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Federal, State and Local Governments Newsletter Volume 2 December 2003 CONTENTS 2 3 5 Message from the Director Questions on Backup Withholding New Guidance for Agencies Administering Home Care Service Programs Withholding on State Lottery Winnings Reporting Requirements for Federal Agencies Guide to Governmental Payments Information Reporting Tax Exempt Bonds Sets FY 2004 Workplan Priorities Federal, State and Local Governments Contacts FEDERAL STATE LOCAL 8 8 10 11 12 CONTRIBUTORS James B
  Federal, State and Local Gover    nments Newslet   ter    December 2003   C ONTENTS Message from the DirectorQuestions on BackupWithholdingNew Guidance for AgenciesAdministering Home CareService ProgramsWithholding on State LotteryWinningsReporting Requirements forFederal AgenciesGuide to GovernmentalPayments InformationReportingTax Exempt Bonds Sets FY2004 Workplan PrioritiesFederal, State and LocalGovernments Contacts C ONTRIBUTORS James BoydPaul CarlinoJoseph GrabowskiRhonda KingsleyMarlyce Luitjens Wanda ValentineAndrew Zuckerman   2581112 F EDERAL Volume 2   8 F EDERAL S TATE S TATE L OCAL L OCAL 310  Federal, State and Local Governments Newslet   ter    WE ARE TRYING TOMAKE OUROUTRE   ACHPROGR   AMS MOREFOCUSED, GETTINGMORE “BANG FORTHE BUCK.”YOU CANSUBSCRIBE TO THEELECTRONICVERSION OF THEFSLG NEWSLETTERAT WW   W . IRS . GOV  /  GOVTS F EDERAL ,S TATEAND L OCAL G OVERNMENTS C USTOMER A SSISTANCE Call toll-free for general information andaccount assistance:Customer Account Services (877) 829-5500 Access the web site of Federal, Stateand Local Governments www.irs.gov/govts For a written response, sendcorrespondence to: Internal Revenue ServiceFederal,State and Local GovernmentsT:GE:FSLAttn:Lou Leslie,Operations Manager1111 Constitution Avenue NWWashington,DC 20224   2MESSAGE FROM THE DIRECTOR ANDREW E.ZUCKERMAN  A s the new Director of FSLG, I am looking forward to working with alltypes of government entities to help make managing and complying withyour Federal tax responsibilities as easy as possible.As the first IRSoffice devoted exclusively to serving government and quasi-government entities,FSLG has devoted the bulk of its resources thus far to outreach and educationactivities.These activities were designed to accomplish three tasks:inform thismarket segment that FSLG is the primary IRS contact for any Federal taxationissues that arise;help educate the market segments in their Federal tax andSocial Security tax reporting and withholding responsibilities;and allow FSLG tobetter understand the needs and the demographics of our customer base.Infact, during fiscal year 2003, we applied approximately 60% of our resources tothis effort.We hope it has been helpful to you;we know it has been helpful tous.Now that FSLG has been up and running for over three years we areundergoing a shift in emphasis of our program from mostly outreach to mostlycompliance activities.We hope to apply approximately 75% of our resources incompliance activities such as processing claims for refund, reviewing applicabletax returns to determine their correctness (referred to as compliance checks)and performing actual examinations.In practical terms, this means that some government entities will be undergoingIRS examinations, probably for the first time.I want to emphasize that theseexaminations are not initiated to “catch”government entities that have not beencomplying with the relevant Federal tax laws.Rather, they are being undertakento determine what Federal tax issues exist for government entities so we canprovide appropriate guidance to our stakeholders.They will also assist FSLG inour determination of the effectiveness of our outreach and education program.Our outreach and education program will still be active.We are trying, however,to make our outreach programs more focused, getting more “bang for the buck”by making presentations primarily to groups of ten or more.If you would like totake advantage of our services, please contact the FSLG Specialist serving yourarea. We also encourage you to visit our web site at www.irs.gov/govts . The explanations and examples in this publication reflect the interpretation by the IRS of tax laws, regulations, and court decisions.It is intended for general guidance only, and is not intended to provide a specific legal determination with respect to a particular set of circumstances.You may contact the IRS for additional information.You also may want to consult a tax advisor to address your situation.  