New IRS Reporting Rules – What it Means to ISOs and Agents

1. New IRS Reporting Rules – What it Means to ISOs and Agents Presenters: Mira Olson - Director, Payment Card Compliance, First Data

2. About Merchant Warehouse • Established in 1998 • Over 80,000 active merchants • 170+ employees • Award winning: • Three-time recipient of the Boston Business Journal Pacesetter Award • 100 Best’s 2010 Merchant Account Provider of the Year • 2009 ETA ISO of the Year

3. The following materials pertain to the new information reporting rules under Internal Revenue Code section 6050W. The materials were prepared based upon the specific facts and circumstances for First Data Corporation and its affiliates. Generic, hypothetical, facts and circumstances also have been used. We do not make any warranty or representation as to the completeness or accuracy of this information, nor assume any liability or responsibility that may result from reliance on such information. The information contained herein is not intended as legal or tax advice and readers are encouraged to seek the advice of a competent tax professional where such advice is required. We recommend that you consult with your own legal and tax advisors when evaluating how the subject matter of these materials might affect you.

4. 6050W- Tax Reporting Project • The enactment of 6050W requires all Obligated Reporting Entities (ORE) to report the gross amount of their merchants’ payment card and third party network transactions to the Internal Revenue Service. OREs must report payees’ transactions based on a validated Tax Identification Number (TIN) and Tax Filing Name (TFN) • January 1, 2011- OREs began collecting gross amounts of their merchants’ payment card and third party network transactions to prepare the following merchant and IRS reports: • Merchant Report: 1099-K will include monthly and annual gross sales totals for previous calendar year. OREs will deliver report beginning January 2012 and each year thereafter • IRS Report: Annual Information Return will include monthly and annual gross sales totals for previous calendar year. OREs will deliver report beginning March 2012 and each year thereafter • To promote accurate reporting and avoid backup withholding, OREs must have a correct Tax Identification Number (TIN) and Tax Filing Name (TFN) for each merchant account

5. Collecting and Validating TINs and TFNs • ISOs and merchants must ensure that TIN and Tax Filing Names are confirmed valid by the IRS • Methods of communication to merchants who have an invalid or missing TIN and/or Tax Filing Name: • Letters • Outbound calls • E-mail campaign • Statement Messages • A merchant may use one of the following input sources to validate their TIN and/or TFN or provide updated information: • Phone - Interactions IVR (comm id required) • Website - TIN Corrections Website (comm id required) • Customer Service/Relationship Manager • After the TIN and/or Tax Filing Name is collected from the input source (e.g., phone, website) the information will be validated with the IRS. It takes a few days for the IRS to generate a response to a TIN/TFN validation request.

6. Back-up Withholding • What happens if the merchant’s TIN or Tax Filing Name is missing or invalid? The IRS will require OREs to perform backup withholding from merchant funding by deducting and withholding income tax (currently 28%) from reportable transactions if: • January 1, 2012- Withholding will begin immediately if the merchant’s TIN is missing or noticeably invalid (e.g., all nines or zeros) • The IRS notifies the ORE that the TIN (when matched with the TFN) is incorrect and is still invalid 30 days after the ORE was notified by the IRS In addition, three states now have withholding and/or reporting requirements: • California requiring 7% withholding and reporting • New York & Hawaii reporting only

7. 6050W- Overall Timeline

8. Reference Information • IRS Final Regulation - http://edocket.access.gpo.gov/2010/pdf/2010-20200.pdf • First Data 6050W Information Page -http://www.firstdata.com/section6050w/ • IRS FAQs Link on Backup Withholding - http://www.irs.gov/efile/article/0,,id=98145,00.html

9. Agent & ISO Program Benefits The security of a financially sound ISO Generous bonuses and benefits Uniquely fair agent contract Innovative technology In-house/dedicated customer and technical support Guaranteed lifetime residuals Marketing support In-depth sales training

10. Questions? Mira Olson Director, Payment Card Compliance - First Data molson@firstdata.com If you are interested in becoming an independent sales agent for Merchant Warehouse, please contact Doug Small @ 617-896-5590 ext 2535 or dsmall@merchantwarehouse.com Be sure check back to Merchant Warehouse University to register for upcoming webinars and view our recordings!