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IRS Won’t Require Reconciling 1099-K Reports on Credit Card Payments with Gross Receipts

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Washington, D.C. (February 10, 2012)

By Michael Cohn, Accounting Today

The Internal Revenue Service has informed a small business advocacy group that it will not require businesses to reconcile their gross receipts with the merchant card transactions reported on the new 1099-K information reporting form.

In a letter Thursday to Susan Eckerly, senior vice president of public policy at the National Federation of Independent Business, IRS deputy commissioner for services and enforcement Steven T. Miller, wrote that no reconciliation would be required on 2012 business tax forms such as the 1120 nor in future years. The IRS had earlier said only that no reconciliation would be required on 2011 income tax returns.

“Thank you for your January 18, 2012, letter concerning proposals that Forms 1120 and other business income tax forms require a reconciliation of gross receipts and merchant card transactions,” he wrote. “As you know, we announced in October that no reconciliation is required on the 2011 income tax returns. In your letter, you raised whether we would require reconciliation for future years and outlined potential business impacts if we pursued such reconciliation.

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“This is to confirm what I stated in our recent meeting with your organization and other industry representatives,” Miller added. “There will be no reconciliation required on the 2012 form, nor do we intend to require reconciliation in future years. Our intention is that the reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms. No other changes to these forms related to payment card reporting are contemplated.”

The Housing and Economic Recovery Act of 2008 requires the IRS to begin collecting a 1099-K this year from third-party payment entities, such as credit card companies, for merchant card transactions, such as credit and debit card payments. The 1099-K will show all credit transactions within a merchant’s business for the previous year if they exceed either $20,000 or 200 transactions for the calendar year.

A pair of lawmakers, Rep. Aaron Schock, R-Ill., and Bobby Schilling, R-Ill., recently introduced legislation in Congress to prohibit Congress from implementing the 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’).

The IRS decision appears to address the lawmakers’ concerns, as well as those of the NFIB. The NFIB and other business advocates won a similar victory last year when Congress repealed the expanded 1099-MISC reporting requirements in the Affordable Care Act and the Small Business Jobs Act that would have required businesses to report their transactions with other vendors if they exceeded $600 per calendar year (see President Signs 1099 Repeal into Law).

3 Comments

It is good that we are not required to reconcile the 1099-K forms because it can be difficult for small businesses because the 1099-K includes meal tips, and taxes. There should be a way for the credit card companies to segregate these items so only income is shown on the 1099-K.

Posted by: Vincent C | February 14, 2012 8:27 AM

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Tell that to the IRS auditor when they come knotting at the door.

Posted by: valtom | February 13, 2012 10:42 AM

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And the moon is made of Green Cheese

Posted by: RL | February 13, 2012 9:38 AM

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