32152 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[TD 8881]

RIN 1545–AX53; RIN 1545–AV27; RIN 1545–

AV41

Revisions to Regulations Relating to

Withholding of Tax on Certain U.S.

Source Income Paid to Foreign

Persons and Revisions of Information

Reporting Regulations.

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

amendments to final regulations relating

to the withholding of income tax under

sections 1441, 1442, and 1443 on certain

U.S. source income paid to foreign

persons and related requirements

governing collection, deposit, refunds,

and credits of withheld amounts under

sections 1461 through 1463.

Additionally, this document contains

amendments under sections 6041,

6041A, 6042, 6045, 6049, and 3406.

This regulation affects persons making

payments of U.S. source income to

foreign persons.

DATES: These regulations are effective

January 1, 2001.

FOR FURTHER INFORMATION CONTACT: Carl

Cooper, Laurie Hatten-Boyd, or Kate

Hwa (202) 622–3840 (not a toll free

number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information in

these final regulations have been

reviewed and approved by the Office of

Management and Budget in accordance

with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507) under control

number 1545–1484. Responses to these

collections of information are required

to obtain a benefit (to claim an

exemption to, or a reduction in,

withholding), and to facilitate tax

compliance (to verify entitlement to an

exemption or a reduced rate). The likely

respondents are individuals, businesses,

and other for-profit organizations.

Comments on the collections of

information should be sent to the Office

of Management and Budget, Attn: Desk

Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503, with copies to the Internal

Revenue Service, Attn: IRS Reports

Clearance Officer, OP:FS:FP,

Washington, DC 20224.

The estimated average annual burden

per respondent and/or recordkeeper are

reflected in the burdens of Forms W–8,

1042, 1042–S, 1099, and the income tax

return of a foreign person filed for

purposes of claiming a refund.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number

assigned by the Office of Management

and Budget.

Books or records relating to a

collection of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

In Treasury Decision (TD) 8734 (62 FR

53387), the Treasury Department and

the IRS issued comprehensive

regulations (final regulations) under

chapter 3 (sections 1441–1464) and

subpart G of Subchapter A of chapter 61

(sections 6041–6050S) of the Internal

Revenue Code. Those final regulations

were amended by TD 8804 (63 FR 72183

[1999–12 I.R.B. 5]) which delayed the

effective date of the final regulations to

payments made after December 31,

1999. The effective date of the

regulations was again extended by TD

8856 (64 FR 73408) to payments made

after December 31, 2000.

Need for Changes

Since the publication of TD 8734, the

IRS and Treasury have received

numerous comments relating to

technical errors in the regulations and

ways to ease compliance while keeping

the objectives of the regulations in

place. In Notice 99–8 (1999–5 I.R.B. 26),

the IRS and Treasury announced

amendments that would be made to the

regulations. This TD implements Notice

99–8 and contains additional changes

made in response to comments as well

as the IRS and Treasury’s further

analysis of the regulations.

Explanation of Revisions

A. Changes to § 1.1441–1

1. Payments to a U.S. Branch of Certain

Foreign Banks or Foreign Insurance

Companies

Generally, a payment to a U.S. branch

of a foreign person is a payment to a

foreign person. Under § 1.1441–

1(b)(2)(iv), however, a U.S. branch of

certain foreign banks or insurance

companies and a withholding agent may

agree to treat the U.S. branch as a U.S.

person for purposes of chapter 3 of the

Internal Revenue Code. The regulation

as initially drafted required a

withholding agent to treat such a U.S.

branch as a U.S. person for all purposes

under chapter 3 of the Internal Revenue

Code. The regulation itself, however,

does not treat a U.S. branch as a U.S.

person for all purposes under chapter 3

of the Internal Revenue Code. For

example, a U.S. branch of a foreign bank

or insurance company provides a

withholding certificate on a Form W–8,

which is used only by foreign persons.

Further, under § 1.1461–1(c), payments

to such a branch are reportable as

payments to a foreign person on Form

1042–S. Therefore, § 1.1441–1(b)(2)(iv)

has been amended to state that,

notwithstanding the agreement between

the withholding agent and a U.S. branch

to treat the U.S. branch as a U.S. person,

the branch is not treated as a U.S.

person for purposes of providing

documentation or for reporting

payments to the branch.

2. Rules for Reliably Associating a

Payment With a Withholding Certificate

or Other Appropriate Documentation

Section 1.1441–1(b)(2)(vii) contains

rules to determine whether a payment

can be reliably associated with valid

documentation. A payment that cannot

be reliably associated with valid

documentation is subject to the

presumption rules in §§ 1.1441–1(b)(3),

1.1441–4(a)(2)(ii) and (3)(i), 1.1441–5(d)

and (e)(6), 1.1441–9(b)(3), and 1.6049–

5(d). Paragraph (b)(2)(vii) did not

adequately address when a payment

made to a nonqualified intermediary, a

flow-through entity, or a U.S. branch of

certain foreign banks and insurance

companies (other than a branch that acts

as a U.S. person) would be treated as

reliably associated with documentation.

These entities provide a withholding

certificate for themselves and

withholding certificates, documentary

evidence, or other information for the

persons on whose behalf they act.

Therefore, the payment must be reliably

associated not only with a withholding

certificate from the intermediary, flowthrough entity, or U.S. branch, but also

with documentation from, or

information relating to, the payee on

whose behalf the entity acts.

Paragraph (b)(2)(vii) has been

amended to provide more detailed

reliable association rules. For a payment

made to a nonqualified intermediary, a

flow-through entity, or a U.S. branch,

new paragraph (b)(2)(vii)(B) provides

that a withholding agent can reliably

associate the payment with valid

documentation if, prior to the payment,

it has received a valid nonqualified

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32153

intermediary withholding certificate on

Form W–8IMY; it can determine the

portion of the payment that relates to

valid documentation associated with the

Form W–8IMY from a payee (i.e., a

person other than a nonqualified

intermediary, flow-through entity, or

U.S. branch); and the nonqualified

intermediary, flow-through entity, or

U.S. branch has provided sufficient

information for the withholding agent to

report the payment on Form 1042–S or

Form 1099, if reporting is required.

Paragraph (b)(2)(vii)(C) provides rules

for a withholding agent that makes a

payment to a qualified intermediary that

does not assume primary withholding

responsibility under chapter 3 of the

Internal Revenue Code or primary Form

1099 reporting and backup withholding

responsibility under chapter 61 and

section 3406 of the Internal Revenue

Code. The payment can be reliably

associated with valid documentation if,

prior to the payment, the withholding

agent receives a valid qualified

intermediary withholding certificate on

Form W–8IMY and a withholding

statement that allocates the payment

among withholding rate pools,

including withholding rate pools for

each U.S. non-exempt recipient for

which the qualified intermediary has

provided a valid Form W–9 (or other

information if a Form W–9 has not been

provided).

For a payment made to a qualified

intermediary that assumes primary

withholding responsibility under

chapter 3 of the Internal Revenue Code

with respect to the payment, but does

not assume primary Form 1099

reporting and backup withholding

responsibility under chapter 61 and

section 3406 of the Internal Revenue

Code, paragraph (b)(2)(vii)(D) provides

that a withholding agent can reliably

associate the payment with valid

documentation if, prior to the payment,

it receives a valid Form W–8IMY and

the withholding statement associated

with the Form W–8IMY allocates the

payment between a single withholding

rate pool for which the qualified

intermediary assumes primary

withholding responsibility and separate

withholding rate pools for each U.S.

non-exempt recipient.

Paragraph (b)(2)(vii)(E) provides rules

for a withholding agent that makes a

payment to a qualified intermediary that

assumes primary Form 1099 reporting

and backup withholding responsibility

under chapter 61 and section 3406 of

the Internal Revenue Code, but does not

assume primary withholding

responsibility under chapter 3 of the

Internal Revenue Code. The payment

can be reliably associated with valid

documentation if, prior to the payment,

the withholding agent can associate the

payment with a valid Form W–8IMY

and the withholding statement

associated with the Form W–8IMY

allocates the payment among the

withholding rate pool or pools for

which withholding responsibility is not

assumed and the portion of payment for

which the qualified intermediary

assumes Form 1099 reporting and

backup withholding responsibility.

Finally, for a payment made to a

qualified intermediary that assumes

both primary withholding responsibility

under chapter 3 of the Internal Revenue

Code and primary Form 1099 reporting

and backup withholding responsibility

under chapter 61 and section 3406 of

the Internal Revenue Code, paragraph

(b)(2)(vii)(F) provides that a withholding

agent can reliably associate the payment

with valid documentation if, prior to the

payment, it can associate the payment

with a valid Form W–8IMY. In this case,

no withholding rate pool allocation

information is required. This same rule

applies for payments made to a

withholding foreign partnership.

3. Presumptions of Classification as

Individual, Corporation, Partnership,

etc.

