Td 9496

TD 9496.pdf

Form 1099-K, Payment Card and Third Party Network Transactions

TD 9496

OMB: 1545-2205

Document [pdf]
Download: pdf | pdf
Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 301
[TD 9496]
RIN 1545–BI51

Information Reporting for Payments
Made in Settlement of Payment Card
and Third Party Network Transactions
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final rule.

WReier-Aviles on DSKGBLS3C1PROD with RULES

SUMMARY: This document contains final
regulations relating to information
reporting requirements, information
reporting penalties, and backup
withholding requirements for payment
card and third party network
transactions. The final regulations
implement section 6050W and related
statutory changes enacted by the
Housing Assistance Tax Act of 2008 that
require payment settlement
organizations to report payments in
settlement of payment card and third
party network transactions for each
calendar year. The final regulations in
this document will affect persons that
make payment in settlement of payment
card and third party network
transactions and the payees of these
transactions. The final regulations
provide guidance to assist persons
required to report payment card and
third party network transactions and to
the payees of those transactions.
DATES: Effective Date: These regulations
are effective on August 16, 2010.
Applicability Date: For dates of
applicability, see §§ 1.6041–1(j),
1.6041A–1(d)(4)(iii), 1.6050W–
1(j),1.6050W–2(b), 31.3406–(b)(3)–5(e).
FOR FURTHER INFORMATION CONTACT:
Concerning these final regulations,
Barbara Pettoni, (202) 622–4910 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:

Background
This document contains final
regulations implementing amendments
to the Income Tax Regulations (26 CFR
part 1) relating to information reporting
under sections 6041, 6041A, 6050W,
and 6051 of the Internal Revenue Code
(Code). This document also contains
final regulations implementing
amendments to the Regulations on
Employment Tax and Collection of
Income Tax at the Source (26 CFR part
31) relating to backup withholding
under section 3406, and to the
Regulations on Procedure and
Administration (26 CFR part 301)

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

relating to information reporting
penalties under sections 6721 and 6722.
These sections were amended or added
by section 3091(a) of the Housing
Assistance Tax Act of 2008 (Div. C of
the Housing and Economic Recovery
Act of 2008), Public Law 110–289, 122
Stat. 2654 (the Act) enacted on July 30,
2008. These regulations are issued
under the authority contained in
sections 6041, 6041A, 6050W, 6051,
3406, 6721, 6722 and 7805.
On February 6, 2009, the IRS
announced that persons who will be
required to report under section 6050W
may match Taxpayer Identification
Numbers (TINs) under the procedures
established by Rev. Proc. 2003–9. See
Announcement 2009–6, ‘‘Taxpayer
Identification Number (‘‘TIN’’) Matching
Program is Available to Persons
Required to Make Returns Under New
Section 6050W of the Internal Revenue
Code’’ (Announcement 2009–6, 2009–9
IRB 643 (March 2, 2009)). See
§ 601.601(d)(2)(ii)(b).
Notice 2009–19 invited public
comments regarding guidance under
section 6050W. See Notice 2009–19,
‘‘Information Reporting of Payments
Made in Settlement of Payment Card
and Third Party Network Transactions’’
(Notice 2009–19, 2009–10 IRB 660
(March 9, 2009)).
On November 24, 2009, the Treasury
Department and the IRS published in
the Federal Register (74 FR 61294)
proposed regulations (REG–139255–08)
reflecting the new requirements of the
Act. The comments received in response
to Notice 2009–19 were taken into
account in developing the proposed
regulations. Written comments were
also received in response to the
proposed regulations, and a public
hearing was held on March 15, 2010.
Summary of Comments and
Explanation of Revisions
Many written comments were
received and are available for public
inspection upon request. The comments
are summarized in this preamble. After
considering the public comments, the
Treasury Department and the IRS are
adopting the proposed regulations as
revised by this Treasury decision.
These final regulations provide
guidance to implement section 6050W,
which requires information reporting for
payments made in settlement of
payment card and third party network
transactions. These final regulations
also amend the existing regulations
under sections 6041 and 6041A to
provide relief from duplicate reporting
for certain transactions. In addition,
these final regulations amend existing
regulations under sections 6721 and

PO 00000

Frm 00009

Fmt 4700

Sfmt 4700

49821

6722 to expand the penalty provisions
of these sections to apply to failures to
file correct information returns required
by section 6050W and to furnish correct
payee statements required by section
6050W. These final regulations also
amend existing regulations under
section 3406 to provide that amounts
reportable under section 6050W are
subject to backup withholding.
Payment Settlement Entity
Section 6050W(b)(1) provides that the
term payment settlement entity means,
in the case of a payment card
transaction, a merchant acquiring entity;
and, in the case of a third party network
transaction, a third party settlement
organization. Section 6050W(b)(2)
defines merchant acquiring entity as the
bank or other organization with the
contractual obligation to make payment
to participating payees in settlement of
payment card transactions. Section
6050W(b)(3) defines third party
settlement organization as the central
organization that has the contractual
obligation to make payment to
participating payees of third party
network transactions. The proposed
regulations incorporated these statutory
definitions, which are retained in the
final regulations.
Commenters asked how the reporting
obligation applies when two or more
persons qualify as payment settlement
entities for a reportable payment
transaction. Commenters stated that,
under certain business models, multiple
banks or other organizations have the
contractual obligation to make payment
to participating payees to settle payment
card transactions. The final regulations
provide that, if two or more persons
qualify as payment settlement entities
for a reportable payment transaction,
then only the payment settlement entity
that in fact makes payment in settlement
of the reportable payment transaction is
obligated to report the payment. The
final regulations clarify that the entity
that makes a payment in settlement of
a reportable payment transaction is the
entity that actually submits the
instruction to transfer funds to the
account of the participating payee to
settle the reportable payment
transaction. See also the discussion
under ‘‘Electronic Payment Facilitator’’
later in this preamble.
A commenter requested that, when
multiple parties qualify as payment
settlement entities, the parties be
permitted to designate a reporting party.
Under the final regulations, only the
payment settlement entity that in fact
makes payment is obligated to report the
payment. Thus, no multiple party
reporting obligations should arise.

E:\FR\FM\16AUR1.SGM

16AUR1

49822

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

Nonetheless, the final regulations
permit the party with the obligation to
report to designate a different person to
satisfy the reporting obligation under
section 6050W. If, however, the
designated person fails to satisfy the
reporting obligation, then the party with
the obligation to report is liable for any
applicable penalties under sections
6721 and 6722.

WReier-Aviles on DSKGBLS3C1PROD with RULES

Gross Amount
Section 6050W(a) provides that each
payment settlement entity must report
the gross amount of reportable payment
transactions for each participating
payee. The proposed regulations
defined gross amount as the total dollar
amount of aggregate reportable payment
transactions for each participating payee
without regard to any adjustments for
credits, cash equivalents, discount
amounts, fees, refunded amounts, or any
other amounts.
Several commenters suggested
defining ‘‘gross amount’’ as net sales,
taking into account credit transactions,
chargebacks and other adjustments, on
the ground that gross amount is not a
true indicator of revenue. Commenters
also suggested defining ‘‘gross amount’’
as the amount actually paid to a
merchant. Other commenters favored
the rule in the proposed regulations that
would require reporting the gross
amount of transactions without
reductions. The final regulations retain
the proposed rule. The plain language of
the statute requires reporting the gross
amount of transactions rather than the
net amount of transactions or payments.
The information reported on the return
required under these regulations is not
intended to be an exact match of the net,
taxable, or even the gross income of a
payee.
Commenters asked whether the dollar
amount of each transaction is
determined on the date of the
transaction, the settlement date, the date
that payment is made, the posting date
or some other date. Because the statute
requires reporting of the gross amount of
reportable payment ‘‘transactions,’’ the
final regulations provide that the dollar
amount of each reportable payment
transaction is determined on the date of
the transaction.
Several commenters expressed
concern that defining ‘‘gross amount’’ as
a number that reflects all positive sales
transactions without adjustment for any
items may raise issues related to backup
withholding. These comments are
discussed in detail later in this
preamble.

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

Payment Card Transactions
Section 6050W(c)(2) defines a
payment card transaction as any
transaction in which a payment card is
accepted as payment. Section
6050W(d)(2) defines a payment card as
a card issued pursuant to an agreement
or arrangement that provides for: (1)
One or more issuers of such cards; (2)
a network of persons unrelated to each
other, and to the issuer, who agree to
accept the cards as payment; and (3)
standards and mechanisms for settling
the transactions between the merchant
acquiring entities and the persons who
agree to accept the cards as payment.
Section 6050W(d)(2) further provides
that the acceptance as payment of any
account number or other indicia
associated with a payment card is
treated as the acceptance of the payment
card. The proposed regulations
incorporated these statutory rules. The
proposed regulations further provided
that a payment card includes, but is not
limited to, all credit cards, debit cards,
and stored-value cards (including gift
cards). All of these provisions are
retained in the final regulations.
Several commenters requested an
exemption for all private label cards and
quasi-private label cards. According to
one commenter, a private label card is
a card issued by a retailer or financial
institution that can only be used at one
retailer, and a quasi-private label card is
a card issued by a financial institution
that can be used within a limited
network of merchants or service
providers that are unrelated but operate
within a particular industry or share
other similar characteristics. Another
commenter requested that the
regulations clarify whether a card that is
accepted as payment by a group of
merchants operating within a shopping
mall (a ‘‘mall card’’) is a payment card.
The final regulations do not provide
an exemption for private label cards,
quasi-private label cards and mall cards.
Private label cards that can only be used
at one merchant or within a group of
related merchants do not meet the
statutory definition of payment card
because they are not accepted as
payment by a network of unrelated
persons. Quasi-private label cards that
are accepted as payment by a network
of unrelated merchants or service
providers are payment cards if the other
requirements of the statutory definition
are met. Similarly, a mall card is a
payment card if it is accepted as
payment by a network of unrelated
merchants and the other requirements of
the statutory definition are met.
However, if any of the merchants in the
network are related to the issuer, as

PO 00000

Frm 00010

Fmt 4700

Sfmt 4700

might be the case in certain campus
card or mall card transactions, the final
regulations clarify that no reporting is
required for any transaction in which
the card is accepted as payment by the
related merchant or other payee. The
final regulations provide additional
examples to illustrate the treatment of
private label, quasi-private label and
mall cards.
One commenter requested that the
regulations clarify whether electronic
benefit transactions are reportable
transactions under the regulations.
According to the commenter, electronic
benefit transactions are transactions
made on cards or other media issued by
a governmental unit for benefit
payments, such as food stamps, welfare
or unemployment. A card issued by a
governmental unit for benefits is a
payment card if, pursuant to an
agreement, it is accepted as payment by
a network of unrelated merchants and
the other requirements of the statutory
definition are met. Electronic benefit
transactions for the purchase of goods or
services, made on a card that meets the
statutory definition of ‘‘payment card,’’
are reportable under section 6050W. In
contrast, the use of a benefits card to
obtain cash would not be a reportable
transaction, as discussed in the next
paragraph.
Commenters asked whether the use of
a payment card solely to obtain a loan
or cash advance by the cardholder is
reportable under the regulations. The
final regulations provide an example to
clarify that the use of a payment card to
obtain a loan or cash advance does not
fall within the statutory definition of
‘‘payment card transaction’’ because the
card is not being accepted by a
merchant as payment. Rather, the
cardholder is merely using the payment
card to obtain a loan from the issuer.
Similarly, the withdrawal of cash from
an automated teller machine is not a
payment card transaction because the
card is not being accepted by a
merchant as payment. Rather, the card
is merely being used to obtain funds
from the cardholder’s own account.
Commenters also asked whether the
use of a paper check associated with a
payment card account (a ‘‘convenience
check’’) is reportable under the
regulations. Section 6050W(d)(2)
provides that the acceptance as payment
of any account number or other indicia
associated with a payment card is
treated as the acceptance of the payment
card. Convenience checks are processed
through the banking system in the same
manner as a traditional check and then
processed against a cardholder’s
account as a cash advance. Because
convenience checks are accepted and

E:\FR\FM\16AUR1.SGM

16AUR1

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
processed as checks, not as payment
cards, the final regulations provide an
example to clarify that the use of a
convenience check is not a ‘‘payment
card transaction.’’

