Backup Withholding - Customer Notification

Question:

When a bank begins backup withholding on a customer, is it required to notify the customer?

Answer:

There are a number of reasons why you might impose backup withholding, so the answer is a firm "it depends." If you are backup withholding because the customer:

did not provide a TIN or failed to certify a TIN at account inception, no notice is required,
is identified as an underreporter by an IRS C-Notice, you must notify the customer within fifteen days of imposing backup withholding,
is identified as having provided an incorrect name/TIN combination by an IRS B-Notice, you will forward that notice to the customer, and depending on whether it is the first or second notice, it will say that backup withholding is threatened or it has been imposed.

B & C notices contain instructions.

First published on BankersOnline.com 11/02/09