The IRS recently eliminated an unpopular rule relating to how credit card and debit card payments are accounted for on tax returns. The new process was otherwise going to go into effect in 2012, and would require companies to explain the differences between 1099-K forms and their internal records.
The Housing and Economic Recovery Act of 2008 added Internal Revenue Code Section 6050W. This code section requires information returns (specifically, Form 1099-K) regarding annual gross receipts for credit card transactions. Recently, the IRS added a requirement for business taxpayers to reconcile their gross taxable revenues with the aggregate gross receipt amounts on Form 1099-K. The now-cancelled reconciliation was complicated by several appropriate transactions that are not part of gross taxable revenues, such as cash refunds, sales tax, and tips. These collections, which are not merchant revenues, would consistently cause the two totals to not agree.
Payment processes must continue to submit 1099-K forms, and a difference between the numbers on the forms and the gross receipts on the merchant’s tax returns could trigger an audit.