By Troy Thibodeau
Convey Compliance Systems Inc.
Implementation of Section 6050W to the Internal Revenue Service tax code means that in January 2012, payment processors will have to submit information via 1099-K forms on all electronic transactions they have handled on behalf of merchants for the 2011 tax year.
January will soon be upon us; the next steps are implementing a smooth compliance process and preparing to take advantage of opportunities.
If you process payment information for merchants, and you have not begun to evaluate how you will handle the new tax information reporting regulations in January 2012, there is still time.
Convey is talking to some of the biggest organizations in this industry, and they are still in the dark as to what the regulation means and what they need to do to get things right and keep their customers happy. Now is the time to take action.
The first thing an organization needs to do is to collate all the correct names and taxpayer identification numbers (TINs) from its merchant customers. The most logical first step in this process is to focus on clients who have not offered their TIN information or have submitted what the IRS would deem an "obviously incorrect TIN" (that is, a TIN with too few or too many numbers or a clearly fake number such as xxx-xx-xxxx).
This process is by far the most critical step. Should these merchants, for whatever reason, not provide the correct information by Jan. 1, an acquirer must withhold funds. Those who have submitted correct names and valid TINs will not be subject to withholding unless the IRS sends a B-Notice sometime in 2012.
Once an acquirer has all "clean" data from merchants, it must consider how it will manage this process going forward. This regulation isn't going away, and in 2013 all your new merchant customers will also have had to submit correct data - which means planning the process for collection and verification every year.
Leveraging a real-time TIN verification service is a cost-effective, efficient process for flagging and remedying incorrect name and TIN information before new merchant accounts are even boarded.
In addition to managing the logistics of complying with this new regulation, acquirers have to consider the customer service aspect of whatever approach they pursue. How is the business tracking down missing or incorrect data? What questions are being asked of customers? How is the company working with merchants to help them understand why they must send data and what it means for their tax filing activities?
Many merchants may be oblivious to this new regulation and will need their hands held. They know the importance of customer service from running their own businesses and will appreciate having crucial customer service at the initiation of a new set of processes.
IRS Section 6050W isn't just a burden; it is an opportunity to take advantage of the latecomers by creating a process that's easy, efficient and likely allows you to increase market share by providing a clear reporting process for merchants.
The new regulation isn't just TIN and name collection; it's a whole process of filling in forms correctly and then handling any discrepancies or customer-initiated changes as quickly as possible. So how will your company handle correcting forms? How will it track down incorrect information? What will it say to merchants who are simply not complying with this IRS regulation?
Convey has been suggesting a multipronged strategy to deal with customer relations. Some merchants may prefer phone calls to make sense of what they have to provide, some may want to amend forms online and some may work better with hard copies delivered by mail.
Working with some of the biggest merchant processers in the United States has shown Convey that providing a variety of engagement approaches is the cheapest, most effective route.
Keep merchants happy, gain more business
While it's prudent to offer flexibility, acquirers should consider how to make this whole process an electronic one. The reason for this is an electronic statement saves acquirers time and money.
Printing and mailing forms is a costly endeavor and becomes even more costly when you consider providing instructional guides and FAQs along with the 1099-K forms. Paperwork is no business's friend; minimizing it helps everyone. Electronic statements convert a delayed printing and mailing process into a real-time process, making access to much needed information instantaneous.
New regulations from Section 6050W aren't easy for anyone, but they are here and require preparation. Those acquirers that find ways to efficiently collect and manage data and help merchants through the process will benefit from increased customer loyalty and more new business. Process-heavy tax regulation has a tendency to anger and confuse people.
Acquirers that can turn that anger and confusion into education and opportunity are most likely to benefit from this new market dynamic.
Troy Thibodeau, Executive Vice President of Convey Compliance Systems Inc., began his 20-plus year career as a CPA at Price Waterhouse and has spent the past 12 years helping organizations automate regulatory and financial processes. With Convey, he ensures the company provides its clients the best possible tax information reporting experience. For more information, visit www.convey.com, call 800-334-1099 or email Thibodeau at email@example.com.
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