Every merchant with a credit card machine needs to understand the impact of TIN Validation and Matching requirements that have come from the IRS. As defined in IRS Section 6050W, merchants need to report all payments through their merchant accounts, and credit card processing companies are required to match up Taxpayer ID Numbers with legal business names before January 1, 2013. The original due date would have been January of 2011, but the scope of this regulation, and the infrastructure needed to implement it, have pushed it back for a couple of years. Nonetheless, merchants should take every step to make sure that they are fully compliant with this regulation because the penalties are severe. Merchants who ignore or refuse to match up Taxpayer Identification Numbers may face an automatic 28% backup withholding deduction from their merchant account deposits. Credit card processing companies have no choice but to comply because the fines for failure to enforce TIN validation are high. Furthermore, a non-compliant merchant may not get access to the withheld funds until the next year, so even a temporary case of non-compliance could lock up important funds for a long time. In California, the state assesses a separate 7% withholding penalty, which means that some merchants may see more than a third of their money tied up.
For more information see: http://www.irs.gov/pub/irs-pdf/p2108a.pdf
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