Template from tincompliance.com. Use this when a broker (a dealer, a barter exchange, or "any other person who regularly acts as a middleman for property or services (for pay)", IRM 20.1.10.13(5), Aug. 12, 2026) has acquired a readily tradable instrument for a customer who is subject to backup withholding and must tell the payor of that instrument. The manual says the broker "must notify the payor of such instrument within 15 days of the acquisition that the payee is subject to backup withholding if" the payee failed to furnish a TIN, the IRS notified the broker the TIN is incorrect, the payee has not certified that it is not subject to backup withholding, or the IRS notified the broker before the acquisition that the payee is subject (IRM 20.1.10.13(2)). The notice may be given "by means of magnetic (electronic) media, machine readable document, or any other medium" if it includes the payee's name, address and TIN, a statement of which IRC 3406(a)(1) condition applies, and, where applicable, a statement that the IRS notified the broker; it must accompany the transfer or account-registration instructions (IRM 20.1.10.13(3)). "Once the broker transmits the transfer instructions containing the required information, the broker has no further responsibility," and "Upon receiving the notice from a broker, the payor must impose withholding on the account" (IRM 20.1.10.13(4)). The penalty for a willful failure is $500 per failure, PRN 632; "Penalty relief is not granted for reasonable cause" and the only route is to pay in full and file a claim for refund (IRM 20.1.10.13.1 to 20.1.10.13.3). This document reproduces the data elements the manual lists so a paper or PDF notice carries all of them; where the notice is transmitted electronically, use the same fields in the record layout. Delete the bracketed guidance before sending. This is a template, not legal advice.
Notice to payor: payee subject to backup withholding (IRC 6705; IRC 3406)
[Broker legal name]
[Broker street address, city, state, ZIP]
Broker EIN: [00-0000000]
Contact: [name, title, telephone, email]
Date of notice: [date]
To: [Payor legal name, e.g. issuer, transfer agent, paying agent or fund]
[Payor address]
Attention: [Backup withholding / tax reporting / shareholder services]
Re: Notice under IRC 6705 that the payee identified below is subject to backup withholding under IRC 3406. Instrument acquired [date of acquisition]; this notice is sent within 15 days of that date and accompanies the transfer or account-registration instructions dated [date].
Dear Sir or Madam:
[Broker legal name] ("the Broker") acquired the instrument described below for the account of the payee identified below. The Broker is required by IRC 6705 and the regulations under IRC 3406 to notify you, as payor of the instrument, that the payee is subject to backup withholding. The required information follows. On receipt of this notice you are required to impose backup withholding on the account at the rate in effect under IRC 3406.
The manual's words are "the payor must impose withholding on the account" (IRM 20.1.10.13(4)). This letter tells the payor; it does not compute the withholding. The current rate is on the tincompliance.com figures page.
1. Payee
Item | Entry |
Payee name (as it will appear on the account registration) | [Full legal name of the payee] |
Payee address | [Street, city, state, ZIP, country if not U.S.] |
Payee taxpayer identification number | [000-00-0000 or 00-0000000, or "None furnished" if the payee gave no TIN] |
Account or registration reference | [Broker account number / registration instruction number] |
All three of name, address and TIN are required data elements (IRM 20.1.10.13(3)). If the payee furnished no TIN, say so rather than leaving the field blank; the missing TIN is itself the condition in box A below.
2. Instrument and acquisition
Item | Entry |
Description of the readily tradable instrument | [Issuer, security description, CUSIP or other identifier] |
Quantity or principal amount | [Number of shares / units / face amount] |
Date acquired for the payee | [Date] |
Transfer or registration instructions | [Reference to the instructions this notice accompanies, and how transmitted] |
3. Reason the payee is subject to backup withholding (IRC 3406(a)(1))
The Broker states that the following condition applies (mark all that apply):
☐ (A) The payee failed to furnish a taxpayer identification number to the Broker in the manner required.
☐ (B) The Internal Revenue Service notified the Broker that the taxpayer identification number furnished by the payee is incorrect. Date of IRS notice: [date]. Notice: [CP2100 / CP2100A / other, with reference].
☐ (C) The payee has not certified, under penalties of perjury, that the payee is not subject to backup withholding due to notified payee underreporting.
☐ (D) The Internal Revenue Service notified the Broker, before the acquisition, that the payee is subject to backup withholding due to notified payee underreporting. Date of IRS notice: [date]. Notice: [CP543 / other, with reference].
A statement of which condition applies is a required element, and where the condition rests on an IRS notice (B or D), a statement that the IRS notified the broker is also required (IRM 20.1.10.13(3)). Keep a copy of the IRS notice in the account file; the payor may ask for it.
4. Statement regarding notification by the Internal Revenue Service
[Where box (B) or (D) is marked:] The Broker states that it received the notification from the Internal Revenue Service described in section 3 on [date], and that the payee's status under that notification had not been resolved as of the date of the acquisition.
[Where only box (A) or (C) is marked:] Not applicable; this notice rests on the payee's own failure to furnish a TIN or certification, not on a notification from the Internal Revenue Service.
5. Broker's statement of transmittal
This notice is transmitted with the transfer or account-registration instructions identified in section 2 and within 15 days of the acquisition date shown there. The Broker's responsibility under IRC 6705 with respect to this acquisition is discharged on transmittal of these instructions containing the required information. Questions about this notice may be directed to the contact named above.
Sincerely,
[Name]
[Title]
[Broker legal name]
Payor acknowledgment and response
For the payor's use. The manual imposes no acknowledgment duty on the payor; this block exists so the broker's file shows the notice was received and acted on, and so the payor's own backup withholding record starts on a dated document. Return a copy to the broker and keep one with the account.
Item | Entry |
Payor legal name and EIN | [Payor legal name], EIN [00-0000000] |
Notice received on | [Date received] |
Broker notice date and reference | [Date] / [account or registration reference] |
Payee and instrument | [Payee name, TIN or "none furnished", instrument identifier] |
Backup withholding imposed on the account effective | [Date; the first payment on or after receipt of the notice] |
Condition recorded | [A / B / C / D as marked by the broker] |
Payor account or holder number assigned | [Number] |
Response (mark one):
☐ The notice contained the payee name, address, TIN (or a statement that none was furnished), the IRC 3406(a)(1) condition and, where applicable, the statement of IRS notification, and accompanied the registration instructions. Backup withholding has been imposed on the account as stated above.
☐ The notice was received but is incomplete in the following respect: [missing payee address / missing TIN statement / no condition marked / no statement of IRS notification]. Backup withholding has been imposed on the account pending the missing information; please supply it by [date].
☐ The registration could not be processed for the following reason unrelated to this notice: [reason]. No account has been established.
If the notice is incomplete, the payor still has the information that the payee is subject to backup withholding; the safer course is to withhold and ask for the missing element rather than wait. The manual does not address a payor's liability when a broker's notice is late or missing, and this template does not either.
Acknowledged by: [Name, title]
[Payor legal name]
Date: [date]
Copy to: [Broker contact], [Payor tax reporting file], [Account file]