IRS Form B?

[BP.]

Client sold mutual fund shares (2008) and expected check for full proceeds from broker. Broker tells her due to her divorce/name change IRS is holding about $6,000 in taxes from a Form B. He says he can't do anything, and referred her to her tax preparer. I don't know about Form B. Is this some type of backup withholding? And only recoverable upon filing the 2008 tax return? Thanks!

[Koss]

Backup Withholding

It certainly sounds like backup withholding. He is probably referring to Form 1099-B. That form has a field for backup withholding.

The only way to make sense out of this without additional information is...

that if she got divorced, and changed her name on the title of the brokerage account, but never changed her name at the social security office, then the name on the account doesn't match the name on file with SSA and IRS.

From a compliance standpoint, the broker is taking the position that the taxpayer has failed to provide a valid SSN.

And that triggers backup withholding.

Doesn't really sound right, though. If she had the account for years, and she can document the name change, the broker is probably not required to do the backup withholding. And I believe that the broker can recover the funds, within the same calendar year, by treating it as a clerical error.

If I was the client, I would escalate through the broker's management team and/or compliance department. First have all her ducks in a row, though: social security card, whether it matches or not, and the court order with the name change.

The broker's staff is not seeing the underlying cause of the SSN match failure. Or if they are seeing it, they are putting form over substance by insisting on backup withholding.

[Nashville]

Form B

IRS commonly sends out a package to 1099 payers when social securities do not match names, or they DO match names to delinquent taxpayers.

I have seen this package 2-3 times per year. There are detailed instructions on what the payer is supposed to do, including sending the offender a letter notifying him(her) of a direction to withhold 28% of all future proceeds. "Form B" is part of the package sent to the payer.

The brokerage company is under direction to withhold 28% of the proceeds, and there is nothing that can be done about it outside of going through the steps to have it removed through "innocent spouse" doctrines if they apply.

If the backup withholding was performed against your clients' SS #, she can treat this as money paid in when she files her taxes. Just as if it had been withheld from a W-2 paycheck.

[BP.]

Beautiful! Thank you both Burton & Nashville for taking the time to reply. Very happy to get some insight on the Form B.
Cheers!
Barbara