WReier-Aviles on DSKGBLS3C1PROD with RULES

Third Party Network Transactions
Section 6050W(b)(1)(B) provides that,
in the case of a third party network
transaction, the payment settlement
entity is the third party settlement
organization. Section 6050W(b)(3)
defines third party settlement
organization as the central organization
that has the contractual obligation to
make payment to participating payees of
third party network transactions.
Section 6050W(c)(3) defines third party
network transaction as any transaction
that is settled through a third party
payment network. Section 6050W(d)(3)
defines third party payment network as
any agreement or arrangement that: (A)
involves the establishment of accounts
with a central organization by a
substantial number of persons who (i)
are unrelated to such organization, (ii)
provide goods or services, and (iii) have
agreed to settle transactions for the
provision of such goods or services
pursuant to such agreement or
arrangement; (B) provides for standards
and mechanisms for settling such
transactions; and (C) guarantees persons
providing goods or services pursuant to
an agreement or arrangement that those
persons will be paid for providing those
goods or services.
The proposed regulations
incorporated these statutory definitions.
The proposed regulations also provided
that, consistent with the Joint
Committee on Taxation (JCT) technical
explanation, a central organization is a
third party settlement organization that
is required to report to the extent it
provides a third party payment network
that enables purchasers to transfer funds
to providers of goods and services.
These provisions are retained in the
final regulations.
One commenter suggested that the
regulations also incorporate the rule in
section 6050W(d)(3) that a third party
payment network does not include any
agreement or arrangement that provides
for the issuance of payment cards. The
final regulations adopt this suggestion.
Healthcare Networks and Self-Insurance
Arrangements
The proposed regulations included an
example to demonstrate that health
insurance networks are outside the
scope of section 6050W because a
healthcare network does not enable the
transfer of funds from buyers to sellers.
Instead, health carriers collect
premiums from covered persons

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

pursuant to a plan agreement between
the health carrier and the covered
person for the cost of participation in
the healthcare network. Separately,
health carriers pay healthcare providers
to compensate providers for services
rendered to covered persons pursuant to
provider agreements. This example is
retained in the final regulations.
A commenter requested that the final
regulations clarify that a self-insurance
arrangement is also outside the scope of
section 6050W. According to the
commenter, a typical self-insurance
arrangement involves a health insurance
entity, healthcare providers, and the
company that is self-insuring. The
company submits bills for services
rendered by a healthcare provider to the
health insurance entity. The health
insurance entity pays the healthcare
provider the contracted rate and then
debits the self-insuring company’s bank
account for the payments made to the
healthcare providers.
This suggestion was not adopted
because this arrangement could create a
third party payment network of which
the health insurance entity is the third
party settlement organization to the
extent that the health insurance entity
effectively enables buyers (the selfinsuring companies) to transfer funds to
sellers of healthcare goods or services. If
so, payments under a self-insurance
arrangement are reportable provided the
arrangement meets both the statutory
definition of a third party payment
network and the de minimis threshold
(that is, for a given payee, the aggregate
payments for the year exceed $20,000
and the aggregate number of
transactions exceeds 200).
Electronic Checks, Bill Paying Services
and Other Electronic Payment
Acceptance Products
Several commenters requested that
the final regulations exclude electronic
checks, bill paying services, and other
electronic payment acceptance products
from the scope of section 6050W.
Financial institutions offer a wide array
of services to allow individual and
business customers to make and receive
payments. Whether arrangements
involving electronic checks, bill paying
services or other electronic payment
acceptance products fall within the
statutory definition of ‘‘third party
payment network’’ depends on the facts
and circumstances. For example, a
customer initiated bill payment by
means of an electronic check from the
customer’s bank account to the
merchant is merely an electronic
transfer of funds from the buyer to the
seller that would generally not meet the

PO 00000

Frm 00011

Fmt 4700

Sfmt 4700

49823

definition of a third party payment
network.
In contrast, in certain arrangements, a
third party entity may facilitate bill
payment and presentment. According to
one commenter, many financial
institutions offer products and services
that allow a commercial customer who
provides goods or services to (1) send a
purchase invoice electronically to
customers; and (2) accept payment from
these customers by automated
clearinghouse (ACH) transfer. In these
arrangements, the financial institution
typically enters into an agreement with
the merchant customer to settle
payment transactions to an account the
merchant has established at the
financial institution. The individual or
business that has purchased goods or
services from the merchant is not
required to establish an account with
the financial institution. For payments
that are made by ACH transfer, the
financial institution will initiate
payment through the ACH network.
Commenters contend that these
arrangements should not qualify as third
party payment networks because the
arrangements require merchants to
establish accounts with a financial
institution to accept electronic payment
services but do not also require
purchasers to establish accounts with
the same financial institution. The
commenters requested modifying the
definition of a third party payment
network to require purchasers to
establish accounts with the same central
organization as the merchant providers
in order to participate in the
arrangement.
This suggestion was not adopted. The
portion of the statutory definition of
‘‘third party payment network’’ relating
to accounts requires only that the
agreement or arrangement involve the
establishment of accounts with a central
organization by a substantial number of
unrelated persons who provide goods or
services and have agreed to settle
transactions for the provision of goods
or services pursuant to the agreement or
arrangement. Nothing in this definition
requires purchasers also to have
established accounts with the same
central organization. Therefore, a
financial institution that enters into an
agreement or arrangement with its
merchant customers to settle payment
transactions to an account the merchant
customer has established at the financial
institution may be operating a ‘‘third
party payment network’’ if the
agreement or arrangement with these
merchants involves the establishment of
accounts with a central organization by
a substantial number of unrelated
persons who provide goods or services

E:\FR\FM\16AUR1.SGM

16AUR1

49824

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

WReier-Aviles on DSKGBLS3C1PROD with RULES

and have agreed to settle transactions
for the provision of goods or services
pursuant to the agreement or
arrangement, and the central
organization guarantees payment to
those persons for the goods or services.
Automated Clearing House (ACH)
Networks
The proposed regulations provided
that an ACH network is not a third party
payment network. As explained in the
preamble to the proposed regulations,
an ACH merely processes electronic
payments between payors and payees,
and does not itself have contractual
agreements with payees to use the ACH
network. Thus, the ACH does not meet
the statutory definition of a ‘‘third party
settlement organization.’’
A commenter asked that the
regulations provide that an ACH
processor is not a third party settlement
organization of a third party payment
network. According to the commenter,
an ACH processor provides a variety of
ACH payment processing services to a
large number of merchants, such as
converting checks received in payment
of bills into ACH transactions. The ACH
processor groups payment transactions
into an ACH file and transmits the ACH
file into the ACH network on behalf of
merchants in order to initiate payment
to merchants through the ACH network.
The ACH processor will make the
payment to the merchant after the ACH
network verifies that the customers’
accounts have sufficient funds.
This request was not adopted. An
ACH processor’s agreement or
arrangement with merchants could
potentially create an independent third
party payment network separate from
the ACH network of which the ACH
processor is the third party settlement
organization. Because the ACH itself is
not a third party settlement
organization, a party that makes
payment on behalf of an ACH cannot be
an electronic payment facilitator
because it is not acting on behalf of a
payment settlement entity. Nonetheless,
an entity that initiates ACH entries into
an ACH network on behalf of merchants
may itself be operating a network that
falls within the statutory definition of
‘‘third party payment network’’ if the
entity has a separate agreement or
arrangement with these merchants that:
(A) involves the establishment of
accounts with the entity by a substantial
number of merchants or other persons
who (i) are unrelated to the entity, (ii)
provide goods or services, and (iii) have
agreed to settle transactions for the
provision of such goods or services
pursuant to such agreement or
arrangement; (B) provides for standards

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

and mechanisms for settling such
transactions; and (C) guarantees persons
providing goods or services pursuant to
such agreement or arrangement that
those persons will be paid for providing
such goods or services. Whether an
entity that initiates ACH entries into an
ACH network has such a separate
agreement or arrangement with
merchants depends on the facts and
circumstances. As stated earlier, the
statutory definition of ‘‘third party
payment network’’ does not require that
this entity also have an agreement or
arrangement with purchasers.
Electronic Payment Facilitators
Section 6050W(b)(4)(B) requires that,
if an electronic payment facilitator or
other third party ‘‘makes payments in
settlement of reportable payment
transactions on behalf of the payment
settlement entity,’’ the electronic
payment facilitator must report in lieu
of the payment settlement entity. The
proposed regulations incorporated this
statutory requirement, which is retained
in the final regulations.
Commenters requested that the final
regulations clarify what it means to
‘‘make payments in settlement of
reportable payment transactions on
behalf of the payment settlement entity.’’
According to one commenter, when a
merchant acquiring bank employs the
services of a third party processor, the
settlement obligation remains with the
merchant acquiring bank. Another
commenter stated that certain payment
settlement entities, such as independent
sales organizations (ISOs), use a
‘‘sponsoring bank’’ or other third party to
do their payment processing. According
to the commenter, it is not clear whether
this third party processor is an
electronic payment facilitator because
the processor does not have a contract
with the participating payee.
Additionally, this processor generally
would only know the net amount of the
payment and would not have the
information necessary to report the
gross amount of the reportable payment
transaction. Another commenter
suggested defining ‘‘electronic payment
facilitator’’ as the party who contracts
with a payment settlement entity to
‘‘facilitate the settlement (directly or
indirectly)’’ of reportable payment
transactions on behalf of the payment
settlement entity.
In response to these comments, the
final regulations provide that a payment
settlement entity (or an electronic
payment facilitator acting on behalf of a
payment settlement entity) makes a
payment in settlement of a reportable
payment transaction if the payment
settlement entity (or its facilitator)

PO 00000

Frm 00012

Fmt 4700

Sfmt 4700

submits the instruction to transfer funds
to the account of the participating payee
to settle the reportable payment
transaction. In cases involving a
processor, the processor need not have
any agreement or arrangement with the
payee to qualify as an electronic
payment facilitator. The statute requires
only that the facilitator act on behalf of
the payment settlement entity. Also, the
payment need not come from the
processor’s account. The processor need
only submit the instruction to transfer
funds from the payment settlement
entity’s account. If a processor merely
prepares payment instructions for the
payment settlement entity, which in
turn submits these instructions to
initiate the transfer of funds, then the
processor is not an electronic payment
facilitator, and the payment settlement
entity retains the reporting obligation.
Electronic payment facilitators that do
not know the gross amount of each
reportable payment transaction are
expected to obtain this information from
the payment settlement entity. The final
regulations include additional examples
applying the electronic payment
facilitator rule.
A commenter also expressed concern
that merchants might only be aware of
the merchant acquiring bank or other
payment settlement entity and might,
therefore, be confused when receiving
statements from the electronic payment
facilitator. To address this concern,
Form 1099–K, ‘‘Merchant Card and
Third Party Payments,’’ will include the
identifying information of both the
payment settlement entity and the
electronic payment facilitator. In
addition, the payee’s copy of Form
1099–K will describe the entities that
are shown on the form.
Participating Payee—Foreign Address
Exclusion
Section 6050W(d)(1)(B) provides that,
except as provided by the Secretary in
regulations or other guidance, the term
participating payee does not include
any person with a foreign address (the
‘‘address rule’’). The proposed
regulations did not exclude persons
with foreign addresses from the term
participating payee, although the
proposed regulations did provide that in
many cases a payment settlement entity
may rely on a foreign address to avoid
reporting. Specifically, the proposed
regulations provided that a payment
settlement entity that is not a United
States (U.S.) payor or U.S. middleman
may rely on a foreign address for a
participating payee to avoid reporting as
long as the payor neither knows nor has
reason to know that the payee is a U.S.
person. The proposed regulations also

E:\FR\FM\16AUR1.SGM

16AUR1

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
provided that a payment settlement
entity that is a person described as a
U.S. payor or U.S. middleman in
§ 1.6049–5(c)(5) is not required to report
payments to payees with a foreign
address as long as, prior to payment, the
payee has provided the payor with
documentation upon which the payor
may rely to treat the payment as made
to a foreign person in accordance with
§ 1.1441–1(e)(1)(ii).
Commenters expressed concern that
the proposed regulations treat U.S. and
non-U.S. payors inconsistently and may
impose overly burdensome
documentation requirements on U.S.
payors, and requested that the address
rule apply to U.S. and non-U.S. payors
alike. Alternatively, commenters
requested that documentation and
records maintained consistent with
section 326 of the USA PATRIOT Act
(‘‘Patriot Act’’), 31 U.S.C. 5318(l), should
satisfy the documentation requirements
for U.S. payors under these regulations.
The final regulations do not adopt
these recommendations. The final
regulations do not adopt the suggestion
that the documentation standards be
made consistent with the Patriot Act
because the customer identification
requirements under the Patriot Act are
not intended to identify U.S. taxpayers
and do not adequately address the tax
administration concerns of section
6050W.
The final regulations also do not
extend the address rule to payment
settlement entities that are U.S. payors.
The Treasury Department and the IRS
understand from meeting with affected
parties that payment settlement entities
do not currently rely solely on an
address to identify a participating payee
because payment settlement entities
have a business interest in verifying the
identity of the participating payee due
to the credit and reputational risks
inherent in payment card transactions.
The Treasury Department and the IRS
have a similar compliance interest in
ensuring that the participating payee’s
identity is verified, and applying the
address rule generally to payment
settlement entities that are U.S. payors
does not adequately address those
concerns. For example, where a
participating payee receives payment
from a U.S. person inside the United
States or to a U.S. account, the Treasury
Department and the IRS believe it is
appropriate to require the participating
payee to complete a Form W–8BEN (or
other appropriate certification) thereby
certifying its foreign status and whether
the payment constitutes income that is
effectively connected with the conduct
of a trade or business in the United

