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TAX CLINIC

Failure to comply with the rules could
Under the new rules, the threshold for subject TPSOs and EPFs to significant
penalties for lack of compliance.
the information reporting requirement Additional Form 1099-K reporting
will decrease to $600 (for any number of also means additional backup withhold-
transactions), effective for 2022 Forms 1099-K ing responsibilities. If a participating
payee is subject to backup withholding,
(due to be filed in 2023). TPSOs and EPFs must have processes
in place to properly withhold and de-
posit those funds with the IRS.
From Deborah Pflieger, J.D., New
payees’ TINs on a Form W-9, Request but may not know whether its York City; Justin O’Brien, E.A., Hobo-
for Taxpayer Identification Number client meets the TPSO criteria. For ken, N.J.; Michael Mattaliano, J.D.,
and Certification. example, an EPF may not know Hoboken, N.J.; George Fox, J.D., Wash-
whether a client “guarantees” pay- ington, D.C.; Jonathan Jackel, J.D.,
Modified reporting threshold ment. An EPF should be able to rely Washington, D.C.; and Saul Tilmann,
Currently, a TPSO is not required to re- on a representation from its client as J.D., Chicago
port third-party network transactions for to whether the client is a TPSO. No
a participating payee unless the amount IRS guidance, however, allows for
to be reported exceeds $20,000 and such reliance. State & Local Taxes
the aggregate number of transactions ■ As noted in the regulations under
with that participating payee exceeds Sec. 6050W, an EPF does not A review of Multistate Tax
200. Under Section 9674(a) of ARPA, necessarily have a relationship with Commission’s statement on
however, the $20,000/200 transaction a participating payee. An EPF that how P.L. 86-272 applies to
threshold will decrease to $600 (for any must report payments to a participat- internet sales
number of transactions) effective for ing payee on a Form 1099-K must The Interstate Income Act of 1959,
2022 Forms 1099-K (due to be filed in obtain the payee’s TIN. The IRS often referred to by its public law
2023). should allow an EPF to obtain designation, P.L. 86-272, prohibits the
In addition to the reduced threshold participating payees’ TINs from the imposition of state income tax on out-
for Form 1099-K reporting, the updated TPSO for which it makes reportable of-state sellers if their in-state activities
guidance makes it clear that report- payments. No IRS guidance, however, do not extend beyond soliciting orders
able third-party network transactions allows for such reliance. of tangible personal property. Because
only include transactions for goods and Associated with the increase in the internet did not exist when this
services. Transactions for personal gifts, information reporting requirements is federal law was enacted more than a half
charitable contributions, and reimburse- the potential for increased penalties. century ago, questions have arisen about
ments are specifically excluded from Forms 1099-K are subject to the same how its language should be interpreted
Form 1099-K reporting. information reporting penalties as in a world where out-of-state sellers can
other information returns, i.e., for 2021 solicit orders of tangible personal prop-
Implications information returns, $280 per failure to erty through cyberspace.
The reduction in the de minimis report- file each Form 1099-K and $280 per Seeking to clarify the matter, on
ing threshold for third-party network failure to furnish each payee statement. Aug. 4, 2021, the Multistate Tax Com-
transactions will create significantly The maximum information return mission (MTC) approved the fourth
more reporting for TPSOs and the penalty is $3,426,000 per year, as is the revision to its “Statement of Information
EPFs that process payments for them. payee statement penalty, for a potential Concerning Practices of the Multistate
EPFs can be uniquely challenged by total of $6,852,000. (These amounts Tax Commission and Supporting
Form 1099-K reporting for two pri- are adjusted for inflation each year.) To States Under Public Law 86-272” (the
mary reasons: prepare for 2022 reporting, TPSOs and Statement), which added a section on
■ They do not necessarily know that EPFs may want to evaluate their inter- activities conducted over the internet.
their clients are TPSOs. An EPF nal information reporting processes and Generally, the newly revised Statement
may be hired by numerous clients systems to assess their ability to comply limits the types of online sales activities
to effect payments on their behalf with the new reporting threshold. that P.L. 86-272 protects.

14 January 2022 The Tax Adviser