As initially drafted, § 1.1441–

1(b)(3)(ii) provided a withholding agent

with presumption rules to determine a

payee’s classification (e.g., individual,

corporation, partnership) if it could not

reliably associate a payment with valid

documentation. Paragraph (b)(3)(ii) did

not, however, provide a presumption

rule if a withholding agent could

reliably associate a payment with

documentary evidence (i.e.,

documentation other than a withholding

certificate) from which it could not

determine the payee’s classification. For

example, documentary evidence may

indicate that a payee (other than an

entity that is treated as a per se

corporation under § 301.7701–2(b)(8)(i))

is a type of entity that can be organized

so that all of its members have limited

liability, in which case it would be

treated as an association, or so that one

or more of its members have unlimited

liability, in which case it would be

treated as a partnership. The

determination of classification can be

critical because if the entity is a flowthrough entity, it is not the beneficial

owner of the payment and its

documentary evidence cannot be relied

upon to grant a reduced rate of

withholding.

Section 1.1441–1(b)(3)(ii)(C) has been

added to permit a withholding agent to

treat an entity that has provided

documentary evidence as a corporation

if the classification of the entity cannot

be determined from documentary

evidence or by reference to the exempt

recipient rules under § 1.6049–

4(c)(1)(ii). This presumption rule will

reduce burdens on withholding agents

that are permitted to use documentary

evidence, such as foreign intermediaries

and flow-through entities, which would

otherwise have to request from payees

additional information regarding U.S.

tax classification. The presumption rule

is not, however, intended to allow

foreign entities to avoid making the

correct determination of their

classification and to provide the correct

documentation. Thus, a foreign entity

must make a determination about its

classification and if it determines that it

is an intermediary, partnership, foreign

simple trust, or foreign grantor trust

under U.S. tax law principles, it must

provide an intermediary or flow-through

withholding certificate on Form W–

8IMY together with the appropriate

information relating to its customers,

partners, beneficiaries, owners, or other

payees. Further, a withholding agent

cannot treat an entity as a corporation

if it knows, or should know, that the

entity is a flow-through entity or

intermediary. For example, if a

particular type of collective investment

vehicle provides documentary evidence

that does not establish that it is a

corporation, partnership, or trust, but

the withholding agent knows, or has

reason to know, that the investment

vehicle is classified as a partnership for

U.S. tax purposes, it must request a

partnership withholding certificate from

the entity.

An entity that is presumed to be a

foreign corporation under new

paragraph (b)(2)(ii)(C) cannot be treated

as the beneficial owner entitled to a

reduced rate of withholding to the

extent the documentary evidence

indicates that it is a bank, broker,

custodian, intermediary, or other agent

unless the entity provides a statement

that it is the beneficial owner of the

income. For example, documentary

evidence that indicates that the payee is

a bank does not permit a withholding

agent to apply the portfolio interest

exception to payments of interest made

to the bank. In addition, even though a

foreign entity is treated as a beneficial

owner for purposes of the exceptions to

withholding under the Internal Revenue

Code and regulations, it is not

necessarily entitled to claim treaty

benefits. Whether treaty benefits may be

claimed by an entity depend on whether

it meets the requirements under the

income tax treaty and section 894.

32154 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

4. Changes to Presumption Rules

Several simplifying and clarifying

changes have been made to the

presumption rules in § 1.1441–1(b)(3).

First, the presumption rule applicable to

pensions and annuities contained in

§ 1.1441–1(b)(3)(iii)(C) has been

expanded to apply to individual

retirement accounts and individual

retirement annuities. Second, § 1.1441–

1(b)(3)(iii)(D), which contains

presumption rules applicable to offshore

accounts, was revised to state the

applicable rule more clearly. In

addition, the restriction on applying the

presumption rule of paragraph

(b)(3)(iii)(D) to amounts that are not

subject to withholding has been moved

from that paragraph to § 1.6049–5(d)(2).

This change eliminates a conflict with

§ 1.6049–5(d)(2), as previously drafted,

which applied the paragraph

(b)(3)(iii)(D) rule to amounts not subject

to withholding.

Section 1.1441–1(b)(3)(iv) contains a

grace period presumption rule that

permits a withholding agent to treat a

payee as a foreign person in certain

situations where the withholding agent

would presume the payee to be a U.S.

person. Although the grace period rule

generally does not permit a withholding

agent to apply any exceptions to

withholding, it does permit a

withholding agent to apply a reduced

rate of withholding for 90 days to a

payee that provides a withholding

certificate that would have been valid

except that it was transmitted by

facsimile. One commentator noted that

because the facsimile rule applied only

to payees that a withholding agent

could, ‘‘in its discretion’’ treat as a

foreign person, the rule was limited to

those situations where the presumption

rules would have treated the payee as a

U.S. person and the withholding agent

was exercising its discretion to treat the

payee as foreign. Therefore, the

commentator argued, the rule arguably

could not be applied to payees that were

required to be treated as foreign persons

under the presumption rules, e.g., an

exempt recipient with indicia of foreign

status. The regulation has been modified

by removing the phrase ‘‘in its

discretion’’ thereby permitting the

facsimile rule to apply to payees that are

treated as foreign payees under the

presumption rules.

Paragraph (b)(3)(v), as promulgated in

TD 8734, provided several presumption

rules that applied if a withholding agent

did not receive from a nonqualified

intermediary the withholding

certificates or documentary evidence of

the persons on whose behalf the

nonqualified intermediary acted or did

not receive information allocating the

payment to each person. Under

paragraph (b)(3)(v)(C), if the

withholding agent could associate a

payment with a group of beneficial

owners or payees, it could treat the

payment as being made in its entirety to

the person in the group that was subject

to the highest withholding rate or, if the

rates were equal, to the payee in the

group with the highest U.S. tax liability.

If a nonqualified intermediary grouped

persons subject to similar withholding

and tax rates together and allocated the

payment to the group, the nonqualified

intermediary could achieve a reduced

rate of withholding for its customers

without reliably associating the

payment to each of the customers that

would be entitled to the payment.

Treasury and the IRS stated in Notice

99–8 that affording a reduced rate of

withholding under these circumstances

was inappropriate. Further, it was

inappropriate to report the entire

payment as if it were made to a single

documented payee who was not entitled

to receive the entire amount of income.

Paragraph (b)(3)(v) has been revised

so that whenever a payment to a

nonqualified intermediary cannot be

reliably associated with valid

documentation from a specific payee,

the payment is treated as made to an

undocumented foreign payee and is

subject to 30 percent withholding.

Under § 1.1461–1(c), such payments are

reported to an unknown owner on Form

1042–S. Thus, a payment can no longer

be subject to a reduced rate of

withholding because it can be allocated

to a group of documented payees all of

whom are subject to the same reduced

rate of withholding. Similar changes

have been made to the presumption

rules that applied to foreign

partnerships under former § 1.1441–

5(d)(3)(ii).

Paragraph (b)(3)(vi), as originally

drafted, was in error. It stated that the

presumption rules that applied to

foreign intermediaries also applied to

U.S. branches of foreign banks and

insurance companies that assumed

withholding responsibility. The rule

should have provided that the

intermediary presumption rules also

apply to U.S. branches of foreign banks

and insurance companies that do not

agree to be treated as U.S. persons.

Those branches are generally treated in

the same manner as nonqualified

intermediaries under chapter 3 of the

Internal Revenue Code. Therefore,

paragraph (b)(3)(vi) has been revised to

apply only to those branches that are

not treated as U.S. persons. Finally,

paragraph (b)(3)(vii), which applies to

payments to joint payees, has been

amended to clarify the treatment of

payments made to joint accounts.

5. Rules for Withholding and Reporting

of Payments by a Foreign Intermediary

and Certain U.S. Branches

Section 1.1441–1(b)(6) sets forth the

withholding obligations of a foreign

intermediary and certain U.S. branches.

The regulation, as originally drafted,

stated that a qualified intermediary, a

nonqualified intermediary, or a U.S.

branch of a foreign bank or insurance

company was deemed to have satisfied

any obligation it had to withhold and

report an amount it paid if it did not

know that the correct amount had not

been withheld. The rule did not,

however, require a foreign intermediary

or U.S. branch to report a payment if it

knew that the withholding agent from

whom it received the payment had not

reported the payment to the persons on

whose behalf the foreign intermediary

or U.S. branch acted as long as the

correct amount was withheld. For

example, if a U.S. withholding agent

withheld 30 percent from a payment of

an amount subject to withholding made

to a nonqualified intermediary because

the nonqualified intermediary failed to

provide documentation or allocation

information relating to the persons for

whom it acted, the rule relieved the

nonqualified intermediary from any

obligation to report the payment to

those persons. Foreign intermediaries

and U.S. branches, however, are

withholding agents under § 1.1441–7(a)

and, as stated in Notice 99–8, it is

inappropriate to relieve them of any

reporting responsibility unless they

have provided another withholding

agent with all of the information that the

withholding agent needs to report

amounts paid to the appropriate

recipients of the income. In addition,

paragraph (b)(6) should not have

included qualified intermediaries,

because a qualified intermediary has

reporting responsibilities whether or not

another withholding agent properly

reported the payment made to the

qualified intermediary.

