New Campus Card Reporting Rules Set High Bar for Related Entities
April 26, 2011
Colleges and universities operating campus card programs that enable students to charge purchases at businesses unrelated to the institution will need to file a new information reporting form for 2011. Internal Revenue Service Form 1099-K, Merchant Card and Third Party Network Payments, will be used to report payments to unrelated entities in settlement of payment transactions. This new reporting obligation was mandated by the Housing Assistance Tax Act of 2008 and is intended to ensure that businesses accurately report their income from such transactions. Refer to NACUBO’s March 28 coverage for additional details on the 1099K reporting rules.
Rather than defining "related," §1.6050W–1(d)(5) of the final rules on 1099-K reporting incorporate definitions found in other sections of the code. Code sections 267(a), (b), and (c) — characterizing business relationships where deductions are prohibited for sales or transfers of property between parties—define relationships and constructive ownership. The 1099-K rules also refer to Section 707, which defines partners and partnerships.
Under the 1099-K rules, it appears that most businesses that honor campus cards or stored value cards, unless expressly owned and operated by the institution itself or by a closely related entity, will generally not be deemed “related” based on the definitions used.
In other words, an arms’ length agreement between another business entity to lease space from the college (such as food service providers, bookstore operators, or vending machine distributors) appears to create a 1099-K reporting obligation for the institution in the absence of much greater connections between the parties (family relationships, shared control, shared stock, partnership agreements, etc.). NACUBO has recommended to IRS that such plain language explanations be included in FAQs or other informal guidance the Service publishes on this topic.
Some contracts for operation of laundry or vending service may be more complicated, particularly if the institution owns the equipment and pays a third party to provide services, perhaps by sharing revenue. Institutions will need to analyze such arrangements to determine to whom payments in settlement of payment card transactions are made.
Director, Tax Policy
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