[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3406(b)(2)-1]

[Page 265-266]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
 
              Subpart E_Collection of Income Tax at Source
 
Sec. 31.3406(b)(2)-1  Reportable interest payment.

    (a) Interest subject to backup withholding--(1) In general. A 
payment of a kind, and to a payee, that is required to be reported under 
section 6049 (relating to returns regarding interest and original issue 
discount) is a reportable payment for purposes of section 3406, subject 
to the special rules of Sec. 31.3406(b)(2)-2 (relating to original 
issue discount) and Sec. 31.3406(b)(2)-3 (relating to window 
transactions). See Sec. 31.6051-4 for the requirement to furnish a 
statement to the payee if tax is withheld under section 3406.

[[Page 266]]

    (2) Special rule for tax-exempt interest. When an issuer is required 
to make an information return under Sec. 1.6049-4(d)(8) of this chapter 
because a payee provided a signed written statement on the envelope or 
shell incorrectly claiming that the interest was exempt from taxation 
under section 103(a) (as described in Sec. 1.6049-5(b)(1)(ii) of this 
chapter), the issuer is not required to impose withholding under section 
3406.
    (b) Amount subject to backup withholding--(1) In general. The amount 
of interest subject to withholding under section 3406 is the amount 
subject to reporting under section 6049.
    (2) Special rule to adjust for premature withdrawal penalty. Solely 
for purposes of computing the amount subject to withholding under 
section 3406, the payor may elect not to withhold from the portion of 
any interest payment that is not received by the payee because a penalty 
is in fact imposed for premature withdrawal of funds deposited in a time 
savings account, certificate of deposit, or similar class of deposit.

[T.D. 8637, 60 FR 66115, Dec. 21, 1995]