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I'm having a hard time getting firm info on how one ends up forced into "backup withholding". I am a fulltime investor that lives exclusively on capital gains. My tax man advises that my quarterly estimated taxes aren't a "big deal" if underpaid. That the penalty isn't large and that the penalty is the worst that can happen. However...I have read about "backup withholding" and that "problem payers" can be forced into having 31% withheld by the brokerage on every trade. Needless to say, I'd be out of business and the IRS would soon have all my working capital till filing. Does accurate payment of estimated taxes effect a "problem payer" status? What criteria does the IRS use to force backup withholding? Is this a matter of tax code or policy? Any help would be greatly appreciated.

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