A merchant acquiring entity is defined as the bank or other organization that has the contractual obligation to make payments to participating payees in settlement of payment card transactions. This entity is responsible for reporting reportable payment card transactions.
Key points about a merchant acquiring entity include:
- Contractual Obligation: The primary characteristic of a merchant acquiring entity is its contractual obligation to make payments to participating payees. This means that the entity has a formal agreement to settle transactions where payment cards are used.
- Payment Card Transactions: A payment card transaction involves any transaction in which a payment card (such as a credit card) or any indicia thereof (like a credit card number) is accepted as payment. The merchant acquiring entity is involved in the settlement of these transactions.
- Reporting Requirements: Merchant acquiring entities are required to file information returns for each calendar year with respect to payments made in settlement of reportable payment transactions. This includes reporting the gross amount of reportable payment transactions of any participating payee for whom they settle payment card transactions.
- Examples and Illustrations: For instance, if a customer purchases goods from a merchant using a credit card issued by a bank, the bank that has the contractual obligation to make payment to the merchant for the goods provided is the merchant acquiring entity. This entity must file the annual information return to report the payment made to settle the transaction.
- Regulatory References: The definition and obligations of a merchant acquiring entity are outlined in various sections of the Internal Revenue Code (IRC) and Treasury Regulations, specifically IRC § 6050W and Treas. Reg. § 1.6050W-1.
In summary, a merchant acquiring entity is a bank or organization that settles payment card transactions by making payments to participating payees and is responsible for the associated reporting requirements.
Sources:
PLR 201619006
PLR 201539025
§ 1.6050W-1. Information reporting for payments made in settlement of payment card and third party network transactions.
FS-2023-6
Publication 1220 (9/2023)
§ 6050W. Returns relating to payments made in settlement of payment card and third party network transactions
