§ 3406. Backup withholding
(b)
Reportable payment, etc.
For purposes of this section—
(2)
Reportable interest or dividend payment
(A)
In general
The term “reportable interest or dividend payment” means any payment of a kind, and to a payee, required to be shown on a return required under—
(iii)
section
6044 (relating to payments of patronage dividends) but only to the extent such payment is in money.
(B)
Special rule for patronage dividends
For purposes of subparagraphs (C) and (D) of subsection (a)(1), the term “reportable interest or dividend payment” shall not include any payment to which section
6044 (relating to patronage dividends) applies unless 50 percent or more of such payment is in money.
(3)
Other reportable payment
The term “other reportable payment” means any payment of a kind, and to a payee, required to be shown on a return required under—
(D)
section
6050A (relating to reporting requirements of certain fishing boat operators), but only to the extent such payment is in money and represents a share of the proceeds of the catch,
(F)
section
6050W (relating to returns relating to payments made in settlement of payment card transactions).
(4)
Whether payment is of reportable kind determined without regard to minimum amount
The determination of whether any payment is of a kind required to be shown on a return described in paragraph (2) or (3) shall be made without regard to any minimum amount which must be paid before a return is required.
(5)
Exception for certain small payments
To the extent provided in regulations, the term “reportable payment” shall not include any payment which—
(6)
Other reportable payments include payments described in section
6041
(a) or
6041A
(a) only where aggregate for calendar year is $600 or more
Any payment of a kind required to be shown on a return required under section
6041
(a) or
6041A
(a) which is made during any calendar year shall be treated as a reportable payment only if—
(A)
the aggregate amount of such payment and all previous payments described in such sections by the payor to the payee during such calendar year equals or exceeds $600,
(7)
Exception for certain window payments of interest, etc.
For purposes of subparagraphs (C) and (D) of subsection (a)(1), the term “reportable interest or dividend payment” shall not include any payment—
(A)
in redemption of a coupon on a bearer instrument or in redemption of a United States savings bond, or
(B)
to the extent provided in regulations, of interest on instruments similar to those described in subparagraph (A).
The preceding sentence shall not apply for purposes of determining whether there is payee underreporting described in subsection (c).
(c)
Notified payee underreporting with respect to interest and dividends
(1)
Notified payee underreporting
If—
(B)
at least 4 notices have been mailed by the Secretary to the payee (over a period of at least 120 days) with respect to the underreporting, and
(C)
in the case of any payee who has filed a return for the taxable year, any deficiency of tax attributable to such failure has been assessed,
the Secretary may notify payors of reportable interest or dividend payments with respect to such payee of the requirement to deduct and withhold under subsection (a)(1)(C) (but not the reasons for the withholding under subsection (a)(1)(C)).
(2)
Payee underreporting defined
For purposes of this section, there has been payee underreporting if for any taxable year the Secretary determines that—
(3)
Determination by secretary to stop (or not to start) withholding
(A)
In general
If the Secretary determines that—
(ii)
any payee underreporting has been corrected (and any tax, penalty, or interest with respect to the payee underreporting has been paid),
(iii)
withholding under subsection (a)(1)(C) has caused (or would cause) undue hardship to the payee and it is unlikely that any payee underreporting by such payee will occur again, or
then the Secretary shall take the action described in subparagraph (B).
(B)
Secretary to take action to stop (or not to start) withholding
For purposes of subparagraph (A), if at the time of the Secretary’s determination under subparagraph (A)—
(C)
Time for taking action where notice to payor has been given
In any case where notice has been given under paragraph (1) to any payor with respect to any underreporting, if the Secretary makes a determination under subparagraph (A) during the 12-month period ending on October 15 of any calendar year—
(4)
Payor notifies payee of withholding because of payee underreporting
Any payor required to withhold any tax under subsection (a)(1)(C) shall, at the time such withholding begins, notify the payee of such withholding.
(5)
Payee may be required to notify Secretary who his payors and brokers are
For purposes of this section, the Secretary may require any payee of reportable interest or dividend payments who is subject to withholding under subsection (a)(1)(C) to notify the Secretary of—
(B)
all brokers with whom the payee has accounts which may involve reportable interest or dividend payments.
The Secretary may notify any such broker that such payee is subject to withholding under subsection (a)(1)(C).
(d)
Interest and dividend backup withholding applies to new accounts and instruments unless payee certifies that he is not subject to such withholding
(1)
In general
There is a payee certification failure unless the payee has certified to the payor, under penalty of perjury, that such payee is not subject to withholding under subsection (a)(1)(C).
(2)
Special rules for readily tradable instruments
(A)
In general
Subsection (a)(1)(D) shall apply to any reportable interest or dividend payment to any payee on any readily tradable instrument if (and only if) the payor was notified by a broker under subparagraph (B) or no certification was provided to the payor by the payee under paragraph (1) and—
(B)
Broker notifies payor
If—
(ii)
with respect to such acquisition—
(I)
the payee fails to furnish his TIN to the broker in the manner required under subsection (a)(1)(A),
(II)
the Secretary notifies such broker before such acquisition that the TIN furnished by the payee is incorrect,
(III)
the Secretary notifies such broker before such acquisition that such payee is subject to withholding under subsection (a)(1)(C), or
such broker shall, within such period as the Secretary may prescribe by regulations (but not later than 15 days after such acquisition), notify the payor that such payee is subject to withholding under subparagraph (A), (B), (C), or (D) of subsection (a)(1), respectively.
(C)
Time for payee to provide certification to broker
In the case of any readily tradable instrument acquired by a payee through a broker, the certification described in paragraph (1) may be provided by the payee to such broker—
(3)
Exception for existing accounts, etc.
