The IRS CP566 notice informs you that backup withholding will begin on payments made to you due to issues with your Social Security Number (SSN) or Taxpayer Identification Number (TIN), or because you've underreported interest or dividend income on your tax returns.

Key Features of the CP566 Notice:

• Final warning before 24% backup withholding begins
• Specific reason for backup withholding implementation
• Effective date when withholding will start
• Types of payments that will be subject to withholding
• Instructions on how to stop the withholding process
• Contact information for immediate resolution

You received a CP566 notice because the IRS has identified a compliance issue that triggers mandatory backup withholding.

SSN/TIN Issues:

• Missing or incorrect Social Security Number on tax returns
• Name/SSN mismatches with Social Security Administration records
• Invalid or expired Individual Taxpayer Identification Numbers (ITINs)
• Business tax ID number problems for contractors

Income Underreporting:

• Failing to report all interest and dividend income on tax returns
• Pattern of underreporting investment income over multiple years
• Missing 1099 income that should have been included on returns
• Audit assessments for unreported interest/dividend income

Payee Certification Failures:

• Failing to provide correct TIN to income sources
• Not responding to TIN verification requests
• Providing false information on tax forms
• Refusing to certify your taxpayer identification information

The Backup Withholding System
The IRS uses this program to ensure tax compliance by having payers withhold income at the source:

• IRS notifies all your income sources (banks, clients, etc.)
• Withholding begins automatically with the next payment
• Current flat withholding rate is 24%
• Applies to a wide range of income types

Levy Process Timeline

1. CP566 notice issued giving you a period to respond
2. If unresolved, IRS instructs payers to begin withholding
3. 24% is withheld from relevant payments sent to you
4. Withheld funds are sent to the IRS as tax payments
5. Credits are applied to your tax account

Immediate Effects

• 24% of your income is withheld before you receive it
• Funds are sent directly to the IRS
• Cash flow is immediately reduced by nearly a quarter
• Professional and client relationships can be strained

Financial Impact

• Loss of expected funds for personal or business needs
• Potential cash flow crises if you were counting on the income
• Tax overpayment if your actual tax rate is lower than 24%
• Administrative burden of correcting the issue after the fact

Right to Correct the Issue
You have a limited time to resolve the problem before withholding begins:

Benefits of immediate action:

• Prevent backup withholding from starting altogether
• Avoid cash flow disruption and financial strain
• Protect professional relationships and reputation
• Resolve underlying compliance issues correctly

Common Resolution Options:

• Correct SSN/TIN mismatches with the SSA and IRS
• Renew an expired or invalid ITIN
• File amended returns to correct underreported income
• Respond to IRS notices about information mismatches

Name Changes and SSN Issues
Common situations that require specific solutions:

• Marriage or divorce name changes not updated with the SSA
• Professional name different from legal name on tax returns
• Immigration status changes affecting tax identification
• Errors in reporting on W-9 forms provided to payers

Business and Self-Employment Issues
Complex scenarios for contractors and business owners:

• EIN vs. SSN confusion for business income reporting
• Multiple business entities with different tax IDs
• Business name changes not reflected in IRS records
• Partnership and LLC tax ID complications