Frequently Asked Questions
Who is eligible for the Undue Hardship Backup Withholding Cessation?
Available to payees currently subject to backup withholding due to notified underreporting who can demonstrate financial hardship and a commitment to future compliance.
How does the Undue Hardship Backup Withholding Cessation work?
Taxpayers can request the Secretary to stop backup withholding on interest and dividends if they can prove it causes undue hardship and future underreporting is unlikely.
What law authorizes the Undue Hardship Backup Withholding Cessation?
The Undue Hardship Backup Withholding Cessation is authorized under IRC §3406(c)(3) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §3406
Source: Internal Revenue Code, Title 26, United States Code
§ 3406. Backup withholding(a) Requirement to deduct and withhold(1) In generalIn the case of any reportable payment, if—(A) the payee fails to furnish his TIN to the payor in the manner required,
(B) the Secretary notifies the payor that the TIN furnished by the payee is incorrect,
(C) there has been a notified payee underreporting described in subsection (c), or
(D) there has been a payee certification failure described in subsection (d),
then the payor shall deduct and withhold from such payment a tax equal to the product of the fourth lowest rate of tax applicable under section 1(c) 11 See References in Text note below. and such payment.
(2) Subparagraphs (C) and (D) of paragraph (1) apply only to interest and dividend paymentsSubparagraphs (C) and (D) of paragraph (1) shall apply only to reportable interest or dividend payments.
(b) Reportable payment, etc.For purposes of this section—(1) Reportable paymentThe term “reportable payment” means—(A) any reportable interest or dividend payment, and
(B) any other reportable payment.
(2) Reportable interest or dividend payment(A) In generalThe term “reportable interest or dividend payment” means any payment of a kind, and to a payee, required to be shown on a return required under—(i) section 6049(a) (relating to payments of interest),
(ii) section 6042(a) (relating to payments of dividends), or
(iii) section 6044 (relating to payments of patronage dividends) but only to the extent such payment is in money.
(B) Special rule for patronage dividendsFor purposes of subparagraphs (C) and (D) of subsection (a)(1), the term “reportable interest or dividend payment” shall not include any payment to which section 6044 (relating to patronage dividends) applies unless 50 percent or more of such payment is in money.
(3) Other reportable paymentThe term “other reportable payment” means any payment of a kind, and to a payee, required to be shown on a return required under—(A) section 6041 (relating to certain information at source),
(B) section 6041A(a) (relating to payments of remuneration for services),
(C) section 6045 (relating to returns of brokers),
(D) section 6050A (relating to reporting requirements of certain fishing boat operators), but only to the extent such payment is in money and represents a share of the proceeds of the catch,
(E) section 6050N (relating to payments of royalties), or
(F) section 6050W (relating to returns relating to payments made in settlement of payment card transactions).
(4) Whether payment is of reportable kind determined without regard to minimum amountThe determination of whether any payment is of a kind required to be shown on a return described in paragraph (2) or (3) shall be made without regard to any minimum amount which must be paid before a return is required.
(5) Exception for certain small paymentsTo the extent provided in regulations, the term “reportable payment” shall not include any payment which—(A) does not exceed $10, and
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