Notice 2012-2 [PDF 37 KB] supplements guidance provided in Notice 2011-71.
Section 6050W—added to the Code by the Housing Assistance Tax Act of 2008 (Pub. L. No. 110-289)—requires annual information returns by merchant acquiring entities and third-party settlement organizations reporting payments made in settlement of payment card transactions and third-party network transactions during a calendar year.
With today’s release, the IRS and Treasury Department have stated that they intend to amend the regulations under section 6050W to reflect the guidance provided in Notice 2012-2 and Notice 2011-71.
For a description of Notice 2011-71, see TaxNewsFlash 2011-397: IRS intends to amend regulations on information reporting and backup withholding requirements for payment card and third-party network transactions
Specifically, Notice 2012-2 states that in response to a comment expressing uncertainty about the circumstances under which a payment is considered made outside the United States to an offshore account for purposes of section 6050W, the regulations under section 6050W will be amended to provide an alternative method for a payment settlement entity (PSE) to determine whether it must make the return of information required under Reg. section 1.6050W-1(a)(1).
The alternative method will apply only to a PSE that:
- Is a U.S. payor
- Makes a payment to an account maintained outside the United States by the PSE or, if the PSE does not maintain an account of the participating payee, makes a payment to an account maintained outside the United States by another financial institution (in either case without regard to whether the payment is made outside the United States), and
- Has reasonably determined, based on all the information obtained or reviewed in connection with the establishment or maintenance of the contractual relationship with the participating payee (including information required to be obtained or reviewed under procedures required to be established under and compliant with 31 CFR section 103.121(b)), that the participating payee is doing business outside the United States
In such situations, the PSE will only be required to make the return of information required under Reg. section 1.6050W-1(a)(1) if any of the following applies:
- There is a U.S. address associated with the participating payee (whether a residence address or correspondence address).
- The PSE has standing instructions to direct the payment to a bank account maintained in the United States.
- The participating payee submits for payment in U.S. dollars.
- The PSE knows or has reason to know that the participating payee is a U.S. person.
Notwithstanding the fourth item in the preceding sentence, Notice 2012-2 provides that a PSE will not be required to make the return of information required under Reg. section 1.6050W-1(a)(1) if the PSE obtains from the participating payee a valid Form W-8 or documentary evidence establishing the payee’s non-U.S. status and the PSE does not know that the payee is a U.S. person.
For purposes of section 6050W, an account is maintained outside the United States if it is maintained at an office or branch of a financial institution at any location outside the United States and outside the territories of the United States.
Until the regulations are amended, PSEs may rely on the interim guidance in today’s notice.