March 7, 1991
TO: TAX COMMITTEE NO. 4-91
OPERATIONS COMMITTEE NO. 7-91
CLOSED-END FUND COMMITTEE NO. 4-91
UNIT INVESTMENT TRUST COMMITTEE NO. 9-91
TRANSFER AGENT ADVISORY COMMITTEE NO. 11-91
RE: INSTITUTE TESTIFIES ON BACKUP WITHHOLDING REGULATIONS
__________________________________________________________
Attached is testimony given by the Institute at this week’s
IRS public hearing on the revised backup withholding and due
diligence regulations issued last fall. (See Institute
Memorandum to Tax Members No. 44-90, Operations Members No. 31-
90, Closed-End Fund Members No. 41-90, Unit Investment Trust
Members No. 67-90 and Transfer Agent Advisory Committee No. 38-
90, dated October 12, 1990.) In general, the testimony
summarized the written comments previously submitted by the
Institute. (See Institute Memorandum to Tax Committee No. 3-91,
Operations Committee No. 4-91, Closed-End Fund Committee No. 3-
91, Unit Investment Trust Committee No. 7-91 and Transfer Agent
Advisory Committee No. 5-91, dated February 11, 1991.) The
testimony also expressed support for the regulations promulgated
in February on information reporting penalties and the reasonable
cause waiver. (See Institute Memorandum to Tax Members No. 6-91,
Operations Members No. 7-91, Closed-End Fund Members No. 9-91,
Unit Investment Trust Members No. 9-91 and Transfer Agent
Advisory Committee No. 10-91, dated February 25, 1991.)
The testimony focused primarily on when a certified
taxpayer identification number ("TIN") must be acquired, the
consequences of not acquiring a certified TIN and whether all
funds in a fund complex may rely upon a "broker-introduced TIN"
when opening new accounts without the broker’s assistance. The
testimony observed that the new reasonable cause regulations
appear to confirm the Institute’s prior suggestion that payors be
permitted to open accounts without certified TINs and not be
subjected to penalties for failure to file correct information
returns, provided they impose backup withholding and make the
required solicitations for the TIN. In addition, the Institute
testified that it believes that the backup withholding
regulations may have resolved the industry’s concerns relating to
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reliance upon broker-introduced TINs by other funds in a complex.
Confirmation of this point was requested.
The testimony also requested three operational changes to
the "B" Notice procedure: (1) that payors have the option to
receive all "B" Notice data on computer tape; (2) that payors be
permitted to designate a recipient for all "B" Notices; and (3)
that an 800 number be provided for payees to contact the IRS and
the Social Security Administration to discuss name/TIN
mismatches. Finally, the Institute requested that the IRS make
available to payors the "name control" program for fiduciary and
nominee accounts to help reduce the number of name/TIN mismatches
in this area.
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax
Attachment
KDL:bmb