8027 Alert! Credit Card Processors to report Merchant receipts to IRS
IRS sees merchant payment card reimbursements
The IRS will soon know what you are taking in in Credit and Debit cards. This may be of little interest for some, but for tip-based establishments that have either underdeclared recipts, or never filed IRS Form 8027, watch out!
Establishments that regularly accept tips and have 10 or more full time employees are presently required to file IRS form 8027. The 8027 reports gross receipts, as well as charged receipts and tips that go with each. Until now, there has been little oversight or ability on the part of the IRS to monitor the accuracy of 8027 reporting, or lack of reporting. The IRS will soon see charged receipt levels and quickly be able to determine who has been under-reporting, and those who have not reported at all.
This however is just move #1 of the game. For those under, or not reporting, you can likely guess what IRS move #2 is. That's right, the 8027 requires a minimum of 8% tips to be declared (or allocated) if necessary. Next move - look at the establishment's percent of charged receipts and tips declared. If the establishment has a fair share of charged sales and is declaring only 8 - 12% tips, you might be in for a call or a visit.
Here is the text. Please see page 5, titled Revenue Provisions
Due to card processor and IRS difficulties, this has been delayed twice, now set to go into effect January 1 of 2012, so everyone has just one year to get their tip compliance act together.