rp-04-42.pdf

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Part III. Administrative, Procedural, and Miscellaneous

Qualified Payment Card Agent Determination

Rev. Proc. 2004-42

SECTION 1. PURPOSE

This revenue procedure establishes a procedure for a payment card organization
to request a determination that it is a Qualified Payment Card Agent (QPCA) for
purposes of section 3406 and section 6724 of the Internal Revenue Code. A QPCA
may act on behalf of cardholder/payors in soliciting, collecting, and validating
merchants' names, taxpayer identification numbers (TINs) and corporate status
(collectively referred to as merchant/payee data) and on behalf of merchant/payees in
furnishing merchant/payee data to cardholder/payors. The Regulations on Procedure
and Administration relieve cardholder/payors from certain TIN solicitation requirements
for payments made through a QPCA. The Employment Tax Regulations provide a
limited exception from the backup withholding requirements for payments made to
certain merchant/payees through a QPCA.

SECTION 2 . BACKGROUND

.01 Payment card transactions
. A payment card transaction is a transaction in
which a cardholder/payor uses a payment card (as defined in section 4.04 of this
revenue procedure) to purchase goods or services and a merchant agrees to accept the
payment card as a means of obtaining payment. A payment card organization (as
defined in section 4.05 of this revenue procedure) sets the standards and provides the
mechanism for effecting the payment.

.02 Reporting requirements
. In general, section 6041 requires a person
engaged in a trade or business and making a payment in the course of the trade or
business of $600 or more during a calendar year of fixed or determinable income to file
an information return with the Internal Revenue Service (IRS) and to furnish an
information statement to the payee. Section 1.6041-3(p) of the Income Tax Regulations
provides exceptions to these requirements, including, for example, exceptions for
payments made to a payee that is a corporation.

Section 6109(a)(2) provides that any payee, with respect to whom a return is
required to be made by another person or whose identifying number is required to be
shown on a return of another person, must furnish to the other person the identifying
number prescribed for securing the proper identification of the payee. Section
6109(a)(3) provides that any person required to make a return with respect to a payee

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must ask the payee for the identifying number prescribed for securing the proper
identification of the payee and must include that number in the return.

.03 Backup withholding
. Section 3406(a)(1) requires a payor to withhold on
reportable payments (as defined in section 3406(b)(1)) if the payee does not provide a
TIN to the payor in the manner required or if the Secretary notifies the payor that the
TIN furnished by the payee is incorrect or in certain other circumstances. Section
3406(i) provides that the Secretary shall prescribe the regulations necessary or
appropriate to carry out the purposes of section 3406.

Section 31.3406(j)-1 of the Employment Tax Regulations provides that the
Commissioner has the authority to establish TIN matching programs through revenue
procedures or other appropriate guidance. Under the regulations, a payor or a payor’s
authorized agent may participate in a TIN matching program that permits the payor or
authorized agent to contact the IRS with respect to the TIN furnished by a payee before
the payor files an information return for reportable payments to the payee. The
regulations further provide that the IRS will inform the payor or the payor’s authorized
agent whether or not the name/TIN combination furnished by the payee matches a
name/TIN combination maintained for the TIN matching program. Revenue Procedure
2003-9, 2003-1 C.B. 516, describes the procedures for participation in the IRS TIN
Matching Program.

Section 31.3406(g)-1(f) of the Employment Tax Regulations provides that the
backup withholding requirements of section 3406 do not apply to payments made
through a QPCA if the payments are made to a qualified payee or during a grace
period. Section 31.3406(g)-1(f)(3) requires a QPCA to notify the cardholder/payor when
payments are made to a merchant/payee who is not a qualified payee.

.04 Information reporting penalties and waivers for reasonable cause
. Section
6721 provides that a payor may be subject to a penalty for failure to file a complete and
correct information return. Section 6722 provides that a payor may be subject to a
penalty for failure to furnish a complete and correct information statement to a payee. A
failure subject to the section 6721 and section 6722 penalties includes a failure to
include correct payee TINs.

Section 6724 provides that the penalties under section 6721 and section 6722
may be waived if the filer shows that the failure was due to reasonable cause and was
not due to willful neglect. Section 301.6724-1(e)(1)(vi)(H) and (f)(5)(vii) of the
Regulations on Procedure and Administration provide that a cardholder/payor in a
payment card transaction may establish reasonable cause based on its reliance on a
QPCA.

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SECTION 3. SCOPE

This revenue procedure applies to payment card organizations acting or seeking
to act on behalf of cardholder/payors in soliciting, collecting, and validating
merchant/payee data and on behalf of merchant/payees in furnishing merchant/payee
data to cardholder/payors.

SECTION 4. DEFINITIONS AND RELATED RULES

The following definitions and related rules apply solely for purposes of this revenue
procedure:

.01 Cardholder
. A cardholder (or cardholder/payor) is the person that agrees to
make the payment through the payment card organization. Thus, in the case of a
payment card issued to an employee of a person that agrees to make payments
through the payment card organization, the employer rather than the employee is the
cardholder/payor.

.02 Merchant
. A merchant (or merchant/payee) is a person that has agreed to
accept the payment card issued by the payment card organization as payment for
goods and services.

.03 Merchant/payee data
. Merchant/payee data includes the merchant/payee’s
name, corporate status, and TIN, and whether the TIN has been validated through
participation in the IRS TIN Matching Program.

.04 Payment card
. A payment card is a card (or an account) issued by a
payment card organization to a cardholder/payor which, upon presentation to a
merchant/payee, represents an agreement of the cardholder to pay the merchant
through the payment card organization.

.05 Payment card organization
. A payment card organization is an entity that
sets the standards and provides the mechanism for effectuating payment between a
purchaser and a merchant in a payment card transaction. A payment card organization
generally provides this payment mechanism by issuing payment cards, enrolling
merchants as authorized acceptors of payment cards for payment for goods or services,
and ensuring the system conducts the transactions in accordance with prescribed
standards. In any case in which a payment card organization acts through a member,

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affiliate, or licensee, the action is treated for purposes of this revenue procedure
(including this definition) as an action by a payment card organization.

.06 Qualified Payment Card Agent (QPCA)
. A QPCA is a payment card
organization that has a current QPCA determination from the IRS. A person acting in its
capacity as a QPCA does not act as an agent of the IRS, nor does it have the authority
to hold itself out as an agent of the IRS.

SECTION 5. APPLICATION AND REQUIREMENTS FOR QPCA DETERMINATION

.01 Where to apply for QPCA determination
. A person authorized to act on behalf
of a payment card organization may submit a written request for a QPCA determination
to the following address:
Internal Revenue Service
1601 Market Street
20
th
Floor
ATTN: TIN Matching Coordinator
S:C:CP:F&CC:SCDM
Philadelphia, PA 19107

.02 Content of QPCA application
. A payment card organization requesting a
QPCA determination must include the following in its application:
(1) The name, address, and employer identification number of the payment
card organization and a description of its business.
(2) The name of the department or office of the payment card organization
that will serve as the information contact.
(3) The name of the department or the names and titles of the officers or
employees that will be responsible for the performance of the TIN solicitation
activities described in section 6.
(4) A list of the systems, business lines, or card product lines or levels that
will be covered by the TIN solicitation activities described in section 6 and that will
be covered by a QPCA determination.
(5) An explanation of the account opening procedures and documents the
payment card organization uses, or requires its members, affiliates, or licensees to
use, to establish merchant account relationships related to the payment card
organization’s activities as a QPCA.
(6) The approximate number and the type of merchants (individuals,
corporations, etc.) enrolled by the payment card organization.
(7) An explanation of the payment card organization's systems and controls
related to the payment card organization’s activities as a QPCA for--
(a) Obtaining merchant/payee data (including merchant/payee
data provided by reputable third-party sources);
(b) Validating the accuracy of the merchant/payee data;
(c) Ensuring the accuracy and reliability of the merchant/payee
data;

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(d) Maintaining the merchant/payee data; and
(e) Supplying the merchant/payee data to the cardholder/payor.

.03 Requirements for QPCA determination
. A payment card
organization must meet the following requirements to obtain a QPCA
determination:

(1) Authorization to act on behalf of cardholder/payors and on behalf
of merchant/payees.

(a) The payment card organization must establish that
cardholder/payors have authorized it or its members, affiliates, or licensees
to act on their behalf in soliciting, collecting, and validating merchants'
names and TINs and to assist the cardholders in meeting their information
reporting obligations under section 6041 and section 6041A. The payment
card organization must also establish that merchant/payees have authorized
it or its members, affiliates, or licensees to act on their behalf in furnishing
their names and TINs to cardholders and to assist the merchants in meeting
their obligations under section 6109(a)(2). To satisfy these requirements,
the payment card organization must provide the written notice described in
section 5.03(1)(b) to each cardholder/payor and must provide the written
notice described in section 5.03(1)(c) to each merchant/payee.
(b) The text of the written notice provided to cardholder/payors must
be in bold and conspicuous type, and the notice must include the legend:
“Important Tax and Privacy Materials.” The notice must state:

As a cardholder, you may engage in transactions with
merchants for which you may be required to file an information return
with the Internal Revenue Service. If you are required to file an
information return with the Internal Revenue Service reporting a
transaction, you must include the amount of the payment, the
merchant’s name, and the merchant’s taxpayer identification number.
To assist you in fulfilling these potential information reporting
requirements, [insert name of payment card organization] has
received [is seeking] approval from the Internal Revenue Service to
act on your behalf, and on behalf of merchants, to solicit, furnish, and
validate the merchants’ taxpayer identification numbers. A
merchant’s taxpayer identification number and other merchant data
may be provided to you through [insert name of issuer]. If you accept
the merchant data service, please be advised that you must maintain
the confidentiality of the merchant data provided to you and that you
may use it only for purposes of backup withholding and filing
information returns with the Internal Revenue Service.

You may decline this service. If you do not want [insert name
of card organization] to provide this service to you, you must complete

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the enclosed form and return it to [insert name of issuer] in the
enclosed envelope.

For more information, contact [insert contact name and phone
number.]

The notice may be included in the annual (or periodic) agreement, or
amendments thereto, between the payment card organization and the
cardholder or in a separate document. The outside of the envelope in which
the written notice is mailed must contain, in bold and conspicuous type, the
legend: “Important Tax and Privacy Materials Enclosed.”

(c) The text of the written notice provided to merchant/payees
must be in bold and conspicuous type, and the notice must
include the legend: “Important Tax and Privacy Materials.”
The notice must state:

As a merchant, you may engage in transactions with
cardholders for which cardholders may be required to file an
information return with the Internal Revenue Service. If a cardholder
is required to file an information return reporting a transaction with you
to the Internal Revenue Service, the cardholder must include the
amount of the payment, your name, and your taxpayer identification
number. To facilitate the exchange of information between you and
cardholders, [insert name of payment card organization] has received
[is seeking] approval from the Internal Revenue Service to act on your
behalf, and on behalf of cardholders, to solicit, furnish, and validate
your taxpayer identification number.

If you accept this service, your name and your taxpayer
identification number will be submitted to the Internal Revenue
Service for validation against the Internal Revenue Service taxpayer
identification number database, and your name, taxpayer
identification number, and corporate status may be provided to
cardholders. Please be advised that if you accept this service, [insert
name of payment card organization] may request that you provide
your taxpayer identification number to it or may seek to obtain your
taxpayer identification number from a reputable third-party source.

Please be aware that [insert name of payment card
organization] has advised cardholders who may receive you name
and taxpayer identification number that they must maintain the
confidentiality of your information and may use it only for purposes of
backup withholding and filing information returns with the Internal
Revenue Service.

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You may decline this service. If you do not want [insert name
of payment card organization] to validate your name and taxpayer
information number or to provide your name, taxpayer information
number, and corporate status to cardholders, you should discontinue
accepting the [insert name of payment card] as a means of obtaining
payment. If you continue to accept the [insert name of payment card]
as a means for obtaining payment after [insert 60 days after date of
notice] you will be deemed to have agreed to this sharing of
information.

For more information, contact [insert contact name and phone
number.]

The notice may be included in the annual (or periodic) agreement, or
amendments thereto, between the payment card organization and the
merchant or in a separate document. The outside of the envelope in which
the written notice is mailed must contain, in bold and conspicuous type, the
legend: “Important Tax and Privacy Materials Enclosed.”

(2) TIN solicitation activities
. The payment card organization must
establish that it has undertaken, or demonstrate that it will undertake, the
TIN solicitation activities described in section 6.

(3) Reliability of merchant/payee data
. After obtaining the
authorizations required by section 5.03(1), the payment card organization
must participate in the IRS TIN Matching Program and must demonstrate,
based on the TIN matching results, that its merchant/payee data is
sufficiently reliable.

SECTION 6. TIN SOLICITATION ACTIVITIES

.01 TIN solicitation methods
. A QPCA must solicit merchant/payee
TINs in a manner described in section 301.6724-1(e)(1)(i) of the Regulations
on Procedure and Administration. Alternatively, a QPCA may obtain
merchant/payee TINs from a reputable third-party source.

.02 Notification and disclosure requirements
. A QPCA must give
each merchant/payee for which it acts as agent the written notice described
in section 5.03(1)(c) and must give each cardholder/payor for which it acts
as agent the written notice described in 5.03(1)(b). In addition, a QPCA
must give written notice of its status as a QPCA, and of any change in that
status, to any member, affiliate, or licensee that issues payment cards, as
well as to the merchant/payees and cardholder/payors for which it acts as
agent.

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.03 TIN Matching participation. A QPCA must participate in the IRS
TIN Matching Program and must match its merchant/payee data relating to
reportable payments with IRS within three months after obtaining the
merchant/payee’s TIN. A QPCA may seek to cure merchant/payee data
that has not previously been validated through the IRS TIN Matching
Program. The QPCA must transmit only merchant/payee data that has not
previously been validated through IRS TIN Matching.

.04 Providing merchant/payee data to cardholders
. The QPCA must
provide cardholder/payors with a report containing merchant/payee data
within four months of the date on which the QPCA makes the payment. The
report may be provided in a quarterly or other regular report of
merchant/payee data that includes the merchant/payee’s name, corporate
status, TIN, and whether the TIN has been validated through participation in
the IRS TIN Matching Program. A QPCA must furnish the report containing
merchant/payee data for transactions occurring on or before December 31 of
the calendar year no later than January 15 of the following calendar year.

SECTION 7. OTHER REQUIREMENTS

.01 Availability of records
. A payment card organization and its
members, affiliates, and licensees must respond to any reasonable IRS
request for inspection of any books and records that relate to the operation
of TIN solicitation activity, including, but not limited to, reports, memoranda,
budgets, and computer printouts. The payment card organization and its
members, affiliates, and licensees must allow the IRS reasonable access to
the merchant/payee TIN data system, including instruction manuals
describing the system.

.02 Change in information
. The QPCA must promptly notify the IRS
of any change in the information described in section 5.

.03 Confidentiality of information
. For purposes of this revenue
procedure, the payment card organization and its members, affiliates, and
licensees must maintain the confidentiality of information obtained through
the TIN solicitation activities in accordance with the requirements of section
31.3406(f)-1 of the Employment Tax Regulations. Except as permitted
under section 31.3406(f)-1, the payment card organization and its members,
affiliates, and licensees may not disclose any merchant/payee information to
any person other than the cardholder/payor without prior written consent of
the merchant/payee. The IRS will treat all information provided by a QPCA
as return information that is confidential under section 6103.

SECTION 8. TERM, RENEWALS, AND TERMINATION

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.01 Term and renewal. In general, a QPCA determination will be
effective for five years from the date of the determination. A QPCA may
request a renewal of the QPCA determination by submitting an application
for renewal to the IRS no earlier than 12 months and no later than three
months before the expiration of the five-year term. In the application for
renewal, the QPCA must report any change in the information in the original
application. Before renewal of the determination, the IRS may review the
QPCA's systems. In addition, the QPCA must demonstrate that the
merchant/payee data continues to be reliable. The application for renewal
must include the results from participation in the IRS TIN Matching Program
during the current five-year term. The IRS will make every effort to issue a
decision on a renewal application at least 30 days before the expiration of
the current five-year term. In the event that the IRS does not issue a decision
on a timely renewal application before the expiration of the existing QPCA
determination, the determination will remain in effect until the IRS issues a
decision on the renewal application.

.02 Revocation of determination
. The IRS may revoke a QPCA
determination before the expiration of its five-year term if the IRS
determines, based on the results of the QPCA's participation in the IRS TIN
Matching Program, that the merchant/payee data is not reliable or if the
payment card organization fails to meet any of the requirements in section 5,
6, or 7. A QPCA may terminate its status as a QPCA upon 60 days written
notice to the IRS.

SECTION 9. EFFECTIVE DATE

This revenue procedure is effective July 14, 2004.

SECTION 10. DRAFTING INFORMATION

The principal author of this revenue procedure is Donna Welch of the Office of
Associate Chief Counsel (Procedure and Administration). For further information
regarding this revenue procedure, contact Ms. Welch at (202) 622-4910 (not a toll-free
call).