The IRS program that bills you 24% on every 1099 with a blank TIN

What the program is

The Campus Backup Withholding (CBWH) program is run by a single unit in Covington, Kentucky, under the Cincinnati campus. It was created in response to three Treasury Inspector General reports that found payers were filing information returns without payee TINs and without backup withholding, and that nobody at the IRS was following up. The manual that governs it, IRM 4.19.26, was issued October 24, 2022 and is the first version of its kind.

The unit does not wait for a CP2100. It selects cases directly from Payer Master File data, the database built from the 1099s you filed. There are two selection paths, which the IRM calls workstreams (IRM 4.19.26.1.1, 4.19.26.4.1):

The IRM is explicit that this is a compliance check, not an examination: "neither an inspection under IRC 7605(b) nor an audit under Section 530" (IRM 4.19.26.1.1). The IRS asks only for the missing return information. You may refuse to participate without penalty (IRM 4.19.26.10.7.10), but refusal changes nothing about what happens next: the IRS proceeds as if you had not responded and prepares the return for you.

Why a blank TIN is a 24% liability, not a penalty

The distinction the manual draws is the one most AP teams miss. An incorrect TIN triggers backup withholding only after the IRS tells you about it on a CP2100 and you have had 30 business days to fix it. A missing TIN triggers backup withholding at the moment of payment, "regardless of any threshold amount otherwise applicable to such payment" (IRM 4.19.26.2.3). There is no notice, no grace period and no dollar floor.

The IRM adds that "a continuing business relationship is not a factor in determining the Payer's liability" (IRM 4.19.26.10.7.14). A one-time payment to a contractor who never returned the W-9 is fully exposed.

The computation is mechanical. For Workstream 1 the unit's List of Payees shows every payee with a blank TIN, the total paid, and "computed backup withholding" equal to the payments times the rate: 24% for payments since January 1, 2018 and 28% for 2003 through 2017 (IRM 4.19.26.7.1.1, 4.19.26.2.2). You can compute your own exposure today from your own filing: the sum of the amounts on every 1099 you filed with an empty TIN box, times 0.24.

The letters, in order

Three procedural rules matter more than the dates:

• One extension, always 30 days. "If the Payer asks for only 15 days, then still give the Payer 30 more days. This is a one-time extension" (IRM 4.19.26.10.5). It runs from the original due date, not from the day you asked. A second request is denied.
• An incomplete response does not stop the clock. If your reply is missing something, the examiner sends Letter 3064-C describing what is missing, but "the case will not be suspended to provide additional time" and the letter itself states that the original due date "has not been extended" (IRM 4.19.26.10.6.2, Exhibit 4.19.26-11). A partial answer is treated much like silence.
• Undeliverable mail does not stop it either. If the letter comes back and the IRS finds no better address, the examiner "will move to the next compliance step" (IRM 4.19.26.10.3.2). Payers who moved without filing Form 8822-B can be assessed without ever seeing a letter.

What the IRS accepts

For a Workstream 1 case, exactly one thing relieves the liability: proof that the payee's TIN was on file when the payment was made. The manual defines "sufficient return information" as a written statement, signed by the payer, that the TINs were on hand at the time of the reportable payments, accompanied by the TINs themselves (IRM 4.19.26.10.6.1, 4.19.26.10.7.2).

A Form W-9 is the cleanest way to prove it, and the IRM's test is generous on one point: "If the Form W-9 is dated on or before the payment is made, then the Payer is not subject to backup withholding for that Payee, even if the payee TIN is incorrect" (IRM 4.19.26.10.7.2). A wrong TIN on a timely W-9 is a CP2100 problem for later, not a 24% liability now. That is the reasonable-reliance rule of Treas. Reg. 31.3406(h)-3(e) applied literally.

The IRS may not dictate the format. "The Payer is not required, and the TE must not ask the Payer, to provide the missing return information in a particular form such as Form W-9" (IRM 4.19.26.10.7.2). A dated vendor-master extract, a signed list, or copies of the original W-9s all work, as long as the signed statement about timing accompanies them. Examiners are also forbidden to look at the payee's own account ("TE must not research Payee transcripts"), so the decision is made entirely on the face of what you send.

What the IRS rejects

The other case: withholding reported, no Form 945

Workstream 2 catches a different mistake. If a 1099 shows an amount in box 4, the IRS treats that tax as withheld, full stop: "the income tax reported as withheld ... is considered to have been withheld" once the 1099 is furnished (IRM 4.19.26.10.7.5). Cancelled checks, journals and ledgers showing you paid the payee gross "are insufficient."

The only escape is narrow. Under Treas. Reg. 31.6413(a)-3(b) a payer can refund erroneous withholding to the payee only before the end of the calendar year and before furnishing the 1099. After that, a box 4 data-entry error is a real liability. And the manual warns examiners that corrected 1099s filed after Letter 6112 arrives "may be fraudulent" and can be referred to the fraud coordinator (IRM 4.19.26.10.7.7). Fix box 4 errors in December, not in response to a letter.

