tax identification number. "It will be extremely expensive and time-consuming to reprogram our systems to comply with the new mandates," Stubna said. Moreover, under the proposed rule, acquirers in some cases would be required to withhold 28% of a small business' cash flow until its tax identification number could be verified. Stubna said withholding 28% of cash flow would create a great hardship for most small businesses. "It would not be implausible for this proposal to discourage some merchants from accepting electronic payments and steering customers toward cash and checks–making it that much more difficult for the IRS to achieve its main objective to identify entities that under-report their taxable income," Stubna said. Todd McCracken, president of the National Small Business Association, testified that "given the extraordinary burden that compliance with the unbelievably complex tax code already imposes on small businesses, it is unfair to ask truthful small businesses to do even more in order to catch a few potential cheats." Other witnesses included representatives for Fifth Third Bank Processing Solutions, the Center for Democracy and Technology, and the National Association of the Self-Employed.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry