The Internal Revenue Service has released a clarification for how to report credit and debit card transactions on the new Form 1099-K information-reporting form.
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For tax year 2011 the IRS said on its Web site that it has deferred the requirement to separately report the amount of merchant card and third-party network payments from Form 1099-K on your tax return. Instead, all gross receipts of a trade or business should be reported as usual on the line indicated on Schedules C and/or E.
Also, as indicated on the form, taxpayers should enter zero on the "Merchant card and third party payments" line immediately above the gross receipts line on Schedules C and E. If they file Schedule F, they should enter zero, as indicated, on the lines for "specified" items of income. Taxpayers should also report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F.
Line 2 of Schedule C states, "Returns and allowances plus any other adjustments (see instructions)". The text "plus any other adjustments" was added for taxpayers who had to adjust the amount on the "Merchant card and third-party payments" line (line 1a of Schedule C), the IRS noted.
Because all filers are now to enter zero on line 1a of Schedule C, there are no other adjustments to enter on line 2 of Schedule C other than returns and allowances. The instructions for line 2 of Schedule C were removed. Filers should complete line 2 of Schedule C as if it only said “Returns and allowances.”
The IRS noted that the deferral of the requirement to separately report the amount of merchant card and third party network payments from the Form 1099-K does not change the requirement for responsible entities to file the Forms 1099-K for 2011.
The IRS sent a letter last week to a small business advocacy group, the National Federation of Independent Business, saying that it would not require businesses to reconcile their gross receipts with the merchant card transactions reported on the 1099-K (see IRS Won’t Require Reconciling 1099-K Reports on Credit Card Payments with Gross Receipts). The information on its Web site appears to be intended to clear up any confusion over the updated requirements.
Late last month, a pair of Republican members of Congress introduced a bill to prohibit the IRS from implementing a new tax-reporting requirement for small businesses to reconcile their 1099-K reports from outside providers such as credit card companies with their own internal records (see Lawmakers Introduce Bill to Limit 1099-K Overreach).