IRS Issues Guidance on Withholding for Third-Party Settlements

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IRS unveils interim guidance on backup withholding obligations for so-called third-party settlement organizations under a new law requiring third-party reporting of credit card transactions. In Notice 2011-42, IRS says a payment by a third-party settlement organization is a reportable payment potentially subject to backup withholding under tax code Section 3406 only if the payee has received payment from that organization in more than 200 transactions within a calendar year. However, IRS says in the notice that there is no limiting threshold for credit card payment transactions that are potentially subject to Section 3406 backup withholding.