Regarding 1099-K Reportes

All About "1099-K" Reports (credit-card transaction reports)

A LOT OF FOLKS ARE AWARE, OR ARE ABOUT TO BE MADE AWARE, of a recent addition to the list of economic activities that must be reported to the taxman. This new obligation is codified at 26 USC § 6050W, and concerns credit-card transactions.

The requirement is on processors of such transactions to report aggregate total amounts processed of $20,000 or more annually, or a total of 200 or more transactions processed annually, regardless of the aggregate amount, to the IRS. The form used for the reporting is a new version of the 1099, known as the 1099-K.

As is always the case in the area of the "income tax", the presentation of this requirement looks at first glance to be all-inclusive-- that is, it looks as though banks and other operations must report to the government on credit-card payments made to everyone in America (with the implication that everyone should imagine such payments to somehow qualify as payments in which the government has a legitimate interest-- "interest" both in the sense of awareness and in the sense of an ownership interest so as to be able to lawfully claim a "piece of the action" in the form of a tax). Looking at the law we see broad language such as:

(a) In general

Each payment settlement entity shall make a return for each calendar year setting forth—

(1) the name, address, and TIN of each participating payee to whom one or more payments in settlement of reportable payment transactions are made, and

(2) the gross amount of the reportable payment transactions with respect to each such participating payee.

Such return shall be made at such time and in such form and manner as the Secretary may require by regulations.

(b) Payment settlement entity

For purposes of this section—

(1) In general

The term “payment settlement entity” means—

(A) in the case of a payment card transaction, the merchant acquiring entity, and

(B) in the case of a third party network transaction, the third party settlement organization.

(2) Merchant acquiring entity

The term “merchant acquiring entity” means the bank or other organization which has the contractual obligation to make payment to participating payees in settlement of payment card transactions.

(3) Third party settlement organization

The term “third party settlement organization” means the central organization which has the contractual obligation to make payment to participating payees of third party network transactions.

and later,

For purposes of this section—

(1) In general

The term “reportable payment transaction” means any payment card transaction and any third party network transaction.

(2) Payment card transaction

The term “payment card transaction” means any transaction in which a payment card is accepted as payment.

(3) Third party network transaction

The term “third party network transaction” means any transaction which is settled through a third party payment network.

(d) Other definitions

For purposes of this section—

(1) Participating payee

(A) In general

The term “participating payee” means—

(i) in the case of a payment card transaction, any person who accepts a payment card as payment, and

(ii) in the case of a third party network transaction, any person who accepts payment from a third party settlement organization in settlement of such transaction.

Look at all those "any"s! You'd think from this language that Congress has just abandoned all restraint and thrown the Constitutional limitations on the tax authority in the trash!

BUT...

Not to worry. Not only does context provide the limits to the law, as always-- meaning that the scope of a law is limited to the scope of the authority under which it is enacted, and the limits apply whether explicitly acknowledged or not-- but here Congress has, in fact, given those who go to the trouble to look the Constitutionality-relief-valve it so often does throughout the otherwise expansive-seeming language of the "income tax" laws.

Stuck amidst the broad wording excerpted above is this little qualifying clarification:

For purposes of this section—

The term “person” includes any governmental unit (and any agency or instrumentality thereof).

Plugging this specification in where it belongs we see that the rubber-hits-the-road portion of this law, by which those about whose receipts reports must be made are identified, and whose receipts are thereby being identified by the structure of this law as the objects of government interest under this section, actually reads:

(1) Participating payee

(A) In general

The term “participating payee” means—

(i) in the case of a payment card transaction, any governmental unit (and any agency or instrumentality thereof) who accepts a payment card as payment, and

(ii) in the case of a third party network transaction, any governmental unit (and any agency or instrumentality thereof) who accepts payment from a third party settlement organization in settlement of such transaction.

Upon examination, then, the credit-card reporting protocols are NOT a departure from the rest of the "income tax" structure after all. Instead, they are completely consistent with the rest of that structure, a simple design intended to ensure that the state's many far-flung organs and instrumentalities are kept properly within its oversight and accounting purview, and that no one benefitting from a federal office or privilege can get away with pocketing a portion of the booty to which he or she is not entitled.

Of course, a presumption will be made by the IRS and state tax agencies that anyone about whom credit-card payments are reported is a governmental unit, and that the payments reported are therefore within the legitimate purview of these tax agencies. But where these things are not so an honest and accurate rebuttal will set the record straight, just as in the case of any other such erroneous allegation.

(NOTE: There is obviously a little "art" being used in the section language, with the specification of the meaning of "person" being captioned, "Inclusion of governmental units". To those unfamiliar with the way law is written and construed, and especially those conditioned with the rather strange belief that federal laws don't apply to federal people unless they are specifically mentioned, this misleading caption would suggest that rather than being a specification of the meaning of "person" for purposes of the section, this is a provision adding governmental units to some other definition.

But other than allowing for limited expansion to members of the class identified by the words that follow it, "includes" is a limiting term, however its deployment is captioned. And even beyond that, it is easily seen that this misconception is just that-- a misconception. After all, governmental units are "persons" under the general definition of that term, and some of them accept credit-card payments for this and that. Therefore, had no specification been provided at all, governmental units would have automatically been amongst those to whom the statute applies under its plain, unqualified language.

Consequently, it can't be mistaken that however quirky the caption, the spec can only be provided for the purpose of CONFINING the application of the law to the class "governmental units"-- something imposed by the Constitutional limitations on the tax, in any event.)