CCA 200941013: Net interchange-fee income should not also receive a deduction for fees paid

Plain-English summary

This Chief Counsel advice comments on a draft concerning interchange fees and original issue discount income. It notes that issuing banks may account for interchange-fee income differently, including by using combined or separate pools for transactors and revolvers. It also notes that an issuing bank may owe fees in situations such as a purchase reversal or charge-back. The advice states that a taxpayer reporting only net interchange fees should not also deduct the interchange fees it pays because those fees were already netted against reported income.

Ruling snapshot

• Question: May a taxpayer that reports net interchange fees also deduct the interchange fees it pays?
• Outcome: Advice given.
• Key authorities: IRC § 1272; IRC § 6110(k)(3).

Full text (IRS public release)

ID: CCA-317433-09 Number: 200941013
Release Date: 10/9/2009
Office: ----------
UILC: 1272.06-03

From: ------------------------
Sent: Tue 3/17/2009 4:33 PM
To: ---------------------------------------
Cc: -----------------------------------------------------
Subject: Comments on Draft ASG on Interchange Fees --------

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Attached is a clean revised draft incorporating our suggested changes to the ASG and reflecting our comments. We will separately fax --------a mark-up draft showing the changes we made to the incoming Appeals draft ASG. However, because of the way in which WORD reflects universal replacements and movement of text within a document, the mark-up draft is particularly hard to read in electronic format. We are also attaching the email chain in which ----- requested and obtained an extension until March 18, 2009, for comments.

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2

It is also our understanding that not all issuing banks account for interchange fee income as giving rise to OID and, even as to those that do, the way in which the fees are allocated may differ. For example, some taxpayers may account for transactors and revolvers in a single pool while others account separately for transactor and revolver pools (and some may even, improperly, include interchange fees attributable to debit or other cards in with their credit card OID income). We also note that an issuing bank may be liable to pay interchange fees in certain circumstances -- for example, if there is a reversal by credit or charge-back of the original cardholder purchase. --------------------------------------------------------------------------
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-------------------------------------------------------- Thus, if a taxpayer is including only its net interchange fees in income, it should not also be allowed a deduction for interchange fees that it pays out (as they have already been netted against the amounts included in income). (It is our understanding that the associations regularly provide both transactional and net disbursement data to issuing banks and an issuing bank can generally provide the amount that it records on its own books as its own interchange fee liability.) -------------------------------------------------------------------------------------------------------------------------------
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-----------------------If you would like to talk about the ASG's issues or our comments/suggested changes, please contact -------------- at --------------------and --------------------at -------------------.

Here are the above-described attachments:

Attachment: Redacted

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