New Backup Withholding Procedures: Social Security Number Validation following Receipt of Second B Notice…

The IRS recently announced a significant procedural change as it relates to an individual payee’s proper response to a 2^nd B Notice. Historically, the procedure for the individual payee who received a 2^nd B Notice was to request and authorize their local Social Security Administration (SSA) office to send Form  SSA-7028 onto the payer. This form would indicate the payee’s Name and Social Security Number on file at the SSA. This form was the only way an individual payee could either prevent or stop backup withholding on subsequent payments made by the payer to the payee. It provided the payer with a proper certifying document and validation required to prevent or stop backup withholding under section 3406 of the Internal Revenue Code when an individual payee received a 2^nd B Notice.

The Form SSA-7028 was discontinued effective January 1^st, 2010 by the IRS and until now no replacement had been identified. One of the greatest challenges to the payer and payee community when a 2^ndB Notice had been issued was for the payee to successfully direct the SSA to send this Form SSA-7028 onto the payer. The consistent challenge that payees faced was that the local SSA office never heard of such a form and therefore rarely provided this onto the payer to resolve the 2^ndB Notice. The payees were left frustrated by the process and unable to prevent the inevitable backup withholding. The payers were forced to make a difficult decision on deciding to either comply with the backup withholding rules and jeopardize the client relationship or make a business decision not to withhold but risk compliance. Darn if you do darn if you don’t.

This change appears to resolve this historic challenge by allowing the payee to contact their local SSA office and request a Social Security Number print out in lieu of Form SSA-7028. The Social Security Number print out will validate the SSN of the individual and will serve as acceptable validation of the individual’s TIN for purposes of the requirements of section 3406. The individual should then provide a copy of the print out to the payer who sent the 2^nd B Notice. The payer would then be in compliance and would not be required to start backup withholding or if already started could use this print out as a means to stop backup withholding.

So how should the payer community incorporate this new procedure? The IRS has provided language to now include when issuing a 2^nd B Notice letter to a payee, be certain that your provider accounts for these changes. You will need to train your front-line staff on this change so they can consistently respond to questions in this area and you will need to modify your document intake process when certifying proper documentation so you will properly accept the SSN printout as validation. For Convey clients, these changes will be put in place for both the 2^nd B Notice letter as well as for the upcoming B Notice season and a our products will be updated to add a mechanism to document and track this new response type. This has been a long awaited and necessary change to improve compliance and customer service all in one. Nice work IRS!

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