SSN verification to avoid backup withholding changed

The IRS has provided revised procedures for individual payees who are required to obtain validation of Social Security numbers (SSNs) from the Social Security Administration (SSA) to prevent or stop backup withholding following receipt of a second backup withholding notice (“B notice”) from a payor within a three-year period. Under the revised procedures, effective on or after August 1, 2014, in response to a second B notice, an individual payee may prevent, or, if already started, stop backup withholding by providing the payor with a copy of a Social Security card with his or her correct name and SSN.

Upon notification that a payee’s name and identification number combination is incorrect, a payor must notify the payee of this fact in a B notice directing the payee to certify the taxpayer identification number (TIN) on Form W-9 to stop or prevent backup withholding on reportable payments by the payor. If a payor receives two notices from the IRS or a broker within three calendar years that a payee’s name and identification number combination is incorrect, the payor must notify the payee, disregard any future certifications furnished by the payee with respect to the account until the payor receives notice from the SSA or the IRS validating a name/TIN combination. Prior to August 1, 2014, an individual payee obtained validation of his or her name and SSN from the SSA by contacting the local SSA office and requesting a Social Security number printout (SSN printout). Once the payor received a copy of the SSN printout from the payee, backup withholding was prevented or terminated.

Beginning on or after August 1, 2014, in response to a second B notice, an individual payee may prevent or stop backup withholding by providing the payor with a copy of a Social Security card with his or her correct name and SSN. The payor may assume that a Social Security card is correct only: (1) if the name and SSN combination appearing on the card differ from the name and SSN combination appearing on the second B notice, or (2) if the Social Security card is dated no earlier than six months prior to the date of the second B notice. If a payee does not have a Social Security card, the individual must obtain a new or replacement card from the SSA. If the payee’s name and SSN combination listed on the second B notice is not current or correct, the payee should update his or her records with the SSA and provide a copy of the updated Social Security card to the payor.

Prior to August 1, 2014, payors may accept copies of Social Security cards that provide name and SSN validation under these revised procedures, or an SSN printout.

IRS Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), which provides the procedural requirements for B notices, will be revised to reflect the changes made by Rev. Proc. 2014-43. Payors are instructed to use the language provided in the publication to instruct payees regarding the revised procedures for validating a payee’s name and SSN after a second B notice. Announcement 2010-41, I.R.B. 2010-25, 767, is obsoleted. Rev. Proc. 93-37, 1993-2 CB 477, is modified and superseded. (IRS Rev. Proc. 2014-43, IRB 2014-32, July 17, 2014.)

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