Notified payee underreporting with respect to interest and dividends

(1) Notified payee underreporting If— (A) the Secretary determines with respect to any payee that there has been payee underreporting, (B) at least 4 notices have been mailed by the Secretary to the payee (over a period of at least 120 days) with respect to the underreporting, and (C) in the case of any payee who has filed a return for the taxable year, any deficiency of tax attributable to such failure has been assessed, the Secretary may notify payors of reportable interest or dividend payments with respect to such payee of the requirement to deduct and withhold under subsection (a)(1)(C) (but not the reasons for the withholding under subsection (a)(1)(C)).

(2) Payee underreporting defined For purposes of this section, there has been payee underreporting if for any taxable year the Secretary determines that— (A) the payee failed to include in his return of tax under chapter 1 for such year any portion of a reportable interest or dividend payment required to be shown on such return, or (B) the payee may be required to file a return for such year and to include a reportable interest or dividend payment in such return, but failed to file such return.

(3) Determination by Secretary to stop (or not to start) withholding (A) In general If the Secretary determines that— (i) there was no payee underreporting, (ii) any payee underreporting has been corrected (and any tax, penalty, or interest with respect to the payee underreporting has been paid), (iii) withholding under subsection (a)(1)(C) has caused (or would cause) undue hardship to the payee and it is unlikely that any payee underreporting by such payee will occur again, or (iv) there is a bona fide dispute as to whether there has been any payee underreporting, then the Secretary shall take the action described in subparagraph (B). (B) Secretary to take action to stop (or not to start) withholding For purposes of subparagraph (A), if at the time of the Secretary’s determination under subparagraph (A)— (i) no notice has been given under paragraph (1) to any payor with respect to the underreporting, the Secretary shall not give any such notice, or (ii) if such notice has been given, the Secretary shall— (I) provide the payee with a written certification that withholding under subsection (a)(1)(C) is to stop, and (II) notify the applicable payors (and brokers) that such withholding is to stop. (C) Time for taking action where notice to payor has been given In any case where notice has been given under paragraph (1) to any payor with respect to any underreporting, if the Secretary makes a determination under subparagraph (A) during the 12-month period ending on October 15 of any calendar year— (i) except as provided in clause (ii), the Secretary shall take the action described in subparagraph (B)(ii) to bring about the stopping of withholding no later than December 1 of such calendar year, or (ii) in the case of— (I) a no payee underreporting determination under clause (i) of subparagraph (A), or (II) a hardship determination under clause (iii) of subparagraph (A), such action shall be taken no later than the 45th day after the day on which the Secretary made the determination. (D) Opportunity to request determination The Secretary shall prescribe procedures under which— (i) a payee may request a determination under subparagraph (A), and (ii) the payee may provide information with respect to such request.

(4) Payor notifies payee of withholding because of payee underreporting Any payor required to withhold any tax under subsection (a)(1)(C) shall, at the time such withholding begins, notify the payee of such withholding.

(5) Payee may be required to notify Secretary who his payors and brokers are For purposes of this section, the Secretary may require any payee of reportable interest or dividend payments who is subject to withholding under subsection (a)(1)(C) to notify the Secretary of— (A) all payors from whom the payee receives reportable interest or dividend payments, and (B) all brokers with whom the payee has accounts which may involve reportable interest or dividend payments. The Secretary may notify any such broker that such payee is subject to withholding under subsection (a)(1)(C).