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New IRS compliance cost may lead to higher card fees

Credit card processors and acquirers are looking for new ways to recoup money lost on a rule aimed at helping the IRS match income from sales with payment cards to income claimed on tax returns.

Congress passed the legislation, which amended the Internal Revenue Code, in 2008. The law requires bank card merchant acquirers or payment networks that have direct relationships with merchants to annually report each merchant’s monthly gross receipts from electronic payment transactions, DigitalTransactions.net reports.

Acquirers must provide the receipts as well as the merchants’ taxpayer identification number and legal name on a new form called Form 1099-K.

The Treasury Department estimates the law could help the IRS collect an additional $10 billion during the next 10 years. A new report by the Boston-based research firm Aite Group, LLC, however, estimates that the program will cost the industry a total of $125 million, according to DigitalTransactions.net.

Acquirers are searching for ways to make up for these costs and possibly profit from the law. They are not permitted to directly charge fees related to the 1099-K, but acquirers may use generic fees.

According to Aite’s survey, 39 percent of acquires said they plan to increase preexisting fees, 33 percent plan to charge an IRS reporting fee and 17 percent plan to charge fees to their independent sales organizations and other partners, DigitalTransactions.net reports. Only 22 percent said that they plan on absorbing the cost of compliance.

“It’s definitely going to be a huge revenue maker for a lot of these guys,” Moussa said, according to DigitalTransactions.net. “There are very few acquirers that simply are not planning to charge. They’re going to make it part of their costs one way or another.”

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