The regulation has been revised to

provide that a nonqualified

intermediary or U.S. branch (other than

a U.S. branch treated as a U.S. person)

is not required to withhold and report

if the nonqualified intermediary or U.S.

branch (i) has provided a valid

nonqualified intermediary or U.S.

branch withholding certificate, (ii) has

provided all of the information required

to be included in a withholding

statement associated with its

withholding certificate so that another

withholding agent can do the required

reporting on Form 1042–S or Form

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32155

1099, and (iii) does not know, and has

no reason to know, that the other

withholding agent did not withhold the

correct amount or did not report the

payment correctly. A qualified

intermediary’s obligations to withhold

and report are determined in accordance

with its qualified intermediary

agreement.

6. Definitions

Section 1.1441–1(c) contains the

definitions of terms used in the

regulations under chapter 3 of the

Internal Revenue Code. The section has

been significantly expanded and certain

definitions have been consolidated in

this section. New definitions, or crossreferences to definitions, have been

provided for the terms beneficial owner,

payee, intermediary, nonqualified

intermediary, qualified intermediary,

withholding certificate, documentary

evidence, documentation, payor,

exempt recipient, non-exempt recipient,

reportable amounts, flow-through entity,

foreign simple trust, foreign complex

trust, foreign grantor trust, partnership,

nonwithholding foreign partnership,

and withholding foreign partnership. Paragraph (c)(6)(i) has been changed

to state specifically that the definition of

beneficial owner does not apply in cases

where a reduced rate of withholding is

being claimed under an income tax

treaty. This change has been made to

clarify that a person who is a beneficial

owner of an item of income for purposes

of these regulations would not

necessarily beneficially own the item of

income for purposes of an income tax

treaty. Paragraph (c)(6), as originally drafted,

did not include rules to determine the

beneficial owner of a payment made to

a foreign trust or estate. In general, the

regulations retained the rules for foreign

trusts and estates that existed prior to

the publication of TD 8734. The

paragraph has been revised to provide

specific rules for payments to foreign

trusts and estates. Generally, the

beneficial owners of a payment to a

foreign simple trust are the beneficiaries

of the trust. The beneficial owners of a

payment made to a foreign grantor trust

are the owners of the trust. Foreign

complex trusts and foreign estates are

considered to be the beneficial owners

of income paid to such entities. Paragraph (c)(12) has been added to

clarify the term payee. It provides crossreferences to those sections under

which the payee of income is

determined, and emphasizes that

foreign intermediaries and flow-through

entities are generally not considered the

payees of income. A qualified

intermediary is, however, a payee to the

extent it assumes primary withholding

responsibility with respect to a

payment, and a flow-through entity is a

payee if it is receiving income that is, or

is treated as, effectively connected with

the conduct of a U.S. trade or business.

The definition of a flow-through

entity has been moved from § 1.1441–

1(e)(3)(i) to paragraph (c)(23). The

definition has also been expanded and

clarified. The term flow-through entity

refers to any entity which has an

obligation to transmit documentation to

another withholding agent. Therefore,

an entity may be a flow-through entity

whether or not the income paid to the

entity is includible in the gross income

of the entity’s owners. A flow-through

entity includes a nonwithholding

foreign partnership, a foreign simple

trust, a foreign grantor trust, or an entity

that is fiscally transparent under section

894 to the extent it provides

documentation on behalf of its interest

holders. A withholding foreign

partnership and a withholding foreign

trust are not flow-through entities. The

term flow-through entity has replaced

the term partnership in numerous

places throughout the regulation.

7. Withholding Certificates

a. Forms W–9. Section 1.1441–1(d)

contains rules for a payee to establish its

status as a U.S. payee. Under paragraph

(d), a payee that provides a Form W–9

may be treated as a U.S. payee that is

not subject to withholding under section

1441. Commentators have noted that

under current law, there is no

prohibition against a foreign person

providing a Form W–9 to establish

status as an exempt recipient. They

therefore suggest that the regulations

should be clarified to specifically state

that providing a Form W–9 serves as a

representation of U.S. status and should

only be furnished by a U.S. person. In

response to these comments, paragraph

(d)(2) has been amended to state that

furnishing a Form W–9 serves as a

statement that the person providing the

form is a U.S. person. Therefore, a

foreign person, including a U.S. branch

of a foreign person, should not provide

a Form W–9 to a withholding agent. The

instructions to Form W–9 will also be

modified to make clear that providing a

Form W–9 is a declaration of U.S.

status.

Paragraph (d)(3) is revised to

eliminate the requirement for a

permanent residence address.

Permanent residence address is a term

defined in § 1.1441–1(e)(2)(ii) and is

generally the address of a foreign person

in the country in which the person is a

resident for tax purposes. The term is

inapplicable, and potentially

misleading, as applied to the address a

U.S. person should provide on Form W–

9.

Paragraph (d)(4), as originally drafted,

provided rules to determine whether a

payment was made to a U.S. beneficial

owner. Generally, the regulation

provided that if a customer of a foreign

intermediary provided a Form W–9, the

withholding agent could treat such

person as a U.S. beneficial owner. A

customer of a foreign intermediary

could also be treated as a U.S. beneficial

owner if it provided a U.S. branch

withholding certificate that evidenced

its agreement to be treated as a U.S.

person. A Form W–9 and a U.S. branch

withholding certificate, however, do not

establish beneficial ownership. Further,

it is not necessary under the regulations

to determine whether a U.S. payee is a

beneficial owner because a payment to

a U.S. payee is not subject to

withholding under chapter 3 of the

Internal Revenue Code whether or not

the payee is the beneficial owner of the

income. Thus, the paragraph has been

modified to provide that the

withholding agent may treat the payee

of a payment made to a foreign

intermediary or a flow-through entity as

a U.S. payee if the payee provides a

Form W–9 or a U.S. branch withholding

certificate that evidences the branch’s

agreement to be treated as a U.S. person.

b. Intermediary and flow-through

withholding certificates. Section

1.1441–1(e)(3)(i) provides definitions for

the terms intermediary withholding

certificate, flow-through withholding

certificate, and U.S. branch withholding

certificate. That section originally

defined a flow-through withholding

certificate as a Form W–8 furnished by

a partnership (other than a withholding

foreign partnership) or a trust or estate.

The paragraph has been revised to

conform to the definition of flowthrough entity contained in § 1.1441–

1(c)(23) and the new rules contained in

§ 1.1441–5(e) regarding foreign trusts

and foreign estates, discussed in section

E of this Explanation of Provisions.

Under paragraph (e)(3)(i), as revised, a

flow-through withholding certificate is

defined as a withholding certificate on

Form W–8 furnished by a

nonwithholding foreign partnership, a

foreign simple trust, a foreign grantor

trust, or a foreign entity presenting

claims on behalf of its interest holders

for a reduced rate of withholding under

an income tax treaty. Foreign complex

trusts and foreign estates generally

provide beneficial owner withholding

certificates.

Section 1.1441–1(e)(3)(ii) provides the

requirements for a valid withholding

certificate provided by a qualified

intermediary. The paragraph has been

32156 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

modified to reflect the procedures

applicable to qualified intermediaries as

set forth in Rev. Proc. 2000–12 (2004–

4 I.R.B. 1).

Section § 1.1441–1(e)(3)(iii) provides

rules relating to a nonqualified

intermediary withholding certificate.

Paragraph (e)(3)(iii) generally provided

that payee documentation provided

with a nonqualified intermediary

withholding certificate needed to be

attached to the certificate. Similar

requirements existed for flow-through

withholding certificates and U.S. branch

withholding certificates. The regulations

have been revised to require that payee

documentation be associated with,

rather than attached to, a nonqualified

intermediary, flow-through, or U.S.

branch certificate to obviate the need for

a new withholding certificate each time

payee documentation is provided to a

withholding agent. The regulations do

not set forth specific requirements for

associating documentation. Any

reasonable method may be used to

associate documentation with its

intermediary withholding certificate.

Paragraph (e)(3)(iii), as originally

drafted, required a certification that the

withholding certificates or other

appropriate documentation attached to a

nonqualified intermediary withholding

certificate represented all of the persons

to whom the intermediary withholding

certificate related or that the amounts of

income allocable to persons for whom

no documentation was provided was

separately stated. A similar requirement

applied to nonwithholding foreign

partnership withholding certificates in

§ 1.1441–5(c)(3)(iii)(D). The requirement

for this certification has been

eliminated. The persons on whose

behalf a nonqualified intermediary acts

will frequently change as persons open

and close accounts with the

intermediary. Thus, any such

certification may be true at the time

made, but false at a later point,

necessitating a new withholding

certificate. The elimination of the

certification is not an elimination,

however, of the requirement to provide

payee withholding certificates to a

withholding agent prior to a payment.

The certification requirement has also

been eliminated for nonwithholding

foreign partnerships.

Section 1.1441–1(e)(3)(iii) permits a

nonqualified intermediary to provide

payee documentation either in the form

of withholding certificates or in the

form of documentary evidence. The

withholding agent is required to derive

information from the withholding

certificates or other documentary

evidence and report payments to each

specific payee on whose behalf the

nonqualified intermediary acts.

