Update On Third-Party Record Keeping For Barter Exchanges
following is an open letter to
BarterNews from Ron Whitney, IRTA
Executive Director. He was appointed by the IRS to serve on the
IRPAC representing the interest of the commercial barter industry.)
Last week IRPAC
(Information Reporting Program Advisory Committee) rolled out their
report to the IRS which included various suggestions as to tax
changes for small and large businesses, as well as issues related to
individual taxpayers. The full report is attached. (See below.)
I am pleased to
report that IRPAC did embrace the barter industry's non-matching
TIN/back-up withholding issue, and that section is listed below for
Executive Director, IRTA
Barter Exchange Backup Withholding and B-Notice Requirements For
Exchanges are defined as third-party record keepers under The Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA) and are grouped
together with financial brokerage companies for purposes of Form
1099-B reporting and subsequent B-Notice solicitation requirements
for name-TIN mismatches.
certain exceptions, Section 3406 requires that B-Notice form letters
be sent to payees appearing on the CP2100/2100-A. The language in
the B-Notice specifically states that �the law requires us to backup
withhold on interest, dividends, and certain other payments that we
make to your account.�
Exchanges are unable to comply with the backup withholding
requirements of Section 3406 because they are not in possession or
control of any cash accounts for their clients. Barter Exchanges
only control barter/trade accounts which hold �trade dollars,� not
the backup withholding language of the B-Notice makes an assertion
that withholding may occur, when it is impossible for Barter
Exchanges to backup withhold, as a matter of fact. Barter Exchanges
are then subject to 972CG penalties for the name-TIN mismatches.
In order to
argue successfully for waiver of the penalty, payers must establish,
pursuant to Section 6724, reasonable cause for the failures
referenced on the Notice 972CG. In order to establish reasonable
cause, payers must explain the manner in which they satisfactorily
met the B-Notice solicitation requirements.
Exchanges are able to send the appropriate B-Notices, they are
unable to effect backup withholding on the accounts of any
recipients who fail to respond. Often, this practice results in a
denial of the waiver request, even though all other reasonable cause
requirements are met.
Barter Exchanges must then pursue the appeals process for the denial
of the penalty waiver, an undue hardship that results simply from
the Barter Exchanges� inability to effect backup withholding on
several methods of alleviating the problem including increased
barter industry education, the creation of a revised B-Notice that
would be specific to barter exchanges, or legislation to exempt
barter exchanges from backup withholding for name-TIN mismatches.
recommend that the IRS educate the barter industry on the Form W-9
solicitation and Section 3406 backup withholding requirements
through outreach programs that will be effective to reduce 972CG
penalties in the future.
request that the language in the current B-Notice be amended to
provide language that would be more pertinent to the barter
industry. This recommendation could be accomplished by adding the
words �to the extent feasible� before the words �the law requires us
to backup withhold.� If modifications to current B-Notices are not
possible, we recommend the creation of a B-Notice specific to Barter
Exchanges that includes the aforementioned language.
suggest that Section 3406 be amended to exempt Barter Exchanges from
the backup withholding requirement, since it is impossible for them
to comply with the requirement as they are not in control of any
payee cash accounts.
recommend updating IRS Publication 1281, Backup Withholding for
Missing and Incorrect Name/TINs, if any changes are made to the
B-Notice solicitation procedures reflecting the issues unique to the
industry would be relieved of the undue burden of unnecessary
penalties for failure to comply with a requirement that is
impossible to comply with on its face.
education on the issue would reduce campus burden. Amending the
B-Notice to provide a barter specific B-Notice would increase
compliance in the barter industry, thereby reducing the need for
972CG penalties, waiver requests and appeals. The exemption of
backup withholding for Barter Exchanges would further reduce IRS
burden by eliminating a backup withholding requirement that on its
face cannot be effected.
modification of the B-Notice to exclude reference to the backup
withholding requirement, or to include a reference that backup
withholding will be effected to the extent feasible, increases the
credibility of the solicitation, which is currently diminished as
the result of reference to an action (backup withholding) payees
understand would be impossible to take.
Moreover, it is
now industry standard for Barter Exchanges to use the IRS TIN
Matching Program at account set-up to ensure that the proper name
and TIN are obtained. Accordingly, most of the accounts appearing on
the CP2100/CP2100-A have long been closed and those account holders
are no longer doing business with the Barter Exchange.
granting such an exemption or modification would not represent a
significant loophole, since Barter Exchanges already require current
W-9s from all their clients before proceeding to conduct business.
of the barter industry and/or amended B-Notice language specific to
the industry will result in more compliance. The exemption of Barter
Exchanges from backup withholding requirements would not increase
taxpayer non-compliance, as the barter industry, through use of the
IRS TIN Matching Program, already insists on proper Name-TIN
matching as a prerequisite of doing business with the taxpayer.