Fernway DiarySM

Jan 12, 2023

On December 23, 2022, the Internal Revenue Service announced a delay in the new Form 1099-K, Payment Card and Third-Party Network Transactions, reporting requirement for third-party settlement organizations (TPSOs) that was enacted in the American Rescue Plan Act (ARPA) of 2021. Prior to the passage of the law, TPSOs were required to report a participating payee’s business transactions if they exceeded a minimum threshold of more than 200 transactions per year with an aggregate amount of $20,000 or higher. ARPA lowered that minimum threshold to $600 per year and eliminated the transaction threshold, effective for calendar years beginning after December 31, 2021.

The new guidance, announced in Notice 2023-10, designates calendar year 2022 as a transition period for implementation of the new threshold, postponing the filing requirement to apply to returns for calendar years beginning after December 31, 2022. As noted by Acting IRS commissioner Doug O’Donnell, “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan. To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

In general, Form 1099-K must be furnished to participating payees on or before January 31 of the year following the calendar year of the reportable transactions. It must be filed with the IRS on or before February 28 of the year following the transactions if filed on paper, or by the last day of March in the year following the transactions if filing electronically. Tax year 2022 transactions will be subject to the previous $20,000 aggregate/200 transaction minimum threshold for issuance of 1099-K forms.

The introduction of the new threshold is meant to improve voluntary tax compliance by expanding the amount of business transactions subject to information reporting. An increasing number of such transactions are taking place through platforms like eBay and Etsy or payment processing apps like PayPal, Zelle, CashApp, and Venmo. However, a number of payment apps are also used for personal transactions; while the announcement of the delay specifically noted that “[t]he law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill,” one concern has been that the very low new threshold would result in the mistaken issuance of 1099-K forms for noncommercial transactions.

In a December letter sent to the chairs and ranking members of the Senate Finance and House Ways and Means Committees, the American Institute of CPAs (AICPA) warned that “[t]he excessive reduction in the de minimis reporting threshold for third-party network transactions has created a significantly large reporting burden.” The organization recommended establishing a higher de minimis exception for the filing of Form 1099-K by instituting a cost-of-living adjustment (COLA). The National Association of Tax Professionals, the National Taxpayers Union, and others have also raised concerns.

In its announcement, the IRS stated that it would be providing additional details on the delay, including instructions for taxpayers who may already have received a Form 1099-K as a result in the change in the law. (See the IRS Fact Sheet, “Frequently asked questions about Form 1099-K” for further information.)

While individual taxpayers who will ultimately be affected by the new reporting threshold may not receive anticipated 1099-Ks this year, they are still required to report all business income to the IRS. TPSOs affected should monitor continuing developments over the coming year to ensure they are prepared to implement new reporting requirements on schedule. Any business or individual unsure about the potential implications for their situation is advised to consult a qualified tax professional.

For more information, please contact your US tax advisory team at youradvisor@fernwaysolutions.com or visit us at www.fernwaysolutions.com.

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