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

States, as required under the proposed
and final regulations.
To address the concerns of certain
commenters regarding the burden that
would be involved in re-documenting
existing participating payees, however,
the final regulations provide a transition
rule. For payments made pursuant to
contractual obligations entered into
before January 1, 2011, a payment
settlement entity that is a U.S. payor or
middleman may rely on a foreign
address as long as the U.S. payor or
middleman neither knows nor has
reason to know that the payee is a U.S.
person. For this limited purpose, a
renewal of such a contractual obligation
will not result in a new contractual
obligation unless there is a material
modification of the contractual
obligation.
In addition, the final regulations
provide a presumption under which a
payment settlement entity that is a U.S.
payor or middleman making a payment
outside the United States to an offshore
account (as defined in § 1.6049–5(c)(1))
need not report payments to a
participating payee with only a foreign
address if the name of the participating
payee indicates that it is a foreign per
se corporation listed in § 301.7701–
2(b)(8)(i) and the payment settlement
entity neither knows nor has reason to
know that the participating payee is a U.
S. person. The final regulations also
provide a grace period after account
opening to collect documentation by
applying the grace period rules of
§ 1.6049–5(d)(2)(ii) if the participating
payee has only a foreign address.
Payment settlement entities that are
not U.S. payors or middlemen are not
required to make a return of information
if the participating payee does not have
a U.S. address as long as the payment
settlement entity does not know or have
reason to know that the payee is a U.S.
person. Commenters requested
additional guidance for situations in
which a participating payee has both a
foreign address and a U.S. address.
Under the final regulations, if the
participating payee has any U.S.
address, the non-U.S. payment
settlement entity may treat the
participating payee as a foreign person
only if the non-U.S. payment settlement
entity has in its files documentation
upon which the payment settlement
entity may rely to treat the payment as
made to a foreign person in accordance
with § 1.1441–1(e)(1)(ii).
Payments Made in Currencies Other
Than the United States Dollar
Several commenters requested that
the final regulations provide a rule for
the conversion into U.S. dollars of

PO 00000

Frm 00013

Fmt 4700

Sfmt 4700

49825

amounts paid in foreign currency. This
suggestion was adopted. The final
regulations provide that when a
payment is made or received in a
foreign currency, the U.S. dollar amount
is determined by converting such
foreign currency into U.S. dollars on the
date of the transaction at the spot rate
(as defined in § 1.988–1(d)(1)) or
pursuant to a reasonable spot rate
convention, such as a month-end spot
rate or a monthly average spot rate.
Duplicate Reporting of the Same
Transaction
Section 6050W(g) provides that the
Secretary may prescribe regulations or
other guidance as necessary or
appropriate to carry out section 6050W,
including rules to prevent the reporting
of the same transaction more than once.
The proposed regulations provided that
any payment card transaction that
otherwise would be reportable under
both sections 6041 and 6050W must be
reported under section 6050W and not
section 6041. Relief from reporting
under section 6041 was not provided in
the proposed regulations, however, for
third party network transactions
because these transactions are not
subject to reporting under section
6050W unless the de minimis threshold
(more than 200 transactions aggregating
more than $20,000 per calendar year for
a given payee) is met. Nor was relief
provided from reporting under section
6050W and other Code sections,
including section 3402(t) (relating to
withholding on certain payments made
by government entities). The proposed
regulations requested additional
comments regarding the application of a
rule to prevent the reporting of the same
transaction more than once.
Numerous commenters requested that
relief from duplicate reporting under
both sections 6050W and 6041 be
extended to include third party network
transactions. This suggestion was
adopted. Accordingly, the final
regulations provide that payment card
and third party network transactions
that otherwise would be reportable
under both sections 6041 and 6050W
must be reported under section 6050W
and not section 6041. The final
regulations also provide that, solely for
purposes of determining whether a
payor is eligible for relief from reporting
under section 6041, the de minimis
threshold for third party network
transactions in § 1.6050W–1(c)(4) is
disregarded because the section 6041
payor will be unable to determine
whether the de minimis threshold
applies.
Commenters also requested relief
from duplicate reporting under both

E:\FR\FM\16AUR1.SGM

16AUR1

49826

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

WReier-Aviles on DSKGBLS3C1PROD with RULES

sections 6050W and 3402(t). However,
commenters have indicated that
merchant acquiring banks and other
payment settlement entities would have
administrative difficulty in determining
whether payment card and third party
network transactions will be subject to
withholding and reporting under
section 3402(t). Therefore, the final
regulations do not provide relief for
transactions that would otherwise be
reported under both sections 6050W
and 3402(t). However, the Treasury
Department and the IRS are continuing
to consider whether relief could be
provided under section 3402(t) or
section 6050W.
Several commenters requested relief
from duplicate reporting of the same
transaction under both sections 6050W
and 6041A (relating to returns regarding
payments of remuneration for services
and direct sales). This suggestion was
adopted for payment card transactions
and third party network transactions
subject to section 6041A(a). The final
regulations provide that any transaction
that would otherwise be reported under
both sections 6050W and 6041A(a) must
be reported under section 6050W and
not section 6041A(a).
Similar relief from duplicate reporting
of the same transaction under both
sections 6050W and 6041A(b) is not
warranted, however, because sections
6050W and 6041A(b) report different
types of information and serve different
purposes. Section 6041A(b) provides
that if any person engaged in a trade or
business, in the course of the trade or
business during any calendar year, sells
$5,000 or more of consumer goods to
any buyer on a buy-sell basis, a depositcommission basis, or any similar basis,
for resale in the home or other than in
a permanent retail establishment, that
person must file a return reporting the
amount of the sales to the buyer during
the calendar year. Thus, unlike section
6050W, which requires payors to report
information about payments to sellers,
section 6041A(b) requires sellers of
certain consumer products to report
information about payments from
buyers. Therefore, the final regulations
do not provide relief for transactions
that are reportable under both sections
6050W and 6041A(b).
Electronic Consent Procedures
Section 6050W(f) provides that payee
statements may be furnished
electronically. Prior to the proposed
regulations, commenters requested that
the existing procedures for payee
statements be modified to eliminate the
requirement for an affirmative consent
to receive the payee statement under
section 6050W electronically. This

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

request was not adopted in the proposed
regulations. Instead, additional
comments were requested on electronic
consent procedures.
Many commenters suggested
eliminating the requirement for an
affirmative consent to receive the payee
statement electronically. Commenters
requested that merchants already
receiving business communications
electronically be deemed to have
consented to receive electronic payee
statements under section 6050W.
Commenters also suggested eliminating
the requirement to notify payees about
electronic payee statements in a
separate communication. Commenters
suggested permitting merchants
receiving paper communications to
consent to electronic payee statements
by logging onto a website to indicate
their consent, with no further written
consent required.
In response to these comments, the
final regulations simplify existing
electronic consent procedures. Section
1.6050W–2 provides that a recipient
consents to receive the statement
required under section 6050W in an
electronic format either by making an
affirmative consent or, in the
alternative, by previously having
consented to receive from the furnisher
other federal tax statements in an
electronic format. The consent may be
made electronically in any manner that
reasonably demonstrates that the
recipient can access the statement in the
electronic format in which it will be
furnished to the recipient. Alternatively,
the consent may be made in a paper
document if it is confirmed
electronically. Section 1.6050W–2 sets
forth the procedures for meeting the
consent requirements.
Time, Form and Manner for Reporting
Section 6050W(a) provides that the
return required under this section shall
be made at the time and in the form and
manner as required by regulations. The
proposed regulations provided that the
return required by section 6050W must
be made according to the forms and
instructions published by the IRS. Form
1099–K, ‘‘Merchant card and third-party
payments,’’ requires annual reporting,
with respect to each participating payee,
of the gross amount of the aggregate
reportable payment transactions for the
calendar year and the gross amount of
the aggregate reportable transactions for
each month of the calendar year.
A commenter expressed concern that
the requirement for monthly amounts to
be reported on Form 1099–K would be
burdensome for small businesses and
sole proprietors. The final rules retain
the proposed rule because the inclusion

PO 00000

Frm 00014

Fmt 4700

Sfmt 4700

of monthly amounts on the return filed
with the IRS and furnished to the payee
will aid in reconciling payment card
and third party network transactions for
fiscal year payees.
Backup Withholding
The Act amended section 3406(b)(3)
to provide that amounts reportable
under section 6050W are subject to
backup withholding requirements,
effective for amounts paid after
December 31, 2011. The proposed
regulations proposed to amend existing
regulations under section 3406 to
provide that persons making
information returns with respect to any
reportable payment under section
6050W made after December 31, 2011,
are included in the definition of
‘‘payors’’ obligated to backup withhold.
Section 6050W(d)(1)(C) provides that,
for purposes of section 6050W, the
definition of participating payee
includes any governmental unit. The
proposed regulations incorporated this
statutory provision. One commenter
asked whether reportable payments
made to governmental units are subject
to backup withholding under section
3406(a). The Act amended section
3406(b) to provide that reportable
payments subject to information
reporting under section 6050W are
subject to backup withholding if a
condition for backup withholding, as set
forth in section 3406(a)(1), exists. The
Act, however, did not eliminate any of
the existing statutory exceptions to
backup withholding. For example,
section 3406(g) provides that backup
withholding under section 3406(a) shall
not apply to any payment made to any
organization or governmental unit
described in subparagraph (B), (C), (D),
(E), or (F) of section 6049(b)(4). The
final regulations make no changes to the
existing statutory exceptions to backup
withholding.
As discussed earlier in this preamble,
several commenters stated that defining
‘‘gross amount’’ as a number that reflects
all positive sales transactions on the
date of the transaction, without
adjustment for any items, may
complicate backup withholding, which
is generally imposed on the amount of
the payment at the time of payment
rather than on the amount of the
transaction at the time of the
transaction. The amount reportable
under section 6050W is the gross
amount of the transaction on the date of
the transaction, which may differ from
the amount and date of the payment
(potentially a net amount paid on a later
date). In response to these comments,
the final regulations clarify that the
obligation to withhold arises on the date

E:\FR\FM\16AUR1.SGM

16AUR1

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
of the transaction. A payor is not
required, however, to satisfy its
withholding liability until the time that
payment is made. The amount withheld
is based on the total reportable amount,
that is, the gross amount of the
transaction.
A commenter stated that on the date
of payment, the payee’s account may
have insufficient funds available for
backup withholding. For example, if
sales returns exceed positive sales
transactions for the transaction period, a
merchant’s account balance could be
less than the required amount of backup
withholding or even zero. In response to
this concern, the final regulations allow
backup withholding from an alternate
source maintained by the payor for the
payee if the payee’s account has
insufficient funds. The final regulations
further provide that if the payor cannot
locate an alternative source of cash from
which to backup withhold, the payor
may defer its obligation to backup
withhold until the earlier of the date on
which the payee’s account has sufficient
funds or the close of the fourth calendar
year after the obligation arose. At the
close of the fourth calendar year after
the backup withholding obligation
arose, if the payor has not located an
alternate source from which to backup
withhold, and the account has
insufficient funds, then the backup
withholding obligation will cease to
exist.
Finally, the final regulations clarify
how to apply the backup withholding
rules to third party network
transactions, which are subject to a de
minimis rule. In general, the amount
that is subject to withholding under
section 3406 is the amount subject to
reporting under section 6050W. Section
3406(b)(4) provides that the
determination of whether a payment is
a reportable payment for purposes of
backup withholding is made without
regard to any minimum amount that
must be paid before a return is required.
Accordingly, the final regulations
provide that, in the case of payments
made in settlement of third party
network transactions, the amount
subject to withholding under section
3406 is determined without regard to
the exception for de minimis payments
by third party settlement organizations
in section 6050W(e) and the final
regulations in this document.
Penalties
The Act amended section 6724(d) by
adding returns required by section
6050W to the definition of information
return for purposes of penalties for
failure to comply with certain reporting
requirements. The proposed regulations

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

49827

proposed to amend the regulations to
add reportable payments under section
6050W to the list of information returns
subject to the penalties under section
6721 (failure to file correct information
returns) and section 6722 (failure to
furnish correct payee statements). The
final regulations adopt these
amendments.
Commenters requested that the final
regulations specifically waive penalties
for persons who have made a reasonable
and good faith effort to implement
section 6050W reporting and related
backup withholding but who fail to
comply. This suggestion was not
adopted because the existing regulations
under section 6724 provide extensive
guidance for waiver of penalties due to
reasonable cause for failure to file
correct information returns and failure
to furnish correct payee statements. The
IRS will continue to work closely with
stakeholders to ensure the smooth
implementation of the provisions in
these regulations, including, in general,
the mitigation of penalties in the early
stages of implementation, except for
particularly egregious cases.

organization) by a substantial number of
persons. Further, section 6050W(e)
provides a de minimis exception that
exempts third party settlement
organizations from reporting
transactions with respect to a payee if
the aggregate amount of such
transactions does not exceed $20,000 or
the aggregate number of such
transactions does not exceed 200. The
Treasury Department and the IRS certify
that the regulations in this document
will not have a significant economic
impact on a substantial number of small
entities. Pursuant to section 7805(f) of
the Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small business.

