Page 260 - JoFA_2022

TAX MATTERS

This means that services such as contends that “the law requiring certain
PayPal, Venmo, eBay, and Airbnb and payment networks to provide Forms
services by which independent contrac- 1099-K for information reporting on the
tors receive third-party payments, such sale of goods and services does not apply
as Uber and Lyft, will track and report to the Zelle Network” because Zelle
to the IRS and to taxpayers transactions merely assists in the messaging between
generating $600 or more in aggregate financial institutions; it does not handle
gross payments for the year. These forms the settlement of funds.
must be filed with the IRS by Feb. 28 In any case, if a taxpayer mistakenly
each year, beginning for calendar year receives an incorrect Form 1099-K, he or
2022 (or March 31 if they are filed she will need to contact the third-party
electronically) (Regs. Sec. 1.6050W-1(g)). payment processor to request a corrected
Changes to Form 1099-K A payee statement with specified infor- form. Taxpayers should keep copies of
Recent changes in reporting mation or a copy of the Form 1099-K corrected forms as well as any communi-
requirements will lead to must be furnished to the payee by Jan. 31 cations with payment settlement entities.
mistakes, but taxpayers should (Regs. Sec. 1.6050W-1(h)). Don’t ignore 1099-Ks, and avoid
not ignore them. Exclusion of personal payments mixing

By Tom Adams, CPA, CGMA, Ph.D., clarified Taxpayers should be advised to not
and C. Andrew Lafond, CPA, DBA ARPA also clarified (effective on the ignore any Forms 1099-K they receive,
date of enactment, March 11, 2021) even if they believe they are incorrect or
One law provision new for tax years that reportable third-party network relate to a transaction that resulted in a
beginning in 2022 and after that could transactions are only those involving the loss and therefore is not taxable. The IRS
catch many individual taxpayers by provision of goods and services (Sec. is likely to pay close attention to these
surprise — particularly those in the 6050W(c)(3), as amended by ARPA forms as the changed reporting thresh-
“gig economy” — is the much lower §9674(b)). They do not include noncom- old is implemented.
threshold at which payment settle- mercial transactions, such as charitable Taxpayers should also avoid mixing
ment entities must report payments to contributions, reimbursements, and personal and business-related transac-
merchants on Form 1099-K, Payment personal gifts. Third-party payment tions in the same third-party payment
Card and Third Party Network Transac- services, such as PayPal and Venmo, al- service account. Doing so will help avoid
tions. The change was enacted by the low users to tag transactions as personal. a commingling of taxable and nontax-
American Rescue Plan Act (ARPA), So long as a personal transaction is able transactions reported on Form
P.L. 117-2. properly categorized, it should not trig- 1099-K.
Previously, a Form 1099-K was not ger the issuance of a Form 1099-K. This
required unless the payee had both an means taxpayers can still use third-party The bottom line
aggregate of $20,000 in gross pay- payment services to, for example, split Financial planners and tax practi-
ments and 200 applicable transactions restaurant bills with friends and family; tioners should communicate to their
in a calendar year. ARPA lowered the split rent among roommates; and, with clients the change in Form 1099-K
threshold to $600, with no minimum siblings, pitch in for gifts for mom reporting requirements. In addition,
number of transactions (Sec. 6050W(e), and dad. they should emphasize that no changes
as amended by ARPA §9674(a)). have been made to what is considered
The Joint Committee on Taxation Fixing incorrect 1099-Ks taxable income; the only change is the
estimated the provision could potentially Some third-party payment services, like threshold at which Form 1099-K must
increase revenue by $1.08 billion in fiscal Cash App, will only be sending Forms be issued.
2023 and $8.4 billion through 2031 1099-K to business customers; they
(Joint Committee on Taxation, Esti- aim to reduce the number of erroneous — Tom Adams, CPA, CGMA, Ph.D., and IMAGES BY YURIY ALTUKHOV/ISTOCK
mated Revenue Effects of H.R. 1319, Forms 1099-K triggered by personal C. Andrew Lafond, CPA, DBA, are both
The “American Rescue Plan Act of 2021” payments. Another provider, Zelle, will associate professors of accounting at La Salle
(JCX-14-21), p. 2 (March 9, 2021)). not be issuing Forms 1099-K at all. It University in Philadelphia.

44 | Journal of Accountancy June 2022