The Internal Revenue Service implemented section 6050W of the Internal Revenue Code, stipulating that as of Jan. 1, 2012, and starting with tax year 2011, payment processors must submit valid taxpayer identification numbers (TINs) and business names for all merchants serviced when reporting merchant transaction totals on IRS Form 1099-K.
The IRS subsequently delayed full enforcement, withholding penalties for incorrect names and TINs until next year.
We asked our advisory board members how their companies are handling the new requirements, specifically:
All Card Processing Inc.
1. Our acquirer is handling this matter, as they are the owner of our merchant accounts. We, as the ISO, have no real responsibility regarding this matter.
That, of course, does not mean the First Datas, Paymentechs, etc., will not try to dump it in the hands of the ISO later. Also, the IRS has delayed these reporting requirements for another year, which was great news to most of us.
2. No actual impact at this time for ISOs.
3. Not for ISOs at this time; most of the responsibility is in the hands of the banks/acquirers at this time.
Go Direct Merchant Services Inc.
Being an ISO/agent, going on six years now, we rely on our partners for various back-office support. We have two crackerjack partners, and the "latest" IRS requirements are handled by them. For the most part, it is fairly noninvasive on the merchant end.
From a day-to-day perspective, these new regulations have not impeded our business model. While we have to dot a few extra I's and perhaps cross a few more T's, so does everyone else.
However from a little more global view, this just doesn't feel good. If I was a merchant, I'd feel like credit card processing is already expensive, and now the government wants more from me. As a businessman, it's more government bureaucracy, more red tape ... it's enough!
1. There is an inherent, internal cost associated with managing the new IRS rule. Furthermore, there will be additional internal costs associated with the need to hold merchant funds, as prescribed by the non-matching mandates that are set to be effective in January 2013.
With that said, we have worked hard to pass on the minimal amounts possible to our merchants in order to recoup our costs. We have done so in the form of a small government compliance fee, as well as an additional fee assessed only to merchants whose information in our records does not match that of the IRS.
2. Yes. First and foremost, we strive to minimize all fees to our merchants. There is a fine line in respect to billing merchants accordingly, yet not excessively, and at the same time providing those merchants with the necessary education to understand the root cause and/or reason for the additional fees.
In an effort to minimize the financial impact on our merchants, we have added additional staff to proactively outreach the segment of our merchant portfolio whose information does not currently match the IRS.
We're doing this now to educate them on the new mandates, and to help them avoid having a portion of their funds held in 2013.
The reciprocal impact of these new requirements is an increase in merchant attrition. Anytime you add another line item fee to your merchants' statements, it creates a target for competitors to key in on.
And while all processors are faced with the financial burden of managing government compliance, there are different methods for recouping those costs that aren't always transparent to the merchant. This, again, is where increased, ongoing merchant education is critical in our overall strategy of managing the new IRS rules.
3. The most apparent impediment at this point has been the arduous task of accurately matching data against the IRS. Even small differences such as an apostrophe or spacing can cause a mismatch, making the process of correcting information more tedious and time consuming than originally anticipated.
Nationwide Payment Systems Inc.
It seems that every couple of years there are new rules to comply with. First, it was changing PIN pads to triple DES encryption; now we have to deal with PCI compliance, TIN matching and next on the horizon is EMV. ... Right now merchants are getting sick of all the add-on fees, and most of this is caused by the push to who can price the lowest, cost-plus pricing, free equipment, etc.
With all of those factors, the new costs have to flow downhill to the merchants.
The only thing we can do is educate the merchants on what is going on in the business and the new rules from the card associations and government regulations that are causing them to pay more for processing.
Anytime there are new requirements, it takes away from time to sell, and you are spending more time working with your existing merchants and less time selling. TIN matching is a big pain. The government does not have a good way to match the business and federal tax ID numbers up. The system is not very good, and there is no way to know if a business has a dot, dash, comma, etc., in the name, and if a business is not new, they do not have the federal tax ID letter they were sent 10 years ago.
They delayed this and who knows what will happen with it, but a better way to look up the numbers has to be in a place, or they need to mail businesses a federal tax ID certificate each year the way you get a business license from your local government.
