IRS DELAYS EFFECTIVE DATE OF BACKUP WITHHOLDING REGULATIONS.

Notice 88-89

On November 23, 1987, the Internal Revenue Service (IRS) published Treasury Decision 8163 (temporary regulations) concerning the requirement that payors backup withhold under Internal Revenue Code section 3406(a)(1)(B) on reportable payments made to payees after the payor has been notified by the IRS in 1988 or a later calendar year that the payee provided an incorrect taxpayer identification number (TIN) to the payor (B-notice). This is to announce that the IRS will (1) amend those temporary regulations to delay until 1989 the effective date of backup withholding under section 3406(a)(1)(B), and (2) send two informational B-notices to payors in 1988.

The first of the notices to be sent to payors in 1988 will identify incorrect TINs that payors provided on information returns filed for the 1986 calendar year. The IRS expects to send these notices to payors in late Summer 1988. These notices are informational only with respect to backup withholding; thus, payors shall not impose backup withholding on accounts of payees as a result of these notices. However, the notices will subject payors who have not exercised due diligence to the penalty under section 6676(b) for filing an information return for the 1986 calendar year with a missing or an incorrect TIN. Payors may, but are not required to, send notices to payees informing them that they provided an incorrect TIN as described in section 35a.3406-1(a)(6).

The second of the notices to be sent to payors in 1988 will identify incorrect TINs that payors provided on information returns filed for the calendar year 1987. The IRS expects to send these notices to payors in late Fall 1988. As in the case of the first notices sent in 1988, the second notices (1) are informational only, (2) will not be a basis for imposition of backup withholding, but (3) will subject payors who have not exercised due diligence to a penalty with respect to 1987 information returns.

With respect to the second 1988 notices, however, the IRS requests, a part of the joint IRS/payor effort to avoid unnecessary cases of backup withholding, that payors mail an educational message to all payees designated as having an incorrect or missing TIN on a 1987 information return telling those payees about backup withholding and explaining how to resolve discrepancies in TINs. The IRS will provide a suggested message to payors. The IRS requests that this message (which need not be a separate mailing) be sent to payees within 90 days of receipt by the payors of the second 1988 notices.

In early Fall 1989, the IRS will send notices to payors identifying incorrect TINs that payors provided on information returns filed for the 1988 calendar year. These will be the first notices that are effective for purposes of backup withholding under section 3406(a)(1)(B). Thus, upon receipt of these notices, payors will be required to issue "B" notices to designated payees and to impose backup withholding on accounts of payees who do not furnish a certified TIN in the required manner within 30 days.

In early Fall 1990, the IRS will send notices to payors identifying incorrect TINs that payors provided on information returns filed for the 1989 calendar year. These will be the first notices that may reflect the second incorrect TIN furnished by a payee in a 3-year period as described in section 3406(h)(2). Thus, if, with respect to the same payee, the IRS sends notices of incorrect TIN to a payor in 1989 and in 1990, the payor must backup withhold on the payee's accounts until the payor receives notification from the IRS that a correct TIN has been furnished.

Administrative Pronouncement

This document serves as an "administrative pronouncement" with respect to employment taxes and related penalties to the same extent that a document is an administrative pronouncement as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations. Accordingly, this document may be relied upon in the same manner as a revenue ruling or a revenue procedure. See Rev. Rul. 87-138, 1987-52 I.R.B. 17.

For Further Information

For further information contact Renay France of the Legislation and Regulations Division, Office of Chief Counsel, Internal Revenue Service, on 202-566-3829 (not a toll-free call) between the hours of 3-5:30 p.m. E.D.T. Renay France is the principal author of this notice. Personnel from other offices of the Internal Revenue Service and Treasury Department, however, participated in developing the notice on maaters of both substance and style.