However, the regulations were silent on

how a withholding agent was to

determine the status (U.S. or foreign) or

classification (e.g., corporate,

partnership, trust, or estate) and other

information required to report payments

on Form 1042–S from documentary

evidence, particularly when that

documentary evidence was in a foreign

language. Further, although the

regulations require a nonqualified

intermediary to allocate payments to

each payee on whose behalf it acts so

that a withholding agent can report

payments to each payee on Form 1042–

S or Form 1099, the regulations

provided no detail on how the

allocation information was to be

provided.

The regulations have been revised to

take these considerations into account.

Under § 1.1441–1(e)(3)(iv) as revised, a

nonqualified intermediary must

associate with its nonqualified

intermediary withholding certificate a

withholding statement which sets forth

the information a withholding agent

needs to allocate a payment to each

payee on whose behalf the nonqualified

intermediary acts and to report the

payment. Specifically, the withholding

statement must contain for each payee

the payee’s name, address, country of

residence, TIN (if any), the payee’s

recipient type for Form 1042–S

reporting, the applicable rate of

withholding, the type of withholding

exception applied (if any), and the name

of any other intermediary or flowthrough entity from whom the payee

directly receives the income. Additional

information is required if a reduced rate

of withholding under an income tax

treaty is claimed. The withholding

statement may be provided in any

manner that the withholding agent and

nonqualified intermediary agree,

including electronically. It must be

updated as frequently as necessary to

remain accurate prior to each payment.

The regulation does not require a

nonqualified intermediary to provide

information for a payee unless the payee

is a U.S. non-exempt recipient.

Information regarding U.S. non-exempt

recipients must be provided irrespective

of any local laws that prohibit

disclosure of an account holder or

account information. Therefore, a

nonqualified intermediary should

obtain waivers from non-disclosure

provisions from U.S. non-exempt

recipients. To the extent payee

information is not provided, whether for

a U.S. non-exempt recipient or any

other payee, the regulation has been

clarified to state explicitly that a

withholding agent must withhold under

the presumption rules. Further, the

nonqualified intermediary remains

liable for any tax not withheld by a

withholding agent and, unless the

nonqualified intermediary itself files

information returns, will also be held

liable for penalties imposed for failure

to file information returns under

sections 6721 and 6722.

Many commentators have argued that

it is not practical to provide information

allocating a payment to each payee prior

to each payment because the customers

of nonqualified intermediaries are

constantly acquiring and disposing of

investments. Several commentators

made suggestions on how the

regulations might ease compliance

burdens. One commentator suggested

that no allocation information should be

required except in the case of income

subject to reduced rates of withholding

under an income tax treaty and

payments made to U.S. non-exempt

recipients. This suggestion was rejected.

The IRS has provided a mechanism for

aggregate reporting of payments in the

model qualified intermediary agreement

in Rev. Proc. 2000–12. It is

inappropriate to extend such treatment

to nonqualified intermediaries without

the safeguards contained in a qualified

intermediary agreement. Other

commentators suggested that a

withholding agent should withhold the

difference between 30 percent of a

payment and the claimed reduced rate

of withholding in escrow and release

the amounts when allocation

information is provided. This suggestion

was also not accepted. Such a system

would leave the escrow funds out of the

control of both the IRS and the

beneficial owners of the payments.

Further, because the nonqualified

intermediary would have to provide

frequent allocations as soon as possible

after the time of payment to have the

escrow funds released, it appeared to

provide little relief from the pressures

inherent in providing allocation

information prior to a payment. Other

commentators argued that a reduced

rate of withholding should be provided

at the time of payment with allocation

information to follow after the close of

the year with various disincentives

provided for failure to furnish the

allocation information. The regulations

generally adopt this approach.

Paragraph (e)(3)(iv)(D) provides

alternative procedures that permit a

nonqualified intermediary to provide

information allocating reportable

amounts to payees (including U.S.

exempt recipients) by January 31 of the

year following the calendar year of

payment. The alternative procedures do

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32157

not apply to payments made to U.S.

non-exempt recipients. Therefore,

allocation information for those persons

must be provided prior to a payment.

Under the alternative procedures, only

allocation information may be provided

after a payment is made: all other

information that is required to be

included in a withholding statement

and appropriate payee documentation

must be provided prior to a payment.

The nonqualified intermediary may

have reduced rates of withholding apply

by identifying pools of income subject

to a particular withholding rate

(withholding rate pools) and identifying

the payees with the appropriate

withholding rate pools.

Various penalties apply if a

nonqualified intermediary fails to

provide information to allocate

payments in a withholding rate pool to

a withholding agent by January 31. First,

the withholding agent must commence

withholding on all payments in

accordance with the presumption rules.

Therefore, 30 percent withholding

applies to amounts subject to

withholding and 31 percent backup

withholding applies to payments of

deposit interest and original issue

discount on original issue discount

obligations of 183 days or less. Under a

cure provision, the withheld amounts

may be returned, and the alternative

procedures may continue to be used, if

the nonqualified intermediary provides

allocation information by February 14. If

the nonqualified intermediary fails to

provide allocation information by that

date, withholding continues for the

taxable year, and all subsequent taxable

years, unless the withholding agent

provides allocation information prior to

a payment. Further, because no

allocation information has been

provided, the payments are considered

never to have been reliably associated

with valid documentation and the

foreign beneficial owners and other

payees on whose behalf the

nonqualified intermediary is acting are

not entitled to a reduced rate of

withholding. Therefore, the

nonqualified intermediary shall remain

liable under section 1461 for the

difference between the amount, if any,

withheld by the withholding agent and

the amount that should have been

withheld under the presumption rules.

Any tax due because of an allocation

failure will be assessed against the

nonqualified intermediary and, if

necessary, collected from the assets that

the nonqualified intermediary has with

the withholding agent. Interest and

penalties may also be assessed against

the nonqualified intermediary. In

particular, paragraph (e)(3)(iv)(7) states

that a failure to provide allocation

information will be presumed to be an

intentional failure to file information

returns and payee statements under

sections 6721 and 6722. The IRS will

not, however, hold the withholding

agent liable for any tax, interest, or

penalties, that are due solely to the

failure of the nonqualified intermediary

to provide allocation information.

The withholding statement rules and

alternative allocation procedures have

also been made applicable to U.S.

branches of certain foreign banks and

insurance companies and flow-through

entities. This change, together with

certain other changes discussed in this

Explanation of Provisions, generally

results in nonqualified intermediaries,

U.S. branches, and flow-through entities

being treated similarly.

Paragraph (e)(3)(iv)(E) has been added

to permit the IRS to provide a

withholding agent with a notice

prohibiting the withholding agent from

applying the alternative procedures of

paragraph (e)(3)(iv)(D) to an identified

nonqualified intermediary (or to a flowthrough entity or a U.S. branch of a

foreign bank or foreign insurance

company) thereby requiring allocation

information prior to a payment to have

a reduced rate of withholding apply. In

addition, the IRS may, in appropriate

circumstances issue a notice to a

withholding agent prohibiting the

withholding agent from applying a

reduced rate of withholding under any

circumstances, even if allocation

information is provided prior to a

payment. The IRS contemplates issuing

these notices in situations where a

nonqualified intermediary, flow-through

entity, or U.S. branch fails to pay a tax

due or is not applying the rules of the

regulations in good faith.

c. Reportable amounts. Foreign

intermediaries, flow-through entities,

and U.S. branches of foreign banks and

insurance companies (other than U.S.

branches treated as U.S. persons) are

required to provide information with

respect to reportable amounts, as

defined in § 1.1441–1(e)(3)(vi). Prior to

its revision, paragraph (e)(3)(vi)

included in the definition of reportable

amounts original issue discount or

interest (OID) paid on short-term

instruments. This definition appeared to

include interest and OID regardless of

whether those amounts were paid on

the redemption of an obligation or from

the sale or exchange of an obligation in

a transaction other than a redemption.

Under the presumption rules, if a

withholding agent makes a payment to

a foreign intermediary of interest and

OID on a short-term obligation and it

lacks documentation for such amounts,

it must presume that the payee is a U.S.

non-exempt recipient and report the

income on Form 1099 and backup

withhold on the payment. See § 1.6049–

5(d)(3)(iii). These rules proved to be

impractical for sales of short-term

obligations outside the United States.

