[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(e)-1]

[Page 292-293]
 
                       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(e)-1  Period during which backup withholding is required.

    (a) In general. A payor must withhold under section 3406 at a rate 
of 31 percent on any reportable payment (as defined in section 3406(b)) 
made to a payee during the period described in this section 
(irrespective of the number of conditions for imposing withholding under 
section 3406 that exist with respect to the payee). A payor must 
continue to withhold under section 3406 until no condition for imposing 
backup withholding exists with respect to the payee.
    (b) Failure to furnish a taxpayer identification number in the 
manner required--(1) Start withholding. A payor is required to withhold 
under section 3406(a)(1)(A) at a rate of 31 percent on any reportable 
payment (as defined in section 3406(b)) at the time the payor pays the 
reportable payment (as described in Sec. 31.3406(a)-4) to a payee if--
    (i) The payor has not received the payee's taxpayer identification 
number in the manner required in Sec. 31.3406(d)-1; or
    (ii) The payor has received notice from a broker (as required in 
Sec. 31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable 
instrument that the payee did not furnish a taxpayer identification 
number to the broker in the manner required in Sec. 31.3406(d)-1 and 
the payor has not received the taxpayer identification number from the 
payee in this manner.
    (2) Stop withholding. The payor must stop withholding under section 
3406(a)(1)(A) within 30 days after the payor receives--
    (i) The payee's taxpayer identification number in the manner 
required under Sec. 31.3406(d)-1; or
    (ii) A statement, in such form and containing such information as is 
required under applicable regulations, that the payee is not a United 
States person.
    (c) Notification of an incorrect taxpayer identification number. See 
Sec. 31.3406(d)-5(e) and (g)(3) for the period for which withholding is 
required in the case of notification of an incorrect taxpayer 
identification number.
    (d) Notified payee underreporting. See Sec. 31.3406(c)-1(e) for the 
period for which withholding is required in the case of notified payee 
underreporting.
    (e) Payee certification failure--(1) Start withholding. A payor is 
required to withhold under section 3406(a)(1)(D) at a rate of 31 percent 
on any reportable interest or dividend payment (as defined in section 
3406(b)(2)) at the time the payor pays such reportable interest or 
dividend payment (as described in Sec. 31.3406(a)-4) to a payee if--
    (i) The payor has not received from the payee the certification 
required in Sec. 31.3406(d)-2; or
    (ii) The payor has received notice from a broker (as required in 
Sec. 31.3406(d)-4(a)(1)(iii)) with respect to a readily tradable 
instrument that the payee did not make the required certification and 
the payor has not received the required certification from the payee.
    (2) Stop withholding. The payor must stop withholding under section 
3406(a)(1)(D) on any reportable interest

[[Page 293]]

or dividend payment within 30 days after the payor receives the 
certification from the payee in the manner required by Sec. 31.3406(d)-
2.
    (f) Rule for determining when the payor receives a taxpayer 
identification number or certificate from a payee. In determining 
whether a payee has failed to provide a taxpayer identification number 
or any certification to a payor (including a Form W-8 or substitute 
form), a payor is required to process the taxpayer identification number 
or certification within 30 days after the payor receives the taxpayer 
identification number or certification from the payee or in certain 
cases, from a broker. Thus, the payor may take up to 30 days to treat 
the taxpayer identification number or a certificate as having been 
received.

[T.D. 8637, 60 FR 66127, Dec. 21, 1995]