Publication 1716 (2-1995) BACKUP WITHHOLDING QUESTIONS AND ANSWERS FOR MISSING AND INCORRECT TINs

The following items concern backup withholding due to missing or incorrect taxpayer identification numbers (TINs)

1. Q. What is backup withholding on missing or incorrect TINs?

A. The Internal Revenue Code (IRC) requires banks, financial institutions, sole proprietors, and other payers to withhold 31 percent of certain reportable payments to payees who have failed to provide a correct TIN.

2. Q. What is a TIN?

A. A TIN is a social security number (SSN) issued by the Social Security Administration (SSA) or an employer identification number (EIN) issued by the Internal Revenue Service (IRS).

3. Q. What kinds of payments are subject to backup withholding?

A. The following payments are subject to backup withholding:

A. Missing TIN - We consider a TIN missing if it is not provided or if it is obviously incorrect. A missing TIN does not have nine digits (numbers) or it has an alpha character (a character or symbol other than an Arabic numeral) as one of the nine digits.

Incorrect TIN - We consider a TIN incorrect if the name/TIN combination doesn't match IRS or SSA records. We also consider a name/TIN combination incorrect if it can't be found on IRS or SSA records.

5. Q. How does the IRS matching process work?

A. The IRS matches against two files:

A. Begin backup withholding immediately on any reportable payments. Make the required annual solicitation for the TIN. (See Question 11 for more information about the solicitation requirement for a missing TIN.)

7. Q. How do I know if a TIN on my account is incorrect?

A. The IRS will send you either a CP2100 or a CP2100A notice listing the incorrect TIN.

8. Q. What is a CP2100 or CP2100A notice?

A. Magnetic media filers of information returns receive a CP2100 notice and paper filers receive a CP2100A notice.

In addition to the listing of incorrect name/TINs mentioned in answer 7, a CP2100/2100A notice also contains a listing of missing TINs and explains a payer's responsibility for backup withholding.

9. Q. What should I do when I receive a CP2100 or CP2100A notice?

A. Compare the listing(s) of missing and/or incorrect name/TINs with your records, and:

For missing TINs, check to see that the account is under backup withholding. If not, begin backup withholding immediately. You also must complete a first or second annual solicitation from the payee. (See Question 11 for information.)

For incorrect TINs, check the accounts on the IRS listing to see if they agree with your records and send the appropriate "B" Notice. For accounts that do not agree, make sure the information on the return is correct or that the payee's status has not changed. (See Question 11 for information.)

10. Q. Am I required to wait the 30 business days following receipt of a CP2100/2100A notice before beginning backup withholding due to an incorrect TIN?

A. No. You may start backup withholding as soon as the day after receipt of the CP2100/2100A notice. There are no special provisions to provide refunds merely because the payee submits the proper certification after you have started backup withholding.

NOTE: For 1994 and later years, backup withholding must be reported once a year on Form 945, Annual Return of Withheld Federal Income Tax. Form 941, Employer's Quarterly Tax Return, which was previously filed to report backup withholding, is used to report only withholding from wages.

11. Q. What are the first and second annual solicitation requirements for accounts reflecting reportable payments subject to backup withholding?

A. They are a request for a payee's correct TIN. You must make the request to satisfy the backup withholding requirements and to avoid a penalty for filing another information return with a missing or incorrect TIN.

For missing TINs, you must make the initial solicitation when the payee opens the account or when the transaction occurs. If the payee does not provide a TIN when you initially ask for it, you must make a first annual solicitation by December 31 of the year in which the account is opened (for accounts opened before December) or January 31 of the following year (for accounts opened the preceding December).

If the payee doesn't provide a TIN after the first annual solicitation, you must make the second annual solicitation by December 31 of the year following the calendar year in which the account was opened.

For incorrect TINs, you must make the initial solicitation when the payee opens the account or when the transaction occurs. You must make the first annual solicitation within 15 business days after you receive a CP2100/2100A notice of an incorrect TIN.

In general, you must make the second annual solicitation within the same timeframe as required for the first annual solicitation if IRS notifies you of an incorrect TIN within two calendar years following the calendar year in which you received the first notification.

12. Q. Does the CP2100/CP2100A notice indicate whether it is the first or second notification of an incorrect TIN for a specific account?

A. No. Under the backup withholding regulations, it is the payer's responsibility to track the status of the notices reveived for each account.

13. Q. What is the relationship between the requirement to make an annual solicitation for a payee's TIN after the IRS notifies a payer that a payee's TIN is incorrect and the requirement to send a "B" Notice because the payee's TIN is incorrect.

A. Sending a "B" Notice in response to a CP2100/2100A notice also satisfies the annual solicitation requirement to avoid a penalty for filing another information return with an incorrect TIN.

14. Q. What is a "B" Notice?

A. A "B" Notice accompanies the CP2100/2100A notice from the IRS identifying an account of a payee for which you filed an information return with an incorrect name/TIN combination.

You must send the first "B" Notice with a Form W-9 to the payee to solicit a correct name/TIN combination. The text of the second "B" Notice to the payee is different than that of the first "B" Notice. The mailing of the second notice should not include a Form W-9. It instructs the payee to contact either IRS or SSA to obtain the correct name/TIN combination.

