Unreliable Certifications

Can you rely on a certification from a payee even if you suspect it is untrue? The answer depends on what makes you suspicious. Following are some circumstances where you may not rely on a payee’s certification.

Where Reliance is not Reasonable

You are not required to backup withhold if you are relying on the payee’s certifications. Your reliance on the certifications, however, must be reasonable. [26 CFR 31.3406(h)-3(e)(1)] You will not be able to reasonably rely on a certification form if:
  • The form does not contain the name and TIN of the payee or does not state that the payee is awaiting receipt of a TIN.
  • The form is not signed and dated by the payee.
  • The form does not contain the statement, when required, that the payee is not subject to withholding due to notified payee under reporting.
  • The payee has deleted the jurat or other similar provisions by which the payee certifies or affirms the correctness of the statements contained on the form. (A “jurat” is a statement or certification added to an affidavit, telling when, before whom, and, sometimes, where the affidavit was made).

[26 CFR 31.3406(h)-3(e)(2)(i) – (iv)]

Obviously Incorrect Number

The regulations define what they call an “obviously incorrect number.” This is a number that does not contain nine digits or a number that includes an alpha character (a letter as opposed to a number) as one of the nine digits. [26 CFR 31.3406(h)-1(b)(2)] If you receive an obviously incorrect number from a payee, you have not received a TIN [26 CFR 31.3406(h)-1(b)(1)] and, therefore, the payee cannot certify the correctness of the number.

Not Subject to Backup Withholding Certification

You can rely on the “not subject to backup withholding” certification unless you have “actual knowledge” that the certification is untrue. [26 CFR 31.3406(c)-1(c)(3)(iii)(A)] (Of course, your reliance must be reasonable—see two sections above.) A payor has actual knowledge that a statement is untrue if:
  • The employee or individual agent of the payor who receives the payee’s certification knows that the statement is not true.
  • The payor identifies any other accounts of the payee that are already subject to withholding due to payee underreporting.
  • In the course of processing the certification or in administering an account to which a certification relates, the payor discovers that the payor was previously notified by the IRS that the payee is subject to withholding for payee underreporting and no notice was received to stop withholding prior to the time of the discovery.

[26 CFR 31.3406(c)-1(c)(3)(iii)(B)(1) – (3)]