Accounts Opened by Mail or by Electronic Transmissions

A payee may not be able to supply you with the certifications immediately if the payee opens the account by mail or through a telephone or wire instruction. In these cases, the regulations allow you to defer backup withholding for a period of 30 calendar days after the account is opened. Two conditions must be met, however: First, the payee must supply you with a TIN, though it need not be certified. Second, the payee must not withdraw more than 69 percent of a reportable interest payment before the certifications are received within the 30 days. [26 CFR 31.3406(d)-3(a)] In other words, don’t let the payee reduce the account balance below an amount equal to 31 percent of all reportable interest payments you have made prior to receiving the certifications. Of course, if this sounds too complicated, you may simply choose to withhold at the current backup withholding percentage from any interest payments you make prior to receiving the certifications.

If the payee does not provide the required certifications within the 30-day period, you must withhold the current backup withholding percentage of any reportable interest or dividend payments made to the account after it was opened. [26 CFR 31.3406(d)-3(a)]

These rules also apply to a payee from whom you are required to obtain a W-8 (certification of foreign status). If the payee represents orally or otherwise, before or at the time of account opening, that the payee is not a U.S. citizen or resident, you may defer backup withholding for a period of 30 calendar days after the account is opened. [26 CFR 31.3406(d)-3(c)]