IRS Delays Implementation of Lower $600 Form 1099-K Reporting Threshold to 2023

(Parker Tax Publishing January 2023)

The IRS announced that it is delaying implementation of the lower $600 reporting threshold for Forms 1099-K, Payment Card and Third Party Network Transactions, which was set to take effect for calendar year 2022. As a result, third-party settlement organizations will not be required to report calendar year 2022 transactions on a Form 1099-K unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of transactions with that participating payee exceeds 200. Notice 2023-10.

Background

Code Sec. 6050W requires payment settlement entities to file an information return for each calendar year with respect to payments made in settlement of certain reportable payment transactions. Under Code Sec. 6050W(a), the annual information return must set forth (1) the name, address, and taxpayer identification number of the participating payee to whom payments were made, and (2) the gross amount of the reportable payment transactions with respect to that payee. Taxpayers required to make returns under Code Sec. 6050W do so by filing Form 1099-K, Payment Card and Third Party Network Transactions.

Code Sec. 6050W covers two types of reportable payment transactions: (1) payment card transactions, and (2) third party network transactions. A payment settlement entity in the payment card context is a merchant acquiring entity; in the third party network context, it is a third party settlement organization (TPSO). A TPSO is the central organization that has the contractual obligation to make payments to the participating payees of third party network transactions. A third party network transaction is any transaction that is settled through a third party payment network. A participating payee, in the case of a third party network transaction, is any person who accepts payment from a TPSO in settlement of such transaction.

As originally enacted, Code Sec. 6050W(e) provided that a TPSO was not required to report third party network transactions with respect to a participating payee unless the gross amount that would otherwise be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200. Section 9674(a) of the American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) amended Code Sec. 6050W(e) to provide that, for returns for calendar years beginning after December 31, 2021, a TPSO is required to report payments in settlement of third party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the aggregate number of such transactions.

Observation: Lawmakers in Congress have expressed concern that the lower reporting threshold under the ARP would result in millions of individuals receiving Forms 1099-K, often in instances where there is no tax liability, resulting in significant confusion and administrative challenges. Although there were calls to include an amendment to Code Sec. 6050W(e) in the year-end omnibus spending bill to raise the Form 1099-K reporting threshold, such a provision was not included in the legislation passed by Congress on December 22, 2022.

Transition Period for Calendar Year 2022

In Notice 2023-10, the IRS announced that calendar year 2022 will be regarded as a transition period for purposes of IRS enforcement and administration of the modified de minimis exception to Form 1099-K reporting for TPSOs and third party network transactions. With respect to returns for calendar years beginning before January 1, 2023, a TPSO is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200.

As a result, the IRS said it will not assert penalties under Code Sec. 6721 or Code Sec. 6722 for TPSOs failing to file or failing to furnish Forms 1099-K unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of transactions exceeds 200. For returns for calendar years beginning after December 31, 2022, a TPSO is required to report payments in settlement of third party network transactions with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.

The IRS will not regard calendar year 2022 as a transition period with respect to the requirements of Code Sec. 6050W that were not modified by Section 9674(a) of the ARP. In addition, those payers that have performed backup withholding under Code Sec. 3406(a) during calendar year 2022 must file a Form 1099-K with the IRS and furnish a copy to the payee if total payments to and withholding from the payee exceeded $600 for the calendar year.

For a discussion of the Form 1099-K filing requirements, see Parker Tax ¶252,557.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com