IRS plays Santa Claus: backup withholding regulations arrived in time for Christmas.

• Author: Gustafson, Steven
• Position: Brief Article

In December 1995, the IRS issued final regulations on backup withholding under Sec. 3406 for situations in which a payee of interest or dividends fails to provide the payer with a taxpayer identification number (TIN) in the required manner. Generally, a payer must backup withhold on payments to all accounts of a payee that the payer can identify with reasonable care. Payers with computer systems that use a universal account number to retrieve all accounts of a payee must also use this method to identify all of the payee's accounts for backup withholding purposes.

A payer is no longer required to track backup withholding on dormant accounts. The payer may stop monitoring a dormant account for backup withholding after the third year following the later of the payer's last reportable payment into the account or the receipt of a C Notice.

Backup withholding is not required during the period (up to 60 days) that a payer is waiting for a payee's TIN, unless the payee makes a substantial...