Cathy Kewnig Program Manager, Merchant Consulting April 12, 2006

1. Qualified Payment Card Agent (QPCA) NASACT Middle Management Conference Cathy Kewnig Program Manager, Merchant Consulting April 12, 2006

2. Agenda • Need for IRS Regulation changes • Visa IRS Proposal • New IRS Regulations • QPCA Definition • Program Overview • QPCA Responsibilities • Current Status • Next Steps

3. Why Visa Sought Changes to IRS Regulations for 1099 Reporting • Needed a method to easily determine which transactions are subject to 1099 reporting. • Access to IRS TIN (Taxpayer Identification Number) Matching Program • Current IRS Regulations do not provide a waiver for the backup withholding requirement on card payments. • The requirement for backup withholding is preventing companies from fully utilizing a payment card. • The IRS can impose penalties for willful disregard of the regulations if backup withholding is not done

4. Visa Proposal • Permit Card Brand Company to solicit merchant TIN information through the merchant’s bank and supply to company through it’s Issuer • Card Brand Company will obtain merchant TIN from merchant’s bank within a reasonable time after transaction occurs • Company may assume Card Brand Company has merchant TIN • No backup withholding required ever • No penalties for any erroneous TINs supplied by Card Brand Company – relying on data provided is reasonable cause

5. IRS Issues New Regulations – July 14, 2004 • IRS issued the Qualified Payment Card Agent (QPCA) regulations effective January 1, 2005 • http://www.irs.gov/irb/2004-31_IRB/ar13.html • http://www.irs.gov/irb/2004-31_IRB/ar16.html • IRS issued a Merchant Category Code Revenue Procedure effective immediately, (July 14, 2004) • Commercial Solutions – MCC Usage Q & A • Available as PDF • Visa.com • http://www.irs.gov/irb/2004-31_IRB/ar17.html • http://www.usa.visa.com/corporate/resources/white_papers_research

6. QPCA Definition • Qualified Payment Card Agent (QPCA) is an IRS designation granted to payment card organizations (Visa, MasterCard, American Express) that demonstrate the ability meet IRS standards surrounding the collection, validation, maintenance and distribution of IRS 1099 MISC information directly or through their members.

7. Program Overview • IRS authorizes the QPCA to solicit and validate merchant TINs on behalf of the cardholders. • No backup withholding is required during various grace periods during which the TIN is obtained and matched. • Where valid TINs are obtained within certain time frames, no backup withholding applies, indefinitely. • If valid TIN not obtained within established timeframes, backup withholding re-instated going forward. • QPCA provides cardholder with regular reports to identify merchants with valid TINs. • Penalties waived for QPCA-related TIN errors.

8. Program Benefits • Cardholder relieved of most TIN-solicitation and backup withholding responsibilities. • Penalty relief available for Cardholders using QPCA-supplied data. • Provides freedom to use cards for all merchants—thereby increasing cost savings--without IRS concerns.

9. QPCA Data Responsibilities(Visa /MasterCard acting as QPCA) • Obtain merchants 1099 information • Ensure the accuracy and reliability of the merchant information • Validate the accuracy of the merchant information • Maintain the merchant information • Distribute a Quarterly Merchant Qualification Report

10. Basic QPCA Duties • Apply to IRS • Notify Merchants about QPCA program • Notify Cardholders about QPCA program • Process opt-out responses • Do TIN Matching • Send Cardholders Merchant data reports • Provide Tel # for merchant and cardholder Questions • Respond to IRS audit requests

11. QPCA Application Process • Visa files application stating its intention to participate in the QPCA program – Submitted March 2005 • Companies/Merchants must receive written notification that Visa/MasterCard as a QPCA will, on their behalf • solicit merchant 1099 information • match TINS to IRS File. • Or “Opt Out” of QPCA program • 60 days later, Visa can begin TIN Matching with the IRS • Achieve currently, undefined match rate percentage with IRS • File full application for QPCA status

12. Basic Cardholder Duties • Opt out if so desire • Receive and process merchant data reports • File Information returns annually • If notified of a “Non-Qualified merchant”, solicit name/TIN within 2 months • If unsuccessful in solicitation, either B/W on future transactions or stop doing business with that merchant • If choose to stop doing business with Non-Qualified merchant, notify card users about restriction • If B/W, take own money and deposit with IRS

13. Example • First P card transaction with merchant occurs 1/06 • QPCA has 6 months to validate TIN—no B/W • If validation fails, transaction occurring after 6 months subject to notification • If quarterly reports, first “Non-Qualified” merchant notices sent 10/31/06 for the third quarter transactions • Cardholder has 2 months (Nov. and Dec.) to get TIN • If fails, B/W starts 1/1/07

14. Company Benefit • Pre- QPCA • Improved Data Quality – resulting from TIN Matching • Business Legal Names • Tax Identification Number (TIN) • QPCA • Provides a grace period for obtaining a merchant’s 1099 information – 6 months • Provides grace period before backup withholding required • TIN solicitation requirements - minimal • TIN matching will be done by Visa • Receives status of merchant’s TIN qualification on 1099 report • Expanded penalty protection by relying on QPCA’s data

15. Current Status • Comment Letter sent to IRS 3/28/2005 • Modify language of Merchant Notification letter • Allow for electronic notification • “Opt-Out” by no longer accepting Visa products • “Opt-Out” through written notification • TIN Matching • Access through the Federal Agency System – Initial Submission • 5 million merchant records • By-pass the “phishing” rule • Clarify timing of merchant notification letter • QPCA application – 3/31/2005

16. Current Status • QPCA “What a Cardholder Needs to Know” Webcast available at: https://visasis.webex.com/visasis/k2/tool/record/recordinginfo.php?RecordID=5511857 • Industry (Visa, MasterCard, American Express) • Participated in IRS meeting to discuss issues outlined in comment letter – March 2006

17. Next Steps • Industry (Visa, MasterCard, American Express) • Formal request to IRS for inclusion in 2007 business plan • Visa • Developing Notification documents • Creating QPCA website to be available on Visa.com