1. C O M M E R C I A L C A R D C O N F E R E N C E 1 The Value of 1099 and Socio-Economic Reporting for JPMorgan Chase Commercial Card Customers On Visa Rob HurstPaula Porpilia Vice PresidentVisa JPMorgan ChaseTIN Compliance Consultants Product Management April 2005 © 2005 JPMorgan Chase & Co. All rights reserved. Proprietary and confidential.

2. Commercial Card Conference 2 Introductions & Welcome Rob Hurst Vice President Product Management Paula Porpilia Visa TIN Compliance Consultants

3. Commercial Card Conference 3 Objectives of the Session To understand 1099 Compliance Technology and 1099 To understand the basics of 1099 regulations To discuss challenges relating to 1099 reporting To discuss how JPMorgan Chase delivers 1099 and Socio Economic information

4. C O M M E R C I A L C A R D C O N F E R E N C E 4 1099 Reporting and Commercial Card Transactions

5. Commercial Card Conference 5 Reporting - The Beginning IRC section 6041 passed in 1942 to help fund WWII Scope is very broad Regulations adopted in 1950’s TIN requirements added 1980’s

6. Commercial Card Conference 6 Basic Concept Statute: Report when you pay anyone anything for any purpose unless you know an exception applies Regulations provide some exceptions for merchandise for freight, telephone for corporations (unless payor is a federal agency) If part of a payment is reportable and part is not, report everything When in doubt, report

7. Commercial Card Conference 7 Paid or Credited You must report all payments made in a calendar year if total is at least $600 For cash, when given or made available For check, when sent or made available For card, date of transaction Aggregate all transactions to see if $600 or more Challenge: Late-year transactions not billed until January but reportable for earlier year Run reports after January 5 th of the new year Challenge: Aggregating checks and card transactions If aggregating only have to file for those over the threshold; if not aggregating must file all

8. Commercial Card Conference 8 Merchandise/Service You must report all payments unless you KNOW that the payment was for merchandise Challenge: How to tell if card transaction was for merchandise? review paperwork use MCC IRS has released optional list of Merchant Category Codes to be used as an indicator of whether the payment was for merchandise or service

9. Commercial Card Conference 9 Payees Report payments to all types of payees unless you know an exception applies Exceptions include payments to tax-exempt organizations, corporations (if payor not a federal agency), government entities Challenge: How to tell what type of entity the payee is? – Information provided by Visa and delivered through PaymentNet

10. Commercial Card Conference 10 Corporations Exception not applicable to Federal Agency payors Other payors do not have to report payments to corporations (except medical and legal corporations) Challenge: How to tell payee is a corporation? – Information provided by Visa and delivered through PaymentNet

11. Commercial Card Conference 11 Sole Proprietorships No exception applies--report all service payments Use name of the owner, not the business name Use SSN if you can; IRS will accept EIN Challenge: How to obtain sole proprietor's name – Information provided by Visa and delivered through PaymentNet Challenge: How to get TIN – Information provided by Visa and delivered through PaymentNet

12. Commercial Card Conference 12 Partnerships and LLCs Report all partnership transactions Report most Limited Liability Company transactions LLCs not reportable if they tell you they are treated as a corporation (and cardholder is not a federal agency) Challenges: How to get Partnership’s or LLC’s name? How to get TIN? – Information provided by Visa and delivered through PaymentNet How to identify how to treat LLC? – Always reportable unless notified otherwise

13. Commercial Card Conference 13 Names Payee’s legal name--not DBA name-- is the one IRS wants Sole Proprietor = individual’s name (1040) Entities = name as shown on SS4 when applied for EIN Challenge: How to get legal name? – Information provided by Visa and delivered through PaymentNet

14. Commercial Card Conference 14 Address IRS wants the legal address (one shown on taxpayer’s tax return) Challenge: How to get appropriate mailing address – Information provided by Visa and delivered through PaymentNet

15. Commercial Card Conference 15 TIN Rules Internal Revenue Code requires card user to solicit and report correct merchant name and TIN Five types but usually only SSN and EIN relevant for purchasing cards Bad TINs: Challenge: How to get TIN and insure its accuracy? Utilize data provided by QPCA * Not 9 digits* Transposed numbers * Is missing* Scanning errors * Contains alpha characters or hyphens

16. Commercial Card Conference 16 Accurate TINs IRS matches name/TIN combination on info return with master file First four letters of name are critical Some typos tolerated If no match, “B Notice” generated Challenge: How to ensure accuracy of TINs? Utilize data provided by QPCA

