CP 2100 Notices & Back-up Withholding for Federal Agencies

1. CP 2100 Notices & Back-up Withholding for Federal Agencies Federal Agency Seminar June, 2008

2. Phyllis Ann Burnside FSLG Specialist 380 Westminster St. Providence, RI 02903 PHONE 508-934-9454 Phyllis.a.burnside@irs.gov Instructor

3. Today’s Agenda - • BUWH – General Info • BUWH – When is it Mandatory? • Verifying TINs • CP2100 / Notice 1313 Requirements • Depositing and Paying BUWH tax • Federal Audit Issues re: BUWH

4. BUWH Defined • A type of Federal Income Tax Withholding (FITW) • Rate Effective 05-28-2003: 28% • Persons making payments to Certain Payees must withhold and pay the IRS

5. BUWH Defined • Reported in Box 4 of Form 1099-Misc • Interest/Dividend payments require W-9 for payee to furnish TIN • Other payments don’t require the payee to furnish a W-9, but it is recommended

6. Payments Subject to BUWH • a) Rents and commissions, non-employee compensation for services, royalties, reportable gross proceeds paid to attorneys and other fixed or determinable gains, profits, or income payments reportable on Form 1099-MISC, Miscellaneous Income.

7. Payments Subject to BUWH • b) Interest reportable on Form 1099-INT, Interest Income. • c) Dividends reportable on Form 1099-DIV, Dividends and Distributions. • d) Patronage dividends paid in money or qualified check reportable on Form 1099-PATR, Taxable Distributions Received From Cooperatives.

8. Payments Subject to BUWH • e) Original issue discount reportable on Form 1099-OID, Original Issue • f) Gross proceeds reportable on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. • g) Gambling winnings reportable on Form W-2G, Certain Gambling Winnings, unless subject to regular gambling withholding.

9. Payments NOT Subject to BUWH • Salary or Wage Payments • Unemployment Compensation • Distributions from Retirement Plans

10. Payments NOT Subject to BUWH • State or Local Income Tax Refunds • Qualified Tuition Program Earnings >>> These payments are reportable ( & may require a different information return), but are not subject to backup withholding.

11. When BUWH is Mandatory • Missing/Incorrect TIN from payee • Payee refuses to provide TIN • Payee neglects to provide TIN • Backup withhold immediately on any reportable payments, until you receive TIN on a signed and dated Form W-9 from the payee.

12. When BUWH is Mandatory • Special Circumstances: • If Payee Information is questionable • Secure Form W-9 • Fraud • Document Vendor File with Form W-9 • If TIN missing, or <9 digits, wrong format or alpha character ---Backup Withhold Immediately

13. BUWH - When to Begin • Backup withholding begins when reportable aggregate payments for the calendar year equal or exceed $600* or • Immediately if:Payee was subject to backup withholding in the prior year • * Threshold is $10 for Dividends and Interest

14. Verifying TINs

15. Verifying TINs - Benefits • Avoid TIN Errors • Avoid CP 2100 Notices for TIN problems • Avoid Backup Withholding requirements on payees

16. Verifying TINs – W-9 FORM It is BEST to secure the W-9 information before job is awarded and payments are made No TIN = Backup Withhold

17. Verifying TINs – W-9 FORM LLC

18. Verifying TINs - IRS • Sign up for TIN Matching through www.irs.gov • If you have questions about TIN Matching, you may contact tinmatching@irs.gov

19. Verifying TINs – IRS

20. Verifying TINs –IRS TIN Match Results A numerical response will be returned along with the data input by the requestor as follows: • 0 – Name/TIN combination matches IRS records • 1 – Missing TIN or TIN not 9 digit numeric • 2 – TIN not currently issued • 3 – Name/TIN combination does not match IRS records • 4 – Invalid request (i.e., contains alphas, special characters) • 5 – Duplicate request FOR SECURITY REASONS, THE IRS CANNOT RETURN THE CORRECT SSN IN THE EVENT A NO - MATCH (3) IS INDICATED.

