TIN Management

The IRS, U.S. Treasury, and Congress recently passed several new pieces of legislation that have a significant impact to information reporting and withholding, that will reduce the current “Tax Gap”. The new legislation is focused on the effort to enforce current requirements and expand information reporting and mandatory withholding regulations, significantly broadening the application of tax law. Full information reporting audits are now being conducted which will include all 1099, 1098, W-2G and 1042-S forms / payment transactions.

Is the payee a U.S. person or is the payee a foreign payee?
US Code § 6672: Failure to collect and pay over tax, or attempt to evade or defeat tax
Why risk financial liability to your organization for failure to certify, identify, and withhold?
Preparing to Comply

Current regulatory law requires any U.S. organization issuing U.S. Source income payments to properly obtain the tax identification number (TIN) and legally related name from each payee along with their tax status – individual, corporation, LLC, LLP, partnership, or other designation. In many cases, depending on the type of payment, the payer is required to obtain a certified copy of Form W9 from a U.S. Payee or a Form W-8 from a foreign payee.

Failure to obtain the TIN, legal name and status places the payer in the position of being required to withhold federal tax and possibly state tax from each payment. This withholding must continue until the payer receives the required information and proper documentation, as required (Form W-9, Form W-8).

Many organizations issuing such payments should understand that failure to initiate the required withholding transfers the financial liability for the amount of withholding to the company. Therefore, a payer who fails to obtain the proper TIN and name certification and fails to withhold can incur penalties for failure to withhold, timely deposit of the tax withheld and the correct amount of the tax required to be withheld.

If your company finds itself in the position where a payee has not provided the TIN, name and status when requested or has not completed the required documentation (Form W-9/Form W-8) – a determination of U.S. or foreign status must be made based on the knowledge of the payee’s information.

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