n-09-19.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III - Administrative, Procedural, and Miscellaneous

Information Reporting of Payments Made in Settlement of Payment Card and Third
Party Network Transactions

Notice 2009-19

PURPOSE
This notice invites public comments regarding guidance to be provided to
payment settlement entities and other affected persons concerning new requirements
with respect to the reporting of payments made in settlement of payment card and third
party network transactions. The new reporting requirements are in section 6050W of
the Internal Revenue Code (the Code), which was added by section 3091 of the
Housing Assistance Tax Act of 2008, Div. C of Pub. L. No. 110-289, 122 Stat. 2653 (the
Act). Section 6050W requires information returns to be made for each calendar year by
merchant acquiring entities and third party settlement organizations with respect to
payments made in settlement of payment card transactions and third party payment
network transactions occurring in that calendar year. This requirement to make
information returns applies to returns for calendar years beginning after December 31,
2010.

2
The Treasury Department and the Internal Revenue Service (the Service) intend
to issue guidance on compliance with the new reporting requirements. To assist them
in drafting guidance under the new provisions, they are requesting comments from all
affected persons.
BACKGROUND
Under new section 6050W, any payment settlement entity making payment to a
participating payee in settlement of reportable payment transactions must make a return
for each calendar year to be filed with the Service, and furnish a statement to the
participating payee, setting forth the gross amount of such reportable payment
transactions, as well as the name, address, and taxpayer identification number (TIN) of
the participating payees.
Section 6050W(c) provides that a “reportable payment transaction” means any
payment card transaction and any third party network transaction. Section 6050W(b)(1)
provides that a “payment settlement entity” means: (A) in the case of a payment card
transaction, a merchant acquiring entity; and (B) in the case of a third party network
transaction, a third party settlement organization. Section 6050W(d)(1)(A) provides that
a “participating payee” means: (i) in the case of a payment card transaction, any person
who accepts a payment card as payment; and (ii) in the case of a third party network
transaction, any person who accepts payment from a third party settlement organization
in settlement of such transaction. Section 6050W(d)(1)(C) provides that “person”
includes any governmental unit (and any agency or instrumentality thereof). However,
section 6050W(d)(1)(B) provides that a “participating payee” does not include any

3
person with a foreign address except as provided by the Secretary in regulations or
other guidance.
With respect to reporting on payment card transactions, section 6050W(b)(2)
provides that the term “merchant acquiring entity” means the bank or other organization
with the contractual obligation to make payment to participating payees in settlement of
payment card transactions. Section 6050W(c)(2) provides that a “payment card
transaction” means any transaction in which a payment card is accepted as payment.
Section 6050W(d)(2) defines “payment card” as any card that is issued pursuant to an
agreement or arrangement that provides for: (A) one or more issuers of such cards; (B)
a network of persons unrelated to each other, and to the issuer, who agree to accept
such cards as payment; and (C) standards and mechanisms for settling the transactions
between the merchant acquiring entities and the persons who agree to accept such
cards as payment.
Section 6050W(c)(3) provides that the term “third party network transaction”
means any transaction that is settled through a third party payment network. Section
6050W(d)(3) defines “third party payment network” as any agreement or arrangement
that: (A) involves the establishment of accounts with a central organization by a
substantial number of persons who (i) are unrelated to such organization, (ii) provide
goods or services, and (iii) have agreed to settle transactions for the provision of such
goods or services pursuant to such agreement or arrangement; (B) provides for
standards and mechanisms for settling such transactions; and (C) guarantees persons
providing goods or services pursuant to such agreement or arrangement that such

