Monday, August 16^th, final 6050W (reporting on payment card and third party network transaction) regulations were issued by the Internal Revenue Service.  These regulations are aimed at creating new reporting and withholding requirements for  financial institutions and service providers that settle card payments to merchants. 

New for tax year 2010, companies will have to file information returns with the IRS for incentive stock option (ISO) and employee stock purchase plan (ESPP) transactions. The returns must be filed on Form 3921 for ISOs and Form 3922 for ESPPs.  The deadline for filing these forms on paper is February 28, 2011, and March 31, 2011, if filing electronically.  The deadline for distributing the statements to employees is still January 31.

As we suspected, we are starting to see the pushback by foreign financial institutions to the FATCA regulations passed in March of this year.  FATCA is putting a new set of reporting and withholding responsibilities on US and Foreign entities that are facilitating US source income being directed abroad.  FATCA is just one example of an effort by the current administration to crack down on US income being sheltered from taxes through abroad tax havens.

Having just participated in several recent industry conferences and shows, Convey is more aware than ever that the Tax Information Reporting Industry continues to see constant change in 1099 compliance rules and regulations- Corporate Reporting, Merchant Reporting, Cost Basis Reporting, Foreign Account Reporting (FATCA), Potential Penalty Increases – and the list goes on. 

Last week the Senate proposed a Small Business Jobs Act that includes provisional changes to Tax Information Reporting.  The changes to 1099 reporting are included in the bill as a way to generate revenues to fund the bill and close the Tax Gap.

It was an interesting week of media and industry attention around the new 1099 reporting requirementsimposed by the March Healthcare Reform Package.   Much of this flurry of coverage surrounded the mid-year  Taxpayer Advocate Report released to Congress this week.  IRS Taxpayer Advocate Nina Olson commented that “The submitted report expresses concern about the adequacy of IRS taxpayer service, particularly as the IRS begins to implement health care reform, about new information reporting burdens facing small businesses and others, and about certain IRS collection practices”.  Although coverage in many mass media outlets (USA Today, Wall Street Journal, Washington Post) has stimulated public debate on this topic this week, the IRS is looking for formal comment from industry by September 29th, 2010 on the best way to implement these reporting requirements in order to minimize burden to business (click here to learn more about how to comment) .

As of January, 1 2010, it has been a requirement in the state of California to withhold tax on income that was also subject to Federal backup withholding. The logic here is pretty straightforward: if the Federal government sees the need to require withholding because they were not sure if they were going to be able to collect tax in the future, why then should California not act in the same way? In addition, the state has been facing record deficits, and this was a way to increase tax receipts without actually resorting to a tax increase. The law was passed in July 2009 and was scheduled to go into effect starting in January. Of course, most were not prepared to handle the increased withholding.

New Backup Withholding Procedures: Social Security Number Validation following Receipt of Second B Notice…

We recently received a draft copy of the new Forms 3921 and 3922 from the IRS, including the draft instructions for these forms.  The IRS has indicated that these forms will be released and made public on their website later this summer.

As mentioned in our blog post yesterday, the IRS has released their tax information reporting form changes for 2010. There are significant changes for some of the forms.   While yesterday’s post covered new forms 3921 and 3922, TIN masking and the elimination of logos, slogans and advertising, today’s post covers in more specificity all changes to existing forms.