Generally, you are not required to send a "B" Notice more than twice within three calendar years to the same account. Examples of the "B" Notices are in Publication 1281, Publication 1679 and Revenue Procedure 93-37.

15. Q. When and how do I send the "B" Notice to the payee?

A. You have 15 business days from the date shown on the CP2100/CP2100A notice or the date you received it (whichever is later) to notify the payee. Only send a notice to those payees whose name/TIN combinations and account numbers on your records agree with the combination that IRS identified as incorrect. You may use a substitute "B" Notice as long as you follow the guidelines in Revenue Procedure 93-37.

16. Q. How do I know which "B" Notice to send?

A. If this is the first time IRS has notified you about a specific name/TIN combination for an account, you must give the payee: (1) the first "B" Notice, (2) a copy of Form W-9 (or acceptable substitute), and (3) an optional reply envelope. This envelope must be clearly marked "IMPORTANT TAX INFORMATION ENCLOSED" or "IMPORTANT TAX RETURN DOCUMENT ENCLOSED."

If this is the second time within three calendar years that IRS has notified you that an acount has an incorrect name/TIN combination, you must give the payee: (1) the second "B" Notice and (2) an optional reply envelope. This envelope must be clearly marked "IMPORTANT TAX INFORMATION ENCLOSED" or "IMPORTANT TAX RETURN DOCUMENT ENCLOSED." Do not send a Form W-9.

17. Q. Am I required to mail a second "B" Notice if I receive the "second" notification in the same calendar year as the first notice which I properly sent?

A. No. You may disregard the "second" notification.

18. Q. What if the "B" Notice is returned to me as "undeliverable?"

A. You still must begin backup withholding. However, try to get the correct address for the payee and remail the notice. If you can't find the correct address, keep the undelivered document with your records.

19. Q. How do I report backup withholding to the IRS?

A. Report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. You must have an EIN to file the form. For more information, including the separate deposit requirements for Form 945, see Publication 15, Circular E, Employer's Tax Guide.

20. Q. Can a payee claim he or she is exempt from backup withholding?

A. Yes. Payees who may be exempt are listed in the Instructions for the Requester of Form W-9.

21. Q. Is a payee an exempt corporation if it uses the term "Company" or "Co." in the name?

A. No. A payer cannot treat a payee as an exempt corporation merely because the payee's name contains the words "Company" or "Co."

22. Q. Why are accounts I have corrected still included on the CP2100/2100A listing?

A. Due to processing cut-off points, a listing may or may not reflect your latest corrections. If you know that an account has been corrected, do not send a "B" Notice to the payee.

23. Q. What should I do if the TIN was actually on file but was left off the Form 1099 or reported incorrectly?

A. Make the change to your records and use the correct information on future filings. Do not send a "B" Notice to the payee.

24. Q. If I don't do business any more with a payee or if there was only one transaction, what should I do?

A. Send the payee a "B" Notice and try to get a correct TIN. If you don't receive it, notate your records so that if you renew business with the payee, you can track the notices for the "two in three year rule." We require you to track these accounts for three years after the date of the first CP2100/2100A notice.

25. Q. How do I get an EIN from the IRS?

A. After completing Form SS-4, Application for Employer Identification Number, call the service center (this number is on the back of the form) where you file your tax return. We will give you an EIN over the phone so you can use it immediately. Write this number on the Form SS-4 and mail it to the service center. If you only use the EIN to report backup withholding, please let us know so that we give your it the appropriate status.

26. Q. Can a sole proprietor have an SSN or does he or she need an EIN?

A. A sole proprietor may have an SSN or an EIN. However, he or she must always furnish his or her individual name, regardless of whether he or she uses an SSN or an EIN. A sole proprietor may provide a business name, but he or she must list his or her individual name first on the accounts with you.

27. Q. What do I do if this is the first notification and the Form W-9 is returned with the same incorrect information?

A. If this happens, keep the form on file to show that the payee certified the name/TIN combination. Do not backup withhold.

28. Q. Should I backup withhold on a payee who is a nonresident alien?

A. Yes. A nonresident alien is subject to backup withholding unless you have a Form W-8, Certificate of Foreign Status, a Form 1001, Ownership, Exemption, or Reduced Rate Certificate, or a Form 4224, Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business, on file for him or her.

29. Q. Can a Form W-9 for one account be used to correct all accounts for the same payee?

A. Yes, if the payer required a payee to file only one Form W-9 for all accounts or instruments of the payee.

30. Q. Can a payee be subject to backup withholding for more than one reason?

A. Yes. However, you backup withhold for only one reason at a time.

31. Q. If I have questions about information reporting on Forms 1099 or the notice and listing(s) I received, who can I call?

A. You may call the Information Reporting Program (IRP) Centralized Call Site. You can get answers to your questions whether you are a paper filer or a magnetic media filer.

Tel: (304) 263-8700 (not a toll-free number) Hours: 8:30 am to 4:30 pm Mon. through Fri. (EST)

The IRS also operates an electronic bulletin board (IRP-BBS) at the Martinsburg Computing Center which is available 24 hours a day. The IRP-BBS offers changes and updates that affect information reporting. By using your personal computer and modem, you can contact the IRP-BBS by dialing (304) 263-2749.