8422.194     B-NOTICES 
(Renumbered and Revised 2/99)

Annual information returns reported to the IRS are subject to various computer matching analyses to determine, in part, whether the payee's name and TIN as reported in the Form 1099 matches that in the taxpayer's account in the IRS computer files.  If they do not match, the IRS will send the payor (state agency) a "B-Notice"; i.e., a listing of payees whose TINs (on Form 1099 filed by, or on behalf of, the state agency) are incorrect.

IRS Publication 1281, Backup Withholding on Missing and Incorrect TINs provides detailed guidance on the processing of B-Notices.  When a state agency receives a B-Notice the IRS Publication 1281 requires the following actions:

1. Examine the STD. 204 and verify that the TIN provided under oath by the taxpayer matches that on the B-Notice.
2. If the TIN on the STD. 204 does not match that on the B-Notice, consider the possibility of a coding error and correct your records appropriately.
3. If the TIN on the STD. 204 matches that on the B-Notice:
   1. Send the payee the required B-Notice Letter and a blank STD. 204 within 15 business days.
   2. Begin back-up withholding no later than the 31st day after the date of the IRS notice.
   3. Stop back-up withholding when the payee provides the correct TIN on the STD. 204.
   4. Keep track of each payee cited in a B-Notice in order to determine when the same payee appears in B-Notices twice in three years (the "2-in-3" rule).  Under this rule, the payor agency is required to start backup withholding upon receipt of the second B-Notice and continue until an official stop notice is received from the IRS.

Each state agency's reportable payments coordinator is required to order IRS Publication 1281 for reference in processing B-Notices by telephoning the IRS Forms Distribution Center at:  (800) 829-3676.