Two related points: a payer cannot recharacterize backup withholding as voluntary income-tax withholding or vice versa to change the outcome ("TEs will not revise the LOP based on this assertion"), and any actual withholding below 24% is credited toward the backup-withholding liability rather than treated separately (IRM 4.19.26.10.7.8).

Form 4669: the payee already paid the tax

If the payee reported the income and paid the tax on their own return, IRC 3402(d) (applied to backup withholding through 3406(h)(10)) relieves the payer of the tax. The mechanism is one Form 4669 per payee per year, signed by the payee under penalties of perjury, transmitted with Form 4670. The IRM treats a complete, signed 4669 as prima facie evidence (IRM 4.19.26.10.7.13.1).

Three limits. First, "Provision of Form 4669 does not provide relief from penalties and interest" (IRM 4.19.26.2.3). The IRS deliberately assesses the gross tax plus penalties and interest first, then abates only the tax, so the penalties keep running on the full amount. Second, the relief is not offered in Workstream 2 cases where you actually withheld and kept the money (IRM 4.19.26.10.7.13). Third, the rejection checklist is strict: a truncated TIN, more than one tax year on a form, line 6 amounts that do not tie to the IRS's list, a payee who does not identify the form, schedule and line where the income was reported, or an altered jurat all bounce it, and "unless the only missing information was the signature, the Payer will need to secure a new Form(s) 4669" (IRM 4.19.26.10.7.13.2). Accepted forms are forwarded to Employment Tax workload selection for review of the payee, so payees should know that signing one puts their name in front of another IRS function.

Penalties, interest and First Time Abate

Two rules in the penalty section change how you should respond even when you agree you owe the tax.

First, if you do not supply a liability schedule (Form 945 line 7 or Form 945-A), "All deposits will be treated as if they were more than 15 days late" and penalized at 10% (IRM 4.19.26.9.6). A payer that did deposit some withholding but answers without the schedule is penalized as if every deposit was late.

Second, First Time Abate exists here (unlike for information return penalties), but "FTA is not available on 6020(b) returns" (IRM 4.19.26.11.2.4). You qualify only if you file your own Form 945 or sign and return the one the examiner prepared. Ignoring Letter 6112-A and letting the IRS assess forfeits the one administrative waiver that can wipe the 25% and 10% penalties. Signing the IRS's return while disputing the amount is a different decision from silence, and the manual treats them very differently. Reasonable cause is available too, but the IRM applies the heightened standard for trust-fund taxes and lists mistake, reliance on another party, ignorance of the law and forgetfulness as generally insufficient (IRM 4.19.26.11.2.5).

Appeals and collection

Backup withholding is treated as an employment tax. That means no statutory notice of deficiency and no prepayment Tax Court forum; the assessment rests on IRC 6201 and your own filed 1099s (IRM 4.19.26.14.1). Letter 6112-A is the appeal-rights letter, and a written protest meeting Publication 5 standards must arrive before its due date. The manual is candid that "Procedures to forward a case to the Independent Office of Appeals are currently under development" (IRM 4.19.26.13.4), so expect the case to be routed through the unit's manager. Appealing "does not stop accrual of interest."

After assessment, "the first and final notices are the only notices issued. After the final notice, the next notice will be a levy and/or lien" (IRM 4.19.26.14.3). A late response can get a collection hold, but only while the unit still has a control on the case; once it is in ACS or with a revenue officer, the unit has to coordinate with them. Bankruptcy and going out of business do not eliminate the liability (IRM 4.19.26.10.7.16). One generous rule: if your records were lost in a federally declared disaster, the case is closed with no change (IRM 4.19.26.10.7.15).

How to never receive Letter 6112

1. No TIN, no payment. The regulation already says this; the IRM shows what enforcing it looks like. If the vendor will not return a W-9, withhold 24% from the first payment and deposit it. The backup withholding guide covers deposits and Form 945.
2. Date-stamp every TIN. Store the date the W-9 or TIN arrived next to the TIN. That date, and the fact that it precedes the first payment, is the entire defense.
3. File Form 945 whenever box 4 is non-zero anywhere. Workstream 2 is a pure reconciliation: box 4 totals on your 1099s against a Form 945 under the same EIN. If an affiliate filed the 945 under a different EIN, tell the unit; the IRM allows that to close the case (IRM 4.19.26.10.7.9).
4. Never file a 1099 with a blank TIN as a placeholder. A blank TIN on a filed return is the selection criterion. If you have no TIN and did not withhold, you have a problem to fix, not a form to file quietly.
5. Check box 4 before you file. A stray amount in box 4 becomes owed tax on January 1. Reverse and refund erroneous withholding in December.
6. Keep Form 8822-B current. Every letter in this program goes to the Payer Master File address.

Questions people ask