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(Updates with Bennett comment starting in sixth paragraph, Pyke statement in 11th paragraph.)
Oct. 27 (Bloomberg) -- The Internal Revenue Service announced a one-year delay in enforcing the most severe part of a law requiring companies that process and settle credit-card transactions to report payment amounts to the U.S. government.
The delay affects a requirement that payment processors withhold 28 percent of payments to retailers and others for whom they don’t have verified taxpayer identification numbers.
Such withholding will begin for payments made in 2013 instead of 2012, according to an IRS statement today that said the agency gave “careful consideration” to comments from companies. Payment processors have been complaining about a slow and error-filled IRS system for verifying and matching identification numbers.
The change affects payment-processing companies including First Data Corp., Heartland Payment Systems Inc. and Total System Services Inc.
The Electronic Transactions Association, a Washington-based trade group, applauded the IRS decision.
“Given the complexities of the merchant transaction reporting requirement, the lack of timely and final reporting forms and the prevalence of still-unanswered questions, it is encouraging to see the IRS pay consideration” to businesses’ concerns, Mary Bennett, the group’s director of government and industry relations, said in an e-mail.
Congress created the credit-card reporting rules in 2008 to improve tax compliance. The law requires companies involved in payment processing to report annual totals of transactions with merchants. It took effect for transactions starting on Jan. 1, and the first reports are due in early 2012. The IRS also said today that it wouldn’t impose penalties for incomplete filings for that first set of reports.
The IRS plans to use the information to select businesses for audits by analyzing cash transaction rates in various industries. When the law passed, the congressional Joint Committee on Taxation estimated that it would generate $9.5 billion in revenue for the federal government over 10 years.
In August, the Treasury Department’s inspector general for tax administration released an audit that criticized the IRS’s implementation of the credit-card reporting law.
“We found that improvements must be made if this effort is to function as intended, which is to help reduce the tax gap” between taxes owed and collected, J. Russell George, the inspector general, said at the time.
Mark Pyke, president of the merchant services segment at Total System Services, said the delay was reasonable.
“This is good news for the merchant acquiring community,” he said in a statement.
Today’s announcement coincides with a House of Representatives vote to repeal another tax compliance provision that has drawn objections from businesses and was delayed by the IRS. That rule, which requires 3 percent withholding from government contractors, would take effect in 2013 unless Congress repeals it.
--Editors: Jodi Schneider, Jim Rubin.
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