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August 31, 1990
TO: OPERATIONS COMMITTEE NO. 20-90
TAX COMMITTEE NO. 25-90
TRANSFER AGENT ADVISORY COMMITTEE NO. 33-90
RE: BACKUP WITHHOLDING AND "B" NOTICE DEVELOPMENTS
__________________________________________________________
As you may know, the Institute met with the Internal Reve-
nue Service earlier this month regarding our ongoing concerns
with "B" Notices. Prior to that meeting the Institute had met
with interested members to discuss the problems which had arisen
under this summer's test mailing of "B" Notice tapes by the
Internal Revenue Service and any additional problems which mem-
bers have encountered. After the meeting with the Service, we
were informed unofficially that two of our concerns will be
addressed in the final regulations, which are expected to be
issued in the near future.
The Institute previously has informed the Service that it
is impossible for funds to comply with the regulations' current
requirement that notices of incorrect taxpayer identification
numbers ("TINs") be mailed to shareholders within five business
days after the date shown on the IRS notification. The Service
has indicated that this response period will be lengthened to 15
days (possibly business days, although that is not clear). In
addition, the Service had previously indicated that the notifica-
tion of incorrect TINs would be mailed two or three weeks prior
to the date on the notice, possibly giving a total of up to six
weeks for mailing notices to shareholders.
Also, the Service advised us that the grace period
following receipt of the notice of an incorrect TIN before which
backup withholding must be imposed will be changed to 30 business
days for all types of reportable payments. Previously, the
regulations had provided that backup withholding was required
after 7 business days for shareholder redemptions, and after 30
days for dividends. As a practical matter, many funds were
unable to differentiate between different types of reportable
payments.
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At our meeting with the Service the system for determining
where to send "B" Notice tapes also was explained. There are
apparently two master address files, the Payor Master File, in
which addresses are kept from Forms 1096 and 1099, and the
Business Master File, in which all other tax return addresses are
stored. The two files are linked so that a change in one address
file is a change to both. When the Service receives a tax
return, the address on the return is checked against the address
in the master files, and if the addresses do not match, the
master files are updated to have the same address as in the
return. Alternatively, a taxpayer may submit a Form 8822, a copy
of which is attached, to change the address in both master files.
To insure that your October "B" Notice tapes are sent to
the proper address, a separate Form 8822 may be completed for
each fund in the complex. All subsequent tax returns of the fund
must continue to bear the new address.
We will keep you informed of further developments.
David J. Mangefrida, Jr.
Assistant General Counsel
Attachment