Federal, State and Local Gover    nments Newsletter    3 A CP2100 OR CP2100AN OT   ICETELLSAPAYERT   HATHEORSHEMAYBERESPONSIBLEFORBACKUPWITHHOLDING . QUESTIONS ON BACKUP WITHHOLDING BY RHONDA KINSGLEY AND MARLYCE LUITJENS, FSLG SPECIALISTS (MIDWEST) I f you make payments to individuals or businesses who are not your employees,you may be required to withhold on these payments if the payee has notfurnished a correct taxpayer identification number (TIN).Below are questionsand answers about backup withholding reportable on Form 1099-MISC,Miscellaneous Income. Who is subject to backup withholding? You may be required to withhold 28% of payments to a payee if:1) The payee did not furnish a taxpayer identification number (TIN),2) You have been notified the TIN furnished by the payee is incorrect, or3) You have been notified the TIN of the payee is missing. What payments are subject to backup withholding? Rents, non-employee compensation for services, royalties, reportable grossproceeds paid to attorneys, and other fixed or determinable gains, profits, orincome payments reportable on Form 1099-MISC , Miscellaneous Income.See Publication 1281 , Backup Withholding on Missing and Incorrect Name/TINs(Taxpayer Identification Numbers) or Publication 1679 , A Guide to BackupWithholding for Missing and Incorrect Name/TINs, for additional payments subjectto backup withholding. What is a CP2100 or CP2100A Notice? An IRS notice that tells a payer he or she may be responsible for backupwithholding.This may be due to missing or potentially incorrect taxpayeridentification numbers identified during the processing of Form 1099 informationreturns.It is accompanied by a listing of missing, incorrect, and/or not currentlyissued payee TINs.Large volume filers (250 or more error documents) receive aCP2100 while all other filers will receive a CP2100A. What is a Missing Taxpayer Identification Number? 1) No TIN was provided,2) The TIN has more or less than nine digits, or3) The TIN has an alpha character as one of the nine positions. What is an Incorrect Taxpayer Identification Number? TIN is in the proper format but the Name/TIN combination doesn’t match orcannot be found on IRS or Social Security Administration files. What is a “B”Notice? If you receive Notice CP2100 or CP2100A indicating an incorrect TIN, a copy of anotice to the payee is included.This “B”Notice informs a payee of backupwithholding. As a payer,what am I required to do to secure a TIN? A.Initial SolicitationUse Form W-9 , Request for Taxpayer Identification Number and Certification,to request the taxpayer identification number when the transaction occurs.  Federal, State and Local Governments Newslet   ter    4    w   w   w .     i   r   s .   g   o   v     /   g   o   v    t   s B.First and Second Annual SolicitationSee Publication 1281 , Backup Withholding on Missing and IncorrectName/TINs (Taxpayer Identification Numbers) or Publication 1679 , A Guide toBackup Withholding for Missing and Incorrect Name/TINs, for instructionsregarding the first and second annual solicitation requirements. When do I begin backup withholding? A.Withholding should begin when the aggregate payments for the year equal orexceed $600.Example:You make three payments of $200 to a sole proprietor in 2003, onMarch 31, June 30, and September 30.The payments made on March 31 and June 30 would not be subject to backupwithholding because the $600 threshold has not been reached.However, youwould withhold 28% of the payment on September 30 if:1.The sole proprietor has not furnished a TIN to you by that date, or2.The IRS notified you the TIN was incorrect and the sole proprietor didnot furnish a certification (Form W-9 sent with the first “B”notice) orvalidation (required from the SSA or IRS per the second “B”Notice).orB.Withhold immediately if the payee was either:1.Paid at least $600 in a prior year and a Form 1099 was issued, or2.Subject to backup withholding in the prior year. Stop backup withholding when you receive either a TIN or the requiredverification from SSA or IRS (in response to a second “B”notice) from thepayee.Additional resources regarding backup withholding questions: The Information Reporting Program Centralized Call SiteTelephone:1-866-455-7438 (toll-free) Monday through Friday from 8:30 a.m.to4:30 p.m., Eastern TimeE-Mail: mccirp@irs.govContact your local FSLG Specialist for the Backup Withholding Job Aidefeaturing additional information and step-by-step instructions regardingthese backup withholding situations.A directory of Specialists is includedin this newsletter.
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