Letter 2027-C (and Letter 1979-C): Payor stop letter: quick release from C-Notice withholding

What Letter 2027-C (and Letter 1979-C) is

Issued when C-program withholding was imposed by IRS error or causes undue hardship. "The letter authorizes the payor(s) to stop withholding within 30 days" (IRM 5.19.3.5.2.15). Letter 1979-C goes to a payee whose appeal is granted; a copy handed to you by the payee is also authority to stop. Outside these, normal release takes six to eight weeks after the IRS's annual October 15 analysis.

The deadline

Stop within 30 days of the letter date.

What to do

Match the letter to the payee and accounts, stop withholding, and keep the letter with the payee record as the authority.

Normal release versus the stop letter

C-program withholding normally ends on the IRS's schedule, not the payee's. Each autumn the IRS reviews every payee under C-program withholding and releases those whose underreporting has been resolved; the payers are then notified, and the release reaches them six to eight weeks later. A payee who settled the matter early in the year can be withheld on for most of it. Letter 2027-C exists for two cases where that is unacceptable: the withholding was imposed by IRS error (the underreporting was the IRS's mistake, or the payee had already resolved it before the C-Notice went out), or it is causing undue hardship the payee has demonstrated. In those cases the letter goes directly to the payer and authorizes stopping within 30 days.

Letter 1979-C is the payee-side equivalent, issued when the payee's appeal is granted. The payee may hand a copy to the payer, and that copy is sufficient authority to stop; the payer does not need to wait for its own letter.

What to keep

Match the letter to the payee's accounts by TIN and name, stop withholding on reportable interest and dividend payments from the next payment cycle, and file the letter with the payee's record. If the IRS later questions why withholding stopped before the autumn release, the letter is the answer. Amounts already withheld are not refunded by the payer; they are reported in box 4 of the 1099-INT or 1099-DIV and credited when the payee files. The C-Notice guide covers the start side of the same program.

Questions about Letter 2027-C (and Letter 1979-C)

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