Foreign intermediaries have contended

that they do not have the appropriate

systems to report gains from sales

transactions on Forms 1099 or to

provide the proper allocation

information to U.S. payors. Moreover,

treating the sale or exchange of shortterm OID instruments as reportable

interest on Form 1099 was inconsistent

with rules that treat amounts paid on

the sale or exchange, other than

redemptions, of such obligations as

gross proceeds. See §§ 1.6045–1(d)(3)

and 31.3406(b)(2)–2. Because it is more

appropriate to treat sales, other than

redemptions, of short-term OID

instruments as gross proceeds rather

than payments of interest or original

issue discount, the regulation has been

amended to provide that reportable

amounts do not include amounts

representing interest or OID on the sale

or exchange, other than a redemption, of

a short-term OID instrument. Therefore,

a foreign intermediary, flow-through

entity, or U.S. branch is not required to

provide information regarding these

transactions to a withholding agent as

part of its withholding statement.

d. Period of validity. Section 1.1441–

1(e)(4)(ii)(A) states that documentary

evidence (i.e., documentation other than

a withholding certificate) remains valid

until ‘‘the earlier of the last day of the

third calendar year following the year in

which the documentary evidence is

created * * * .’’ Commentators have

stated that it is not clear if a document

is ‘‘created’’ when it comes into being or

when it is provided to a withholding

agent. They also stated that basing the

validity period on the date a document

came into being would be more difficult

to administer because they would have

to calculate the expiration date in every

case rather than assuming that it was

valid for three years after it had been

received by the withholding agent. In

response to these comments, the rule

has been amended to permit the validity

period to be measured from the date

documentation is provided to the

withholding agent.

Section 1.1441–1(e)(4)(ii)(B) sets forth

the circumstances in which a Form W–

8 has an indefinite validity period.

Paragraph (e)(4)(ii)(B)(1), as originally

drafted, provided that a Form W–8 that

contained a TIN was valid indefinitely

‘‘if the income for which such certificate

is furnished is required to be reported’’

32158 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

on Form 1042–S. Commentators noted

that a strict reading of this language

could preclude the indefinite validity of

a Form W–8 with respect to income that

was not subject to reporting, even

though other income paid to the same

beneficial owner by the withholding

agent was subject to reporting. The

regulation has been amended to provide

that if there is annual reporting of at

least one item of income paid by a

withholding agent to a beneficial owner,

the Form W–8 remains valid even for

payments that are not subject to

reporting. However, if a withholding

agent has a Form W–8 with a TIN but

does not make any payments of an

amount subject to withholding, for

example the withholding agent pays

only deposit interest, the form remains

valid only for 3 calendar years after the

year of receipt. In addition, paragraph

(e)(4)(ii)(B)(8) has been added to provide

an indefinite validity period for a

withholding certificate provided by a

foreign simple trust or foreign grantor

trust for the purposes of transmitting

withholding certificates or documentary

evidence.

e. Electronic transmission of

information. These regulations finalize

the regulations proposed in REG–

107872–97 (62 FR 53504) relating to the

electronic submission of Forms W–8

and make them applicable beginning

January 1, 2000. Like the proposed

regulations, the final regulations apply

only to situations where there is a direct

relationship between the withholding

agent or payor and the beneficial owner

or payee. The final regulations reserve

an applicable standard for transmitting

forms through tiers of intermediaries.

Comments were solicited on this matter

in the preamble to the proposed

regulations but none were received. The

IRS and Treasury recognize the benefits

of allowing the electronic transmission

of Forms W–8 through one or more

intermediaries and continue to solicit

comments regarding requirements to

ensure the integrity, accuracy, and

reliability of electronically transmitted

forms through tiers of intermediaries.

f. Requirement of taxpayer identifying

number. Section 1.1441–1(e)(4)(vii)

provides guidance for when a TIN is

required on a Form W–8. Paragraph

(e)(4)(vii), as originally drafted, required

TINs on withholding certificates from

all trusts or estates or the fiduciaries

thereof. A number of commentators

stated that the TIN requirement was

burdensome and unreasonable when

applied to pension trusts and large

investment trusts. In addition,

commentators noted that

nonwithholding foreign partnerships,

which are treated similarly to foreign

simple trusts and foreign grantor trusts,

are not required to have a TIN. In

response to these comments, the

regulations have been amended by

eliminating the TIN requirement for

foreign trusts other than foreign grantor

trusts with 5 or fewer owners.

Paragraph (e)(4)(vii) has also been

modified to state that a TIN is required

on a withholding certificate from a

beneficial owner that is claiming an

exemption based on its claim of tax

exempt status under section 501(c) or

private foundation status. This does not

represent a change in the requirements

for a withholding certificate from such

a beneficial owner. The regulation, as

originally drafted, however, contained

the requirement only in § 1.1441–9. The

requirement of a TIN has been repeated

in this paragraph for convenience.

Finally, commentators noted that there

was a conflict between paragraph

(e)(4)(vii), which did not require a TIN

on a withholding certificate from a

nonwithholding foreign partnership,

and § 1.1441–5(c)(3)(iii)(A), which

stated that a TIN was required. It was

never intended that a nonwithholding

foreign partnership withholding

certificate used to transmit

documentation and information relating

to its partners have a TIN. Section

1.1441–5(c)(3)(iii)(A) has been modified

accordingly. TINs are required,

however, if the withholding foreign

partnership is providing a withholding

certificate on which it claims an

exemption from withholding because

the income is effectively connected with

the conduct of a trade or business or

when it is entitled to claim treaty

benefits under section 894 on income

for which a TIN is required under

§ 1.1441–6(b)(1).

g. Requirement to furnish certificates

for each account. Generally, each

withholding agent that makes a payment

to a beneficial owner must obtain a

separate withholding certificate. In

addition, a withholding agent that is a

financial institution must obtain

withholding certificates or other

appropriate documentation on an

account-by-account basis from its

customers. Under paragraph

(e)(4)(ix)(A)(3) of the regulations, a

withholding agent may rely on a

withholding certificate held at another

branch of the same withholding agent or

of a person related to the withholding

agent if there is a system in place that

permits a withholding agent to access

data regarding the withholding

certificate and to transmit data that

affects the validity of the documentation

into the system. A commentator noted

that the regulations do not contain

provisions, however, to let unrelated

withholding agents utilize such a

system that they maintain in common or

that is maintained by another person.

New paragraph (e)(4)(ix)(A)(4) has been

added to permit unrelated withholding

agents to rely on such a system.

h. Special rules for brokers. Section

1.1441–1(e)(4)(ix)(C) provided that a

withholding agent may rely on the

certification of a broker acting as the

agent of a beneficial owner if the broker

held a valid beneficial owner

withholding certificate or other

documentation for that beneficial

owner. As originally drafted, the

intention of this provision was unclear.

It also appeared to be overly broad

because it would have permitted a

foreign broker to retain beneficial owner

documentation and not transmit the

documentation to a U.S. withholding

agent.

Paragraph (e)(4)(ix)(C) has been

redrafted to clarify, and appropriately

limit, its application. As redrafted, it

applies only to a U.S. broker. It permits

such a broker that is acting as an

introducing or corresponding broker to

provide a clearing broker with a

certification that it holds a valid

withholding certificate or other

appropriate documentation. Without

this rule, an introducing or

corresponding broker would have to

obtain multiple Forms W–8 and provide

them to each clearing broker with whom

the introducing or corresponding broker

executes transactions. In addition,

paragraph (e)(4)(ix)(C) has been

amended to apply only to readily

tradeable instruments, as provided in

§ 31.3406(h)–3(d), on which it is

modeled. An example has been added to

illustrate the paragraph.

8. Qualified Intermediary Withholding

Certificates

Section 1.1441–1(e)(5) provides rules

regarding qualified intermediaries. The

rules have been redrafted to more

closely conform with the model

qualified intermediary agreement

published as part of Rev. Proc. 2000–12.

The regulation, as originally drafted,

contained a requirement that a qualified

intermediary disclose U.S. non-exempt

recipients ‘‘irrespective of local secrecy

laws.’’ The model qualified

intermediary agreement has specific

provisions contained in section 6.04 of

the agreement, as well as other sections,

that govern the treatment of U.S.

persons whenever foreign law, whether

or not a ‘‘secrecy’’ provision, may

preclude disclosure of a U.S. nonexempt recipient. Very generally, those

provisions require a qualified

intermediary to disinvest a U.S. nonexempt recipient who does not waive its

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32159

local law non-disclosure privileges and

to collect backup withholding on

income and sales proceeds paid to such

person. Therefore, the language stating

that disclosure is required ‘‘irrespective

of local secrecy laws’’ has been deleted

to avoid creating an inconsistency

between the model qualified

intermediary agreement and the

regulation.

The provisions in paragraph (e)(5)

regarding the terms of the withholding

agreement a qualified intermediary must

enter with the IRS have also been

changed to more generally conform with

the qualified intermediary agreement as

set forth in Rev. Proc. 2000–12. The

regulation clarifies the consequences of

a qualified intermediary’s assumption of

primary withholding responsibility.

Section 1.1441–1(e)(5)(iv), as originally

drafted, stated that a withholding agent

making a payment to a qualified

intermediary was required to presume

full withholding responsibility for that

payment unless the qualified

intermediary assumed primary

withholding responsibility. The

regulation was potentially misleading

because it could have been interpreted

to mean that if a qualified intermediary

did not assume primary withholding

responsibility, only the U.S.

withholding agent was responsible for

withholding. Rev. Proc. 2000–12 makes

clear, however, that qualified

intermediaries are required to withhold

in certain circumstances even though

they have not assumed primary

withholding responsibility. The rule

that was initially in paragraph (e)(5)(iv)

was intended to relieve a withholding

agent making a payment to a qualified

intermediary that assumed primary

withholding responsibility from the

obligation to withhold, not to relieve the

qualified intermediary of any

withholding requirement. The

paragraph has been amended to reflect

this intent.

