Wednesday, July 30, 2008
HR 3221, the American Housing Rescue and Foreclosure Prevention Act of 2008, passed through the U.S. Senate, 72 to 13, over the weekend and was signed into law by President Bush on Tues., July 29, 2008. The new law contains a provision requiring merchant acquiring entities and third-party settlement organizations to turn over merchant credit and debit card transactions to the Internal Revenue Service.
The merchant reporting requirement will take effect Dec. 31, 2010. The major outline of the provision compels acquirers to report to the IRS the aggregate dollar amounts of credit and debit card transactions for each merchant who has more than $20,000 in transactions and more than 200 transactions per year. Additionally, reports must be filed using the merchants' taxpayer identification numbers (TINs).
The Electronic Transactions Association actively opposed the merchant card information reporting stipulation and joined others, including the American Bankers Association, the U.S. Chamber of Commerce, the National Association of Manufacturers and the Financial Services Roundtable, to enlighten Congress about the problems this provision in the law will create.
Now that the law has passed, it will be assigned to the U.S. Department of the Treasury (the parent organization of the IRS) for implementation. According to an industry insider, the Treasury Department will decide the actual reporting mechanism insofar as when to file the reports, how they will be reported and how often; moreover, it will meet with industry experts to determine the best way to structure the regulations.
Once the Treasury Department suggests implementation of regulations that make sense in terms of IRS parameters, it will issue what is known as a Notice of Proposed Rule. This notice, said the insider, is a first draft of the regulations submitted for public comment, typically available for only 60 days. At that time, comments and suggestions about rules, deadlines, or expenses are encouraged.
After the proposed rule notice comes out and the Treasury Department closes the public comment window, the ETA plans to publish a copy of the rules and solicit comments from acquirers, processors and ISOs about the adverse effects of these proposed rules on the payments industry. Treasury will then make a final ruling based on those suggestions and apprehensions.
Reportedly, a congressman once said businesses don't pay taxes, consumers do. However, during the initial stages of the new law, after it takes effect in 2010, the acquiring banks will incur the initial expenses.
According to the insider, part of that expense is that IRS reports must now be filed by the TIN, which the ISOs don't presently do. Now ISOs will have to get the TIN information, install the programming to go through these transactions, figure out which transaction is from which merchant, match that up to the merchants' TIN, then aggregate it accordingly.
The insider said matching transactions to TINs will create problems for ISOs. It will be an expensive undertaking to figure out how to secure data and sequester it in a way that won't increase the vulnerability of that data. In addition, the law requires that some mechanism must be developed and installed to prevent transactions from being counted twice.
This provision, said the insider, was devised for cases in which a payment is split by the processor. ISOs will now have to go back through transaction streams and identify all transactions, match them with the merchant TINs, and ensure transaction do not get double counted.
The ETA believes it is unlikely any real movement on the law and the Treasury Department's rules implementation of HR 3221 will happen until 2009 under a new presidential administration and Treasury Secretary. The ETA's main objective and the Notice of Proposed Rule submission is to get the word out to the payment professionals' community and encourage them to voice their concerns.
"The passage of the law and the signing of it by President Bush is not what we wanted to see and was not the outcome we were after," said Thomas Goldsmith, Director of Communications and Public Relations for the ETA. However this is "an opportunity for the ETA to play a role in mitigating at least some of the effects of this legislation by working with the Treasury Department to make sure that the regulations they draft at least minimize the burden on the acquiring industry.
"We plan to play an active role in that regulatory progress and we will keep our members informed of progress on the regulations and alert them to participate in the process when it's appropriate."
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