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Our vendor responded to the "first" B-Notice we sent with . . .

Question

Our vendor responded to the "first" B-Notice we sent with a new Form W-9 that contained the same name/TIN information. How do we proceed?

Answer

Since the vendor returned the required information in response to your first B-Notice, you will retain that new Form W-9 in your files and rely on that information for reporting until the IRS tells you again that it is a mismatch. The "Reasonable Cause" regulatory requirements for B-Notice action and documentation are strictly prescribed in Sec. 3406(d)-5 and Sec. 6724 of the Treasury Regulations. With regard to a first B-Notice, the vendor returned the proper documentation, signed under penalty of perjury.

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We received a B-Notice that included a vendor for whom . . .

Question

We received a B-Notice that included a vendor for whom we now have an updated Form W-9 (received before the IRS B-Notice was received). How do we resolve the issue?

Answer

Before you send B-Notice letters to those vendors who appear on the list you received from the IRS, your internal tasks include comparing the IRS list with the information on file in your systems. The IRS regulations state that B-Notice action and eventual backup withholding occur only on those accounts where the name and TIN in your system match the information on the B-Notice list.

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We have received a B-Notice that includes vendors we no . . .

Question

We have received a B-Notice that includes vendors we no longer conduct business with. Are we still required to send a B-Notice letter to these vendors?

Answer

The IRS does not make exceptions for closed or inactive accounts with regard to B-Notice mailing requirements. If a vendor appears on the B-Notice list--whether you no longer do business with him or he has gone out of business--you must still send the B-Notice letter and, if you do not receive the required response by the response deadline, you must maintain a "subject to backup withholding" status for the vendor for three years from the date of the B-Notice, in case the vendor ever comes active again during this period.

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A third party files our Forms 1099 with the government, . . .

Question

A third party files our Forms 1099 with the government, but we have received the penalty notice. How should we proceed with resolving this issue?

Answer

If the proposed penalty notice shows your company name and EIN, you will have to take action. You can contact the IRS office from which the penalty notice came and request additional time to respond due to having to coordinate with a third party to get the documentation together to support a request for a waiver of the penalty. If you obtain extra time, it will be helpful. You cannot ignore the penalty notice just because you use a third party to prepare your 1099s.

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We just received our B-Notice (CP-2100) list. How much time . . .

Question

We just received our B-Notice (CP-2100) list. How much time do we have to send our B-Notice letters, and how much time does the client have to respond to our request?

Answer

You have 15 business days from the "trigger date" of the IRS B-Notice to send the payee a B-Notice letter; the payee has 30 business days from the "trigger date" of the IRS B-Notice to respond to the letter you sent. The "trigger date" is the date on the IRS B-Notice you received, or the date you received the IRS B-Notice, whichever is later.

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A vendor for whom we received a new Form W-9 . . .

Question

A vendor for whom we received a new Form W-9 after he appeared on the B-Notice list has now appeared for the second year in a row. What action do we take with this vendor now?

Answer

When a payee appears on the B-Notice list for the second time in three years, you must send a "second" B-Notice letter specifying the actions the payee must take to avoid backup withholding. The vendor must return Form 7028 from the SSA for an incorrect SSN or provide letter 147C from the IRS for incorrect EINs.

You can find information in IRS Publication 1281 on what language must appear in the letter you send to your vendor.

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How long are we required to keep copies of our . . .

Question

How long are we required to keep copies of our B-Notice letters and notifications?

Answer

IRS guidance does not specifically address the retention of B-Notice documentation. However, we recommend seven years.

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We recently received a paper B-Notice list, instead of a . . .

Question

We recently received a paper B-Notice list, instead of a tape cartridge, from the IRS. Is this normal and do we handle it in the same way?

Answer

The IRS sends a paper list for B-Notices when there are less than 250 name/TIN mismatches. Since you have received the list in tape form in previous years, this indicates you have lowered your B-Notice rate. Congratulations; and document this, because you will want to use it as evidence of an improving rate of compliance as part of "Reasonable Cause" defense against future IRS proposed penalties.

Working with a paper list, simply resolve the list of B-Notice items in the same way as you would resolve the data on an IRS tape.

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A vendor/payee recently responded to a B-Notice with the incorrect . . .

Question

A vendor/payee recently responded to a B-Notice with the incorrect proof. Should we attempt to contact the payee again to explain that we need specific information to avoid backup withholding?

Answer

You are not required by the IRS to follow up with a payee if he returns incorrect or inadequate documentation to you in response to a B-Notice letter.

However, you can always do so to try to obtain the correct documentation. Keep in mind the 30-business-day time limit for obtaining the required documentation in order to prevent backup withholding. Your own initiatives for repeat contact with a vendor do not have any power to change the backup withholding deadline date.

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What documentation do we include with the B-Notice letters sent . . .

Question

What documentation do we include with the B-Notice letters sent to our payees?

Answer

This depends on whether you are sending a "first" or "second" B-Notice letter to the payee. (See other questions in this series for additional information.)

When sending a first B-Notice to your payee, the mailing requires a Form W-9 to be signed under penalty of perjury, a letter using specific IRS language, and a return envelope. See Rev. Proc. 93-37 for details.

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