Merchant Card Reporting and Form 1099-K FAQs

December 2012 2011 This document contains a detailed list of answers to questions you might have about the IRS reporting requirements. Merchants should contact a legal or professional advisor to understand the impact of Form 1099-K reporting on your business. Information herein does not constitute tax, legal or other professional advice and must not be used as such

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Section 6050W Q: What is the Internal Revenue Code (IRC) Section 6050W? A: IRC Section 6050W was added to the Internal Revenue Code as part of the Housing & Economic Recovery Act of 2008. Its purpose is to improve voluntary tax compliance by businesses that accept payment via purchase cards. Q: What does IRC Section 6050W require? A: IRC Section 6050W requires that all merchant acquiring entities and payment companies, like American Express Travel Related Service Company, Inc. report the annual gross dollar amount of payment card transactions settled for each of their merchant payees as well as the merchant’s legal name and Taxpayer Identification number (TIN). Every January, payment companies will furnish a Form 1099-K to each merchant reporting the prior tax year’s transactions. Every March, a copy of the Form 1099-K will be filed by the payment company with the IRS. Q: When did IRC Section 6050W go into effect? A: IRC Section 6050W became effective on January 1, 2011. Merchant acquiring entities will report on Forms 1099-K the annual gross dollar amount of payment card transactions settled for each merchant starting with transactions that are settled the previous calendar year. Merchants will receive their Forms 1099-K in January of the following year.

