Are you a lawyer? Do you accept credit cards from clients for payment? Have you heard about Section 6050W? In a nutshell, it’s a new IRS rule requiring credit card processors to report gross credit card transactions on a special 1099-K form to the IRS. Section 6050W goes into effect beginning January 1, 2013.
What does this mean for you? There are a few things you should do before January 1:
- Contact your credit card processor and confirm that a merchant industry code identifies you as a law firm or provider of legal services on your 1099-K to prevent any misrepresentation.
- Also confirm the federal tax ID and legal name the credit card processor has. If you have abbreviated your firm’s name or used an acronym for the merchant account, verify that your legal name exactly matches the legal name used to file your tax returns.
A little bit about why #2 in particular is so important: As of January 2013 a 28% withholding penalty will be imposed if the merchant information submitted by the processor is not an exact match with the IRS records. This could cause a discrepancy in your IOLTA trust account. Double-check the information on your 1099-K form. You should have already received a ‘trial run’ of the form from your processor earlier this year; if you have not, call and request a copy today.
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(Thanks to Maheen Taqui, Practice & Professionalism Coordinator at the American Immigration Lawyers Association for helping with this brief explanation of the new rule.)