Starting with the 2011 tax year, the Internal Revenue Service (IRS) implemented a change to the tax

code requiring all merchant acquiring entities, such as Clearent, to file a Form 1099-K each year to report their merchants payment card transactions. The form was created to help make sure businesses dont under report their income on their tax return. Since these regulations can be confusing, weve compiled a list of common questions to help you understand the ins and outs of backup withholding.

General Information
What are the IRS requirements? The IRS has a form called a 1099-K, Payment Card and Third Party Network Transactions. This form is filed annually and reports each merchant's payment card transactions for the calendar year. Form 1099-K must include the transactions for each Taxpayer Identification Number (TIN), including all merchant accounts associated with that TIN. The IRS requires a valid business name and TIN for each merchant. If merchant acquirers do not have a valid business name and TIN, the IRS will require acquirers such as Clearent to start backup withholding, at a current rate of 28% of gross sales, beginning in 2014. Backup withholding was originally required to begin in 2012, but the IRS postponed it to 2014. Does Form 1099-K apply to each merchant account or business name? The IRS requires merchant acquirers to report by each business' Taxpayer Identification Number (TIN), meaning its Employer Identification Number (EIN) or Social Security Number (SSN). The TIN is associated with the business legal name, the name used for its tax return. If a business has more than one merchant account (MID), then the Form 1099-K will combine the activity across multiple accounts. What do merchants need to do? Merchants need to make sure their merchant services provider has accurate tax information, including the legal name of the business and TIN. If it is incorrect, you need to update it to avoid backup withholding. you can contact the your processor customer Support team. Where can I find my tax information? Your name and TIN should match those used on your tax return in order to match the IRS database. If you filed for a federal EIN, you should use the EIN and business name from the IRS EIN letter (notification CP 575 A), which the IRS used to assign an EIN to your business.

Backup Withholding
What is backup withholding? If merchant acquirers do not have a valid business name and TIN, the IRS requires acquirers such as Clearent to start backup withholding, at a current rate of 28% of gross sales. This means that your processor must withhold 28% of the merchants daily deposit and transfer these funds to the IRS.

Backup withholding your card sales settlement at a rate of 28% will happen beginning in 2012 for merchants that have incorrect TIN or tax filing names if your merchant service provider doesnt have your correct tax identification number and business filing name So you must ensure that your tax identification number (TIN) and business filing name that your merchant service provider has matches those at the IRS.

If you have more questions, please contact James Lee at 1-917-930-3945 or via email: AplusMerchants@gmail.com About James Lee Page 1

What is a B notice? If the IRS determines that a merchant has an incorrect TIN, Clearent is required by the IRS to mail the merchant a B notice, which is a notice of backup withholding. Accompanying the B notice will be a Form W-9, Request for Taxpayer Identification Number and Certification. The merchant should complete the W-9, making sure it matches his EIN letter and tax return. The W-9 should be returned to Clearent immediately so that the merchants account can be updated. When are B notices sent to merchants? "B" notices are typically mailed in October. Based on the latest information from the IRS, the first one will be mailed in the fall of 2014. The specific timing depends on when the IRS notifies merchant acquirers such as Clearent that certain merchants have incorrect TINs. When are processors required to start backup withholding? Merchants who receive a "B" notice from Clearent must complete the enclosed Form W-9 and return it to Clearent immediately. If Clearent does not receive a completed W-9 by the specified date on the "B" notice, Clearent is required to begin backup withholding. Once Clearent receives a completed W-9, we can stop backup withholding. What happens to the money that is withheld? Processors such as Clearent do not hold the money. The money is transferred to the IRS. This means that merchants will not have access to this money until they file a tax return the following year and potentially get a refund.

Possible Exemptions
Are small merchants exempt from the IRS reporting requirements? No. You may have heard that reporting is only required if a business has more than $20,000 in sales, but that is not true. That exemption only applies to payees of "third party networks," such as PayPal, if they Process less than $20,000 or fewer than 200 transactions. The exemption does not apply to payment card transactions through traditional merchant accounts. Do the IRS reporting requirements apply to government agencies? Yes. The IRS 1099-K reporting requirements include "any person, including any governmental unit ... who accepts a payment card. However, most government agencies are exempt from backup withholding per section 3406(a) of the Internal Revenue Code. Do the IRS reporting requirements apply to non-profit organizations? Yes. The IRS 1099-K reporting requirements include non-profit organizations. However, tax-exempt organizations such as charities are exempt from backup withholding per section 3406(a) of the Internal Revenue Code. Do the IRS reporting requirements apply to cash advance transactions? Cash advance transactions are exempt from the rules, so acquirers do not have to report (or backup withhold) for bank cash advance branches. Where can I learn more? If you have more questions about Form 1099-K or backup withholding, please contact James Lee at 1-917-930-3945 or via email: AplusMerchants@gmail.com

Backup withholding your card sales settlement at a rate of 28% will happen beginning in 2012 for merchants that have incorrect TIN or tax filing names if your merchant service provider doesnt have your correct tax identification number and business filing name So you must ensure that your tax identification number (TIN) and business filing name that your merchant service provider has matches those at the IRS.

If you have more questions, please contact James Lee at 1-917-930-3945 or via email: AplusMerchants@gmail.com About James Lee Page 2