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Have You Heard About Form 1099K?

[Stacie says: If you use Paypal or another service to process credit card payments, under these proposed regulations you may be receiving a new form 1099K which will report the amount of payments processed by the service for you. Check out the proposed regs and toss in your 2 cents.]

WASHINGTON — The Internal Revenue Service issued proposed regulations under a new statute requiring that, starting with transactions in calendar year 2011, the gross amount of payment card and third-party network transactions be reported annually to participating merchants and the IRS.

The provision was enacted as part of the Housing Assistance Tax Act of 2008 and is designed to improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.

“Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe,” said IRS Commissioner Doug Shulman. “The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses. The IRS will work closely with stakeholder groups to ensure a smooth implementation of this new program.”

These proposed regulations, posted today on IRS.gov, propose rules to implement reporting of credit card, debit card and similar transactions, as well as transactions settled through third-party payment networks, such as third-party organizations that settle online transactions. The IRS also released for comment a draft version of new Form 1099K, Merchant Card and Third-Party Payments, which will be used to make these reports.

The new law requires banks and other payment settlement entities to report payment card and third-party network transactions with their participating merchants. The IRS emphasized that individual cardholders are unaffected by this requirement, and none of the cardholder’s personal information will be shared with the IRS.

The IRS has created Form 1099-K, which is similar to the existing Forms 1099 used to report interest, dividends and other payments. The first information return covering calendar year 2011 must be filed with the IRS and furnished to participating merchants in early 2012. Among other things, the proposed regulations describe who is required to file a return and which payment card and third-party network transactions are subject to the reporting requirement. The proposed regulations also provide numerous examples.

The IRS welcomes comments on these proposed regulations and the draft Form 1099-K. Comments must be received by Jan. 25, 2010, and may be submitted electronically, by mail or hand delivered to the IRS. A public hearing is scheduled for Feb. 10, 2010, in Washington, D.C.
The proposed regulations provide details on submitting comments or participating in the public hearing.

The IRS continues to work closely with stakeholders to ensure the smooth implementation of this new information reporting program, including the mitigation of penalties in the early stages of implementation for all but particularly egregious cases.

A Small Town and A Diabolical Marketing Strategy that Sucked Me in.

By Stacie Clifford Kitts, CPA

Well, here is an epiphany – small town ‘don’t’ mean stupid…Not that I actually thought that small towns harbored unintelligent people. It’s just that sometimes a small town feels so sweet and quaint it’s easy to assume that everyone in it must be sweet and quaint too.
You must know what I mean – picture the historical buildings, the lace curtains and the wooden board walks – all of which give off an air of – well – unsophisticated, honest, hardworking, townsfolk.
Now as it happens, there are many such towns along US highway 395 just south of Lake Tahoe as you travel through the valley headed toward the desert. The elevation along that stretch of 395 provides for plenty of snow during the winter and lush green farmland in the summer. It really is a magnificent and beautiful drive. The way is also littered with quintessential postcard worthy small towns.

This was exactly what I was observing when I saw the sign that sucked me in. We were driving slowly, very slowly as the speed limit was reduced to 35 mph through this particular town. And as I admired the homey almost soothing atmosphere, I spotted a sign in a cafe window framed in delicate lace curtains.

HOMEMADE DEEP DISH PIE $4.99

“Oh honey,” I said as I turned toward my husband clapping my hands and bouncing slightly in my seat. “Wouldn’t it be fun to stop in for some homemade pie? Can we?”

“Of course,” he said and he immediate pulled over to search for a parking spot.

And you know what?

I wasn’t disappointed by the looks of the café at all. Nope – the decor was exactly how I had pictured it would be. The occasional black and white photos of days long past were hung over aging flowered wallpaper. There was a lunch counter with red stools along the back wall and wooden tables with miss-matched chairs filling the space between. Each table had a small vase holding a single daisy. It really had the perfect small town feel.

And even though I couldn’t see into the kitchen, I knew who was back there. Yes of course – who else could it be but a sweet elderly grandmother lovingly baking her famous pie, her grey hair pulled tightly back in a bun, her flour smudged apron covering her 1950’s style dress. Sigh – I couldn’t wait for my small town – homemade – deep dish – pie experience.

We headed toward the back and sat at the lunch counter where we found the menu tucked between the condiments. I quickly buried my nose among the greasy pages and tried to decide what type of pie sounded good, cherry, apple, peach, strawberry. I didn’t notice the waitress until she asked, “What can I get you?”

“I think I will have a piece of cherry….,” I began as I glanced up into the face of a young woman who had several facial piercings and hair colored a very unnatural shade of red.” …Pie,” I finished.

Okay, so fine, the waitress didn’t really fit my small town fantasy. But that didn’t mean that my homemade pie wasn’t at that very moment being placed on some dainty flowered china by the grandmother in the kitchen. Right – the sign said HOMEMADE DEEP DISH PIE you know- I mean – there were lace curtains tied back with bows for heaven’s sake.

But when a young man in a dirty apron place in front of me a small white bowl with a spoon protruding from the side, I tried to explain. “No I ordered the homemade – deep – dish – pie.”

“Ya, cherry, this is it.” He said as he moved away. And as I stared into the bowl unable to move, all I could think was, where’s the pie lovingly made by the little grandmother in the kitchen?

And as my husband began to giggle, I realized the horrible truth. I had just paid $4.99 for a bowl of -of – canned pie filling?

That’s right – my homemade deep dish pie was a bowl full of canned cherry pie filling – I was completely mortified.

But not the hubby. He wasn’t mortified at all. In fact, he thought it was funny. Worse, he actually thought it was brilliant.

“Brilliant? Brilliant?” I stammered once I could speak. “What do you mean? I will never come back here again, this is terrible. It’s a bowl of pie filling for crying out loud.”

“What difference does it make?” He asked. “The locals know not to order the ‘homemade’ pie. Think about all the people who blow through here on their way to some place else. Heck most people wouldn’t even slow down if they didn’t have too. The sign in the window got us to come in and buy something. They’re not worried about repeat business from the tourists. When you think about it, it’s a brilliant marketing strategy. After tax, they probably made like a 400% profit off that bowl of pie filling. Why spend the money on actual pie?”

Why spend the money? Why? I was so disappointed that I wasn’t going to get my homemade deep-dish pie.

But even though disillusioned, I had to admit, it was true. If not for the sign, we would never have stopped. I glanced around the room wondering how many people had been lured in by the promise of pie only to be disappointed. And then it occurred to me, how many patrons might actually be locals slyly watching from the corner of their eye – a sad and slightly twisted form of local entertainment. Who knows, maybe a few. I mean come on, a bowl of pie filling has to piss off a least a few tourists.

But even so, I have no doubt that tucked away in some little back office is our grandma and her old accountant complete with a hand cranked adding machine bending steadily over a desk feverishly scribbling the results of some brilliant yet simple tax strategy which allows these diabolical townsfolk a way to keep all those profits from their homemade deep dish pie.