WORKING DRAFT FOR PRACTITIONER COMMENT - 11/6/17
 

Administrative/Income Tax

DRAFT TIR 17-XX

New Massachusetts Reporting Requirements for Third Party Settlement Organizations


This TIR explains changes to the Massachusetts reporting requirements for third party payment services, otherwise known as third party settlement organizations[1] (“TPSOs”), effective for all amounts paid in settlement to payees[2] beginning with the 2017 calendar year.  G.L. c. 62C, § 8 generally requires payors that have made payments subject to taxation under G.L. c. 62 during the preceding calendar year to file with the Commissioner an annual report reflecting such income on the same basis as is required by the federal government.  However, recent legislation in the FY 2018 Budget, St. 2017, c. 47, § 34, amended G.L. c. 62C, § 8 to allow the Commissioner to require additional reporting requirements that differ from those required by the federal government under the Internal Revenue Code (“IRC”).

The Internal Revenue Service (“IRS”) generally requires that a TPSO file IRS Form 1099-K reporting the gross amount[3] paid in settlement by a TPSO to a payee when (1) the gross amount it pays in settlement to a payee exceeds $20,000 and (2) the number of transactions between the TPSO and the payee exceeds 200.  IRC § 6050W(e).  The TPSO must also furnish a copy of the Form 1099-K to the payee.  IRC § 6050W(f).

Under the authority granted to the Commissioner in St. 2017, c. 47, § 34, this TIR announces that effective for all amounts paid in settlement to payees beginning with the 2017 calendar year, the Department of Revenue (“DOR”) will require that a TPSO report the gross amount paid in settlement to a payee when the gross amount paid in settlement is $600 or greater and is subject to taxation under G.L. c. 62,[4] irrespective of the number of transactions between the TPSO and the payee.  A TPSO must report these amounts to DOR and furnish a copy to the payee, even if it does not have a federal reporting obligation.  Where a TPSO has a Massachusetts reporting obligation but is not required to file Form 1099-K with the IRS, the TPSO may file with DOR using Form M-1099-K or Form 1099-K.

All Forms 1099-K must be filed with DOR and furnished to the payee on or before January 31 following the close of the taxable year.  TPSOs filing 50 or more Forms 1099-K annually must file such forms electronically with DOR.  See TIR 16-9.  A TPSO that fails to file Form 1099-K with respect to a payee will be subject to penalties imposed pursuant to G.L. c. 62C, § 77.
 

WORKING DRAFT FOR PRACTITIONER COMMENT - 11/6/17



[1] A third party settlement organization is defined as a central organization that has the contractual obligation to make payment to a payee of a third party network transaction.  IRC § 6050W(b)(3).  A third party network transaction is defined as any transaction settled through a third party payment network, which is defined as any agreement or arrangement that (i) involves the establishment of accounts with a central organization by a substantial number of number of persons who are unrelated to the central organization and who have agreed to settle transactions for the provision of goods and services with purchasers according the terms of agreements; (ii) provides standards and mechanisms for settling transactions; and (iii) guarantees payments to the providers of goods and services in settlement of transactions with the purchasers.  IRC §§ 6050W(c)(3), (d)(3); Treas. Reg. § 1.6050W-1(c)(3).
[2] For the purposes of this TIR, a “payee” refers to a “participating payee” as defined under IRC § 6050W(d)(1)(a)(ii), which in the case of a third party network transaction, is any person who accepts payment from a third party settlement organization in settlement of such transaction.  IRC § 6050W(d)(1)(a)(ii).
[3] The gross amount paid in settlement to a payee is the total dollar amount of aggregate reportable to each payee with no adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.  Treas. Reg. § 1.6050W-1(a)(6).
[4] While the scope of G.L. c. 62C, § 8 is limited to the reporting of payments that will be subject to taxation under G.L. c. 62, a TPSO may lack information regarding the Massachusetts tax type applicable to the income of its payees.  In such a situation, the TPSO should report all payments in settlement made by the TPSO to any payee using a Massachusetts address.