4
persons will be paid for providing such goods or services. In the case of a third party
network transaction, section 6050W(b)(1)(B) provides that the payment settlement entity
is the “third party settlement organization,” which is defined in section 6050W(b)(3) as
the central organization that has the contractual obligation to make payment to
participating payees of third party network transactions.
Section 6050W(d)(3) provides that a third party payment network does not
include any agreement or arrangement that provides for the issuance of payment cards.
In addition, section 6050W(e) provides that a third party settlement organization is
required to report with respect to third party network transactions of any participating
payee only if (1) the aggregate amount with respect to such third party network
transactions for the year that would otherwise be reported exceeds $20,000, and (2) the
aggregate number of such transactions exceeds 200.
Additionally, section 6050W(b)(4)(A) imposes reporting requirements on
intermediaries who receive payments from a payment settlement entity and distribute
such payments to one or more participating payees. Under section 6050W(b)(4)(A),
such intermediaries are treated (i) as participating payees with respect to the payment
settlement entity, and (ii) as payment settlement entities with respect to the participating
payees to whom the intermediary distributes payments. However, under section
6050W(b)(4)(B), if an electronic payment facilitator or other third party makes payments
in settlement of reportable payment transactions on behalf of the payment settlement
entity, the electronic payment facilitator or other third party must file the annual
information return in lieu of the payment settlement entity.

5
The Act also amended section 3406(b)(3) to provide that reportable payment
transactions subject to information reporting under section 6050W generally are subject
to backup withholding requirements. In addition, the Act amended section 6724(d) by
adding returns required by section 6050W to the definition of information returns for
purposes of penalties for failure to comply with certain information reporting
requirements.
Section 6050W(g) grants authority to the Secretary to issue guidance to
implement the reporting requirement, including rules to prevent the reporting of the
same transaction more than once. Section 6050W and the related amendment to
section 6724(d) generally apply to returns for calendar years beginning after December
31, 2010. The amendments to the backup withholding requirements apply to amounts
paid after December 31, 2011.
REQUEST FOR PUBLIC COMMENTS
The Treasury Department and the Service request comments on issues that
should be addressed in guidance implementing the new requirements with respect to
the reporting of payments made in settlement of payment card and third party network
transactions. The Treasury Department and the Service request specific comments
regarding:
1. Whether the Form 1099 series is appropriate for Section 6050W reporting
and whether the time and manner of reporting to the Service should conform
to existing practices for information reporting to the Service under other
provisions of the Code;

6
2. Whether procedures for electronic reporting to payees, under section
6050W(f), should conform to existing procedures for electronic reporting to
payees under other provisions of the Code;
3. What foreign entities, if any, should be included in the definition of “payment
settlement entity”;
4. What persons with foreign addresses, if any, should be included in the
definition of “participating payee”;
5. How to interpret the statutory definition and scope of “payment card”;
6. How to interpret the statutory definition and scope of “third party payment
network”;
7. Whether the “gross amount” of the reportable payment transaction should be
defined as “gross receipts or sales” or whether adjustments should be made
for credits, cash equivalents, discount amounts, fees, refunded amounts, or
other amounts;
8. How to administer the reporting requirements so as to prevent reporting of the
same transaction more than once;
9. How to address differences between section 6050W reporting and payee
reporting on Forms 1040, 1065, or 1120, particularly when timing differences
arise, for example, between calendar reporting years and fiscal taxable years,
and the potential appropriateness of annual information returns from payment
settlement entities that either segregate monthly “gross amounts” or reflect
the taxable year of the participating payee; and

7
10. What document retention and other verification requirements should apply to
reporting entities and what information should be captured for purposes of
substantiating the payments reported.
Interested parties are invited to submit comments on this notice by Wednesday,
March 18, 2009. Written comments should be submitted to: Internal Revenue Service,
CC:PA:LPD:PR (Notice 2009-19), Room 5203, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Alternatively, comments may be hand delivered between the
hours of 8:00 a.m. and 4:00 p.m. Monday to Friday to CC:PA:LPD:PR (Notice 2009-19),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington,
D.C. Comments may also be transmitted electronically via the following e-mail address:
Notice.Comments@irscounsel.treas.gov. Please include “Notice 2009-19” in the
subject line of any electronic communications. All comments will be available for public
inspection and copying.
The principal author of this notice is Barbara Pettoni of the Office of Associate
Chief Counsel (Procedure & Administration). For further information regarding this
notice, please contact Barbara Pettoni at (202) 622-4910 (not a toll-free call).