SECTION 1. PURPOSE

This notice announces that calendar year 2023 will be regarded as a further

transition period for purposes of Internal Revenue Service (IRS) enforcement and

administration with respect to the implementation of the amendments made to the

minimum threshold for reporting by third party settlement organizations (TPSO) under

section 6050W(e) of the Internal Revenue Code (Code) 1 by the American Rescue Plan

Act of 2021 (ARP), Public Law 117-2, 135 Stat. 4 (March 11, 2021). The transition

period described in this notice is intended to facilitate an orderly transition for TPSO

compliance with section 6050W(e) and participating payee compliance with income tax

reporting.

SECTION 2. BACKGROUND

.01 Section 6050W, Returns relating to payments made in settlement of payment

card and third party network transactions

Section 6050W was added to the Code by section 3091 of the Housing Assistance

Tax Act of 2008, Div. C of Public Law 110-289, 122 Stat. 2654, 2908, and requires

payment settlement entities to file an information return for each calendar year with

respect to payments made in settlement of certain reportable payment transactions.

Under section 6050W(a), the annual information return must set forth (1) the name,

address, and taxpayer identification number (TIN) of the participating payee to whom

payments were made and (2) the gross amount of the reportable payment transactions

with respect to that payee in that calendar year. Section 1.6050W-1(a)(6) defines

“gross amount” to mean the total dollar amount of the aggregate reportable payment

transactions for each participating payee, without regard to any adjustments for credits,

cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

Payment settlement entities required to make annual information returns under

section 6050W do so by filing Form 1099-K, Payment Card and Third Party Network

Transactions with the IRS. They are also required to furnish Form 1099-K to the

participating payee. Forms 1099-K must be furnished to the participating payees on or

before January 31st of the year following the calendar year for which the return was

made. Forms 1099-K must be filed with the IRS on or before February 28th (March

31st if filed electronically) of the year following the calendar year for which the return

was made. See § 6050W(f); § 1.6050W-1(g).

Pursuant to section 6050W(c), section 6050W covers two types of reportable

payment transactions: (1) payment card transactions and (2) third party network

transactions. Section 6050W(c)(3) states that a third party network transaction is any

transaction for the provision of goods or services that is settled through a third party

payment network. Under section 6050W(b) and § 1.6050W-1(c)(2), a TPSO is the

payment settlement entity that must report third party network transactions – that is, the

transactions for goods or services that are settled through the TPSO’s third party

payment network – on Form 1099-K.

Section 6050W(b)(3) defines a TPSO as the central organization that has the

contractual obligation to make payment to the participating payees of third party network

transactions. Pursuant to section 6050W(d)(3), a third party payment network is any

agreement or arrangement that (i) involves the establishment of accounts with a central

organization by a substantial number of providers of goods or services who are

unrelated to the central organization and who have agreed to settle transactions for the

provision of goods and services with purchasers according to the terms of agreements;

(ii) provides standards and mechanisms for settling such transactions; and

(iii) guarantees payments to the providers of goods and services in settlement of

transactions with the purchasers.

Under section 6050W(d)(1)(A)(ii), a participating payee, in the case of a third party

network transaction, is any person who accepts payment from a TPSO in settlement of

such transaction.

As originally enacted in 2008, section 6050W(e) provided that a TPSO is not

required to report third party network transactions with respect to a participating payee

unless the gross amount that would otherwise be reported exceeds $20,000 and the

number of such transactions with that participating payee exceeds 200.

.02 Section 3406, Backup withholding

Section 3406(a) requires certain payers to perform backup withholding by deducting

and withholding income tax from a reportable payment when, among other

circumstances, the payee fails to furnish the payee’s TIN to the payer or the IRS has

notified the payer that the TIN furnished by the payee is incorrect. Pursuant to section

3406(b)(3)(F), a reportable payment includes payments made by a TPSO that are

required to be shown under section 6050W on a Form 1099-K. A payer is required to

report the amount of deducted and withheld Federal income tax amounts on Form 945,

Annual Return of Withheld Federal Income Tax, and on the information return filed with

the IRS and furnished to the payee. In the case of the Form 1099-K, withheld income

tax is reported in box 4. The payee may then claim credit for the amount of income tax

withheld on the payee’s Federal income tax return.

.03 Section 6721, Failure to file correct information returns, and section 6722,

Failure to furnish correct payee statements

Section 6721 imposes a penalty for any failure to file an information return on or

before the required filing date, and for any failure to include all of the information

required to be shown on the return or the inclusion of incorrect information.

Section 6722 imposes a penalty for failure to furnish a payee statement on or before

the required furnishing date to the person to whom such statement is required to be

furnished, and for any failure to include all of the information required to be shown on a

payee statement or the inclusion of incorrect information.

.04 American Rescue Plan Act of 2021

Section 9674 of the ARP amended section 6050W(e) to provide that, for Forms

1099-K 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.

Notice 2023-10, 2023-3 I.R.B. 403 (January 17, 2023), delayed implementation of

the reporting threshold for TPSOs in section 9674(a) of the ARP for Forms 1099-K for

calendar years beginning before January 1, 2023. Notice 2023-10 also provided that

the IRS would not assert penalties under section 6721 or section 6722 for TPSOs failing

to file or failing to furnish Forms 1099-K unless the gross amount of aggregate

payments required to be reported exceeded $20,000 and the number of transactions

exceeded 200.

SECTION 3. TRANSITION PERIOD FOR ENFORCEMENT AND ADMINISTRATION

WITH RESPECT TO CALENDAR YEAR 2023

Calendar year 2023 will be regarded as a further transition period for purposes of

IRS enforcement and administration of the information reporting requirements under

section 6050W(e), as amended by the ARP. For calendar year 2023, a TPSO is not

required to report payments in settlement of third party network transactions with

respect to a participating payee unless (1) the gross amount of aggregate payments to

be reported exceeds $20,000 and (2) the number of such transactions with that

participating payee exceeds 200. The IRS will not assert penalties under section 6721

or section 6722 for a TPSO for failing to file or failing to furnish Forms 1099-K with

respect to a payee unless the gross amount of aggregate payments to be reported

exceeds $20,000 and the number of such transactions with that participating payee

exceed 200.

The IRS will not regard calendar year 2023 as a transition period with respect to the

requirements of section 6050W that were not modified by section 9674(a) of the ARP,

such as provisions relating to payment card transactions. In addition, TPSOs that have

performed backup withholding under section 3406(a) for a payee during calendar year

2023 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the

payee if total reportable payments to the payee exceeded $600 for the calendar year.

SECTION 4. DRAFTING INFORMATION

The principal author of this notice is the Office of Associate Chief Counsel

(Procedure and Administration).

1  Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax

Regulations (26 CFR part 1).