The IRS has delayed the expanded Form 1099-K reporting requirement for third party settlement organizations (TPSO) enacted as part of the American Rescue Plan Act of 2021 by one year in Notice 2023-10.[1]

American Rescue Plan Act Changes

The Notice describes the changes made by 2021’s American Rescue Plan Act to reporting on Form 1099-K as follows:

Section 9674(a) of the ARP amended section 6050W(e) to provide that, for returns for calendar years beginning after December 31, 2021, a TPSO is required to report payments in settlement of third party network transactions with respect to any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the aggregate number of such transactions.[2]

Concerns had been expressed that since many individuals made use of TPSOs such as Venmo, Paypal and the like for transfers that would not be subject to income taxes (such as gifts, reimbursing friends for the taxpayer’s share of a lunch check, selling used personal items at a nondeductible loss, etc.), the forms could often end up being issued for such payments.

In that case, taxpayers would either need to report the amounts on their tax returns (to allow the IRS computers to match the reported income) and then report an offsetting amount to back them out of income or would simply fail to report such payments as income and receive CP-2000 notices from the IRS that would have to be responded to.

IRS Relief for 2022 Reporting Only

In Section 3 of the Notice the IRS provides special relief for calendar year 2022 transactions. The Notice states:

Calendar year 2022 will be regarded as a transition period for purposes of IRS enforcement and administration of the modified de minimis exception for TPSOs and third party network transactions as provided in this section.[3]

The transition relief being provided consists of the following:

With respect to returns for calendar years beginning before January 1, 2023, a TPSO is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200.[4]

The IRS will also not impose penalties in 2022 for failing to file the Forms 1099-K that would not have been required to be filed under the rules in place for prior years:

The IRS will not assert penalties under § 6721 or § 6722 for TPSOs failing to file or failing to furnish Forms 1099-K unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of transactions exceeds 200.

However, the IRS notes that such reporting will be required for the 2023 and later years, although clearly if Congress were to revise or repeal the ARPA changes during 2023 then the IRS would revise guidance to comply with the revised law:

For returns for calendar years beginning after December 31, 2022, a TPSO is required to report payments in settlement of third party network transactions with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of such transactions.[5]

The Notice makes clear that the relief does not mean no Forms 1099-K will be required to be filed. Those required by sections of IRC §6050W not modified by APRA will still have to be filed for the 2022 calendar year:

The IRS will not regard calendar year 2022 as a transition period with respect to the requirements of section 6050W that were not modified by § 9674(a) of the ARP.[6]

Similarly, if a payor has performed backup withholding on payments to a recipient, that Form 1099-K will still be required to be issued.

In addition, those payers that have performed backup withholding under § 3406(a) during calendar year 2022 must file a Form 1099-K with the IRS and furnish a copy to the payee if total payments to and withholding from the payee exceeded $600 for the calendar year.[7]

[1] Notice 2023-10, December 23, 2022, https://www.irs.gov/pub/irs-drop/n-2023-10.pdf (retrieved December 23, 2022)

[2] Notice 2023-10, December 23, 2022

[3] Notice 2023-10, December 23, 2022

[4] Notice 2023-10, December 23, 2022

[5] Notice 2023-10, December 23, 2022

[6] Notice 2023-10, December 23, 2022

[7] Notice 2023-10, December 23, 2022