Refusing to Open Accounts

Payors are permitted to refuse to open an account if the payee: (1) does not supply a TIN, (2) supplies a TIN but does not certify the correctness of the number under penalties of perjury, or (3) does not supply documentation of foreign status in the manner required. [26 CFR 31.3406(f)-1(b)(1)] If the payor does allow the account to be opened, the payor is required to backup withhold on reportable interest payments to the account until the certified TIN is received.

Payors cannot, however, refuse to open an account due to the payee failing to certify that he or she is not subject to backup withholding. The payor must open the account and begin backup withholding immediately. Furthermore, a payor may not close an account solely because the payee or the account is subject to backup withholding. Finally, a payor may not (1) use information obtained under the backup withholding provisions, (2) surcharge an account because it is subject to backup withholding, or (3) use the information to determine whether to open or close an account. [26 CFR 31.3406(f)-1(c)(1) – (3)]