Backup Withholding Issues Uncovered
In a recent report, the Treasury Inspector General for Tax Administration reported that backup withholding tax was not withheld by payers submitting Tax Year (TY) 2013 information returns with missing or incorrect taxpayer identification numbers (TINs). TIGTA explained that the IRS defines a missing TIN as one that is not provided, has more or less than nine numbers, or has an alpha character as one of the nine positions. The IRS defines a TIN as incorrect if it is in the proper format but the name/TIN combination does not match or cannot be found on the IRS’s records or the records of the Social Security Administration (SSA).
TIGTA’s review of TY 2013 uncovered more than 300,000 information returns for which the payee TIN was missing. These returns reported payments totaling $145 billion. Payers were required to withhold almost $41 billion from these payees but only $5 million was withheld, TIGTA reported.
TIGTA also found more than 27,000 returns with the same missing payee TIN, payee name, and payee ZIP code for two consecutive tax years (TYs 2012 and 2013). These returns reported payments totaling about $14.3 billion. Payers were required to withhold nearly $4 billion but only $1 million was withheld, TIGTA reported.
Additionally, TIGTA found more than 200,000 information returns for which the payee TIN was incorrect for four consecutive years (TYs 2010 through 2013). These returns reported payments totaling $17 billion in TY 2013. Payers were required to withhold nearly $5 billion from these payees but only $1 million was withheld.
TIGTA cautioned that backup withholding is essential to ensuring that the IRS is able to collect taxes on all appropriate income.