Backup Withholding

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

A recent TIGTA report found that nearly $9 billion in backup withholding taxes are not being properly withheld by taxpayers.  Based on its analysis of information returns reporting payments to payees with incorrect TINs, TIGTA determined that taxpayers were required to withhold nearly $9 billion from these payees and, in fact, withheld a mere $1-2 million.  Just based on anecdotal experience, the conclusion (that taxpayers are not in compliance with the backup withholding rules) is not surprising—compliance with the rules has long been poor.  But the sheer magnitude of the noncompliance is surprising.

The Tax Equity and Fiscal Responsibilities Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 require payers to backup withhold tax at a 28% rate from certain reportable payments.  These acts require the payer of certain types of payments to deduct and withhold tax if:

Subsequent laws added a number of reportable payments.  Backup withholding can apply to most types of payments reported on Form 1099 where one of the criteria above is present. These include:

When the IRS identifies information returns with missing or incorrect TINs, or determines that a taxpayer is subject to backup withholding, it sends the payer either a Computer Paragraph (CP) 2100 notice, Please Check Your Backup Withholding List, or a CP 2100A, Please Check Your Backup Withholding List.  Depending on the identified issue, a taxpayer who received a CP2100 or CP2100A should seek professional help from a tax attorney, as time-sensitive (and often procedurally complex) steps may need to be taken in order to avoid incurring penalties or liability for amounts required to be withheld.

Representation in Tax Audits & Appeals

Need assistance in managing the audit process? Freeman Law’s team of attorneys and dual-credentialed attorney-CPAs regularly represents taxpayers before the IRS and Texas Comptroller. Our team also provides tax return-related representations and helps taxpayers navigate state tax laws. Our Firm offers value-driven services and provides practical solutions to complex issues. Schedule a consultation or call (214) 984-3410 to discuss our tax representation services.

 

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