If your business has received payments in 2011 via credit and debit cards, as well as third-party network payments such as PayPal, Amazon.com and Google, you should have received Form-1099K’s from the processing companies by now.
This is a brand new form introduced in an obscure provision of the 2008 Housing and Economic Recovery Act. Credit card processing companies and other payment providers are required to report gross receipts for each merchant in excess of 200 transactions or $20,000 in revenue, in monthly increments.
In addition, business owners are required to reconcile their reported gross sales with the payment card receipts as reported by the payment providers.
Tracking the difference between the two requires a lot of administrative overhead, particularly for small businesses. It requires detailed tracking of sales taxes and tips from every payment card transaction, as well as returns and cash refunds.
Responding to outcries from small business owners and industry groups, the Internal Revenue Service has agreed to strike the requirement that businesses reconcile the two numbers.
However, while business owners are not required to reconcile the two, IRS still have the payment card totals as reported by the payment providers. Whether or not the IRS will use the 1099-K forms to compare with the tax returns filed by businesses remains unclear.