Government entities that make certain payments are required to withhold income tax of 28% from these payments if the payee is not exempt from backup withholding and fails to furnish correct taxpayer identification number (TIN). Backup withholding does not apply to wages or pension payments.
The CP2100 or CP2100A Notice
CP2100 and CP2100A notices are notices that inform a payer that he or she may be responsible for backup withholding. This may be due to missing or potentially incorrect taxpayer identification numbers identified during the processing of Form 1099 information returns. It is accompanied by a listing of missing, incorrect, and/or not currently issued payee TIN. Large volume filers (250 or more erroneous documents) receive the CP2100 notice, while all other filers receive the CP2100A notice.
Payments Subject to Backup Withholding
Rents, non-employee compensation for services, royalties, reportable gross proceeds paid to attorneys, and other fixed or determinable gains, profits, or income payments that are reportable on Form 1099-MISC, Miscellaneous Income.
“Missing” Taxpayer Identification Number
A taxpayer identification number is considered "missing" whenever (1) the TIN is not provided, (2) the TIN has more or less than nine digits, or (3) the TIN includes an alpha character in one or more of its nine positions.
"Incorrect" Taxpayer Identification Number
A taxpayer identification number is considered "incorrect" whenever the TIN is displayed in the proper format but (1) the Name/TIN combination does not match, or (2) the TIN cannot be found in the files of the IRS and/or the Social Security Administration.
"B" Notice
If the IRS sends you a "B" notice indicating an incorrect payee TIN, you are required to backup withhold from a payee no later than 30 days after receipt. Backup withholding until the payee furnishes a TIN and certifies that it is correct.
“C” Notice
If the IRS sends you a “C” notice indicating notified payee underreporting, you must withhold on any reportable payment no later than 30 days after receipt. The IRS will notify you when to stop withholding.
Requirement for Payer To Secure a TIN
Initial solicitation - for all payees, you must make the initial solicitation when the payee opens an account or when the transaction occurs. Use Form W-9 to request the taxpayer identification number.
You may be required to make a First and Second Annual Solicitation of a payee under certain circumstances.
Additional Information
For more information, see the Instructions for Forms 1099, 1098, 5498, and W-2G and Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s).
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