Q. (cont.) If we withhold 28 percent on their next payment, how would we handle the payment that was previously made? Would we withhold double the amount (56 percent vs. 28 percent) on their next payment? Would we submit a 1099 without TIN information? What risks (i.e., penalties) does this scenario expose us to? Where specifically on the IRS website can I locate this information?
A. We spoke with IRS reporting specialist Ms. Sutton (# 1002213914) on this matter. She stated that for the payment already made, you cannot go back and withhold retroactively. But if you are unable to get a TIN going forward, you must go ahead and withhold at 28 percent, as you state. The detailed backup withholding instructions are contained within IRS Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs. There's also general information about backup withholding in section N of the 2016 General Instructions for Certain Information Returns.
It's a good idea to send the payee a W-9 form right away, if you haven't already, and record that you did so; that way, if you do receive a penalty notice, you have documentation about how and when you attempted to obtain the TIN. Likewise, whether or not you receive a response from the payee should be noted, with as much information as you have, including dates. She referred to IRS Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs. You may find the section beginning on page 8 of particular help. If you have done everything in good faith to obtain a valid TIN according to these instructions, and the payee simply will not cooperate, you may use that information to appeal any proposed penalty.
And should you still not have the TIN when it's time to file 1099s, you would go ahead and send the form anyway, simply leaving that box blank, according to Ms. Sutton. The amount withheld is reported in box 4.
One last note: the imposition of backup withholding can persuade an otherwise reluctant vendor to supply a TIN.