Woodstock Accounting Firm 770-591-8505

Contractors with no W-9 or TIN/SSN

James Quezada & Simona Quezada, CA-5, No 19-51000, December 11, 2020

Mr. Quezada did not get the TIN/SSN for contractors he paid. He either prepared a 1099 without the TIN/SSN or did not even prepare one at all over a period of 4 years of 2005-2008.

The IRS has the following in the IRS code. BACKUP WITHHOLDING – IRC Section 3405(a) addresses the backup withholding requirements by stating a taxpayer must withhold at the 4th individual tax rate (currently 24%) in any of four events.  The first event listed (Section 3405(a)(1)(A)) is “the payee fails to furnish his TIN to the payer in the manner required.”

Mr. Quezada was required to do backup withholding and file Form 945 to show the backup withholding and turn the money over to the IRS. He did not do any of it. The Court of Appeals agreed Mr. Quezada was responsible to backup withhold.

In 2014, the IRS assessed the backup withholding against Mr. Quezada for about $1.2 million plus penalties and interest. Mr. Quezada argued the time frame (statute of limitations) had run out and the IRS could not charge that amount for backup withholding. Mr. Quezada won that point. The Court of Appeals stated the IRS was past the statue of limitations when the IRS did the initial assessment in 2014. The IRS has stated it will not acquiesce this position. In other words, IRS will not follow the Court’s position.

This is a warning to taxpayers who do not have the recipient’s TIN/SSN at the time payment is to be made, that the taxpayers should backup withhold (24%) and subsequently file Form 945 to turn the funds over to IRS.

In summary, GET THE W-9 FULLY COMPLETED and IN HAND PRIOR to making a payment to any contractor.