Are businesses required to obtain the taxpayer identification number (TIN) from vendors and keep it somewhere on file?

Yes, businesses are required to obtain the taxpayer identification number (TIN) from vendors and keep it on file. This requirement is essential for several reasons:

1. Information Returns: Businesses must file information returns, such as Form 1099-MISC, to report payments made to vendors. According to § 6041 of the Internal Revenue Code, businesses engaged in trade or business must render a true and accurate return to the Secretary, setting forth the amount of gains, profits, and income, and the name and address of the recipient of such payment. This necessitates obtaining the TIN of the vendor to accurately complete these returns.
2. Backup Withholding: If a business does not have the correct TIN for a vendor, it may be required to perform backup withholding on certain reportable payments. As stated in Publication 1281, the law provides that businesses may need to withhold a specified percentage of payments if the TIN is missing or incorrect. This underscores the importance of obtaining and verifying the TIN to avoid unnecessary withholding and potential penalties.
3. Form W-9: Businesses typically use Form W-9, Request for Taxpayer Identification Number and Certification, to request the TIN from vendors. It is a good business practice to obtain this form before making any payments to ensure compliance with IRS requirements. This form should be maintained in the business's records as evidence of the TIN provided by the vendor.
4. Record Keeping: Businesses are required to keep records of the TINs they collect. For example, Publication 1544 specifies that businesses must keep a copy of every Form 8300 they file for five years, which includes the TIN of the person from whom they receive cash.
5. Penalties: Failure to obtain and correctly report the TIN can result in penalties. Businesses may be subject to penalties for filing information returns with incorrect or missing TINs, as indicated in Publication 1716.

In summary, businesses are indeed required to obtain the TIN from vendors and maintain it in their records to comply with IRS reporting requirements, avoid backup withholding, and prevent penalties.

Sources:
Publication 1716
Publication 1544 (9/2014)
Publication 1281 (12/2023)
Publication 15 (2024)
§ 6041. Information at source
Publication 3908 (9/2019)