On March 1, First National Bank opened three accounts: 1) a savings account for Margaret Nelson, who did not have a TIN but signed a certification…

A bank may refund amounts that were erroneously withheld.
- For Ms. Nelson, withholding was erroneous. She provided an "awaiting TIN" certification, which grants a 60-day grace period before backup withholding must start. The interest was paid on March 31, well within this 60-day period, so no withholding should have occurred.
- For Mr. Whiteside, withholding was also erroneous. Although he initially provided an incorrect TIN, he furnished the correct, certified TIN on March 10. The bank had the correct TIN before the interest payment on March 31, so withholding was not required.
- For Ms. Miller, withholding was correct. She did not provide a TIN or an awaiting-TIN certification upon account opening. Therefore, the bank was required to begin backup withholding immediately on the March 31 payment. She must claim this amount as a credit on her annual income tax return.

A. Refunding to all payees is incorrect because the withholding for Ms. Miller was required by law and not erroneous.
C. Refunding only to Mr. Whiteside is incorrect because the withholding for Ms. Nelson was also erroneous due to the 60-day grace period.
D. Refunding only to Ms. Nelson is incorrect because the withholding for Mr. Whiteside was also erroneous as the bank had a correct TIN before payment.

1. Code of Federal Regulations. 26 C.F.R. § 31.3406(d)-3(a). This section details the 60-day grace period for payees who have applied for and are awaiting a TIN.

2. Code of Federal Regulations. 26 C.F.R. § 31.3406(e)-1(c). This regulation specifies that a payor must stop withholding within 30 days after receiving a certified TIN. Since Mr. Whiteside provided his TIN on March 10, withholding on a March 31 payment was erroneous.

3. Code of Federal Regulations. 26 C.F.R. § 31.6413(a)-3. This section addresses the repayment by a payor of tax erroneously withheld from a payee.