Who receives one
C-Notices cover payments reportable on Forms 1099-INT, DIV, PATR and OID only (IRM 5.19.3.5.2.3). A payer of nonemployee compensation, rents or card payments will never see a CP543. Banks, brokerages, credit unions, cooperatives and any company that pays interest on customer balances will. Payments are "considered made when they are credited to the taxpayer's account."
How it starts
IRM 5.19.3.5.2.4 to 5.2.9, 5.19.3.5.2.15.
The payee has had at least four IRS contacts over at least 120 days before you hear anything (IRM 5.19.3.5.2.4). By the time CP543 reaches you, the payee's account carries a status code (the manual's "BWI 2, subject") and the IRS expects the withholding to be running.
What the payer does
- Begin 24% backup withholding within 30 business days of the CP543 on all reportable interest, dividend, patronage and OID payments to that payee (IRM 5.19.3.5.2.5).
- Withhold on every account the payee holds with you that you can find with reasonable care, not only the one on the notice.
- If the payee is not yours: "No action is required when the payer states this is not their payee on Notice 543 or Notice 544" (IRM 5.19.3.5.2.6(6)). File the notice; there is nothing to send back. If you ask the IRS to contact you, the answer is the same.
- Do not stop because the payee asks, shows you a paid balance, or closes the account. Only an IRS stop notice ends it (below).
- Keep withholding under the C program even if the same payee later cures a B-Notice with a new W-9: "Only one Backup Withholding type is enforced at a time, but the withholding must continue until the payee is no longer liable" under every program (Exhibit 5.19.3-2 Q14). Track the reason, not just a yes/no flag.
How it stops: October 15 and January 1
The IRS runs an annual analysis after October 15. If the payee has resolved every condition by that date, withholding is released systemically on January 1. If the payee resolves it between October 16 and January 1, the account stays in subject status "until the second January 1" (IRM 5.19.3.5.2.9). The manual's example: resolved November 1, 2015, released January 1, 2017. Payers should expect stop notices to cluster at the new year, and payees who cured in November should be told the normal release is more than a year away unless they get a quick-release letter.
IRM 5.19.3.4(9)-(11), 5.19.3.5.2.6(3), Exhibit 5.19.3-2 Q13.
The letters that end it
| Document | What it does | Cite |
|---|---|---|
| CP544 | The systemic stop notice to the payer. Stop on receipt. | 5.19.3.5.2.6 |
| Letter 2027-C, Payor Stop Letter | Quick release when withholding was imposed by IRS error or causes undue hardship. "The letter authorizes the payor(s) to stop withholding within 30 days." Replaced Letter 1979-C for this purpose in the 2025 revision. | 5.19.3.5.2.15 |
| Letter 1979-C (from the payee) | Sent to a payee whose appeal is granted; the payee may hand a copy to payers as authority to stop. | 5.19.3.5.2.15(5) |
| Nothing from the payee alone | A paid-in-full letter, a transcript or a promise is not a stop instruction. Normal release takes "six to eight weeks" after resolution outside the quick-release path. | 5.19.3.5.2.15 |
What does not stop it
Bankruptcy and going out of business on the payee's side do not; disaster relief does in one case only: a payee under a federally declared disaster "-O freeze" is suspended systemically and restarted afterward, while an "-S freeze" disaster does not suspend it. A payee in a combat zone is suspended until six months after leaving, and "Payers will be notified to stop BWH" (IRM 5.19.3.5.2.6(7) to (8)). A payer may therefore receive a stop and a restart for the same payee with no error anywhere.
The deceased-spouse trap
The manual's own illustration (Exhibit 5.19.3-2 Q8 to Q9): a widow keeps her late husband's SSN on the joint bank accounts. Notices go to a dead man, nobody answers, and eventually the bank receives a CP543 and withholds on her interest. The IRS's answer is that "the payee should be advised to notify payors to change the SSN on all accounts." For a payer, the fix is a process: when a joint account holder dies, move the controlling TIN to the survivor. The same mechanism catches a divorced spouse whose ex-husband's SSN is still primary on an old joint account. If an estate has not yet obtained its own TIN, the manual says "it is advisable to use the SSN of the deceased individual as listed on the existing account" in the meantime (Exhibit 5.19.3-1 Q19).
Successor payers: CP546
When one payer takes over another and the predecessor's records are unavailable, the successor can request a Special Backup Withholding Listing, CP546, of every payee currently subject to C-program withholding, by Form 4442 to the lead backup withholding examiner, giving both the successor's and the closed payer's name, address and TIN (IRM 5.19.3.5.2.16). The IRS verifies the old payer's filing requirements are closed and the new one is established. It covers only C-program payees; there is no equivalent for B-Notice status, because the IRS keeps no record of that. Recipients are warned the data is "only for their use in complying with BWH regulations."
Questions people ask
The payee showed us a receipt for full payment. Can we stop?
Not on that alone. Resolution is measured by the IRS after October 15 and released the following January 1; a payee who paid in full and cannot wait should ask the IRS for a quick-release Letter 2027-C, which authorizes you to stop within 30 days (IRM 5.19.3.5.2.15).
Do C-Notices ever apply to 1099-NEC?
No. IRC 3406(a)(1)(C) reaches only interest, dividends, patronage dividends and original issue discount (IRM 5.19.3.5.2.3).
What is the payee's status code the IRS mentioned on the phone?
The manual's BWI indicator: 0 no consideration, 1 potentially liable (notices issuing), 2 subject (you should be withholding), 4 satisfied, 8 suspended (IRM 5.19.3.4(7)). A payee told they are "4" still needs the IRS to send you CP544 or 2027-C before you stop.