When you pay someone to provide a service to your company, you are usually required to send him/her a Form 1099 at the end of the year.  The Form 1099 shows the amount paid, and his name, address, and tax i.d. number, which can be a social security number or a business i.d. number.

I recommend getting this information, in writing, before you cut the first check.  You don't want to be asking for this information at the last minute before the Form 1099 deadline.

The IRS recommends having your payee fill out and sign a Form W-9, but all that's required is that he gives you the information in writing, with a signature.

So what if you sent Form 1099 to all of your payees, and now you've received a notice from the IRS saying that some of the information is wrong? Here's what to do:  The IRS letter shows a list of the payees with problems. 

Give everyone on the list a Form W-9 and a B Notice.  Then,

1.  If the payee never gave you his information, you must immediately start withholding 28% of any payments you give him.  When he gives you a signed Form W-9 showing his information, you can stop withholding from his payments. 
2. If the IRS is saying that the Form 1099 name & i.d. number don't match, the payee has 30 days to give you his correct information, or you must start withholding.

What's interesting is that the IRS does not ask you to file corrected Forms 1099 after you receive the new information.

The information above is a general outline of the rules regarding backup withholding.  You will need to consult an experienced CPA tax accountant if