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Welcome to our BUW presentation! The information presented here is current as of the day it was presented.

  This material isn’t official guidance.

Any stories, names, characters, and incidents portrayed in this production are fictional.

No identification with actual persons, living or deceased, with places, buildings and products is intended or should be inferred.

  We’re recording this production and maintaining it in accordance with federal recordkeeping laws.

Now let’s begin! Did you know that “backup withholding” refers to the tax withheld from a payment to a service vendor reportable on on Form 1099-MISC?

  The 1099-MISC could be for rents, royalties, medical and health care payments, gross proceeds to attorneys, or other types of service-based income. The tax rate for backup withholding is currently set at 24%.

  The IRS holds payors responsible for knowing who they are paying.

To accomplish this, payors are required to collect the legal name and taxpayer identification number, or TIN, from vendors they pay. This important information is commonly collected using the form W-9.

Backup withholding usually comes up because a vendor payee has not provided a payor with the correct name and TIN for their paid services.

The first time you pay a vendor resulting in total payments of $600 or more, and they have not provided their name and TIN   you must withhold from their payments at the rate of 24%.

You would continue to withhold from payments to them until they do comply and provide the correct information.

If the vendor provides information, but it isn’t completely accurate, IRS records and Form 1099-MISC detail will not match.

  If the payor issues Form 1099 using incorrect name/TIN at the year end, later when the IRS runs TIN Match it will discover that the name and TIN listed on the form provided do not match the name and TIN recorded with the IRS.

When that happens, the IRS notifies the payor of the problem using a letter named “CP2100 Notice” or “CP2100A” for small payors   with less than 50 incorrectly filed Form 1099s. Payors must respond to this notice on a timely basis or risk backup withholding and penalties.

  To help avoid errors and notices from the IRS, we encourage payors to verify that names and TINs match IRS records when a payee first provides this information. You can do this using our online TIN Matching Program.

You can access and learn about this program on Watch our video, “Taxpayer Identification Number (TIN) Matching Program.”   The CP2100 Notice from the IRS lists all the Forms 1099-MISC received from a payor that resulted in incorrect names or TINs.

If your business receives a CP2100 Notice, check your records to be sure the name and TIN you entered on the Form 1099-MISC matches the information the payee gave you.

If the CP2100 shows the same name and TIN as originally provided to you by the payee, then they must have provided you with inaccurate   information and you must issue the payee one of two B Notices.

B-Notices are explained in the letter with the CP2100 Notice and in the IRS Publication 1281.

  Send the First B Notice if this is your first contact with a payee to clear up the discrepancy.

  You do this by sending Form W-9, Request for Taxpayer Identification Number and Certification and Instructions, to the payee along with the First B Notice letter.

The vendor needs to complete, sign and return the W-9 to you. They certify under penalties of perjury that the name and number is correct.

  If the payee doesn’t send back a completed Form W-9 within 30 days, you must initiate backup withholding from any payments made to that vendor until you do receive the completed and signed Form W-9.

Use the Second B Notice if the IRS notifies you in a subsequent year of a name/TIN mismatch for the same payee you already   contacted with a First B Notice.

  This Second B Notice requires the payee to get a validation letter from the IRS or a current SS Card displaying their correct name and identification number. The Second B Notice includes detailed instructions the payee will follow so they can satisfy the requirements.

You must send the Second B Notice within 15 business days of receiving the CP2100 notice from the IRS.

Meanwhile, apply 24% backup withholding to all payments to this payee beginning 30 business days after the date you sent the Second B   Notice and continue to back up withhold until the payee provides you with a validation letter from the IRS or current SS Card.

When you do withhold from payments to a vendor, include the amount withheld all year on their Form 1099-MISC as Federal Income Tax Withheld. Also, report the gross amount of payments to them.

The vendor/payee will deduct the amount you already withheld from their calculated tax liability when they file their annual federal   income tax return. The IRS regulations state that if backup withholding is not performed when it should have been, then you, as the payor, may become liable for tax amounts and penalties.

Now let’s summarize the steps with an example.

You, as the payor, obtain services from a vendor.

Before services begin, the vendor gives you a completed Form W-9.

At the end of the calendar year you give the vendor a Form 1099.

The IRS sends you a CP2100A Notice that shows the name and TIN provided on the Form 1099 does not match IRS records.

You check your records to ensure you accurately recorded the name and TIN on the Form 1099.

  If so, you issue the vendor the First B Notice with a Form W-9 and instructions. The vendor returns the signed Form W-9 within 30 days.

At the end of calendar year, you provide the vendor a Form 1099 with the updated name and TIN provided on the new Form W-9.

The IRS sends you another CP2100A Notice that this same vendor’s name and TIN still do not match their records.

  You again check that the error wasn’t in your completion the Form 1099.

If not, you issue the vendor the Second B Notice that instructs the vendor to obtain a current SS Card or IRS validation letter.

The vendor provides their IRS validation letter or current SS card within 30 days of issuing the Second B Notice.

If they do not, you must subtract backup withholding from all payments to that vendor and deposit it with the IRS.

What happens when the IRS sends you a CP2100 Notice? You check your documents and determine the TIN you entered on the Form   1099 is incorrect?

  If you reported the incorrect information or it changed after filing the return, correct your records and include the correct information on any future information returns you file. Do not send a “B” Notice to the payee and Do not send the correction to the IRS. Don’t worry - all the information we’ve discussed is in the IRS Publication 1281, and   and Form W-9 Instructions.

Find these and more resources at Visit for our videos on BUW, when and why to use TIN Matching Program   and why file Form 1099-MISC, and more.

Also, please remember: The IRS provides interactive online training to ensure your charity’s officers, board members and volunteers don’t take actions that jeopardize your exemption. The Virtual Small to Mid-Sized Tax-Exempt Workshop at StayExempt is a valuable resource for all charities, old and new. Thank You for Watching!