Dan Lauer, an IRS executive for SBSE, told an audience at the American Payroll Association’s Capital Summit on March 25 that the Service is launching a program in the summer of 2019 to pursue backup withholding failures.  Backup withholding is required under section 3406, and the current backup withholding rate is 24%.  Generally, backup withholding applies when a payor makes a reportable payment to non-corporate payees and does not possess the payee’s TIN.

Lauer indicated that the IRS receives Forms 1099 reporting payments without required TINs and without required withholding.  The IRS plans to contact filers to explore these apparent backup withholding failures.  Lauer’s comments suggested that examinations in this area will evolve based upon what the IRS encounters.

Forms 1099 submitted without TINs are often identified by the IRS on the Notice 972CG or Notice CP2100/CP2100A.  Filers should prospectively investigate payees with missing TINs prior to making reportable payments and before filing information returns based upon the increased examination risk for apparent withholding failures.  Remediating backup withholding failures can be  a costly and a time consuming exercise if TIN solicitation practices are lacking.  Further, backup withholding assessments are “above the line” expenses for businesses, meaning that the costs directly impact expenses included in computing pretax income.