C-Notice: CP543 and CP544 (backup withholding notification): IRS instruction to start, or stop, withholding on a payee who under-reported

What C-Notice: CP543 and CP544 (backup withholding notification) is

CP543 tells a payer of interest or dividends to begin backup withholding on a named payee because the payee under-reported that income and ignored at least four IRS notices over 120 days (IRM 5.19.3.5.2.4). It is sent at the same moment as the payee's final notice, CP539. CP544 is the systemic stop notice. Payments reportable on 1099-NEC, MISC or K are never covered.

The deadline

Begin 24% withholding within 30 business days of the CP543 on all reportable interest, dividend, patronage and OID payments. Stop only on a CP544 or Letter 2027-C, within 30 days.

What to do

Withhold on every account the payee holds with you. If the payee is not yours, no action and no reply is required. Do not stop because the payee shows a paid balance or closes the account; only the IRS ends it, normally on January 1 after an October 15 cutoff.

One of four triggers, and the only one the IRS pulls

Backup withholding under IRC 3406 starts for one of four reasons: the payee did not give you a TIN, the IRS told you the TIN is wrong (the CP2100 and B-Notice track), the payee failed to certify on a W-9 that they are not subject to backup withholding, or the IRS has determined that the payee underreported interest or dividend income. The first three are decided on the payer's side from its own records. The fourth is the C-program, and it is decided entirely by the IRS: the payee has been through a cycle of notices about the underreported income, has not resolved it, and the IRS now instructs every payer it knows of to withhold. CP543 is that instruction. It applies only to interest, dividends, patronage dividends and original issue discount; payments reported on a 1099-NEC, 1099-MISC or 1099-K are never subject to C-program withholding, however the payee's affairs stand.

Publication 1281 covers the program from the payer's side, and the Form W-9 instructions carry the one rule payees most often get wrong: a payee under C-program withholding who opens a new account must cross out item 2 of the W-9 certification, because they cannot truthfully certify that they are not subject to backup withholding.

Running it on your accounts

On receiving a CP543, find every account the named payee holds with you, including joint accounts on which the payee is the first-named holder, and set the withholding flag so that 24 percent comes out of each reportable payment from the next cycle. The 30-business-day window is the latest start, not a target. Withheld amounts are deposited on your Form 945 schedule, reported on the year's Form 945, and shown in box 4 of the payee's 1099-INT, 1099-DIV, 1099-PATR or 1099-OID so the payee can claim the credit. Do not stop because the payee says the matter is settled, shows you a paid-in-full letter, or closes and reopens the account; the only authority to stop is a CP544, a Letter 2027-C, or the payee's own Letter 1979-C, and each gives you 30 days. If the CP543 names a payee you cannot find, nothing is required: there is no reply to send, and the IRS does not expect one. The C-Notice guide covers the release cycle and the payee's side.

Questions about C-Notice: CP543 and CP544 (backup withholding notification)

Have a different notice? The IRS notice decoder lists all 77 in the order they tend to arrive.