Paragraph (e)(5)(iv) also stated that a

qualified intermediary generally would

not be permitted to assume withholding

and reporting responsibility under

section 3406 and chapter 61 of the

Internal Revenue Code on a payment

made to a U.S. person unless the

qualified intermediary was a foreign

branch of a U.S. person or a foreign

person that had a branch in the United

States capable of performing such

reporting and withholding. In

developing the model qualified

intermediary agreement, it became

apparent that it was desirable to permit

certain qualified intermediaries that did

not meet those criteria to assume

reporting and withholding

responsibility under chapter 61 of the

Internal Revenue Code and section

3406. For example, where payments are

made through clearing organizations, it

may be impractical to require a qualified

intermediary to provide information

regarding U.S. non-exempt recipients to

a U.S. withholding agent. The language

that generally limited the ability to

assume reporting and withholding

responsibility under chapter 61 of the

Internal Revenue Code and section 3406

has been eliminated. Whether a

qualified intermediary may assume such

responsibility is left to the terms of the

qualified intermediary agreement. See

section 3 of the model qualified

intermediary agreement in Rev. Proc.

2000–12.

Section 1.1441–1(e)(5)(v), as

originally drafted, required a qualified

intermediary to associate a payment

with one of three categories of assets: (i)

Assets associated with documented

foreign persons, (ii) assets associated

with documented U.S. payees, and (iii)

assets associated with undocumented

payees. These three asset categories

were subdivided into classes of assets

based on withholding rates and

reporting requirements. The asset

categories did not provide the needed

flexibility sought by qualified

intermediaries. For example,

information regarding U.S. exempt

recipient payees, who are not subject to

withholding under section 1441, could

not be combined with information

regarding foreign beneficial owner

payees subject to a zero rate of

withholding. The model qualified

intermediary agreement, as published in

Rev. Proc. 2000–12, substituted the

withholding rate pool concept for asset

classes and this concept has been

reflected in the revised regulation. A

withholding rate pool is a payment of a

single type of income, determined in

accordance with the categories of

income reported on Form 1042–S or

Form 1099, as applicable, that is subject

to a single rate of withholding.

Finally, the regulations permit, in

accordance with Rev. Proc. 2000–12, a

qualified intermediary and a U.S.

withholding agent to use a single

withholding rate pool for U.S. nonexempt recipients for whom no backup

withholding is required and a single

withholding rate pool for U.S. nonexempt recipients that are subject to

backup withholding provided that the

qualified intermediary agreement

permits such an arrangement and

sufficient information is provided to the

withholding agent no later than January

15 following the year of payment that

allocates the reportable payments to

each U.S. non-exempt recipient account

holder. Failure to provide the allocation

information timely may result in

penalties imposed on the qualified

intermediary and the termination of its

qualified intermediary agreement.

Unlike qualified intermediaries,

nonqualified intermediaries and flowthrough entities are not permitted to

pool payments to U.S. non-exempt

recipients. Therefore, information

sufficient to allocate the payment to

each U.S. non-exempt recipient must be

provided before a payment is made or

the withholding agent must treat the

payment as made to a U.S. payee that

has failed to provide a TIN and impose

backup withholding.

B. Changes to § 1.1441–2

1. Amounts Subject to Withholding

Section 1.1441–2(a) has been

amended to exclude from the definition

of amount subject to withholding

interest paid as part of the purchase

price of an obligation sold between

interest payment dates (accrued interest)

and an amount representing original

issue discount (OID) paid as part of the

purchase price of an obligation sold in

a transaction other than the redemption

of such obligation. The exclusions do

not apply, however, if the sale of an

obligation is part of a plan the principal

purpose of which is to avoid tax and the

withholding agent has actual knowledge

or reason to know of such plan.

The exclusion of accrued interest and

amounts representing OID paid as part

of the purchase price of an obligation

sold in a transaction other than a

redemption were made in response to

comments received on § 1.1441–2(b)(3)

of the final regulations and proposed

regulation § 1.1441–3(b) (REG–114000,

62 FR 53503). Section 1.1441–2(b)(3), as

originally drafted, required withholding

on OID to the extent the withholding

agent had actual knowledge of the

amount of the payment that was taxable

to the beneficial owner. A withholding

agent was treated as having actual

knowledge if it had a direct account

relationship with the holder of the

obligation. Proposed regulation

§ 1.1441–3(b) would have eliminated

the rule that no withholding was

required on accrued interest and

replaced it with a rule that conformed

with the rule applicable to OID on the

theory that, from a withholding

perspective, the two payments were

equivalent. The withholding rules

applicable to OID and accrued interest

would have required withholding

whenever a payment of interest or OID

was not subject to an exception, such as

the portfolio interest exception, or a

payment of OID or accrued interest was

presumed made to a foreign person and

32160 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

the withholding agent could not reliably

associate the payment with beneficial

owner documentation. Such payments

were subject to reporting on Form 1042–

S whether or not withholding was

imposed.

In Notice 99–8, Treasury and the IRS

announced that they would make

modifications to the OID and accrued

interest rules. The modifications were

intended to address criticisms by

commentators that the OID and accrued

interest rules were unworkable.

Commentators argued that debt

obligations are often sold in deliveryversus-payment transactions which

settle quickly and often involve

multiple intermediaries. The

requirement to withhold in absence of a

beneficial owner withholding certificate

would necessarily inhibit the speed

with which sales transactions are

normally conducted. In addition, they

argued that a withholding agent does

not necessarily know the amount of OID

or accrued interest merely because it has

a direct account relationship with the

account holder. In addition, custodians

stated that sales were often accounted

for in systems different from those used

to report interest and OID and therefore

the reporting requirement of the

regulations would require significant

systems modifications. They argued that

these modifications were not justified

because nearly all accrued interest and

OID would be from instruments that

could qualify for the portfolio interest

exception.

Notice 99–8 proposed rules that were

intended to require only the

withholding agent that had a direct

account relationship with a beneficial

owner to obtain a Form W–8. Thus, the

notice proposed a rule that would

require a withholding agent to obtain a

withholding certificate only if it

received the proceeds from a sale

against delivery of the debt obligation

or, in the case of a retirement, the

withholding agent was the person

responsible for paying the owner or

crediting its account. The notice would

have prevented intermediaries other

than the intermediary with the direct

account relationship with the beneficial

owner from having to obtain a Form W–

8 by stating that any withholding agent

that effected a transaction for a broker

was generally not required to obtain a

Form W–8. A broker was defined by

reference to § 1.6045–1(a) and generally

included a person that makes sales of

securities for customers in the ordinary

course of that person’s trade or business.

In addition, the notice proposed to

eliminate the rule that presumed

knowledge of the amount of OID or

interest accrued between interest

payment dates merely because there was

a direct account relationship with the

beneficial owner of an obligation.

Commentators criticized the Notice

99–8 proposal. They argued that the

multiple broker exception did not

always accomplish its intended purpose

because certain participants in a

transaction for whom a Form W–8

should not be required could not meet

the definition of a broker, particularly

since that definition does not include

non-U.S. payors that effect sales of

obligations at an office outside the

United States and certain other persons,

such as investment advisors, who might

participate in the transaction but did not

stand ready to effect sales of securities

for others. In addition, the Notice did

not solve the problem faced by

custodians.

In light of these criticisms, Treasury

and the IRS have decided to eliminate

the requirement for withholding, and

reporting, on accrued interest and an

amount representing OID paid on the

sale of an OID obligation, other than in

a redemption. This change has been

effected by eliminating those items from

the definition of amounts subject to

withholding. Withholding is required,

however, if the withholding agent

knows or has reason to know that a sale

is part of a plan to avoid tax. For

example, if a holder of a debt obligation

that pays interest that does not qualify

for the portfolio interest exception sells

the instrument immediately prior to an

interest payment date and reacquires the

same type of security after the interest

payment date and the withholding agent

knows, or has reason to know, of this

pattern of sales, withholding and

reporting of accrued interest is required.

Paragraph (a) has also been amended

to state that insurance premiums paid

on a contract subject to the section 4371

excise tax are not amounts subject to

withholding. As previously drafted,

these amounts were excluded from the

definition of fixed or determinable

annual or periodical (FDAP) income

under § 1.1441–1(b)(2)(ii) and therefore

were not included in amounts subject to

withholding. Excluding insurance

premiums from FDAP is inappropriate,

however. Insurance premiums fall

within the definition of FDAP provided

in paragraph (b)(1). Therefore, the better

means for exempting premiums subject

to the section 4371 excise tax from

withholding is to exclude them from the

definition of amounts subject to

withholding.

2. Fixed or Determinable Annual or

Periodical Income

Section 1.1441–2(b)(1)(i) provides the

definition of fixed or determinable

annual or periodical (FDAP) income.

