PAYERS GET EXTENSION UNTIL JANUARY 1 TO START BACKUP WITHHOLDING.

Notice 91-40

This notice allows payors an extension until January 1, 1992, to commence backup withholding after the receipt of two notices of an incorrect taxpayer identification number (TIN) within 3 calendar years for the same account of a payee (2/3 rule). In addition, this notice permits a payor not to begin backup withholding under the 2/3 rule (or to stop it once it has begun) following receipt from the Social Security Administration (SSA) or the Internal Revenue Service (IRS) of any document validating payee's TIN. In the case of a document other than Form SSA-7028 or Letter l47C, this rule applies only if the document is received after September l5, 1991, and before September 1, 1992.

Section 35a.3406-1(f), (g), and (h) of the Temporary Employment Tax Regulations provides that, if the IRS twice notifies a payor within 3 calendar years that a payee has furnished an incorrect TIN with respect to the same account, the payor must:

(1) disregard any future TINs received from the payee with respect to the account unless the SSA or the IRS has notified the payor that such TIN is correct;

(2) provide a notice to the payee that includes all the information set forth in section 35a.3406-1(f)(2) of the temporary regulations or required by revenue procedure or revenue ruling; and

(3) impose backup withholding on reportable payments made to the account after 30 business days after receiving the notice from the IRS and until the payor receives validation of the payee's TIN from the SSA or the IRS. Revenue Procedure 91-58, 1991-40 C.B. 119, provides additional procedures for payors and payees to follow in order to prevent backup withholding under the 2/3 rule from starting (or to stop it once it has begun). Pursuant to the revenue procedure, payees with incorrect social security numbers (SSNs) must contact SSA to request a validated SSN. The SSA will provide the validated SSN on Form SSA-7028. Payees with incorrect employer identification numbers (EINs) must contact the IRS to request a validated EIM. The IRS will provide the validated EIN on Letter 147C.

In late September 1991, the IRS sent notices of incorrect TINs to payors of interest, dividends, and other reportable payments. These notices were effective October 15, 1991. Accordingly, backup withholding under the 2/3 rule generally is due to commence on November 29, 1991.

Payors have raised concerns that, in lieu of the Form SSA-7028 or the Letter 147C, the SSA and IRS in some cases are providing validated TINs on other documents or having difficulty providing any documentation of a valid TIN in a timely manner.

Because of these concerns, a payor may, but is not required to, delay commencing backup withholding, on an account-by-account basis or in general, until January 1, 1992, with respect to accounts to which the 2/3 rule applies. Additionally, a payor is permitted not to begin backup withholding under the 2/3 rule (or to stop backup withholding once it has begun) following receipt from the SSA or the IRS of any document validating the payee's TIN after September 15, 1991, and before September 1, 1992. Following receipt of a TIN validation on Form SSA-7028 or Letter 147C (or any other SSA or IRS document that the payor relies on for purposes of the 2/3 rule), the payor must use the validated TIN for information reporting purposes.

For Further Information

For further information contact Renay France, Office of Chief Counsel, Income Tax and Accounting, on 202-377-9344 (not a toll-free call).