Government toying with the bankcard business

I just read an article on greensheet “Proposals from Washington looming” (Not sure how long this link will be good for) that really brought up some questionable legislation that is currently pending in Washington.

What the government is trying to do:
The government is trying to gain access to business’s revenue reporting, by requiring acquiring banks to report it directly to the IRS. What else is being proposed is some major crackdowns on the obligations that a business has if they ever do have a security breach, and possibly some incentive programs for businesses that encrypt customer data.

Why this is bad for businesses:
Businesses are currently required to report their revenue to the IRS on their own terms. With the exception of companies or individuals getting 1099’s or W2’s for certain financial gains, the reporting is done completely at the level of each individual business. Requiring the acquiring banks (think of back-end processing banks) to disclose business revenue causes some major problems. First off there, are things like refunds, returns, chargebacks, and fees that would some how need to be calculated into the revenue reporting. This makes a very difficult task and each business’s revenue will need to be dealt with almost on a personal basis. There are currently 25 million businesses in the US. While many of these are not accepting credit cards, or aren’t doing enough business to actually be considered a business in many people’s eyes, even reporting information on half of them is an enormous task. Who do you think is going to end up paying for that huge cost to report all of the information?

You guessed it, the businesses who’s revenue is being reported, YOU…

With all the hype about the government potentially stepping in and regulating interchange or at the very least, showing some interest in it, this seems like a step in the complete opposite direction. Putting the data breach topics aside which are shadowed by this, I think it is a terrible idea. Even if acquiring banks do report the information, it is still only a small part of the entire revenue stream. There’s still the rest of the revenue to account for, and in the end we end up with some mess of an aggregation from different sources, that is never going to match up.

“Some merchants fail to report accurately their gross income, including income derived from payment card transactions,” the budget proposal states. But the wording gives the IRS wiggle room to determine when reporting would not be useful. The IRS would have the authority to make exceptions when costs exceed the benefits.

At least the IRS has the final say over this, and I personally cant see any way that the benefit will outweigh the cost. Unless of course the IRS disregards the fact that it is going to be a huge monetary burden for American businesses, and decides to go with it anyway.