Merchant acquiring entities report the gross amount of transactions instead of the net amount without fees, chargebacks, etc., because the Internal Revenue Code (IRC) § 6050W(a)(2) mandates that entities report the gross amount of the reportable payment transactions. This requirement is further clarified in Treasury Regulation § 1.6050W-1(a)(6), which defines "gross amount" as the total dollar amount of aggregate reportable payment transactions for each participating payee without any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.
The rationale behind this requirement is to ensure comprehensive reporting of all payment transactions, which aids in improving voluntary tax compliance, enhancing tax collections and assessments, and thereby reducing the tax gap. The gross amount provides a clear and unadjusted figure that reflects the total transactions processed, which is crucial for accurate reporting and compliance purposes.
Sources:
§ 6050W. Returns relating to payments made in settlement of payment card and third party network transactions
Publication 1220 (9/2023)
§ 1.6050W-1. Information reporting for payments made in settlement of payment card and third party network transactions.
FS-2023-6
T.D. 9496