Effective/Applicability Dates
The regulations under sections 6041,
6041A, 6050W, 6051, 6721 and 6722
apply to returns for calendar years
beginning after December 31, 2010. The
regulations under section 3406 apply to
amounts paid after December 31, 2011.

26 CFR Part 1

Special Analyses
It has been determined that this final
rule is not a significant regulatory action
as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. Pursuant
to the Regulatory Flexibility Act (5
U.S.C. chapter 6), it is hereby certified
that the regulations will not have a
significant economic impact on a
substantial number of small entities.
This certification is based on the fact
that the persons required to report
under section 6050W, payment
settlement entities, will generally not be
small businesses. Merchant acquiring
entities, the payment settlement entities
required to report payment card
transactions, will primarily be banks
with over $175 million in assets. Third
party settlement organizations, the
payment settlement entities required to
report third party network transactions,
will generally not be small entities by
virtue of the definition of a third party
payment network, which requires the
establishment of accounts with a central
organization (the third party settlement

PO 00000

Frm 00015

Fmt 4700

Sfmt 4700

Drafting Information
The principal author of these
proposed regulations is Barbara Pettoni,
Office of Associate Chief Counsel
(Procedure and Administration).
List of Subjects
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 31
Employment taxes, Fishing Vessels,
Gambling, Income taxes, Penalties,
Pensions, Railroad retirement, Reporting
and recordkeeping requirements, Social
security, Unemployment compensation.
26 CFR Part 301
Administrative practice and
procedure, Alimony, Bankruptcy, Child
support, Continental shelf, Courts,
Crime, Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Investigations, Law enforcement, Oil
pollution, Penalties, Pensions,
Reporting and recordkeeping
requirements, Seals and insignia,
Statistics and taxes.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 31 and
301 are amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:

■

Authority: 26 U.S.C. 7805.

Par. 2. Section 1.6041–1 is amended
by adding a sentence at the end of
paragraph (a)(1)(ii), adding paragraphs
(a)(1)(iv) and (a)(1)(v), and revising
paragraph (j) to read as follows:

■

E:\FR\FM\16AUR1.SGM

16AUR1

49828

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

§ 1.6041–1 Return of information as to
payments of $600 or more.

WReier-Aviles on DSKGBLS3C1PROD with RULES

(a) * * *
(1) * * *
(i) * * *
(ii) * * * For payment card
transactions (as described in § 1.6050W–
1(b)) and third party network
transactions (as defined in § 1.6050W–
1(c)) required to be reported on
information returns required under
section 6050W (relating to payment card
and third party network transactions),
see special rules in § 1.6041–1(a)(1)(iv).
*
*
*
*
*
(iv) Information returns required
under section 6050W for calendar years
beginning after December 31, 2010. For
payments made by payment card (as
defined in § 1.6050W–1(b)(3)) or
through a third party payment network
(as defined in § 1.6050W–1(c)(3)) after
December 31, 2010, that are required to
be reported on an information return
under section 6050W (relating to
payment card and third party network
transactions), the following rule applies.
Transactions that are described in
paragraph (a)(1)(ii) of this section that
otherwise would be subject to reporting
under both sections 6041 and 6050W
are reported under section 6050W and
not section 6041. For provisions relating
to information reporting for payment
card and third party network
transactions, see § 1.6050W–1. Solely
for purposes of this paragraph, the de
minimis threshold for third party
network transactions in § 1.6050W–
1(c)(4) is disregarded in determining
whether the transaction is subject to
reporting under section 6050W.
(v) Examples. The provisions of
paragraph (a)(1)(iv) of this section are
illustrated by the following examples:
Example 1. Restaurant owner A, in the
course of business, pays $600 of fixed or
determinable income to B, a repairman, by
credit card. B is one of a network of unrelated
persons that has agreed to accept A’s credit
card as payment under an agreement that
provides standards and mechanisms for
settling the transactions between a merchant
acquiring bank and the persons who accept
the cards. Merchant acquiring bank Y is
responsible for making the payment to B.
Under paragraph (a)(1)(iv) of this section, A,
as payor, is not required to file an
information return under section 6041 with
respect to the transaction because Y, as the
payment settlement entity for the payment
card transaction, is required to file an
information return under section 6050W.
Example 2. Restaurant owner A, in the
course of business, pays $600 of fixed or
determinable income to B, a repairman,
through a third party payment network. B is
one of a substantial number of persons who
have established accounts with Y, a third
party settlement organization that provides
standards and mechanisms for settling the

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

transactions and guarantees payments to
those persons for goods or services purchased
through the network. Y is responsible for
making the payment to B. Under paragraph
(a)(1)(iv) of this section, A, as payor, is not
required to file an information return under
section 6041 with respect to the transaction
because the transaction is a third party
network transaction that is subject to
reporting under section 6050W. Solely for
purposes of determining whether A is
eligible for relief from reporting under
section 6041, the de minimis threshold for
third party network transactions in
§ 1.6050W–1(c)(4) is disregarded.

*

*
*
*
*
(j) Effective/applicability date. The
provisions of paragraphs (b), (c), (e), and
(f) of this section apply to payments
made after December 31, 2002. The
provisions of paragraphs (a)(1)(iv) and
(a)(1)(v) apply to payments made after
December 31, 2010.
■ Par. 3. Section 1.6041A–1 is amended
by adding paragraph (d)(4) to read as
follows:
§ 1.6041A–1 Returns regarding payments
of remuneration for services and certain
direct sales.

*

*
*
*
*
(d) * * *
(4) Information returns required under
section 6050W for calendar years
beginning after December 31, 2010. (i)
For payments made by payment card (as
defined in § 1.6050W–1(b)(3)) or
through a third party payment network
(as defined in § 1.6050W–1(c)(3)) after
December 31, 2010, that are required to
be reported on an information return
under section 6050W (relating to
payment card and third party network
transactions), the following rule applies.
Transactions that otherwise would be
reportable under both sections 6041A(a)
and 6050W are reported under section
6050W and not section 6041A(a). For
provisions relating to information
reporting for payment card transactions
and third party network transactions,
see § 1.6050W–1. Solely for purposes of
this paragraph, the de minimis
threshold for third party network
transactions in § 1.6050W–1(c)(4) is
disregarded in determining whether the
transaction is subject to reporting under
section 6050W.
(ii) Examples. The provisions of
paragraph (d)(4) of this section are
illustrated by the following examples:
Example 1. Service-recipient A, in the
course of its business, pays remuneration of
$600 to service provider B by credit card for
services performed by B. B is one of a
network of unrelated persons that has agreed
to accept A’s credit card as payment under
an agreement that provides standards and
mechanisms for settling the transactions
between a merchant acquiring bank and the

PO 00000

Frm 00016

Fmt 4700

Sfmt 4700

persons who accept the cards. Merchant
acquiring bank Y is responsible for making
the payment to B. Under paragraph (d)(4)(i)
of this section, A is not required to file an
information return under section 6041A(a)
with respect to the transaction because Y, as
the payment settlement entity for the
payment card transaction, is required to file
an information return under section 6050W.
Example 2. Service-recipient A, in the
course of business, pays $600 of fixed or
determinable income to B, a repairman,
through a third party payment network. B is
one of a substantial number of persons who
have established accounts with Y, a third
party settlement organization that provides
standards and mechanisms for settling the
transactions and guarantees payments to
those persons for goods or services purchased
through the network. Y is responsible for
making the payment to B. Under paragraph
(d)(4)(i) of this section, A is not required to
file an information return under section
6041A(a) with respect to the transaction
because the transaction is a third party
network transaction that is subject to
reporting under section 6050W. Solely for
purposes of determining whether the
transaction is subject to reporting under
section 6050W, the de minimis threshold for
third party network transactions in
§ 1.6050W–1(c)(4) is disregarded.

(iii) Effective/applicability date.
Paragraph (d)(4) of this section applies
to payments made by payment card or
through a third party payment network
after December 31, 2010.
*
*
*
*
*
■ Par. 4. Section 1.6050W–1 is added to
read as follows:
§ 1.6050W–1 Information reporting for
payments made in settlement of payment
card and third party network transactions.

(a) In general—(1) General rule. Every
payment settlement entity, as defined in
paragraph (a)(4) of this section, must file
an information return for each calendar
year with respect to payments made in
settlement of reportable payment
transactions, as defined in paragraph
(a)(3) of this section, setting forth the
following information:
(i) The name, address, and taxpayer
identification number (TIN) of each
participating payee, as defined in
paragraph (a)(5) of this section, to whom
one or more payments in settlement of
reportable payment transactions are
made.
(ii) With respect to each participating
payee, the gross amount, as defined in
paragraph (a)(6) of this section, of—
(A) The aggregate reportable payment
transactions for the calendar year; and
(B) The aggregate reportable payment
transactions for each month of the
calendar year.
(iii) Any other information required
by the form, instructions or current
revenue procedures.
(2) Payments in settlement of
reportable payment transactions. A

E:\FR\FM\16AUR1.SGM

16AUR1

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
payment settlement entity, as defined in
paragraph (a)(4) of this section (or an
electronic payment facilitator, as
defined in paragraph (d)(2) of this
section), makes a payment in settlement
of a reportable payment transaction if
the payment settlement entity (or
electronic payment facilitator) submits
the instruction to transfer funds to the
account of the participating payee for
purposes of settling the reportable
payment transaction.
(3) Reportable payment transaction.
The term reportable payment
transaction means any payment card
transaction (as defined in paragraph
(b)(1) of this section) and any third party
network transaction (as defined in
paragraph (c)(1) of this section).
(4) Payment settlement entity—(i)
Definition. The term payment settlement
entity means a domestic or foreign
entity that is—
(A) In the case of a payment card
transaction, a merchant acquiring entity
(as defined in paragraph (b)(2) of this
section); and
(B) In the case of a third party
network transaction, a third party
settlement organization (as defined in
paragraph (c)(2) of this section).
(ii) Multiple payment settlement
entities. If two or more persons qualify
as payment settlement entities (as
defined in paragraph (a)(4)(i) of this
section) with respect to a reportable
payment transaction, then only the
payment settlement entity that in fact
makes payment in settlement of the
reportable payment transaction must file
the information return required by
paragraph (a)(1) of this section.
(5) Participating payee—(i) Definition.
In general, the term participating payee
means any person, including any
governmental unit (and any agency or
instrumentality thereof), who:
(A) In the case of a payment card
transaction, accepts a payment card (as
defined in paragraph (b)(3) of this
section) as payment; and
(B) In the case of a third party
network transaction, accepts payment
from a third party settlement
organization (as defined in paragraph
(c)(2) of this section) in settlement of
such transaction.
(ii) Foreign payees—(A) In general.
For payments pursuant to contractual
obligations entered into after December
31, 2010, a payment settlement entity
that is a person described as a U.S.
payor or U.S. middleman in § 1.6049–
5(c)(5) is not required to make a return
of information for payments to a
participating payee with a foreign
address as long as, prior to payment, the
payment settlement entity has in its files
documentation upon which the

