TN 19 (08-14)

RM 10225.110 Inquiries Based on Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) Backup Withholding Program

A. Background on IRS Taxpayer Backup Withholding Program

IRS regulations require payers of interest and dividends (e.g., banks) to provide IRS with the correct name and TIN of the payee. For individual payees, the TIN is usually the Social Security number (SSN). For business payees, the TIN is usually the Employer Identification Number (EIN). A sole proprietorship can have either an SSN or an EIN.

IRS periodically provides payers with lists of TINs that do not match IRS records. Based on this list, the payer sends the payee a First or Second B Notice. The notices address both SSNs and EINs. Since both have nine digits, the two can be confusing. See RM 10225.110C in this section for help on determining if an EIN or SSN is involved.

IRS requires interest payers to withhold 31 percent of the interest or other reportable payments due when the individual/numberholder (NH) or business does not provide a valid TIN.

B. Policy on IRS Taxpayer Backup Withholding Program

IRS creates records from our data, so it may be necessary for the NH to contact us to correct or verify information contained on our records. The action we must take under the backup withholding program depends, in part, on whether the NH has received a First or Second B Notice:

  • A First B Notice may require the field office (FO) to advise the NH to provide the correct information to the interest payer via form W-9, Request for Taxpayer Identification Number and Certification.

  • A Second B Notice may require the FO to process an SSN replacement card request to correct the discrepancy.

C. Determine if the account identifier is an EIN or SSN

Use the following to determine if an EIN or SSN is involved:

1. Determine if the account is personal, a sole proprietorship, or other business

  • Ask the NH, “Does the letter from the interest payer (e.g., financial institution) refer to a personal account, a sole proprietorship, or other business account?”

  • If it is a sole proprietorship, ask, “Is the number an EIN or an SSN?”

2. Resolve EIN involvement

If the NH responds that the sole proprietorship or other business account is identified by an EIN, refer the person to the local IRS office or provide IRS's toll free number (1-800-829-1040) to resolve the discrepancy.

3. Resolve SSN involvement

  • If the NH responds that the letter refers to a personal account identified by his or her SSN, take necessary action depending on whether a First or Second B Notice is involved as explained in RM 10225.110D in this section.

  • If the NH responds that the SSN involved is for a sole proprietorship, instruct the payee to contact the interest payer and provide both the surname and the business name to ensure that the payer's records are updated in an acceptable format.

NOTE: IRS provides payers with the proper format for setting up accounts that will agree with both IRS and our records. Neither IRS nor we can verify a sole proprietor account with an SSN and only a business name. IRS instructs payers to check their records and not contact the payee if they have sufficient information to correct the account.

D. How to process First and Second B Notices

Use the following to assist individuals who contact the FO with a First or Second B Notice.

1. Confirm whether the NH has received a First or Second B Notice from interest or dividend payer.

  • The First B Notice language to the payee will include the statement, “Backup Withholding Warning.”

  • The Second B Notice language to the payee will include the statement, “Second Backup Withholding Warning.”

2. Compare the name and SSN shown on the B Notice (First or Second) with the NH’s most recent Numident iteration.

Follow these instructions for both the First and Second B Notice based on the comparison:

a. If the most recent Numident iteration is correct, send an IRS Update of the current information on the Numident to IRS via the Social Security Number Application Process (SSNAP).

IMPORTANT: An IRS Update creates a new Numident iteration. For additional information, see the SSNAP User Guide.

b. If the most recent Numident iteration is incorrect, process an SS-5, Application for a Social Security Card, via SSNAP.

3. Advise NH of his or her responsibility to inform the interest or dividend payer of the following:

In addition to completing the actions in this section, advise the NH of what to do next depending on what notice he or she received.