This subsection and subsection (a)(1)(D) shall not apply to any reportable interest or dividend payment which is paid or credited—
(A)
in the case of interest or any other amount of a kind reportable under section
6049, with respect to any account (whatever called) established before January 1, 1984, or with respect to any instrument acquired before January 1, 1984,
(B)
in the case of dividends or any other amount reportable under section
6042, on any stock or other instrument acquired before January 1, 1984, or
(C)
in the case of patronage dividends or other amounts of a kind reportable under section
6044, with respect to any membership acquired, or contract entered into, before January 1, 1984.
(4)
Exception for readily tradable instruments acquired through existing brokerage accounts
Subparagraph (B) of paragraph (2) shall not apply with respect to a readily tradable instrument which was acquired through an account with a broker if—
(B)
during 1983, such broker bought or sold instruments for the payee (or acted as a nominee for the payee) through such account.
The preceding sentence shall not apply with respect to any readily tradable instrument acquired through such account after the broker was notified by the Secretary that the payee is subject to withholding under subsection (a)(1)(C).
(e)
Period for which withholding is in effect
(1)
Failure to furnish TIN
In the case of any failure by a payee to furnish his TIN to a payor in the manner required, subsection (a) shall apply to any reportable payment made by such payor during the period during which the TIN has not been furnished in the manner required. The Secretary may require that a TIN required to be furnished under subsection (a)(1)(A) be provided under penalties of perjury only with respect to interest, dividends, patronage dividends, and amounts subject to broker reporting.
(2)
Notification of incorrect number
In any case in which the Secretary notifies the payor that the TIN furnished by the payee is incorrect, subsection (a) shall apply to any reportable payment made by such payor—
(3)
Notified payee underreporting described in subsection (c)
(A)
In general
In the case of any notified payee underreporting described in subsection (c), subsection (a) shall apply to any reportable interest or dividend payment made—
(B)
Stop date
For purposes of this subsection, the term “stop date” means the determination effective date or, if later, the earlier of—
(C)
Determination effective date
For purposes of this subsection—
(4)
Failure to provide certification that payee is not subject to withholding
(A)
In general
In the case of any payee certification failure described in subsection (d)(1), subsection (a) shall apply to any reportable interest or dividend payment made during the period during which the certification described in subsection (d)(1) has not been furnished to the payor.
(B)
Special rule for readily tradable instruments acquired through broker where notification
In the case of any readily tradable instrument acquired by the payee through a broker, the period described in subparagraph (A) shall start with payments to the payee made after the close of the 30th day after the payor receives notification from a broker under subsection (d)(2)(B).
(5)
30-day grace periods
(A)
Start-up
If the payor elects the application of this subparagraph with respect to the payee, subsection (a) shall also apply to any reportable payment made during the 30-day period described in paragraph (2)(A), (3)(A), or (4)(B).
(B)
Stopping
Unless the payor elects not to have this subparagraph apply with respect to the payee, subsection (a) shall also apply to any reportable payment made after the close of the period described in paragraph (1), (2), or (4) (as the case may be) and before the 30th day after the close of such period. A similar rule shall also apply with respect to the period described in paragraph (3)(A) where the stop date is determined under clause (i) or (ii) of paragraph (3)(B).
(f)
Confidentiality of information
(2)
Cross reference
For provision providing for civil damages for violation of paragraph (1), see section
7431.
(g)
Exceptions
(1)
Payments to certain payees
Subsection (a) shall not apply to any payment made to—
(h)
Other definitions and special rules
For purposes of this section—
(1)
Obviously incorrect number
A person shall be treated as failing to furnish his TIN if the TIN furnished does not contain the proper number of digits.
(2)
Payee furnishes 2 incorrect TINs
If the payee furnishes the payor 2 incorrect TINs in any 3-year period, the payor shall, after receiving notice of the second incorrect TIN, treat the payee as not having furnished another TIN under subsection (e)(2)(B) until the day on which the payor receives notification from the Secretary that a correct TIN has been furnished.
(3)
Joint payees
Except to the extent otherwise provided in regulations, any payment to joint payees shall be treated as if all the payment were made to the first person listed in the payment.
(4)
Payor defined
The term “payor” means, with respect to any reportable payment, a person required to file a return described in paragraph (2) or (3) of subsection (b) with respect to such payment.
(5)
Broker
(B)
Only 1 broker per acquisition
If, but for this subparagraph, there would be more than 1 broker with respect to any acquisition, only the broker having the closest contact with the payee shall be treated as the broker.
(6)
Readily tradable instrument
The term “readily tradable instrument” means—
(8)
Requirement of notice to payee
Whenever the Secretary notifies a payor under paragraph (1)(B) of subsection (a) that the TIN furnished by any payee is incorrect, the Secretary shall at the same time furnish a copy of such notice to the payor, and the payor shall promptly furnish such copy to the payee.
(9)
Requirement of notice to Secretary
If the Secretary notifies a payor under paragraph (1)(B) of subsection (a) that the TIN furnished by any payee is incorrect and such payee subsequently furnishes another TIN to the payor, the payor shall promptly notify the Secretary of the other TIN so furnished.
(10)
Coordination with other sections
For purposes of section
31, this chapter (other than section
3402
(n)), and so much of subtitle F (other than section
7205) as relates to this chapter, payments which are subject to withholding under this section shall be treated as if they were wages paid by an employer to an employee (and amounts deducted and withheld under this section shall be treated as if deducted and withheld under section
3402).
(i)
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.