17. Commercial Card Conference 17 Backup Withholding Must withhold 28% of any payment if TIN not in hand at time of payment Must withhold if receive B Notice In the card system, no one has the money and necessary information at the same time. Therefore, cannot backup withhold for card transactions Challenge: How to be in compliance with card transactions when there is no system capability to do backup withholding? Rely on card organization with QPCA status

18. Commercial Card Conference 18 Deposit Rules If you withhold, you must deposit according to same rules used for wage withholding (but done separately); electronic deposits may be required If withhold less than $2,500, deposit annually If withhold less than $50,000 in base year, deposit monthly by 15 th of following month If more, deposit semi-weekly (Wed and Fri) If more than $100,000 at any time, deposit next day File Form 945/Schedule A annually

19. Commercial Card Conference 19 B Notices (Backup Withholding Notice) Sent to payor if name/TIN on info return does not match IRS master file Mailings difficult for cardholders, impossible for anyone else. If you get one, must get merchant to sign a Form W-9 or backup withhold on future transactions. Challenge: How to deal with B Notice rules when cardholder and merchant have no direct relationship? Rely on card organization with QPCA status

20. Commercial Card Conference 20 B Notices—Frequent Causes The IRS will issue a B Notice if the payor’s name does not match the TIN on IRS files Frequent causes for a mismatch DBA name used instead of sole proprietor name Name misspelled or abbreviated Missing TIN TIN not 9 digits long TIN contains alpha characters or hyphens Paper reporting IRS scanning errors

21. Commercial Card Conference 21 Payee Statements Must be sent to payee by January 31 or penalties apply Extension of time (EOT) available Penalties may apply

22. Commercial Card Conference 22 Information Returns Due to IRS by February 28 if filing on paper or magnetically Due by March 31 if filing electronically Penalties apply for late or inaccurate filing Challenge: How to meet this deadline and deal with penalty notices IRS Martinsburg VA Payor Call Site (304) 263-8700 8:30 – 4:30pm EST No Charge for Service Anonymous

23. Commercial Card Conference 23 Confidentiality Cannot use TIN information for any other purpose Cannot penalize merchant for failure to provide TIN Challenge: How to obtain TIN and avoid backup withholding rules and ensure privacy? Rely on card organization with QPCA status

24. Commercial Card Conference 24 Filing Penalties $50 per error, maximum of $250,000 Reduced to $30 per error, max of $150,000 if corrected by August 1 Reduced to $15 per error, max. of $75,000, if corrected within 30 days of due date $100 per error, no max., if intentional disregard

25. Commercial Card Conference 25 Deposit Penalties 2, 5, 10 or 15 percent depending on how late the deposit is (most are 10) Penalty is in addition to the liability for the backup withholding itself Penalty may be assessed for timely deposits not done according to proper procedure (e.g. not using electronic deposits when required)

26. Commercial Card Conference 26 Required Elements Questions for payor to to ask: When was payment? For how much? Is the transaction for merchandise or services? Is the merchant a corporation (except federal agencies) or other exempt recipient? To meet IRS requirements, you need: merchant’s legal name merchant’s address merchant’s TIN annual totals

27. Commercial Card Conference 27 Summary Challenge SummaryResolution Burden minimized if relying on data provided by QPCA How to deal with B/W requirements How to deal with B Notices and Penalty Notices Information provided by Visa and delivered thru PaymentNet How can payor obtain necessary information? *Legal name (not DBA name) *Tax address *TIN *Annual Totals (including checks) *Corporate status

28. Commercial Card Conference 28 TIN Matching and Penalties Not required to do TIN matching Not required to anything with the results If do TIN matching and get match, provides defense to any TIN penalty later

29. Commercial Card Conference 29 PaymentNet Reporting

30. Commercial Card Conference 30 Managing 1099 Data with PaymentNet PaymentNet 1099 Data: PaymentNet stores up-to-date 1099 data provided by Visa. Fields include (but are not limited to): TIN, Incorporation Status, Name, MCC, Address, City, State, Zip Maintain 1099 Data with PaymentNet Custom fields can be created in the merchant profiles to assist with the tracking and updating of essential 1099 information

31. Commercial Card Conference 31 PaymentNet Merchant Detail Screen

32. Commercial Card Conference 32 PaymentNet Merchant Detail Screen

33. Commercial Card Conference 33 Managing 1099 Data with PaymentNet PaymentNet Reports Visa 1099 Transaction Detail Report Visa Merchant Report (MWBE) Visa Vendor Information Report (MWBE)

34. Commercial Card Conference 34 Recap Developed an understanding of Requirements of 1099 Compliance Discussed technology relating to 1099 reporting Reviewed resolutions to 1099 reporting challenges for Commercial Card Transactions Discussed how JPMorgan Chase delivers 1099 and Socio Economic Data