The Internal Revenue Service has issued a notice warning businesses not to get caught in backup withholding if the name and taxpayer identification number submitted on a Form 1099-K doesn’t match the IRS’s other records.
Notice 1430, “Don’t Get Caught in Backup Withholding,” contains information about the possible requirement to have backup withholding kept from receipts.
The IRS has begun requiring more information reporting from credit and debit card providers and is using it to match the data it receives from tax returns to safeguard against tax fraud. In the notice, the IRS tells businesses that the name and taxpayer identification number, or TIN, submitted on Form 1099-K, “Payment Card and Third Party Network Transactions,” by a payment card processor or third-party settlement organization does not match IRS records.
“If a payment card processor or third-party settlement organization submits a Form 1099-K for tax year 2013 with an incorrect TIN or name for you, the payments you receive for your payment card or third party network transactions will be subject to backup withholding,” the IRS notice said. “This means the payment card processor or third-party settlement organization will be required to withhold 28% from each payment to you beginning as early as September 2014. If you operate as a partnership or subchapter S corporation, any monies withheld due to an incorrect name or TIN can only be claimed by the partners and shareholders on their individual income tax returns for their shares of the withheld amounts. The monies are not refundable to the partnership or subchapter S corporation.”
The IRS is advising businesses to immediately contact their payment card processor or third-party settlement organization to remedy the problem.
“Verify that the name and TIN the payment card processor or third-party settlement organization has in its records matches the exact name and TIN on your income tax return,” said the IRS.
For additional information on Form 1099-K reporting and backup withholding, visit www.irs.gov and enter the keywords, “Third Party Reporting Center” or “Backup Withholding.” The Third Party Reporting Information Center - Information Documents page contains additional information.
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