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

payment settlement entity may rely to
treat the payment as made to a foreign
person in accordance with § 1.1441–
1(e)(1)(ii). For purposes of this
paragraph (a)(5)(ii), the provisions of
§ 1.1441–1 shall apply by substituting
the term payor for the term withholding
agent and without regard to the
limitation to amounts subject to
withholding under chapter 3 of the
Internal Revenue Code and the
regulations under that chapter. Such a
payment settlement entity need not
make a return of information for
payments made outside the United
States (within the meaning of § 1.6049–
5(e)) to an offshore account (as defined
in § 1.6049–5(c)(1)) to a participating
payee with only a foreign address if the
name of the participating payee
indicates that it is an entity listed as a
per se corporation under § 301.7701–
2(b)(8)(i) and the payment settlement
entity does not know or have reason to
know that the participating payee is a
United States person. A payment
settlement entity may apply the grace
period rules of § 1.6049–5(d)(2)(ii) of the
regulations for payments to a
participating payee with only a foreign
address, without regard to whether the
amounts paid are described in § 1.1441–
6(c)(2) or are reportable under section
6042, 6045, 6049, or 6050N. For
payments pursuant to contractual
obligations entered into before January
1, 2011, a payment settlement entity
that is a person described as a U.S.
payor or U.S. middleman in § 1.6049–
5(c)(5) is not required to make a return
of information for payments to a
participating payee with a foreign
address as long as the payment
settlement entity neither knows nor has
reason to know that the participating
payee is a United States person. For this
purpose, a renewal of such a contractual
obligation will not result in a new
contractual obligation unless there is a
material modification to the contractual
obligation.
(B) Non-U.S. payor or middleman. A
payment settlement entity that is not a
person described as a U.S. payor or U.S
middleman in § 1.6049–5(c)(5) is not
required to make a return of information
for a payment to a participating payee
that does not have a United States
address as long as the payment
settlement entity neither knows nor has
reason to know that the participating
payee is a United States person. If the
participating payee has any United
States address, the payment settlement
entity may treat the participating payee
as a foreign person only if the payment
settlement entity has in its files
documentation upon which the

PO 00000

Frm 00017

Fmt 4700

Sfmt 4700

49829

payment settlement entity may rely to
treat the payment as made to a foreign
person in accordance with § 1.1441–
1(e)(1)(ii).
(C) Foreign address; United States
address. For purposes of this section,
foreign address means any address that
is not within the United States, as
defined in section 7701(a)(9) of the
Internal Revenue Code (the States and
the District of Columbia). United States
address means any address that is
within the United States.
(6) Gross amount. For purposes of this
section, gross amount means the total
dollar amount of aggregate reportable
payment transactions for each
participating payee without regard to
any adjustments for credits, cash
equivalents, discount amounts, fees,
refunded amounts or any other
amounts. The dollar amount of each
transaction is determined on the date of
the transaction.
(b) Payment card transactions—(1)
Definition. The term payment card
transaction means any transaction in
which a payment card, or any account
number or other indicia associated with
a payment card, is accepted as payment.
(2) Merchant acquiring entity. The
term merchant acquiring entity means
the bank or other organization that has
the contractual obligation to make
payment to participating payees (as
defined in paragraph (a)(5)(i)(A) of this
section) in settlement of payment card
transactions.
(3) Payment card—(i) The term
payment card means any card,
including any stored-value card as
defined in paragraph (b)(4) of this
section, issued pursuant to an
agreement or arrangement that provides
for—
(A) One or more issuers of such cards;
(B) A network of persons unrelated to
each other, and to the issuer, who agree
to accept such cards as payment; and
(C) Standards and mechanisms for
settling the transactions between the
merchant acquiring entities and the
persons who agree to accept the cards as
payment.
(ii) Persons who agree to accept such
cards as payment as described in this
paragraph (b)(3) are participating payees
within the meaning of paragraph
(a)(5)(i)(A) of this section.
(4) Stored-value cards. The term
stored-value card means any card with
a prepaid value, including any gift card.
(5) Transactions for which no return
of information is required under section
6050W—(i) Withdrawals and cash
advances. The use of a ‘‘payment card’’
as defined in paragraph (b)(3) of this
section by a cardholder to withdraw
funds at an automated teller machine, or

E:\FR\FM\16AUR1.SGM

16AUR1

WReier-Aviles on DSKGBLS3C1PROD with RULES

49830

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

to obtain a cash advance or loan against
the cardholder’s account, is not a
payment card transaction under
paragraph (b)(1) of this section because
the card is not being accepted as
payment by a merchant or other payee.
(ii) Convenience checks. The
acceptance of a check issued in
connection with a payment card
account by a merchant or other payee is
not a payment card transaction under
paragraph (b)(1) of this section because
the check is accepted and processed
through the banking system in the same
manner as a traditional check, not as a
payment card.
(iii) Payee related to issuer. No return
of information is required under this
section for any transaction in which a
payment card within the meaning of
paragraph (b)(3) is accepted as payment
by a merchant or other payee who is
related to the issuer of the payment
card.
(c) Third party network transactions—
(1) Definition. The term third party
network transaction means any
transaction that is settled through a
third party payment network.
(2) Third party settlement
organization. The term third party
settlement organization means the
central organization that has the
contractual obligation to make payments
to participating payees (as defined in
paragraph (a)(5)(i)(B) of this section) of
third party network transactions. A
central organization is a third party
settlement organization if it provides a
third party payment network (as defined
in paragraph (c)(3)(i) of this section) that
enables purchasers to transfer funds to
providers of goods and services.
(3) Third party payment network. (i)
The term third party payment network
means any agreement or arrangement
that—
(A) Involves the establishment of
accounts with a central organization by
a substantial number of providers of
goods or services who are unrelated to
the organization and who have agreed to
settle transactions for the provision of
the goods or services to purchasers
according to the terms of the agreement
or arrangement;
(B) Provides standards and
mechanisms for settling the
transactions; and
(C) Guarantees payment to the
persons providing goods or services in
settlement of transactions with
purchasers pursuant to the agreement or
arrangement.
(ii) A third party payment network
does not include any agreement or
arrangement that provides for the
issuance of payment cards.

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

(iii) Persons who are providers of
goods and services as described in this
paragraph (c)(3) are participating payees
within the meaning of paragraph
(a)(5)(i)(B) of this section.
(4) Exception for de minimis
payments. A third party settlement
organization is required to report any
information under paragraph (a)(1) of
this section with respect to third party
network transactions of any
participating payee only if—
(i) The amount that would otherwise
be reported under paragraph (a)(1)(ii) of
this section with respect to such
transactions exceeds $20,000; and
(ii) The aggregate number of such
transactions exceeds 200.
(d) Special rules—(1) Aggregated
payees. If a person receives payments
from a payment settlement entity (as
defined in paragraph (a)(4) of this
section) on behalf of one or more
participating payees and distributes
such payments to one or more
participating payees (as defined in
paragraph (a)(5) of this section), the
person is treated as:
(i) The participating payee with
respect to the payment settlement
entity; and
(ii) The payment settlement entity
with respect to the participating payees
to whom the person distributes
payments.
(2) Electronic payment facilitator. If a
payment settlement entity (as defined in
paragraph (a)(4) of this section)
contracts with an electronic payment
facilitator or other third party to make
payments in settlement of reportable
payment transactions on behalf of the
payment settlement entity, the
facilitator must file the annual
information return under this section in
lieu of the payment settlement entity.
The facilitator need not have any
agreement or arrangement with the
participating payee. Also, the payment
need not come from the facilitator’s
account. The facilitator need only
submit instructions to transfer funds to
the account of the participating payee in
settlement of the reportable payment
transaction. The facilitator is liable for
any applicable penalties for failure to
comply with the information reporting
requirements of section 6050W.
(3) Designations. The party with the
obligation to file the annual information
return under this section may designate
by written agreement any other person
to satisfy the requirements of this
section. Thus, notwithstanding the rule
in paragraph (d)(2) of this section
imposing the obligation to file the
annual information return on the
electronic payment facilitator in lieu of
the payment settlement entity, the

PO 00000

Frm 00018

Fmt 4700

Sfmt 4700

payment settlement entity may file the
information return by designation if the
parties agree in writing. However, a
designation does not relieve the party
with the reporting obligation from
liability for any reporting failures. The
party with the obligation to file the
annual information return under this
section remains liable for any applicable
penalties under sections 6721 and 6722
if the requirements of this section are
not satisfied.
(4) Conversion into United States
dollars of amounts paid in foreign
currency. When a payment is made or
received in a foreign currency, the U.S.
dollar amount shall be determined by
converting such foreign currency into
U.S. dollars on the date of the
transaction at the spot rate (as defined
in § 1.988–1(d)(1)) or pursuant to a
reasonable spot rate convention. For
example, a payor may use a month-end
spot rate or a monthly average spot rate.
A spot rate convention must be used
consistently with respect to all nondollar amounts reported and from year
to year. Such convention cannot be
changed without the consent of the
Commissioner or his or her delegate.
(5) Unrelated persons. For purposes of
this section, unrelated means any
person who is not related to another
person within the meaning of section
267(b) (providing a list of relationships),
including the application of section
267(c) and (e)(3) (providing rules
relating to constructive ownership), and
section 707(b)(1) (relationships with
partnerships).
(e) Examples. The following examples
illustrate the provisions of this section:
Example 1. Merchant acquiring entity.
Customer A purchases goods from merchant
B using a credit card issued by Bank X. B is
one of a network of unrelated persons that
has agreed to accept credit cards issued by
X as payment under an agreement that
provides standards and mechanisms for
settling the transaction between a merchant
acquiring bank and the persons who accept
the cards. Bank Z is the merchant acquiring
bank with the contractual obligation to make
payment to B for goods provided to A in this
transaction. As defined in paragraph (b)(2) of
this section, Z is the merchant acquiring
entity that must file the annual information
return required under paragraph (a)(1) of this
section to report the payment made to settle
the transaction for the sale of goods from B
to A.
Example 2. Third party settlement
organization. (i) Merchant B is one of a
substantial number of persons selling goods
or services over the Internet that have an
account with X, an Internet payment service
provider. None of these persons, including B,
are related to X, and all have agreed to settle
transactions for the sale of goods or services
to customers according to the terms of their
contracts with X. X has guaranteed payment

E:\FR\FM\16AUR1.SGM

16AUR1

WReier-Aviles on DSKGBLS3C1PROD with RULES

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
to all of these persons, including B, for the
sale of goods or services to customers.
Customer A purchases goods from B. A pays
X for the goods purchased from B. X, in turn,
makes payment to B in settlement of the
transaction for the sale of goods from B to A.
(ii) X’s arrangement constitutes a third
party payment network as defined in
paragraph (c)(3) of this section because a
substantial number of persons that are
unrelated to X, including B, have established
accounts with X, and X is contractually
obligated to settle transactions for the
provision of goods or services by these
persons to purchasers. Thus, under
paragraph (c)(2) of this section, X is a third
party settlement organization and the
transaction discussed in this Example is a
third party network transaction under
paragraph (c)(1) of this section. Therefore, X
must file the annual information return
required under paragraph (a)(1) of this
section to report the payment made to B in
settlement of the transaction with A provided
that X’s aggregate payments to B from third
party network transactions exceed $20,000
and the aggregate number of X’s transactions
with B exceeds 200 (as provided in paragraph
(c)(4) of this section).
Example 3. Automated clearinghouse
network. A operates an automated
clearinghouse (‘‘ACH’’) network that merely
processes electronic payments (such as wire
transfers, electronic checks, and direct
deposit payments) between buyers and
sellers. There are no contractual agreements
between A and the sellers for the purpose of
permitting the sellers to use the ACH
network. Thus, A is not a third party
settlement organization under paragraph
(c)(2) of this section, the ACH network is not
a third party payment network under
paragraph (c)(3) of this section, and the
electronic payment transactions are not third
party network transactions under paragraph
(c)(1) of this section. A is not required to file
the annual information return required under
paragraph (a)(1) of this section.
Example 4. ACH processor. B provides a
variety of ACH payment processing services
to a large number of merchants, such as
converting checks received in payment of
bills into ACH transactions. B groups
payment transactions into an ACH file and
transmits the ACH file into the ACH network
on behalf of merchants in order to initiate
payment to merchants through the ACH
network. B makes payments to the merchants
after the ACH network verifies that the
customers’ accounts have sufficient funds.
Because the ACH network is not a third party
payment network under paragraph (c)(3) of
this section, B cannot be a third party
settlement organization with respect to the
ACH network. Similarly, because the ACH
itself is not a third party settlement
organization under paragraph (c)(2) of this
section, B cannot be an electronic payment
facilitator because B is not acting on behalf
of a payment settlement entity. However, B
may itself be operating third party payment
network under paragraph (c)(3) of this
section if B has a separate agreement or
arrangement that: involves the establishment
of accounts with B by a substantial number
of unrelated merchants who provide goods or

