Information return
(A) Information return as defined in 301.6721-1(h); (B) Payee statement as defined in 301.6722-1(e)(2) and (3); or (C) Document as described in 301.6723-1(a)(4); or (ii) The failure merely to provide a TIN as described in 301.6723-1(a)(4)(ii). (2) General rule. A filer is not subject to a penalty for failure to provide the payee's correct TIN on an information return, if the payee has certified, under penalties of perjury, that the TIN provided to the filer was the payee's correct TIN, and the filer included such TIN on the information return before being notified by the IRS (or a broker) that such TIN is incorrect. (3) Due diligence defined for accounts opened and instruments acquired after December 31, 1983(i) In general. For a filer of a reportable interest or dividend payment (other than in a window transaction) to be considered to have exercised due diligence in furnishing the correct TIN of a payee with respect to an account opened or an instrument acquired after December 31, 1983 (that is, an account or instrument that is not a pre-1984 account nor a window transaction), the filer must use a TIN provided by the payee under penalties of perjury on information returns filed with the IRS. Therefore, if a filer permits a payee to open an account without obtaining the payee's TIN under penalties of perjury and files an information return with the IRS with a missing or an incorrect TIN, the filer will be liable for the $250 penalty for the year with respect to which such information return is filed. However, in its administrative discretion, the IRS will not enforce the penalty with respect to a calendar year if the certified TIN is obtained after the account is opened and before December 31 of such year, provided that the filer exercises due diligence in processing such number, that is, the filer uses the same care in processing the TIN provided by the payee that a reasonably prudent filer would use in the course of the filer's business in handling account information such as account numbers and balances. (ii) Notification of incorrect TIN. Once notified by the IRS (or a broker) that a number is incorrect, a filer is liable for the penalty for all prior years in which an information return was filed with that particular incorrect number if the filer has not exercised due diligence with respect to such years. A pre-existing certified TIN does not constitute an exercise of due diligence after the IRS or a broker notifies the filer that the number is incorrect unless the filer undertakes the actions described in 31.3406(d)-5(d)(2)(i) of this chapter with respect to accounts receiving reportable payments described in section 3406(b)(1) and reported on information returns described in sections 6724(d)(1)(A)(i) through (iv). (iii) Inadvertent processing. A filer described in this paragraph (g)(3) is liable for the penalty if the filer obtained a certified TIN for a payee but inadvertently processed the TIN or name incorrectly on the information return unless the filer exercised that degree of care in processing the TIN and name and in furnishing it on the information return that a reasonably prudent filer would use in the course of the filer's business in handling account information, such as account numbers and account balances. (4) Instruments not transferred with assistance of broker(i) In general. If a filer files an information return with a missing or an incorrect TIN with respect to an instrument transferred without the assistance of a broker, the filer will be considered to have exercised due diligence with respect to a readily tradable instrument that is not part of a pre-1984 account with the filer if the filer records on its books a transfer in which the filer was not a party. This paragraph (g)(4)(i) applies until the calendar year in which the filer receives a certified TIN from the payee. (ii) Solicitation of TIN not required. A filer described in paragraph (g)(4)(i) of this section is not required to solicit the TIN of a payee of an account with a missing TIN in order to be considered as having exercised due diligence in a subsequent calendar year under the rule set forth in paragraph (g)(4)(i) of this section. (iii) Payee provides incorrect TIN. If a payee provides a TIN (whether or not certified) to a filer described in paragraph (g)(4)(i) of this section who records on its books a transfer in which it was not a party, the filer is considered to have exercised due diligence under the rule set forth in paragraph (g)(4)(i) of this section if the transfer is accompanied with a TIN provided that the filer uses the same care in processing the TIN provided by a payee that a reasonably prudent filer would use in the course of the filer's business in handling account information, such as account numbers and account balances. Thus, a filer will not be liable for the penalty if the filer uses the TIN provided by the payee on information returns that it files, even if the TIN provided by the payee is later determined to be incorrect. However, a filer will not be considered as having exercised due diligence under paragraph (g)(4)(i) of this section after the IRS or a broker notifies the filer that the number is incorrect unless the filer undertakes the required additional actions described in paragraph (g)(2) of this section. (5) Filer incurred an undue hardship(i) In general. A filer of a post-1983 account or instrument is not liable for a penalty under section 6721(a) for filing an information return with a missing or an incorrect TIN if the IRS determines that the filer could have satisfied the due diligence requirements but for the fact that the filer incurred an undue hardship. An undue hardship is an extraordinary or unexpected event such as the destruction of records or place of business of the filer by fire or other casualty (or the place of business of the filer's agent who under a pre-existing written contract had agreed to fulfill the filer's due diligence obligations with respect to the account subject to the penalty and there was no means for the obligations to be performed by another agent or the filer). Undue hardship will also be found to exist if the filer could have met the due diligence requirements only by incurring an extraordinary cost. (ii) Only IRS makes undue hardship determinations. A filer must obtain a determination from the IRS to establish that the filer satisfies the undue hardship exception to the penalty under section 6721(a) for the failure to include the correct TIN on an information return for the year with respect to which the filer is subject to the penalty. A determination of undue hardship may be established only by submitting a written statement to the IRS signed under penalties of perjury that sets forth all the facts and circumstances that make an affirmative showing that the filer could have satisfied the due diligence requirements but for the occurrence of an undue hardship. Thus, the statement must describe the undue hardship and make an affirmative showing that the filer either was in the process of exercising or stood ready to exercise due diligence when the undue hardship occurred. A filer may request an undue hardship determination by submitting a written statement to the address provided with the notice proposing penalty assessment (for example, Notice 972CG) or the notice of penalty assessment (for example, CP15 or CP215), or as otherwise directed by the IRS in forms, instructions, or publications. (6) Acquisitions of pre-1984 accounts or instruments(i) In general. A pre-1984 account or instrument of a filer that is exchanged for an account or instrument of another filer pursuant to a statutory merger of the other filer or the acquisition of the accounts or instruments of such filer is not transformed into a post-1983 account or instrument if the merger or acquisition occurs after December 31, 1983, because the exchange occurs without the participation of the payee. (ii) Establishing due diligence was exercised for accounts or instruments. The acquiring taxpayer described in this paragraph (g)(6) may rely upon the business records and past procedures of the merged filer or the filer whose accounts or instruments were acquired in order to establish that due diligence has been exercised on the acquired pre-1984 and post-1983 accounts or instruments to avoid the penalty under section 6721(a) with respect to information returns that have been or will be filed. (7) Limited reliance on certain pre-2001 rules. A filer may rely on the due diligence rules set forth in 26 CFR 35a.9999-1, 35a.9999-2, and 35a.9999-3 in effect prior to January 1, 2001 (see 26 CFR 35a.9999-1, 35a.9999-2, and 35a.9999-3, revised April 1, 1999), solely for the definitions of terms or phrases used in this paragraph (g).