Q: What happens if a merchant does not provide its business Taxpayer Identification Number (TIN)? A: Starting in 2013, merchant acquiring entities will be required to withhold 28% of the gross dollar amount of payment card transactions settled for merchants who fail to provide their Taxpayer Identification Number (TIN) to them. As required by law, all monies withheld will be promptly remitted to the IRS. This will appear on merchant statements as US Withholding Tax. Q: Is IRC Section 6050W specific to American Express? A: No. IRC Section 6050W applies to all merchant acquiring entities or payment companies that make payment to merchants in settlement of payment card transactions. FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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Form 1099-K Q: Does American Express or the merchant whose transactions are settled issue a Form 1099-K? A: The IRS places responsibility for Form 1099-K reporting on merchant acquiring entities or payment companies, including American Express Travel Related Services Company, Inc., that make payments to merchants in settlement of payment card transactions. Q: What is Form 1099-K? A: Form 1099-K is the return the IRS has developed for compliance with IRC Section 6050W. This form reports the gross dollar amount of payment card transactions settled for a participating merchant during the prior tax year. In addition, the form will reflect the merchant’s legal name and Taxpayer Identification Number (TIN). Forms 1099-K will be furnished to merchants every January, and filed by merchant acquiring entities with the IRS in March. Q: What information does 1099-K include? A: In addition to listing a merchant’s legal name and Taxpayer Identification Number (TIN), the Form 1099-K reports the annual gross dollar amount of payment card transactions settled for a participating merchant during the prior tax year, by month. If a merchant was subject to backup withholding during the year, any tax withheld will also be reported on the form. Q: When is Form 1099-K sent to merchants? A: The IRS requires that Forms 1099-K be mailed to merchants no later than January 31 of each year reporting the annual gross dollar amount of payment card transactions settled for a participating merchant during the prior tax year. Merchant acquiring entities must also file copies of the Forms 1099-K furnished to merchants with the IRS approximately two months later. Q: Does Form 1099-K report a merchant’s submissions amount or settlement amount? A: The amount reported on the 1099-K is the merchant’s total submissions, not the settlement amount. The report shows the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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Merchant Steps Q: What steps should a merchant take with regard to IRC Section 6050W and Form 1099-K? A: To ensure accurate reporting and avoid potential US Federal backup withholding tax in 2013, a merchant should verify that their correct legal name and Taxpayer Identification Number (TIN) are on file with American Express. A merchant can verify this information at any time in the “Account Information” section in their OMS (Online Merchant Services) account at Americanexpress.com/merchant. Merchants should contact a tax, legal, or professional advisor to understand the impact of Form 1099-K reporting on their business. Information herein does not constitute tax, legal or other professional advice and must not be confused as such. Q: What happens if a merchant does not supply a Taxpayer Identification Number (TIN) to American Express? A: Beginning on January 1, 2013, the IRS requires American Express to impose US Federal backup withholding tax at a rate of 28% on the gross dollar amount of payment card transactions settled for a merchant that has failed to provide their TIN to American Express Q: What happens if a merchant’s legal name and Taxpayer Identification Number (TIN) on file with American Express do not match their legal name and Taxpayer Identification Number (TIN) on file with the IRS? A: If a Merchant’s legal name and Taxpayer Identification Number (TIN) on file with American Express and reported on a Form 1099-K do not match what the IRS has on file (typically from a Form SS-4, Application for Employer Identification Number), the IRS will issue American Express a B Notice. Upon receipt of a B Notice, American Express will follow IRS B Notice procedures and attempt to correct the name and TIN on file by contacting the merchant. If the merchant does not respond in a timely manner with the necessary information, the IRS rules require American Express to impose US Federal backup withholding tax beginning January 1, 2013 at a rate of 28% on all future gross payment card transaction amounts owed to the merchant. As required by law, all monies withheld will be promptly remitted to the IRS.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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American Express Steps Q: What are American Express’s responsibilities under IRC 6050W? A: American Express is required to comply with IRC Section 6050W including  Collecting each merchant payee’s legal name and Taxpayer Identification Number (TIN)  Furnishing a form 1099-K to each of its merchant payees reporting the total annual gross dollar amount of payment card transactions settled for each merchant during the preceding tax year every January, and filing a copy of the information return with the IRS every March  Beginning January 1, 2013, withhold, on behalf of the IRS, 28% of gross dollar payment card transactions settled for any merchant who fails to furnish their TIN to American Express or for whom the IRS notifies American Express on a B Notice that the merchant’s legal name and Taxpayer Identification Number (TIN) reported on a Form 1099-K do not match according to the IRS’s records. Q: Will American Express keep any portion of the US Federal backup withholding tax from a merchant? A: No. American Express will not keep any portion of the US Federal Backup withholding tax withheld from a merchant. All backup withholding taxes will be promptly remitted to the IRS as required by law. Q: Why would American Express impose US Federal backup withholding tax at a rate of 28%? A: As required by the Internal Revenue Code, beginning 2013, American Express is required to withhold 28% of gross dollar payment card transactions settled for any merchant who has failed to furnish a Taxpayer Identification Number (TIN) to American Express or for whom the IRS notifies American Express on a B Notice that the merchant’s legal name and Taxpayer Identification Number (TIN) reported on a Form 1099-K do not match according to the IRS’s records.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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Reporting Definitions Q: How is gross amount defined in IRC Section 6050W? A: IRC Section 6050W defines gross amount as the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts . Q: How is a merchant acquiring entity defined in IRC Section 6050W? A: IRC Section 6050W defines a merchant acquiring entity as the bank or other organization contractually obligated to make payment to merchants in settlement of payment card transactions. Q: What is a Federal Taxpayer Identification Number (TIN)? A: A Federal Taxpayer Identification Number (TIN) is an identification number used by the IRS in the administration of federal tax laws. In most cases a TIN is either a social security number (SSN) or employer identification number (EIN). Q: How is legal name defined? A: A merchant’s legal name is typically the name the merchant provided to the IRS when it filed a form SS-4, Application for Employer Identification Number, and that it uses to file its federal tax returns. Q: How is legal status defined? A: Legal status describes how a merchant’s business is classified for federal tax purposes; for example, partnership, corporation or sole proprietorship.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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Reporting Definitions (cont’d) Q: What is US Federal Backup Withholding Tax? A: Backup withholding at the current rate of 28% (subject to change) is required to be imposed on payment card transactions reported on Form 1099-K to US merchants that have not remitted their Taxpayer Identification Numbers to the payor or in certain instances that have been notified to the payor by IRS of name/TIN mismatches. Non-US merchants that failed to document their foreign status will be subject to the 1099-K reporting and backup withholding requirements. Backup withholding will begin January 1, 2013 and will appear on a merchant statement as US withholding tax. Q: What is an IRS B Notice? A: An IRS B Notice is a notice that the IRS will send to each merchant acquiring entity and payment company for every Form 1099-K filed that has an incorrect legal name/TIN combination. Merchant acquiring entities have 30 days to solicit and obtain the correct Taxpayer Identification Number (TIN) from each merchant. If the merchant does not timely provide the requested information, the IRS requires each payment company to impose a US Federal Backup Withholding Tax at a rate of 28% on future amounts settled for the merchant. As required by law, all monies withheld will be promptly remitted to the IRS. Q: What is an IRS Form W-8BEN? A: An IRS Form W-8BEN is the form a non-US merchant must provide in order to certify its foreign status and for which Form 1099-K reporting and backup withholding are not applicable.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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Additional Questions Franchises Q: Do franchise merchants receive Forms 1099-K? A: If the franchisee is a participating payee of the merchant acquiring entity, it will receive a Form 1099-K from the merchant acquiring entity. If a franchisee’s purchase card transactions are processed through another company, that company may be required to issue Forms 1099-K to the franchisee. Non Profits Q: Are non profits and other tax-exempt business subject to IRC Section 6050W and Form 1099-K reporting? A: All US-based businesses, including non profits and other tax-exempt businesses, are subject to IRC Section 6050W and the resulting Form 1099-K reporting and, as such, the information they have on file with American Express should be verified. However, they may not be subject to US Federal backup withholding tax. Custom Contracts Q: Do merchants with American Express custom contracts still have to provide a legal name and Taxpayer Identification Number (TIN)? A: All merchants, regardless of contract type, must ensure that their information on file is correct. To ensure accurate reporting and avoid potential backup withholding, a merchant should verify that their correct legal name and Taxpayer Identification Number (TIN) are on file with American Express. A merchant can verify this information at any time in the “Account Information” section in their OMS (Online Merchant Services) account at americanexpress.com/merchant. Merchants should contact a tax, legal, or professional advisor to understand the impact of Form 1099-K reporting on their business. Information herein does not constitute tax. legal or other professional advice and must not be used as such.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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Additional Questions (cont’d) Canada Q: If a US merchant has locations in both the US and in Canada, will Forms 1099-K furnished to them report both US and Canadian payment card transactions or will they be reported separately? A: Under IRC 6050W, merchant acquiring entities must report the total amount of purchase card transactions settled for a US merchant, regardless of where the transaction was settled.

FAQs Updated December 2012 Information in this document does not constitute tax, legal, or other professional advice, and must not be used as such.

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