Such income, if from sources within the

United States, is generally an amount

subject to withholding and therefore

also subject to reporting on Form 1042–

S if paid to a foreign payee. Paragraph

(b)(1)(i) states that amounts that are

excluded from gross income under any

provision of law ‘‘without regard to the

identity of the holder’’ are not FDAP

income. This provision was, in part,

intended to exclude from FDAP

qualified scholarship income under

section 117. The language, however,

failed to accomplish its intended

purpose because the section 117

exclusion is dependent on the identity

of the person receiving the income—the

recipient must be a candidate for a

degree at a certain type of educational

organization. The paragraph has been

revised to state that amounts that are

excluded from gross income without

regard to the U.S. or foreign status of the

owner of the income is not FDAP. In

addition, the paragraph has been

changed to clarify that amounts

excluded from gross income under

sections 892 (income of foreign

governments) and 115 (income of a U.S.

possession) are not excluded from the

definition of FDAP since the foreign

status of the owner of the income is

determinative of whether the exclusions

provided by those sections apply.

Amounts subject to the section 892 and

section 115 exclusions are, therefore,

included in the scope of amounts

subject to withholding and therefore are

reportable on Form 1042–S under

section 1461 even though not taxable

under section 871 or 881.

3. Original Issue Discount

Section 1.1441–2(b)(3) provides rules

governing the treatment of original issue

discount. Paragraph (b)(3)(i) describes

the amount of OID subject to taxation in

the hands of the owner of an OID

obligation. Minor changes have been

made to this paragraph to clarify the

amount of OID that is taxable to the

beneficial owner of the obligation.

Paragraph (b)(3)(ii) describes the

amount of OID subject to withholding.

To conform paragraph (b)(3)(ii) to the

changes discussed in section B.1 of this

Explanation of Provisions, the

paragraph has been revised to require a

withholding agent to withhold on OID

only upon the redemption of the

original issue discount obligation or in

any case where the withholding agent

knows that a sale, other than a

redemption, is being made with the

principal purpose of avoiding tax on the

obligation. A withholding agent is

required to withhold on the actual

amount of OID includible in the gross

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32161

income of the owner of an obligation if

it has actual knowledge of such amount,

or, if actual knowledge is lacking, on the

entire amount of OID determined under

Publication 1212, ‘‘List of Original Issue

Discount Instruments’’ as if the

obligation had been held since issuance.

Paragraph (b)(3)(iii) contained a rule

that required a withholding agent to

withhold on interest and OID paid on an

OID obligation even though it did not

know the amount of OID subject to

taxation if the withholding agent could

not reliably associate the payment with

valid documentation. The rule was

designed to eliminate an exception to

withholding that applied if a

withholding agent did not have actual

knowledge of the amount of OID that

accrued to the holder of the obligation

up to the date of sale. If the exception

were not eliminated, it was feared that

the documentation requirement for

portfolio interest could be avoided by

selling OID obligations through

intermediaries that had no knowledge of

the accrued amount of OID. The rule is

no longer necessary. Under new

§ 1.1441–2(a)(6), withholding is

required if a withholding agent knows,

or has reason to know, that an OID

obligation is sold with the principal

purpose of avoiding tax. Therefore, the

rule as originally contained in

paragraph (b)(3)(iii) has been removed.

New paragraph (b)(3)(iii) contains the

transition rule formerly found in

paragraph (b)(3)(iv). The rule has been

modified, however. As previously

drafted, the rule appeared to eliminate

any withholding responsibility by the

issuer of an OID obligation or its agent,

as formerly contained in Rev. Rul. 68–

333 (1968–1 CB 390). As revised, issuers

and their agents are subject to any

applicable withholding requirements on

obligations issued before or after

December 31, 2000. The rule now states,

however, that withholding on OID

obligations is only required by persons

other than issuers or their agents with

respect to obligations issued after

December 31, 2000.

C. Changes to § 1.1441–3

1. Accrued Interest

Section 1.1441–3 provides rules to

determine the amount subject to

withholding. In accordance with the

change made in § 1.1441–2(a)(5), which

eliminates interest accrued between

sales dates from amounts subject to

withholding, § 1.1441–3(b)(2) has been

modified to eliminate the requirement

that a withholding agent that pays

accrued interest must report that

interest on Form 1042–S.

32. Coordination With REIT

Withholding

As originally drafted, § 1.1441–

3(c)(4)(i)(C) required withholding under

section 1441 on the portion of a Real

Estate Investment Trust (REIT)

distribution that is not designated as a

capital gain dividend or return of basis.

Therefore, § 1.1441–3(c)(4)(i)(C)

inadvertently required withholding

under section 1441 on a distribution in

excess of basis, which under section

301(c)(3) is capital gain from the sale or

exchange of stock and, therefore, not

subject to withholding under section

1441. To correct this error, paragraph

(c)(4)(i)(C) has been amended to provide

that withholding under section 1441 is

not required on a distribution in excess

of basis. A distribution in excess of basis

is, however, subject to withholding

under section 1445 unless the interest in

the REIT is not a U.S. real property

interest (e.g., an interest in a

domestically controlled REIT under

section 897(h)(2)).

D. Changes to § 1441–4

1. Notional Principal Contracts

Section 1.1441–4(a)(3)(i) treats a

payment of income on a notional

principal contract made to a foreign

person as income effectively connected

with a trade or business within the

United States unless the withholding

agent can reliably associate a payment

with a withholding certificate that

certifies that the payment is not

effectively connected. This rule is

overly broad because it presumes that

any notional principal contract payment

made to a foreign person is effectively

connected even if the foreign person has

no nexus to the United States. As a

result, § 1.1441–4(a)(3)(i) has been

amended to limit the presumption that

notional principal contract income is

effectively connected to a U.S. trade or

business to those situations in which

the income is either paid to a U.S.

qualified business unit of a foreign

person or the withholding agent

otherwise knows, or has reason to know,

that the income is effectively connected

with the conduct of a U.S. trade or

business. It is not expected that a

withholding agent would be considered

to have reason to know that a notional

principal contract payment is effectively

connected with the conduct of a trade

or business within the United States

solely because the foreign person

receiving the payment has a qualified

business unit in the United States to

which a portion of the payment may be

allocated pursuant to proposed

regulation § 1.863–3(h) (the global

dealing regulations).

Section 1.1441–4(a)(3)(ii), as

originally drafted, stated that a payment

to a financial institution was not treated

as effectively connected with the

conduct of a trade or business within

the United States if the financial

institution provided a representation in

a master agreement that governs

transactions in notional principal

contracts between the parties (for

example, an International Swaps and

Derivatives Association (ISDA)

Agreement) or in the confirmation on

the particular notional principal

contract transaction that the counter

party was a U.S. person or a non-U.S.

branch of a foreign person.

Commentators requested that the

master agreement and confirmation

exceptions be expanded to apply to

persons other than financial

institutions. Section 1.1441–4(a)(3)(ii)

has been amended (in the table or

corrections at the end of the regulation)

to allow any payee, not just a financial

institution, to provide in a master

agreement or confirmation statement a

representation that the payee is a U.S.

person or a non-U.S. branch of a foreign

person.

2. Withholding on Payments From

Individual Retirement Accounts

Section 1.1441–4(b)(1)(ii), as

originally drafted, provided that section

1441 applied to distributions from any

trust described in section 401(a) made to

a nonresident alien individual and to

certain other retirement distributions.

The result of this rule is that section

1441, rather than section 3405, applies

to retirement distributions. This rule

considerably eases the burdens that

would otherwise apply to retirement

distributions.

Commentators noted that the

regulations did not provide the same

rule for distributions from individual

retirement accounts and annuities

described in section 408. The regulation

has been amended so that those

distributions will be subject to section

1441 as well.

E. Changes to § 1441–5

Section 1.1441–5 of the regulations

concerns payments made to

partnerships, trusts, and estates. As

originally drafted, the regulations

contained extensive rules for payments

made to U.S. and foreign partnerships,

but applied the rules of the regulations

prior to the publication of TD 8734 to

trusts and estates. The trust and estate

rules, however, were inconsistent with

the rules contained in TD 8734 and

were also incomplete. For example,

§ 1.1441–1(c)(6)(ii)(B) required a

withholding agent to determine the

32162 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

beneficial owner of income paid to a

trust or estate under § 1.1441–3(f) and

(g) of the regulations in effect prior to

January 1, 2001. That section, however,

did not determine the beneficial owner

of income paid to a trust. In addition,

§ 1.1441–1(e)(3)(i) stated that a trust or

estate was to use a flow-through

withholding certificate furnished under

§ 1.1441–5(e), but that section was

reserved in the regulation. The

regulation has been revised to provide

complete trust and estate rules. Except

as noted below, the partnership rules

remain generally unchanged; however,

several changes were made to clarify

those rules.