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

services and have agreed to settle
transactions for the provision of the goods or
services pursuant to the agreement or
arrangement; provides for standards and
mechanisms for settling the transactions; and
guarantees persons providing goods or
services pursuant to such agreement or
arrangement that these persons will be paid
for providing such goods or services.
Example 5. Gross amount. On Day 1,
Customer A uses a payment card to purchase
$100 worth of goods from merchant B. Bank
X, the merchant acquiring entity for B, is the
party with the contractual obligation to make
payment to B in settlement of the transaction.
On Day 2, X, after deducting fees of $2,
makes payment of $98 to settle the
transaction for the sale of goods from B to A.
Under paragraph (a)(6) of this section, X must
report the amount of $100, the amount of the
transaction on Day 1, without any reduction
for fees or any other amount, as the gross
amount of this reportable payment
transaction on the annual information return
filed under paragraph (a)(1) of this section.
Example 6. Gift card. (i) Customer A
purchases a gift card from Merchant X that
may be used only at X and its related
network of stores. A purchases the gift card
using cash. A gives the gift card to B. B uses
the gift card to purchase goods at one of X’s
stores. The purchase of the gift card by A
using cash is not a payment card transaction
described in paragraph (b)(1) of this section
and, thus, is not required to be reported in
a return of information required under
paragraph (a)(1) of this section. Under
paragraph (b)(3) of this section, the gift card
is not a payment card because the gift card
is only accepted as payment by persons who
are related to the issuer of the gift card and
to each other. Therefore, the use of the gift
card by B is not required to be reported in
a return of information required under
paragraph (a)(1) of this section.
(ii) The facts are the same as in paragraph
(i), except that B adds value to the gift card
using a credit card. The use of the credit card
to add value to the gift card is a reportable
payment transaction (as defined in paragraph
(a)(3) of this section) and must be reported
in a return of information under this section
by the bank or other organization that has the
contractual obligation to make payment to X
in settlement of the transaction.
Example 7. Private label card. Bank B
issues a card imprinted with Retailer C’s logo
to cardholder A. The ‘‘C-card’’ is accepted as
payment only at C or at stores related (within
the meaning of section 267(b), (c) and (e)(3)
and, section 707(b)(1)) to C. A uses the card
at C to purchase electronics equipment.
Under paragraph (b)(3) of this section, the Ccard is not a payment card because the card
is accepted as payment only within a
network of persons who are related to each
other. Therefore, the use of the card by A at
C is not required to be reported in a return
of information required under paragraph
(a)(1) of this section.
Example 8. Quasi-private label card. Bank
B issues a card to cardholder A. The card,
known as an ‘‘E-card,’’ is issued by B
pursuant to an agreement that provides that
the E-card is accepted as payment only
within a limited network of merchants that

PO 00000

Frm 00019

Fmt 4700

Sfmt 4700

49831

carry electronics equipment. The agreement
provides for standards and mechanisms for
settling the transactions between the
merchants and the merchant acquiring
entities. The merchants accepting the E-card
as payment are not related (within the
meaning of section 267(b), (c) and (e)(3) and
section 707(b)(1)) to each other or to B. A
uses the card to purchase electronics
equipment at F Store, one of the stores within
the network of merchants accepting the Ecard. Under paragraph (b)(3) of this section,
the E-card is a payment card because the card
is issued pursuant to an agreement that
provides for a network of persons unrelated
to each other, and to the issuer, who agree
to accept the card as payment. Therefore, the
use of the E-card by A to purchase electronics
equipment at F Store must be reported in a
return of information required under
paragraph (a)(1) of this section.
Example 9. Campus card. (i) University Y
issues Student A a card that may be used on
campus at various university-owned
merchants and at various local merchants
unrelated to Y. A uses the card in the
university-owned cafeteria to purchase
lunch. Under paragraph (b)(5)(iii) of this
section, no return of information is required
because the card is being accepted as
payment by a person who is related to the
issuer of the card.
(ii) The facts are the same as in paragraph
(i), except that A uses the campus card to
purchase lunch at a local restaurant,
unrelated to Y, that has agreed to accept the
campus card as payment. Under paragraph
(b)(3) of this section, the campus card is a
payment card in this transaction because the
card is accepted as payment by a person that
is unrelated to this issuer of the card
pursuant to an agreement. Therefore, the use
of the card by A in the local restaurant for
the purchase of lunch must be reported in a
return of information required under
paragraph (a)(1) of this section by the bank
or other organization that has the contractual
obligation to make payment to the restaurant
in settlement of the transaction.
Example 10. Mall card. Customer B
purchases a card that is issued by shopping
mall A. Pursuant to an agreement or
arrangement, the card is accepted as payment
by various merchants located within the
mall, who are unrelated to the issuer of the
card and to each other. B uses the card in the
mall to purchase goods from merchant C.
Under paragraph (b)(3) of this section, the
mall card is a payment card because the card
is accepted as payment by a network of
persons who are unrelated to the issuer of the
card and to the other merchants who have
agreed to accept the card as payment.
Therefore, the use of the mall card by B to
purchase goods from merchant C is required
to be reported in a return of information
required under paragraph (a)(1) of this
section.
Example 11. Electronic benefit transactions
card. Government Agency A issues benefits
electronically to recipients by loading these
benefits onto a payment card. Pursuant to an
agreement, a network of merchants unrelated
to A, and to each other, has agreed to accept
the benefits card as payment. A issues a card

E:\FR\FM\16AUR1.SGM

16AUR1

WReier-Aviles on DSKGBLS3C1PROD with RULES

49832

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

to B, who uses the card to purchase goods
from Merchant C. The card issued by A is a
payment card (as defined in paragraph (b)(3)
of this section) because the card is accepted
as payment by a network of persons that are
unrelated to the issuer of the card, and to
each other.
The use of the card by B to purchase goods
from C must be reported in a return of
information required under paragraph (a)(1)
of this section.
Example 12. Prepaid telephone card. A
purchases a prepaid telephone card from
Company X that may be used to make
telephone calls using various long-distance
providers unrelated to X that have agreed to
accept the card as payment. A places a
telephone call using the prepaid card as
payment for the telephone call. Under
paragraph (b)(3) of this section, the prepaid
telephone card is a payment card because the
card is accepted as payment by a person that
is unrelated to the issuer of the card pursuant
to an agreement. Therefore, the use of the
prepaid card to make payment for the
telephone call must be reported in a return
of information required under paragraph
(a)(1) of this section by the bank or other
organization that has the contractual
obligation to make payment to the long
distance provider in settlement of the
transaction.
Example 13. Transit card. City Z accepts
a transit card as payment for use of its mass
transit system. The transit card is issued by
B, an organization unrelated to Z. A network
of persons, including Z, who are unrelated to
each other and to B, have agreed to accept
the transit card issued by B as payment for
transit and for other goods and services.
Transit rider X purchases a transit card and
uses the card to pay for travel on Z’s mass
transit system. Under paragraph (b)(3) of this
section, the transit card is a payment card
because the card is accepted as payment by
a person who is one of a network of persons
that are unrelated to the issuer of the card,
and to each other, and that have agreed to
accept the card as payment. Therefore, the
use of the transit card by X to pay for transit
on Z’s mass transit system is a payment card
transaction described in paragraph (b)(1) of
this section that must be reported in a return
of information required under paragraph
(a)(1) of this section by the bank or other
organization that has the contractual
obligation to make payment to Z. Z is the
participating payee, described in paragraph
(a)(5)(i)(A) of this section, of the payment
card transaction.
Example 14. Cash advance. Bank A issues
Cardholder B a credit card that is a payment
card under paragraph (b)(3) of this section. B
uses the card at a local bank to obtain a cash
advance. Under paragraph (b)(5)(i) of this
section, B’s use of the payment card to obtain
a cash advance is not a payment card
transaction (as defined in paragraph (b)(1) of
this section) because the card is not being
accepted as payment by a merchant.
Example 15. Withdrawals from automated
teller machines. Bank A issues Cardholder B
a credit card that is a payment card under
paragraph (b)(3) of this section. B uses the
card at an automated teller machine to obtain
cash. Under paragraph (b)(5)(i) of this

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

section, B’s use of the payment card to obtain
cash is not a payment card transaction (as
defined in paragraph (b)(1) of this section)
because the card is not being accepted as
payment by a merchant.
Example 16. Convenience checks. Bank A
issues Cardholder B a credit card that is a
payment card under paragraph (b)(3) of this
section. A sends B paper checks imprinted
with the account number associated with the
credit card. B uses one of the checks to
purchase goods from Merchant S. The check
is accepted by S and processed through the
bank system in the same manner as a
traditional check. Under paragraph (b)(5)(ii)
of this section, B’s use of the convenience
check to purchase goods is not a payment
card transaction (as defined in paragraph
(b)(1) of this section) because the check is
accepted and processed as a traditional
check, not as a payment card.
Example 17. Healthcare network. Health
carrier A operates healthcare network Y. A
collects premiums from covered persons
pursuant to a plan agreement between A and
the covered persons for the cost of
membership in Y. Separately, A pays
healthcare providers pursuant to provider
agreements to compensate these providers for
services rendered to covered persons who are
members of Y. A is not a third party
settlement organization under paragraph
(c)(2) of this section because A does not
operate a third party payment network that
enables purchasers to transfer funds to
providers of goods and services. Therefore, A
is not required to file the annual information
return required under paragraph (a)(1) of this
section.
Example 18. Third party accounts payable.
X is a ‘‘shared-service’’ organization that
performs accounts payable services for
numerous purchasers that are unrelated to X.
A substantial number of providers of goods
and services have established accounts with
X and have agreed to accept payment from
X in settlement of their transactions with
purchasers. The provider agreement with X
includes standards and mechanisms for
settling the transactions and guarantees
payment to the providers, and the
arrangement enables purchasers to transfer
funds to providers. Under paragraph (c)(3) of
this section, X’s accounts payable services
constitute a third party payment network, of
which X is the third party settlement
organization (as defined in paragraph (c)(2) of
this section). For each payee, X must file the
annual information return required under
paragraph (a)(1) of this section to report
payments made by X in settlement of
accounts payable to that payee if X’s
aggregate payments to that payee exceed
$20,000 and the aggregate number of
transactions with that payee exceeds 200 (as
provided in paragraph (c)(4) of this section).
Example 19. Toll collection network. State
A charges a toll to vehicles that travel its
state highways. The tolling agency for A
contracted with organization X to perform its
toll collection. X provides an electronic toll
collection system that allows the toll facility
to record the passage of a vehicle with a
transponder affixed to the vehicle. The
customer account associated with the
transponder is automatically debited for the

PO 00000

Frm 00020

Fmt 4700

Sfmt 4700

amount of the toll. The customer funds a
balance in the account, which is then
depleted as the toll transactions occur. X
periodically bills the customer to replenish
the account. X then makes payment to A to
settle the toll transactions that are recorded
by the transponder. X also contracts with a
substantial number of other entities unrelated
to X that have established accounts with X
and have agreed to accept payment using the
electronic toll collection system provided by
X. X guarantees payment to the entities for
all toll transactions that are recorded by the
transponders, and the arrangement enables
customers to transfer funds to State A and
other entities that charge tolls. Under
paragraph (c)(3) of this section, X’s electronic
toll collection system constitutes a third
party payment network, of which X is the
third party settlement organization (as
defined in paragraph (c)(2) of this section).
For each payee, including A, X must file the
annual information return required under
paragraph (a)(1) of this section to report
payments made by X in settlement of toll
transactions if X’s aggregate payments to that
payee exceed $20,000 and the aggregate
number of transactions with that payee
exceeds 200 (as provided in paragraph (c)(4)
of this section).
Example 20. Hotel kiosk. Under a ‘‘hotel
kiosk’’ arrangement, Hotel B permits its
customers to charge, to their room account,
transactions for goods and services at a
substantial number of sellers unrelated to B
that operate on B’s premises, or on the
premises of hotels related to B, and that have
established accounts in B’s hotel kiosk
system. Customers settle their room account
with B when they check out, and B in turn
settles the hotel kiosk transactions with the
unrelated sellers. B guarantees payment to
the sellers for these transactions and the
arrangement enables customers to transfer
funds to the sellers by means of one payment
made to the hotel. Under paragraph (c)(3) of
this section, B’s hotel kiosk system
constitutes a third party payment network, of
which B is the third party settlement
organization (as defined in paragraph (c)(2) of
this section). For each payee, B must file the
annual information return required under
paragraph (a)(1) of this section to report
payments made by B in settlement of the
hotel kiosk transactions if B’s aggregate
payments to that payee exceed $20,000 and
the aggregate number of transactions with
that payee exceeds 200 (as provided in
paragraph (c)(4) of this section).
Example 21. Aggregated payee.
Corporation A, acting on behalf of A’s
independently-owned franchise stores,
receives payment from Bank X for credit card
sales effectuated at these franchise stores. X,
the payment settlement entity (as defined in
paragraph (a)(4)(i) of this section), is required
under paragraph (d)(1)(i) of this section to
report the gross amount of the reportable
payment transactions distributed to A
(notwithstanding the fact that A does not
accept payment cards and would not
otherwise be treated as a participating payee).
In turn, under paragraph (d)(1)(ii) of this
section, A is required to report the gross
amount of the reportable payment
transactions allocable to each franchise store.