21. Verifying TINs - CCR • CCR=Central Contractor Registry • www.ccr.gov • DUNS number – Public information • Many DUNS may fall under one EIN (issued by location)

22. Verifying TINs - CCR • 2003 GAO report (GAO-04-74) Entitled “More Can be Done to Ensure Federal Agencies File Accurate Information Returns” recommendation • CCR TIN Matched since 10/2006

23. Verifying TINs - SSA • You may verify • Up to 5 SSNs by calling the SSA at 800-772-1213 or 800-772-6270 7am-7pm • Up to 50 by writing the SSA local office • More than 50 faxing 410-966-3366 or 410-966-9439 • 6 or more at www.ssa.gov\employer\evs2000.html

24. Verifying TINs - SSA • For problem SSNs, call the Employer Verification Hotline at 410-965-7140 • Examples of invalid SSNs: • Beginning #’s 8xx or 9xx or above 728 • Middle or ending numbers - all 0’s

25. CP 2100 / Notice 1313 Requirements

26. CP 2100 / Notice 1313 Requirements • Notice tells Payer their responsibility for backup withholding and could be subject to civil penalties on the listed payees • Notice provides details of payees with: • Missing TINs, and/or • Incorrect Name/TINs, and/or • Not currently-issued payee TINs

27. CP 2100 / Notice 1313 Requirements • CP 2100 Notice requires the payor to send out a “B Notice” to each payee identified in the 2100/2100A • There are two types of B Notices, First and Second B Notices.

28. CP 2100 / Notice 1313 Requirements • First B Notice • First time a “bad” TIN is identified by IRS. • Requires payor to send a BackupWithholding Notification to Payee within 15 days of receipt • Requires payor to secure a Signed Form W-9 from payee or begin backup withholding within 30 daysof B Notice mailing

29. CP 2100 / Notice 1313 Requirements Second B Notice • “Bad” TIN has been identified in 2 of the last 3 years • Payor sends notice to payee within 15 days of receipt of CP2100 advising them to contact IRS or SSA to validate TIN • Notice advises payor to begin backup withholding within 30 days of B Notice date if no TIN validation by payee • See Pub 1281

30. CP 2100 / Notice 1313 Requirements Was my agency issued a CP 2100/2100A? • Address of record problems • Based on a filed TAX return, not Information return (1099, W-2) • Business Tax & Specialty Line 1-800-829-4933 • September - verify mailing address

31. Depositing and Paying BUWH tax • Use Form 945 – Annual Return of Withheld Federal Income Tax • Non payroll liabilities deposit rules generally the same as payroll: • 2 Deposit Schedules: Monthly or Semi-Weekly • If annual tax is less than $2,500, the backup withholding deposits are not due until the return is filed.

32. Depositing and Paying BUWH tax • Must use Electronic Deposits in 2007 if: 1) You were required in 2006, OR • Total deposits > $200,000 of withholding taxes in 2005

33. Depositing and Paying BUWH tax • 945 Filing Due Date: Jan 31 of following year For 2008: by 1/31/2009 *If deposits are paid in full and on time for the year, due by February 12, 2009

34. Depositing and Paying BUWH tax Federal Agencies file Form 945 through FEDTAXII or mail paper form to: IRS Ogden, UT 84201-0042 (without payment) IRS, P. O. Box 660443, Dallas, TX 75266-0443 (With payment)

35. Federal Audit Issues - BUWH • 1099-Misc filed with No TIN • 1099-Misc Failures identified where no TIN is on file • CP2100 issued – no action taken by agency • Purchase Card Transactions not addressed – no QPCA utilized • Convenience Checks issued for services without securing a TIN

36. For More Information • Publication 1281 – Backup Withholding on Missing and Incorrect Name/TINs • Instructions for Forms 1099, 1098, 5498, & W-2G • Internal Revenue Code Sections 6041 thru 6053 • Publication 1179 – Rules & Specifications for Private Printing of Substitute Forms 1096, 1098, 1099, Series 5498 & W-2G