For the second time in the past year, the IRS Office of Chief Counsel issued a ruling addressing how transactions are counted for purposes of applying the de minimis threshold applicable to third party settlement organizations (“TPSOs”) under section 6050W.  In recently released PLR 201907006, the IRS considered the facts related to a payment processing service provided by a taxpayer to online sellers.  After considering the facts, the IRS ruled that the taxpayer was a TPSO.  The IRS then turned to the second ruling request, namely, whether the number of transactions for purposes of the de minimis rules are determined based upon the number of payments processed on behalf of payers rather than the number of times the customer receives payments from the TPSO through the taxpayer’s platform.  The IRS again determined that the number of transactions is determined by reference to the number of buy-sell transactions between buyers and sellers processed by the TPSO.

Under the de minimis rules, a TPSO is not required to report third party network transactions for a participating payee unless the amount to be reported exceeds $20,000 and the aggregate number of transactions with that participating payee exceeds 200.  Some confusion has existed regarding the interpretation of the second prong of the de minimis standard regarding the aggregate number of transactions.  In particular, some have interpreted the phrase “transactions with the participating payee” to mean the number of payments made by a TPSO to a participating payee during the calendar year.  This interpretation would allow TPSOs to avoid reporting simply by making payments to participating payees no more than 3 times per week, resulting in fewer than 200 payments during a calendar year to a participating payee.

The ruling makes clear, however, that the IRS views this interpretation as incorrect.  The IRS states that “a third party network transaction occurs any time a transaction is settled through a third party payment network . . . and each time one of [the taxpayer’s] platforms successfully process a payment from a payer is a single transaction.”  For clarity, the ruling then states “[t]he frequency with which Taxpayer remits payment to a Customer is not determinative of what constitutes a transaction for purposes of section 6050W.”  Thus, the focus for purposes of the second prong of the de minimis standard is on the number of payments processed from a payer, and not on the taxpayer’s (i.e., the TPSO’s) payments to the customer (i.e., the participating payee).

Although PLRs may not be cited as precedent, this is the second time in less than a year that the IRS Office of Chief Counsel has interpreted the number of transactions under the de minimis standard in this way.  In September 2018, the IRS released a PLR that reached a similar conclusion regarding the number of transactions under the de minimis standard.  PLR 201836008  states that “[t]he frequency with which Taxpayer remits payment to a Service Provider is not determinative of what constitutes a transaction for the purposes of section 6050W.”