E:\FR\FM\16AUR1.SGM

16AUR1

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

WReier-Aviles on DSKGBLS3C1PROD with RULES

X has no reporting obligation under this
section with respect to payments made by A
to its franchise stores.
Example 22. Electronic payment facilitator.
(i) Bank A is a merchant acquiring entity (as
defined in paragraph (b)(2) of this section)
with the contractual obligation to make
payments to participating merchants to settle
certain credit card transactions. A enters into
a contract with Processor X. Pursuant to this
contract, X prepares and submits instructions
to move funds from A’s account to the
accounts of participating merchants to settle
credit card transactions. X is making
payment on A’s behalf in settlement of
payment card transactions pursuant to a
contract between X and A. Therefore, under
paragraph (d)(2) of this section, X is an
electronic payment facilitator and must file
the information return required under
paragraph (a)(1) of this section with respect
to credit card transactions settled by X. A has
no reporting obligation with respect to
payments made by X on A’s behalf.
(ii) The facts are the same as in paragraph
(i) except that A and X state in their contract
that A will file the information return
required under paragraph (a)(1) of this
section. A may file the information return
pursuant to this designation. However, X is
liable for any applicable penalties under
sections 6721 and 6722 if the reporting
requirements of this section are not satisfied.
(iii) The facts are the same as in paragraph
(i) except that X merely prepares the
instructions to move the funds to the
accounts of participating merchants, and the
instructions are actually submitted by A. A,
not X, is making payment in settlement of
payment card transactions. Therefore, A
retains the obligation to file the information
return required under paragraph (a)(1) of this
section with respect to credit card
transactions settled by A.

(f) Prescribed form. The return
required by paragraph (a)(1) of this
section must be made according to the
forms and instructions published by the
Internal Revenue Service.
(g) Time and place for filing. Returns
made under this section for any
calendar year must be filed on or before
February 28th (March 31st if filing
electronically) of the following year at
the Internal Revenue Service Center
location designated in the instructions
to the relevant form.
(h) Time and place for furnishing
statement—(1) In general. Every
payment settlement entity required to
file a return under this section must also
furnish to each participating payee a
written statement with the same
information (as described in paragraph
(h)(2) of this section). The statement
must be furnished to the payee on or
before January 31st of the year following
the calendar year in which the
reportable payment is made. If the
return of information is not made on
magnetic media, this requirement may
be satisfied by furnishing to such person
a copy of all Forms 1099–K, ‘‘Merchant

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

card and third-party payments,’’ or any
successor form with respect to such
person filed with the Internal Revenue
Service Center. The statement will be
considered furnished to the payee if it
is mailed to the payee’s last known
address. The payment settlement entity
may furnish the statement electronically
in accordance with the rules provided
in § 1.6050W–2.
(2) Information to be shown on
statement furnished to payee. Each
written statement furnished under
paragraph (h)(1) of this section must
include the following information—
(i) The name, address, and phone
number (or email address if the
statement is furnished electronically) of
the information contact of the payment
settlement entity.
(ii) With respect to the participating
payee, the gross amount of—
(A) The aggregate reportable payment
transactions for the calendar year; and
(B) The aggregate reportable payment
transactions for each month of the
calendar year.
(iii) Any other information required
by the form, instructions, or current
revenue procedures.
(i) Cross-reference to penalties. For
provisions relating to the penalty for
failure to file timely a correct
information return required under
section 6050W, see section 6721 and the
associated regulations. For provisions
relating to the penalty for failure to
furnish timely a correct payee statement
required under section 6050W(f), see
section 6722 and the associated
regulations. See section 6724 and the
associated regulations for the waiver of
a penalty if failure is due to reasonable
cause and is not due to willful neglect.
(j) Effective/applicability date. The
rules in this section apply to returns for
calendar years beginning after December
31, 2010.
■ Par. 5. Section 1.6050W–2 is added to
read as follows:
§ 1.6050W–2 Electronic furnishing of
information statements for payments made
in settlement of payment card and third
party network transactions.

(a) Electronic furnishing of
statements—(1) In general. A person
required by section 6050W to furnish a
written statement (furnisher) regarding
payments made in settlement of
payment card and third party network
transactions to the person to whom it is
required to be furnished (recipient) may
furnish the statement in an electronic
format in lieu of a paper format. A
furnisher who meets the requirements of
paragraphs (a)(2) through (a)(5) of this
section is treated as furnishing the
required statement.

PO 00000

Frm 00021

Fmt 4700

Sfmt 4700

49833

(2) Consent—(i) In general. The
recipient must have affirmatively
consented to receive the statement
required under section 6050W in an
electronic format or, in the alternative,
have previously consented to receive
other federal tax statements in an
electronic format from the furnisher.
The consent may be made electronically
in any manner that reasonably
demonstrates that the recipient can
access the statement in the electronic
format in which it will be furnished to
the recipient. Alternatively, the consent
may be made in a paper document if it
is confirmed electronically. Consents
must be kept at all times available for
inspection by the Internal Revenue
Service. Recipients currently receiving
electronic communications from the
furnisher may elect to receive the
statement required under section 6050W
in a paper document in lieu of an
electronic format. The election to
receive a paper document may be made
by notifying the furnisher electronically
or in a paper document.
(ii) Withdrawal of consent. The
consent requirement of paragraph
(a)(2)(i) of this section is not satisfied if
the recipient withdraws the consent to
receive electronic statements and the
withdrawal takes effect before the
statement is furnished. The furnisher
may provide that a withdrawal of
consent takes effect either on the date it
is received by the furnisher or on a
subsequent date. The furnisher may also
provide that a request for a paper
statement will be treated as a
withdrawal of consent.
(iii) Change in hardware or software
requirements. If a change in the
hardware or software required to access
the statement creates a material risk that
the recipient will not be able to access
the statement, the furnisher must, prior
to changing the hardware or software,
provide notice to the recipient. The
notice must describe the revised
hardware and software required to
access the statement and inform the
recipient that a new consent to receive
the statement in the revised electronic
format must be provided to the
furnisher. After implementing the
revised hardware and software, the
furnisher must obtain from the
recipient, in the manner described in
paragraph (a)(2)(i) of this section, a new
consent or confirmation of consent to
receive the statement electronically.
(iv) Examples. The following
examples illustrate the rules of this
paragraph (a)(2):
Example 1. Recipient R has consented to
receive the statements required under section
6041 in electronic format from Furnisher F.
F has retained R’s consent and keeps it

E:\FR\FM\16AUR1.SGM

16AUR1

49834

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

WReier-Aviles on DSKGBLS3C1PROD with RULES

available for inspection by the IRS. F may
furnish to R the statement required under
section 6050W in electronic format without
securing an affirmative consent from R with
respect to the statements required under
section 6050W.
Example 2. Recipient R has not consented
to receive any electronic federal income tax
statements from Furnisher F. F may not
furnish to R the statements required under
section 6050W unless F first secures from R
a consent to receive those statements in
electronic format in accordance with the
requirements of paragraphs (a)(2) through
(a)(5) of this section.
Example 3. Furnisher F sends Recipient R
a letter stating that R may consent to receive
statements required by section 6050W(f)
electronically on a website instead of in a
paper format. The letter contains instructions
explaining how to consent to receive the
statements electronically by accessing the
website, downloading the consent document,
completing the consent document, and emailing the completed consent back to F. The
consent document posted on the website uses
the same electronic format that F uses to
furnish statements electronically. R reads the
instructions and submits the consent in the
manner provided in the instructions. R has
consented to receive the statements
electronically in the manner described in
paragraph (a)(2)(i) of this section.
Example 4. Furnisher F sends Recipient R
an e-mail stating that R may consent to
receive statements required by section
6050W(f) electronically instead of in a paper
format. The e-mail contains an attachment
instructing R how to consent to receive the
statements electronically. The e-mail
attachment uses the same electronic format
that F uses to furnish statements
electronically. R opens the attachment, reads
the instructions, and submits the consent in
the manner provided in the instructions. R
has consented to receive the statements
electronically in the manner described in
paragraph (a)(2)(i) of this section.
Example 5. Furnisher F posts a notice on
its website stating that Recipient R may
receive statements required by section
6050W(f) electronically instead of in a paper
format. The website contains instructions on
how R may access a secure web page and
consent to receive the statements
electronically. By accessing the secure web
page and giving consent, R has consented to
receive the statements electronically in the
manner described in paragraph (a)(2)(i) of
this section.

(3) Required disclosures—(i) In
general. Prior to, or at the time of, a
recipient’s consent, the furnisher must
provide to the recipient a clear and
conspicuous disclosure statement
containing each of the disclosures
described in paragraphs (a)(3)(ii)
through (a)(3)(viii) of this section.
(ii) Paper statement. The recipient
must be informed that the statement
will be furnished on paper if the
recipient does not consent to receive it
electronically.
(iii) Scope and duration of consent.
The recipient must be informed of the

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

scope and duration of the consent. For
example, the recipient must be informed
whether the consent applies to
statements furnished every year after the
consent is given until it is withdrawn in
the manner described in paragraph
(a)(3)(v)(A) of this section or only to the
statement required to be furnished on or
before the January 31st immediately
following the date on which the consent
is given.
(iv) Post-consent request for a paper
statement. The recipient must be
informed of any procedure for obtaining
a paper copy of the recipient’s statement
after giving the consent described in
paragraph (a)(2)(i) of this section and
whether a request for a paper statement
will be treated as a withdrawal of
consent.
(v) Withdrawal of consent. The
recipient must be informed that—
(A) The recipient may withdraw a
consent by writing (electronically or on
paper) to the person or department
whose name, mailing address, telephone
number, and e-mail address is provided
in the disclosure statement;
(B) The furnisher will confirm the
withdrawal and the date on which it
takes effect in writing (either
electronically or on paper); and
(C) A withdrawal of consent does not
apply to a statement that was furnished
electronically in the manner described
in this paragraph (a) before the date on
which the withdrawal of consent takes
effect.
(vi) Notice of termination. The
recipient must be informed of the
conditions under which a furnisher will
cease furnishing statements
electronically to the recipient.
(vii) Updating information. The
recipient must be informed of the
procedures for updating the information
needed by the furnisher to contact the
recipient. The furnisher must inform the
recipient of any change in the
furnisher’s contact information.
(viii) Hardware and software
requirements. The recipient must be
provided with a description of the
hardware and software required to
access, print, and retain the statement,
and the date when the statement will no
longer be available on the Web site.
(4) Format. The electronic version of
the statement must contain all required
information and comply with applicable
revenue procedures relating to
substitute statements to recipients.
(5) Notice—(i) In general. If the
statement is furnished on a website, the
furnisher must notify the recipient that
the statement is posted on a website.
The notice may be delivered by mail,
electronic mail, or in person. The notice
must provide instructions on how to

PO 00000

Frm 00022

Fmt 4700

Sfmt 4700

access and print the statement. The
notice must include the following
statement in capital letters,
‘‘IMPORTANT TAX RETURN
DOCUMENT AVAILABLE.’’ If the notice
is provided by electronic mail, the
foregoing statement must be on the
subject line of the electronic mail.
(ii) Undeliverable electronic address.
If an electronic notice described in
paragraph (a)(5)(i) of this section is
returned as undeliverable, and the
correct electronic address cannot be
obtained from the furnisher’s records or
from the recipient, then the furnisher
must furnish the notice by mail or in
person within 30 days after the
electronic notice is returned.
(b) Effective/applicability date. The
rules in this section apply to returns for
calendar years beginning after December
31, 2010.
PART 31—EMPLOYMENT TAXES AND
COLLECTION OF INCOME TAX AT
SOURCE
Par. 6. The authority citation for part
31 continues to read in part as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 7. Section 31.3406–0 is amended
as follows:
■ 1. Entries for § 31.3406(b)(3)–5(a), (b),
(c), (d), and (e) are added.
■ 2. Entry for § 31.3406(g)–1 is amended
by adding paragraphs (d), (e), and (f).
The additions read as follows:
■

§ 31.3406–0 Outline of the backup
withholding regulations.

*

*

*

*

*

§ 31.3406(b)(3)–5 Reportable payments of
payment card and third party network
transactions.

(a) Payment card and third party
network transactions subject to backup
withholding.
(b) Amount subject to backup
withholding.
(c) Time when payments are
considered to be subject to backup
withholding.
(d) Backup withholding from an
alternate source.
(e) Effective/applicability date.
*
*
*
*
*
§ 31.3406(g)–1 Exception for payments to
certain payees and certain other payments.

*

*
*
*
*
(d) Reportable payments made to
Canadian nonresident alien individuals.
(e) Certain reportable payments made
outside the United States by foreign
persons, foreign offices of United States
banks and brokers, and others.
(f) Special rule for certain payment
card transactions.
*
*
*
*
*

E:\FR\FM\16AUR1.SGM

16AUR1

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations
Par. 8. Section 31.3406(a)–2 is
amended by revising paragraph (a) to
read as follows:

■

§ 31.3406(a)–2 Definition of payors
obligated to backup withhold.

