The U.S. Department of Treasury and Internal Revenue Service (IRS) are demanding more information reporting from companies in every industry. Some skeptics believe that this move may be motivated by gaps in taxpayer income reporting and the snowballing federal deficit. Among the most recent IRS regulations to collect unreported income, as of January 1, 2011, Internal Revenue Code (IRC) § 6050W will drastically revise how large financial institutions and third-party payment processors must report transactions related to all payment cards such as debit, Visa, Mastercard, etc.

Part of the 2008 Housing Assistance Tax Act, IRC § 6050W requires retailers to file information returns, Form 1099-K, and report payment card transactions – including debit, credit, gift cards, and co-branded cards – as well as third-party network transactions, on a gross ba sis.

For example, one of the most popular methods of paying for online transactions such as eBay, Amazon.com, and Buy.com is Paypal. Paypal claims to have over 100 million Paypal accounts. Consequently, PayPal will be required by the IRS to report sales information about certain merchants to the IRS.

Thus, under the IRS legislation, if you earn supplemental income or full time income with an online business (e.g., selling items on eBay) and accept Paypal payments, PayPal will be required to report to the IRS the total payment volume received by PayPal customers in the U.S. who:

• Receive more than $20,000 in gross payment volume in a single year, AND

• Receive 200 or more payments in a single year.

IRC § 6050W covers all transactions in the tax year 2011 and each tax year that follows. Beginning in 2012, qualifying merchants will receive a 1099-K Form either electronically or by mail. Transactions occurring prior to 2011 will not be affected by this legislation. A business receiving $10,000 in payments or less per year would not be affected by the new requirements.