Instructions For Forms 1099-Sa And 5498-Sa - 2006 (Page 16 of 25) in pdf

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Distributions from a medical or health savings account and

You must notify the payee when withholding under this

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long-term care benefits.

procedure starts. For further information, see

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Regulations section 31.3406(c)-1(d).

Certain surrenders of life insurance contracts.

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Distribution from qualified tuition programs or Coverdell

4. Payee failure to certify that he or she is not subject to

ESAs.

backup withholding. Withhold on reportable interest and

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Gambling winnings if regular gambling winnings withholding

dividends until the certification has been received.

is required under section 3402(q). However, if regular gambling

For exceptions to these general timing rules, see

winnings withholding is not required under section 3402(q),

section 3406(e).

backup withholding applies if the payee fails to furnish a TIN.

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Real estate transactions reportable under

For special rules on backup withholding on gambling

section 6045(e).

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winnings, see the separate Instructions for Forms W-2G

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Cancelled debts reportable under section 6050P.

and 5754.

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Fish purchases for cash reportable under

Reporting backup withholding. Report backup withholding

section 6050R.

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on Form 945. Also, report backup withholding and the amount

Certain payment card transactions if the payment is made on

of the payment on Forms W-2G, 1099-B, DIV, G, INT, MISC,

or after January 1, 2005, by a qualified payment card agent (as

OID, or PATR even if the amount of the payment is less than

described in Rev. Proc. 2004-42 and Regulations section

the amount for which an information return is normally required.

31.3406(g)-1(f) and if the requirements under Regulations

section 31.3406(g)-1(f) are met. Rev. Proc. 2004-42 is available

Form 945. Report backup withholding, voluntary withholding

on page 121 of Internal Revenue Bulletin 2004-31 at

on certain government payments, and withholding from

gov/pub/irs-irbs/irb04-31.pdf.

gambling winnings, pensions, annuities, IRAs, military

retirement, and Indian gaming profits on Form 945, Annual

When to apply backup withholding. Generally, the period for

Return of Withheld Federal Income Tax. Generally, file Form

which the 28% should be withheld is as follows:

945 for 2006 by January 31, 2007. For more information,

including the deposit requirements for Form 945, see the

1. Failure to furnish TIN in the manner required. Withhold

separate Instructions for Form 945 and Circular E, Employer’s

on payments made until the TIN is furnished in the manner

Tax Guide (Pub. 15).

required. Special backup withholding rules may apply if the

payee has applied for a TIN. The payee may certify to this on

Do not report on Form 945 any income tax withholding

Form W-9 by noting “Applied For” in the TIN block and by

reported on the following forms:

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signing the form. This form then becomes an “awaiting-TIN”

Form W-2, Wage and Tax Statement, including withholding

certificate, and the payee has 60 days to obtain a TIN and

on distributions to plan participants from nonqualified plans that

furnish it to you. If you do not receive a TIN from the payee

must be reported on Form 941, Employer’s Quarterly Federal

within 60 days and you have not already begun backup

Tax Return.

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withholding, begin backup withholding and continue until the

Form 1042-S, Foreign Person’s U.S. Source Income Subject

TIN is provided.

to Withholding, must be reported on Form 1042, Annual

Withholding Tax Return for U.S. Source Income of Foreign

The 60-day exemption from backup withholding applies

Persons.

only to interest and dividend payments and certain

Pub. 515, Withholding of Tax on Nonresident Aliens and

payments made with respect to readily tradable

CAUTION

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Foreign Entities, has more information on Form 1042

instruments. Therefore, any other payment, such as

reporting, partnership withholding on effectively

nonemployee compensation, is subject to backup withholding

connected income, and dispositions of U.S. real property

even if the payee has applied for and is awaiting a TIN. For

interests by a foreign person.

information about whether backup withholding applies during

the 60-day period, see Regulations section 31.3406(g)-3.

Additional information. For more information about backup

withholding, see Pub. 1281, Backup Withholding for Missing

2. Notice from the IRS that payee’s TIN is incorrect (“B”

and Incorrect Name/TIN(s) (Including Instructions for Reading

notice). You may choose to withhold on any reportable

Tape Cartridges).

payment made to the account(s) subject to backup withholding

after receipt of the “B” notice, but you must withhold on any

reportable payment made to the account more than 30

O. Penalties

business days after you received the “B” notice. Stop

withholding within 30 days after you receive a certified Form

The following penalties generally apply to the person required

W-9 (or other form that requires the payee to certify under

to file information returns. The penalties apply to paper filers as

penalty of perjury).

well as to electronic/magnetic media filers.

For information on the penalty for failure to file

The IRS will furnish a notice to you, and you are

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electronically or magnetically, see Penalty on page

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required to promptly furnish a copy of such notice, or an

GEN-6.

acceptable substitute, to the payee. For further

information, see Regulations section 31.3406(d)-5 and Rev.

Failure To File Correct Information Returns by

Proc. 93-37, 1993-2 C.B. 477.

the Due Date (Section 6721)

If you receive two incorrect TIN notices within 3 years for the

If you fail to file a correct information return by the due date and

same account, follow the procedures in Regulations section

you cannot show reasonable cause, you may be subject to a

31.3406(d)-5(g) and Rev. Proc. 93-37.

penalty. The penalty applies if you fail to file timely, you fail to

include all information required to be shown on a return, or you

3. Notice from the IRS that payee is subject to backup

include incorrect information on a return. The penalty also

withholding due to notified payee underreporting (“C”

applies if you file on paper when you were required to file on

notice). You may choose to withhold on any reportable

magnetic media, you report an incorrect TIN or fail to report a

payment made to the account(s) subject to backup withholding

TIN, or you fail to file paper forms that are machine readable.

after receipt of the “C” notice, but you must withhold on any

reportable payment made to the account more than 30

The amount of the penalty is based on when you file the

business days after you receive the “C” notice. The IRS will

correct information return. The penalty is:

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notify you in writing when to stop withholding, or the payee may

$15 per information return if you correctly file within 30 days

furnish you a written certification from the IRS stating when the

(by March 30 if the due date is February 28); maximum

withholding should stop. In most cases, the stop date will be

penalty $75,000 per year ($25,000 for small businesses,

January 1 of the year following the year of the notice.

defined on page GEN-13).

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Instructions For Forms 1099-Sa And 5498-Sa - 2006 Page 16

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