In response to that question, you may well ask, “What is IRS Section 6050W and what does it have to do with me?” If you don’t accept credit cards, you can stop reading now. If you do accept credit card payments, you should be aware that Section 3091(a) of the Housing Assistance Tax Act of 2008 added section 6050W to the Internal Revenue Code.
The reporting requirements of section 6050W require credit card processors to report to the IRS on Form 1099-K the total gross amount of payment card transactions processed over the calendar year, without reduction to account for amounts in IOLTA accounts. The new 1099-K is only intended to be “informational” and the credit card processor should include a merchant industry code on your 1099-K with your identity as a law firm or provider of legal services.
Section 6050W will also require credit card processors to verify and match your federal tax id (TIN) and legal name to IRS records. This requires an exact match for each of these items to file your 1099-K correctly. Although the time to match this data was extended by IRS notice until the 2012 tax year, beginning in January 2013, the IRS will impose a 28% withholding penalty on all credit card transactions if information on file is not an exact match with their records.
Given the severity of this penalty, it’s a good time to check with your credit card processor and make sure there is an EXACT match of your TIN and the legal name. If there is an error, steps need to be taken to correct it immediately.
NOTE: This article is provided for informational purposes only and does not constitute legal or tax advice. You should contact your tax advisor if you have any additional questions about this.