EMV is going to be the next thing. With no standard in place, limited hardware solutions (right now) and with all things ... will cardholders want it? If they do not, it will just be a piece of equipment collecting dust, and merchants will not buy into it.
Also, what will happen with end-to-end encryption in PCI part two, which goes into effect soon? Merchants with computer systems will have to look at how expensive this is going to be to them. And how is that going to go over if the economy does not improve?
Elite Merchant Solutions
1. What we do at Elite Merchant Solutions is take a tiered approach. What I mean by this is we take all of our merchants and grade them based on revenue contributed to the company.
Based on what grade the merchant falls into is how we determine whether to waive any and all fees associated or pass the fees through. What we don't do is use these types of items as a revenue source.
2. Absolutely, these new requirements require quite a bit of managing - from notifications to merchants down to fielding customer service calls about these new requirements. Anything that relates to the IRS is going to spark lots of questions by merchants that, of course, need to be addressed.
We try to streamline as much as we can and be very informative in our notifications and have a Q&A in the notification to address the most common questions or concerns. I believe this has reduced calls significantly, however, certainly not entirely.
3. The only thing that impedes the implementation process is lack of communication. If we cannot get hold of merchants either via mail, email or phone, then we can't implement the appropriate changes. Often merchants will move and will forget to notify us with their new, updated information.
Luckily, with technology today we are able to generally easily find the merchants' updated information and get any changes implemented quickly.
National Processing Co.
1. As we weighed our options, we leveraged the feedback of our ISO Advisory Board on what they felt the market could withstand as it relates to more fees. The result? We will be delivering, via an online portal, a regulatory program that will help merchants with their 6050W regulation requirements.
Our program will cover numerous items including TIN matching, reconciliation, access to previous years' 1099-K forms, etc. This program is competitively priced, and participation is optional.
2. Absolutely. Under Vantiv, we have numerous distribution channels that we had to consider as we planned out this specific project.
We have worked through our project managers to resolve a number of items including, but certainly not limited to, specific trainings around this initiative, both internal and external, assigning additional IT resources to ensure our reporting requirements are accurate, as well as ensuring our support teams are ready for an anticipated increase in call volume.
3. Today we are confident we will meet the needs of our sales groups, referral partners and merchants as it relates to this regulation.
Charge Card Systems Inc.
Another fee being imposed on our merchants? When will it stop? Another miscellaneous charge. The amount of time being invested by our company, our personnel and our sales partners to respond to incoming calls, frustrated merchants and endless questions is never ending and, yes, it is starting to compromise our merchant relationships.
Accepting credit cards used to be so easy - get a terminal, plug it into the phone line and start accepting Visa, MasterCard and the other card types. Now, business owners must review their bookkeeping and accounting practices and reconcile the information reports submitted by the banks to their own books.
Any discrepancy in reporting will need to be addressed so that accurate tax returns can be filed with the IRS. [The tax return reconciliation requirement was just dropped by the IRS.]
Without republishing the entire plan, merchants who fail to provide the taxpayer ID number and other relevant information could become subject to backup withholding at a rate of 28 percent on their payments.
Based on industry reports that I have read, it is estimated that this new law could generate $10 billion in additional government revenue over a 10-year period from under-reported or unreported earnings.
Under the proposed regulation, the IRS made it clear that backup withholding would occur on gross card payments. In my opinion, this can and will severely affect small to midsize businesses that are already having financial difficulties.
Just like consumers in the U.S.A. who have been greatly compromised by credit card debt, entrepreneurs of businesses should be proactive and meet with their professional advisers to develop payment strategies to help in this regard.
Communication is the key - at Charge Card Systems, we are "trying," and I say trying versus 100 percent succeeding in this effort, because it's a never-ending process to educate the merchant that this new law is not the processor, the ISO or the agent creating this new regulation and charging this new fee.
Merchants are so busy running their own business that they don't understand why a simple inconsistency of using an "&" symbol instead of spelling out the word "and" will cause this serious financial problem.
We are educating merchants through phone calls, emails and physical letters, and some are listening - the others will be in for a shock when the withholding starts (and I am already planning my vacation week to avoid those merchant phone calls).
Should I ever retire from CCS, maybe I'll apply for a job with the government, which seems to be more profitable than selling merchant accounts.
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