"Reportable payments subject to backup withholding include the payee failing to supply his or her taxpayer identification number (TIN)."
Under Internal Revenue Code (IRC) 6109(a)(3) requires withholding agents to request social security numbers (SSN's) from payees:
"Any person required under the authority of this title to make a return, statement, or other document with respect to another person shall request from such other person, and shall include in any such return, statements, or other document, such identifying number as may be prescribed for securing proper identification of such other person."
The implementing regulation for IRC 6109(a)(3) is 26 CFR 301.6109-1(c), which states that if a withholding agent requests a payee's SSN but does not receive it, all the withholding agent has to do to comply with the law is sign an affidavit stating that the request was made. In other words, withholding agents are required to request, and not obtain, SSN's from payees:
"Every person required under this title to file a return, statement, or other document shall furnish such taxpayer identifying numbers of other persons as required by the forms and the instructions relating thereto. If he does not know the taxpayer identifying number of the other person, he shall request such number of the other person. A request should state that the identifying number is required to be furnished under authority of law. When the person filing the return, statement, or other document does not know the number of the other person, and has complied with the request provision of this paragraph, he shall sign an affidavit on the transmittal document forwarding such returns, statements, or other documents to the Internal Revenue Service, so stating."
Furthermore, IRC 6723 governs failures to report information under IRC 6109. IRC 6724(a) provides for a waiver of any penalties assessed under the code upon a showing of reasonable cause:
"No penalty shall be imposed under this part with respect to any failure if it is shown that such failure is due to reasonable cause and not willful neglect." Thus, if a withholding agent requests an SSN from a payee and signs an affidavit stating that a request was made, it is under no possibility of penalty.