Friday, February 11, 2022

Backup Withholding Required When No TIN

Mary Mellem, EA

We find two issues in this case:  1) backup withholding, and 2) the statute of limitations.


James Quezada works as a stone mason and owns Quezada Masonry.  Mr. Quezada hired subcontractors to perform much of the work, and timely filed his Forms 1099.  For 2005, Mr. Quezada filed 39 Forms 1099, of which 30 lacked Taxpayer Identification Numbers (TINs).  Forms filed for 2006, 2007, and 2008 were similar.


BACKUP WITHHOLDING – IRC Section 3405(a) addresses the backup withholding requirements by stating a taxpayer must withhold at the 4th individual tax rate (currently 24%) in any of four events.  The first event listed (Section 3405(a)(1)(A)) is “the payee fails to furnish his TIN to the payer in the manner required.”


Most of the Forms 1099 filed with IRS failed to show TINs.  Therefore, Mr. Quezada was required to do backup withholding.  He did not file Form 945 to show the backup withholding, nor did he turn over any monies to IRS.  The Court of Appeals agreed Mr. Quezada was responsible to backup withhold.


This should be a warning to taxpayers who do not have the recipient’s TIN at the time payment is to be made, that the taxpayers should backup withhold and subsequently file Form 945 to turn the funds over to IRS.


STATUTE OF LIMITATIONS – In 2014 IRS assessed about $1.2 million for amounts Mr. Quezada failed to backup withhold from 2005-2008, plus penalties and interest.  Mr. Quezada argued the statute of limitations had expired on these years, starting when his Form 1040 and Forms 1099 were filed since IRS could determine his liability for backup withholding.  IRS contended the statute had not started yet, since IRS’ regulations prescribe Form 945 as the “return” to be filed to show backup withholding and this form was not filed for any of these years.


Court of Appeals, 5th Circuit, sided with the taxpayer.  The net result of these two issues is IRS’ assessment was past the statute of limitations, even though Mr. Quezada was responsible to backup withhold.


Also of note – the time frame between the years involved (2005-2008) and the IRS initial assessment in 2014.


IRS has stated it will not acquiesce to this position.  In other words, IRS will not follow the 5th Circuit’s position outside of the 5th Circuit.  (The 5th Circuit Court of Appeals includes Texas, Louisiana, and Mississippi.)



James Quezada & Simona Quezada, CA-5, No 19-51000, December 11, 2020



This text has been shared courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065, fax 920-496-9111,

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