I've highlighted the IRS reporting mandate in an earlier post, compelling merchant account providers to report their merchants' gross annual credit card processing volume.  Of course, between friends, this amount does not necessarily reflect any given merchant's true total amount in gross earnings, as other forms of payment may be utilized.  However, in an attempt to widen a net catching anyone who underestimates their income levels, the IRS reporting mandate was passed.  (I had no say in this legislation or a different result would have materialized.)

Now as a result of this regrettable IRS reporting mandate, your processor must complete a 1099 Form.  The information provided by the processor must duplicate what the IRS has on file.  Fields such as the name and address of the business, tax identification number, etc. must provide an exact match to IRS data.  This is a concern because when both sources of information are compared, even space and letter case sensitive discrepancies may flag a mismatch.  Moreover, a problem arises if a merchant has not provided the processor with his/her tax identification number (using a social security number instead) and the IRS has such a number on record. 

A mismatch may open the proverbial Pandora's box.  Indeed, if information discrepancies are not corrected, 28% of the merchant's credit card processing sales will be held until the errors are fixed and an exact information match materializes.  Compounding the problem is the fact that the merchant will not be able to obtain any held funds until the end of the year.

As a result of these dire consequences, processors will be diligently and carefully filling out these 1099 Forms.  Subsequently, they must reach out to merchants when any given mismatch arises.  (Now it's easier to understand why many merchants are being charged an IRS reporting or regulatory fee as form preparation and communication with merchants becomes very labor-intensive.)

Merchants, too, can be proactive and call processors to ensure that their processor's information matches the IRS records.  The problem is that many merchants are so busy operating their businesses that they may not even know the potential minefield that can blow up due to data discrepency.

Fortunately, not all merchants have to worry about this potential problem -- particularly those with low volume.  Indeed, processors do not have to file a 1099 form on any merchant whose annual credit card processing volume is less than $20,000 and whose total number of transactions is less than 200.

However, the vast majority of businesses will be affected (and some adversely affected) as a result of the IRS reporting mandate.  This 1099 form thus becomes an important document and an exact IRS match becomes crucial.  If you don't call your processor, at least be accessible to them so you'll be able to provide the "right" information.