(a) In general. Payor means the person
that is required to make an information
return under section 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A, 6050N,
or 6050W with respect to any reportable
payment (as described in section
3406(b)), or that is described in
paragraph (b) of this section.
*
*
*
*
*
■ Par. 9. Section 31.3406(b)(3)–5 is
added to read as follows:

WReier-Aviles on DSKGBLS3C1PROD with RULES

§ 31.3406(b)(3)–5 Reportable payments of
payment card and third party network
transactions.

(a) Payment card and third party
network transactions subject to backup
withholding. The gross amount of a
reportable transaction that is required to
be reported under section 6050W
(relating to information reporting for
payment card and third party network
transactions) is a reportable payment for
purposes of section 3406. See
§ 31.6051–4 for the requirement to
furnish a statement to the payee if tax
is withheld under section 3406.
(b) Amount subject to backup
withholding. In general, the amount
described in paragraph (a) of this
section that is subject to withholding
under section 3406 is the amount
subject to reporting under section
6050W. In the case of payments made in
settlement of third party network
transactions, the amount subject to
withholding under section 3406 is
determined without regard to the
exception for de minimis payments by
third party settlement organizations in
section 6050W(e) and the associated
regulations.
(c) Time when payments are
considered to be subject to backup
withholding—(1) In general. In the case
of a payment card or third party
network transaction reportable under
section 6050W, the obligation to
withhold arises on the date of the
transaction. A payor is not required,
however, to satisfy its withholding
liability until the time that payment is
made.
(2) Example. The provisions of
paragraph (c)(1) are illustrated by the
following example:
Example. On Day 1, Customer A uses a
payment card to purchase $100 worth of
goods from Merchant B. Bank X, the
merchant acquiring entity for B, is the party
with the contractual obligation to make
payment to B in settlement of the transaction.
On Day 2, X, after deducting fees of $2,

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

makes payment of $98 to settle the
transaction for the sale of goods from B to A.
Under paragraph (a)(6) of § 1.6050W–1, X
must report the amount of $100, the amount
of the transaction on Day 1, without any
reduction for fees or any other amount, as the
gross amount of this reportable payment
transaction on the annual information return
filed under paragraph (a)(1) of § 1.6050W–1.
Under paragraph (c)(1) of this section, X’s
obligation, if any, to backup withhold arises
on Day 1, the backup withholding obligation
must be satisfied on Day 2, and the amount
subject to backup withholding is $100 (the
gross amount of the reportable payment
transaction (as defined in paragraph (a)(6) of
§ 1.6050W–1)).

(d) Backup withholding from an
alternate source—(1) In general. A payor
may not withhold under section 3406
from a source maintained by the payor
other than the source with respect to
which there exists a liability to
withhold under section 3406 with
respect to the payee. See section 3403
and § 31.3403–1, which provide that the
payor is liable for the amount required
to be withheld regardless of whether the
payor withholds.
(2) Exceptions for backup withholding
when there are no funds available—(i)
Backup withholding from an alternative
source. In the event there are no funds
available in the source with respect to
which there exists a liability to
withhold under section 3406 with
respect to the payee, the payor may
withhold under section 3406 from
another source maintained by the payee
with the payor. The source from which
the tax is withheld under section 3406
must be payable to at least one of the
persons listed on the account subject to
withholding. If the account or source is
not payable exclusively to the same
person or persons listed on the account
subject to withholding under section
3406, then the payor must obtain a
written statement from all other persons
to whom the account or source is
payable authorizing the payor to
withhold under section 3406 from the
alternative account or source. A payor
that elects to withhold under section
3406 from an alternative source may
determine the account or source from
which the tax is to be withheld, or may
allow the payee to designate the
alternative source.
(ii) Deferral of withholding. If the
payor cannot locate, with reasonable
care (following procedures substantially
similar to those set forth in
§ 31.3406(d)–5(c)(3)(ii)(A) and (B)), an
alternative source of cash from which
the payor may satisfy its withholding
obligation pursuant to paragraph
(d)(2)(i) of this section, the payor may
defer its obligation to withhold under
section 3406 until the earlier of—

PO 00000

Frm 00023

Fmt 4700

Sfmt 4700

49835

(A) The date on which cash, in a
sufficient amount to satisfy the
obligation in full, is deposited in the
account subject to withholding under
section 3406; or
(B) The close of the fourth calendar
year after the obligation arose.
(iii) Termination of obligation to
backup withhold. If, at the close of the
fourth calendar year after the backup
withholding arose, the payor has not
located an alternate source of cash from
which the payor may satisfy its
withholding obligation, and sufficient
cash to satisfy the obligation in full has
not been deposited in the account
subject to withholding under section
3406, then the obligation to backup
withhold terminates at the close of the
fourth calendar year.
(e) Effective/applicability date. The
provisions of this section apply to
amounts paid after December 31, 2011.
■ Par. 10. Section 31.3406(d)–1 is
amended by revising paragraph (d) to
read as follows:
§ 31.3406(d)–1 Manner required for
furnishing a taxpayer identification number.

*

*
*
*
*
(d) Rents, commissions, nonemployee
compensation, certain fishing boat
operators, and payment card and third
party network transactions, etc.—
Manner required for furnishing a
taxpayer identification number. For
accounts, contracts, or relationships
subject to information reporting under
section 6041 (relating to information
reporting at source on rents, royalties,
salaries, etc.), section 6041A(a) (relating
to information reporting of payments for
nonemployee services), section 6050A
(relating to information reporting by
certain fishing boat operators), section
6050N (relating to information reporting
of payments of royalties), or section
6050W (relating to information
reporting for payment card and third
party network transactions), the payee
must furnish the payee’s taxpayer
identification number to the payor
either orally or in writing. Except as
provided in § 31.3406(d)–5, the payee is
not required to certify under penalties of
perjury that the taxpayer identification
number is correct regardless of when the
account, contract, or relationship is
established.
■ Par. 11. Section 31.6051–4 is
amended by revising paragraph (c)(2) to
read as follows:
§ 31.6051–4 Statement required in case of
backup withholding.

*

*
*
*
*
(c)* * *
(2) The amount subject to reporting
under section 6041, 6041A(a), 6042,

E:\FR\FM\16AUR1.SGM

16AUR1

49836

Federal Register / Vol. 75, No. 157 / Monday, August 16, 2010 / Rules and Regulations

6044, 6045, 6049, 6050A, 6050N, or
6050W whether or not the amount of the
reportable payment is less than the
amount for which an information return
is required. If tax is withheld under
section 3406, the statement must show
the amount of the payment withheld
upon;
*
*
*
*
*
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 12. The authority citation for part
301 continues to read in part as follows:

■

returns required to be filed for calendar
years beginning after December 31,
2010), generally the recipient copy),
*
*
*
*
*
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: August 3, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2010–20200 Filed 8–13–10; 8:45 am]
BILLING CODE 4830–01–P

Authority: 26 U.S.C. 7805 * * *

Par. 13. Section 301.6721–1(g) is
amended by:
■ 1. Removing the language ‘‘or’’ at the
end of paragraph (g)(3)(xii).
■ 2. Redesignating paragraphs
(g)(3)(viii), (g)(3)(ix), (g)(3)(x), (g)(3)(xi),
(g)(3)(xii) and (g)(3)(xiii) as (g)(3)(ix),
(g)(3)(x), (g)(3)(xi), (g)(3)(xii), (g)(3)(xiii)
and (g)(3)(xiv).
■ 3. Adding the language ‘‘or’’ at the end
of newly designated paragraph
(g)(3)(xiii).
■ 4. Adding new paragraph (g)(3)(viii).
The addition reads as follows:
■

§ 301.6721–1 Failure to file correct
information returns.

*
*
*
*
(g)* * *
(3)* * *
(viii) Section 6050W (relating to
information returns with respect to
payments made in settlement of
payment card and third party network
transactions (effective for information
returns required to be filed for calendar
years beginning after December 31,
2010)),
*
*
*
*
*
■ Par. 14. Section 301.6722–1 is
amended by:
■ 1. Removing the language ‘‘and’’ at the
end of paragraph (d)(2)(xviii).
■ 2. Redesignating paragraphs
(d)(2)(xvi), (d)(2)(xvii), (d)(2)(xviii) and
(d)(2)(xix) as (d)(2)(xvii), (d)(2)(xviii),
(d)(2)(xix) and (d)(2)(xx).
■ 3. Adding new paragraph (d)(2)(xvi).
■ 4. Adding the language ‘‘and’’ at the
end of the newly designated paragraph
(d)(2)(xix).
The addition reads as follows:

WReier-Aviles on DSKGBLS3C1PROD with RULES

*

§ 301.6722–1 Failure to furnish correct
payee statements.

*

*
*
*
*
(d)* * *
(2)* * *
(xvi) Section 6050W (relating to
information returns with respect to
payments made in settlement of
payment card and third party network
transactions (effective for information

VerDate Mar<15>2010

14:09 Aug 13, 2010

Jkt 220001

DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Part 561
Iranian Financial Sanctions
Regulations
AGENCY: Office of Foreign Assets
Control, Treasury.
ACTION: Final rule.
SUMMARY: The Department of the
Treasury’s Office of Foreign Assets
Control (‘‘OFAC’’) is promulgating the
Iranian Financial Sanctions Regulations,
to implement provisions of the
Comprehensive Iran Sanctions,
Accountability, and Divestment Act of
2010, which require the Secretary of the
Treasury to prescribe certain
regulations. These regulations also
implement other related provisions of
the aforementioned legislation.
DATES: Effective date: August 16, 2010.
Comment date: You may submit
comments on or before October 15,
2010.
ADDRESSES: These regulations are not
subject to the provisions of Executive
Order 12866 and the Administrative
Procedure Act (5 U.S.C. 553) that
require notice of proposed rulemaking,
opportunity for public participation,
and a delayed effective date.
Nevertheless, OFAC welcomes the
submission of comments on this final
rule. Please note that the submission of
comments will not affect the final rule’s
effective date, nor will OFAC be
required to respond to the comments
submitted or to amend or republish this
final rule. You may submit comments
by any of the following methods:
Federal eRulemaking Portal:
http://www.regulations.gov.
Follow the instructions for submitting
comments.
Fax: Attn: Request for Comments
(Iranian Financial Sanctions
Regulations) Office of Prgm Policy &
Implementation, 202/622–1657.

PO 00000

Frm 00024

Fmt 4700

Sfmt 4700

Mail: Attn: Request for Comments
(Iranian Financial Sanctions
Regulations): Office of Prgm Policy &
Implementation, Office of Foreign
Assets Control, Department of the
Treasury, 1500 Pennsylvania Avenue,
NW., Washington, DC 20220.
Instructions: All submissions received
must be in writing and include the
agency name and the Federal Register
Doc. Number that appears at the end of
this document. OFAC will not accept
comments accompanied by a request
that all or a part of the submission be
treated confidentially because of its
business proprietary nature or for any
other reason. Comments received will
be made available to the public via
regulations.gov or upon request, without
change and including any personal
information provided.
FOR FURTHER INFORMATION CONTACT:
Assistant Director for Compliance,
Outreach & Implementation, tel.: 202/
622–2490, Assistant Director for
Licensing, tel.: 202/622–2480, Assistant
Director for Policy, tel.: 202/622–4855,
Office of Foreign Assets Control, or
Chief Counsel (Foreign Assets Control),
tel.: 202/622–2410, Office of the General
Counsel, Department of the Treasury
(not toll free numbers).
SUPPLEMENTARY INFORMATION:
Electronic and Facsimile Availability
This document and additional
information concerning OFAC are
available from OFAC’s Web site
(http://www.treas.gov/ofac). Certain
general information pertaining to
OFAC’s sanctions programs also is
available via facsimile through a 24hour fax-on-demand service, tel.: 202/
622–0077.
Background
On July 1, 2010, the President signed
into law the Comprehensive Iran
Sanctions, Accountability, and
Divestment Act of 2010 (Pub. L. 111–
195) (‘‘CISADA’’). In signing CISADA,
the President stated that this act builds
upon the recently adopted United
Nations Security Council Resolution
(‘‘UNSCR’’) 1929 (2010) and its strong
foundation for new multilateral
sanctions and provides a powerful tool
against Iran’s development of nuclear
weapons and support of terrorism. The
President pointed out that the
Government of Iran, for years, has
violated its commitments under the
NPT and defied United Nations Security
Council resolutions calling on Iran to
cease its proliferation-related activities
and imposing sanctions for Iran’s failure
to do so.
The President went on to describe
UNSCR 1929 as providing the toughest

E:\FR\FM\16AUR1.SGM

16AUR1


File Typeapplication/pdf
File TitleDocument
SubjectExtracted Pages
AuthorU.S. Government Printing Office
File Modified2011-02-08
File Created2011-02-08

© 2024 OMB.report | Privacy Policy