IRS EXPLAINS HOW TO STOP BACKUP WITHHOLDING.

Rev. Proc. 91-58

SECTION 1. PURPOSE

This revenue procedure sets forth guidelines on how to stop backup withholding pursuant to section 35a.3406-1(f) of the Temporary Employment Tax Regulations under the Interest and Dividend Tax Compliance Act of 1983, after a payor or broker has received notification from the Internal Revenue Service (IRS) twice within 3 calendar years that the payee has provided an incorrect taxpayer identification number (TIN) with respect to the same account.

SECTION 2. BACKGROUND

01. Section 3406(a)(1)(B) of the Internal Revenue Code sets forth the requirement for a payor to backup withhold on reportable payments made to a payee if the IRS notifies the payor that the TIN furnished by the payee is incorrect. The TIN is either the social security number or the employer identification number of the payee.

02. Section 3406(h)(2) of the Code provides that, if the payee furnishes the payor 2 incorrect TINs within 3 calendar years, the payor must treat the payee as not having furnished another TIN until the payor receives notification that a correct TIN has been furnished.

03. Section 35a.3406-1(f) of the temporary regulations provides that, if the IRS notifies a payor that a payee has furnished 2 incorrect TINs within 3 calendar years with respect to the same account, the payor must:

(1) Disregard any future TINs, whether or not certified under penalties of perjury, received from the payee with respect to the account unless the Social Security Administration (SSA) or the IRS has notified the payor that such TIN is correct;

(2) Provides 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 ruling; and

(3) Impose backup withholding on reportable payments made to the account for the period described in section 35a.3406-1(f)(3) of the temporary regulations.

04. Section 35a.3406-1(h) of the temporary regulations provides that a payor will be notified by the SSA or the IRS to stop backup withholding after the SSA or the IRS has validated the TIN of the payee.

05. Section 35a.3406-1(g) of the temporary regulations provides that the IRS will publish a revenue procedure setting forth the procedures that a payee must follow after the IRS or a broker has notified a payor twice within 3 calendar years that the payee provided an incorrect TIN. These procedures are designed to cause the SSA or the IRS to validate the TIN of the payee in order to stop backup withholding. Section 3 of this revenue procedure sets forth those procedures.

SEC. 3 CERTAIN INFORMATION FOR THE NOTICE TO PAYEES

01. Under section 35a.3406-1(f)(2)(v) of the temporary regulations, the notice to the payee must instruct the payee to contact the SSA (in the case of an incorrect social security number) or the Internal Revenue Service Center where the payee files his income tax return (in the case of an incorrect employer identification number) in order to prevent backup withholding under section 3406(a)(1)(B) of the Code or stop it once it has begun.

02. The notice to the payee must also provide the payor's name and address.

03. If the incorrect TIN is a social security number, the notice to the payee must instruct the payee to take the following steps:

(1) Contact the SSA by telephone to request a Form SS-5, Application for Social Security Card;

(2) Furnish to the SSA a completed Form SS-5 and any other documents required by SSA, along with the name and address of the payor; and

(3) Request that the SSA send Form 7028, Notice to Third Party of Social Security Number Assignment, directly to the payor.

04. If the incorrect TIN is an employer identification number, the notice to the payee must instruct the payee to contact, in writing, the Internal Revenue Service Center (Attn: Entity Section) where the payee files his income tax return and request that the IRS provide a Letter 147C to the payee.

SEC. 4 REQUIREMENTS TO STOP BACKUP WITHHOLDING

01. Backup withholding may be stopped only when a TIN validation is received from the SSA or the IRS as follows:

(1) The SSA will send Form SSA-7028, Notice to Third Party of Social Security Number Assignment, directly to the payor as requested by the payee; or

(2) The IRS will provide a Letter 147c to the payee verifying the name and TIN as listed on the issuing records. The payee must provide a copy of this letter together with a Form W-9, Request for Taxpayer Identification Number Certification, to the payor.

SEC. 5 EFFECTIVE DATE

This revenue procedure will apply to second notices that are dated on or after October 15, 1991.

SEC. 6 EFFECT ON OTHER DOCUMENTS

This revenue procedure supplements section 35a.3406-1(f), (g), and (h) of the temporary regulations.

SEC. 7 INFORMATION REPORTING PROGRAM OFFICE CONTACT

All inquiries regarding this revenue procedure should be directed to the Information Reporting Program Centralized Telephone Site at (304) 263-8700 (not a toll-free number).