1. Rules Applicable to U.S.

Partnerships, Trusts, and Estates

Section 1.1441–5(b), as originally

drafted, provided rules regarding

payments to U.S. partnerships. The

rules of paragraph (b) have been

expanded to cover payments to U.S.

trusts and U.S. estates as well. Under

revised paragraph (b)(1), a payment to a

U.S. partnership, U.S. trust, or U.S.

estate is treated as a payment to a U.S.

person and, therefore, not subject to

withholding under chapter 3 of the

Internal Revenue Code. United States

partnerships, U.S. trusts, and U.S.

estates are required, however, to

withhold on payments they make to

foreign partners, foreign beneficiaries,

or, in the case of grantor trusts, foreign

owners. Fiduciaries of U.S. trusts and

U.S. estates should take particular note

that it is the trust or the estate that is

the withholding agent, and Forms 1042

and Forms 1042–S must be filed using

the name and TIN of the U.S. trust or

U.S. estate, not the name and TIN of the

fiduciary.

Under paragraph (b)(2), a U.S.

partnership is a withholding agent for a

foreign partner’s distributable share of

partnership income that consists of

amounts subject to withholding. A U.S.

simple trust is a withholding agent for

the distributable net income (DNI)

includible in the gross income of a

foreign beneficiary to the extent the DNI

consists of an amount subject to

withholding. Similarly, a U.S. complex

trust is a withholding agent on DNI

includible in the gross income of a

foreign beneficiary to the extent the DNI

consists of an amount subject to

withholding that is, or is required to be,

distributed currently. U.S. simple trusts

and complex trusts are permitted to

make reasonable estimates of the

portion of a distribution that constitute

DNI consisting of amounts subject to

withholding. A U.S. grantor trust must

withhold on any income includible in

the taxable income of a foreign person

that is treated as an owner to the extent

the amount includible consists of an

amount subject to withholding.

In the case of a partnership, if

amounts subject to withholding are not

actually distributed, the U.S.

partnership must withhold at the earlier

of the time the statement required under

section 6031(b) (Form K–1) is mailed or

otherwise provided to the partner or the

due date for furnishing the statement. In

addition, if an amount of income is

required to be, but is not actually

distributed to the foreign beneficiary of

a U.S. simple or complex trust, the U.S.

trust must withhold at the time the

income is required to be reported on

Form 1042–S. A U.S. grantor trust is

required to withhold at the time the

trust receives the payment or the

payment is credited to the trust’s

account.

2. Payments Made to Foreign

Partnerships

Section 1.1441–5(c) provides rules for

payments made to foreign partnerships.

Generally, the payees of a payment

made to a nonwithholding foreign

partnership are the partners of the

partnership. Paragraph (c)(1)(ii),

however, contains rules on when the

partnership itself will be regarded as the

payee of a payment. That paragraph, as

originally drafted, permitted a

partnership to be treated as the payee of

income if the partnership provided a

withholding certificate stating that the

payment was effectively connected with

the conduct of the partnership’s U.S.

trade or business. A commentator noted

that the paragraph did not treat the

partnership as the payee, however, to

the extent the income was treated as

being effectively connected under the

presumption rules in the absence of a

withholding certificate.

The paragraph has been revised to

treat the partnership as the payee if the

income is presumed to be effectively

connected in the absence of

documentation. For example, if a

nonwithholding foreign partnership is

receiving income on a notional

principal contract and the income is

treated as effectively connected income

under the presumption rule of § 1.1441–

4(b)(3)(i), the nonwithholding foreign

partnership, and not the partners, is

treated as the payee. In addition, the

example in paragraph (c)(1)(iv) has been

replaced with several less complex

examples that better illustrate the

operation of the rules of paragraph

(c)(1).

Section 1.1441–5(c)(2) contains rules

relating to withholding foreign

partnerships. Section 1.1441–

5(c)(2)(ii)(A), together with § 1.1461–

1(c)(2)(ii)(A), required a withholding

foreign partnership to file a Form 1065

and Forms K–1 and exempted the

partnership from having to file Form

1042 and Forms 1042–S. The rule was

incorrect. A withholding foreign

partnership is generally required to

withhold on payments and therefore

must file a Form 1042, which is an

income tax return, and not merely

report the amounts on Form 1065. Also,

because the IRS matches amounts

reported on Forms 1042–S with

amounts reported on Form 1042, it was

incorrect to substitute Forms K–1 for

Forms 1042–S. Therefore, the regulation

has been amended to require a

withholding foreign partnership to file a

tax return on Form 1042 and file

information returns on Form 1042–S for

amounts subject to withholding paid to,

or included in the distributive share of,

its foreign partners. A withholding

foreign partnership may also be required

to file a return on Form 1065 and make

the statements on Form K–1 under

section 6031 for its partners. However,

the IRS may agree in the withholding

agreement to modify information

reporting requirements to avoid double

reporting. A rule that was formerly

contained in § 1.1441–7(a), which

permitted a withholding foreign

partnership to arrange with a

withholding agent to have the

withholding agent impose withholding

on a payment has been removed because

a withholding foreign partnership is

required to assume withholding

responsibility.

Section 1.1441–5(c)(3) provides rules

relating to nonwithholding foreign

partnerships. Paragraph (c)(3)(iv) has

been revised to require a

nonwithholding foreign partnership to

provide a withholding statement in the

same manner as a nonqualified

intermediary. In addition, paragraph

(c)(3)(v) has been revised to conform

with revised § 1.1441–1(b)(6), discussed

in section A. 5 of this Explanation of

Provisions. Thus, the regulation has

been changed to make clear that a

nonwithholding foreign partnership has

an obligation to report payments even

though another withholding agent has

withheld the appropriate amount if the

nonwithholding partnership has failed

to provide adequate information for a

withholding agent to report the

payments appropriately on Form 1042–

S and Form 1099 or the nonwithholding

foreign partnership knows, or has

reason to know, that the payments were

not correctly reported.

Paragraph (d) of § 1.1441–5 provides

presumption rules that apply to

determine the status of a partnership

and its partners if a payment cannot be

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32163

reliably associated with valid

documentation. The rule in paragraph

(d)(3)(ii), which permitted a reduced

rate of withholding to be applied to a

payment to a nonwithholding foreign

partnership if the payment could be

associated with a group of documented

payees all of whom were subject to the

same withholding rate has been

removed for the reasons stated in

connection with the changes made to

§ 1.1441–1(b)(3)(v)(C). See section A. 4,

of this Explanation of Provisions. Under

the revised rule, any payment of an

amount subject to withholding paid to

a foreign partnership that has not been

allocated to a specific payee is

presumed made to an undocumented

foreign payee and subject to 30 percent

withholding.

3. Payments to Foreign Trusts and

Estates

Treasury Decision 8734 did not

include new provisions regarding

withholding on payments by and to

foreign trusts and foreign estates. The

IRS provided interim guidance in the

instructions to Forms W–8BEN and W–

8IMY so that withholding agents could

replace documentation that was

expiring under the withholding

regulations with documentation that

would meet the requirements of TD

8734. In addition, Notice 99–8

announced that Treasury and the IRS

intended to issue regulations that would

clarify the withholding obligations of

income paid to trusts and estates. Under

the instructions and the notice, a

payment to a foreign fiduciary was

treated as a payment to a foreign

intermediary and, therefore, the foreign

fiduciary was required to furnish an

intermediary withholding certificate on

Form W–8IMY. If the trust was a trust

described in section 651(a) or a trust, all

or a portion of which was treated as

owned by the grantor or other persons

under sections 671 through 679, the

fiduciary was required to attach Forms

W–8BEN, Forms W–8EXP, or Forms W–

9, from the beneficiaries or owners of

the trust. In all other cases, the foreign

trustee or executor was required to

attach a Form W–8BEN, Form W–8EXP,

or if required, Form W–9, completed on

behalf of the trust or estate.

Several commentators objected to the

requirement that a foreign fiduciary of a

complex trust or a foreign estate provide

an intermediary withholding certificate.

They requested that a withholding

certificate be required only from the

trust or estate itself. Requiring

documentation from a fiduciary also

was not consistent with the rules under

chapter 61, which generally require a

Form W–9 from a trust or estate and

ignore the status of the fiduciary.

Finally, Notice 99–8 did not provide

any presumption rules for payments to

foreign trusts and foreign estates.

The regulations now contain a

comprehensive set of rules for payments

made to foreign trusts and foreign

estates in § 1.1441–5(e). A foreign

complex trust (as defined in paragraph

(c)(25)) and a foreign estate are generally

considered beneficial owners of income

under § 1.1441–1(c)(6). Therefore, under

§ 1.1441–5(e)(2), a foreign complex trust

or a foreign estate may provide a

beneficial owner withholding certificate

or other beneficial owner

documentation for payments for which

a reduced rate of withholding is not

claimed under a treaty. Whether such a

trust or estate can provide a beneficial

owner withholding certificate to claim a

reduced rate of withholding under an

income tax treaty will depend on

whether the trust or estate can claim to

be a resident of a treaty country,

whether it derives the income under

section 894, and the regulations

thereunder, and whether treaty benefits

are denied under a limitation on

benefits provision.

Foreign simple trusts and foreign

grantor trusts are not payees or

beneficial owners under § 1.1441–

5(e)(3), unless the payment is an amount

that is treated as effectively connected

with the conduct of a U.S. trade or

business. The payees of payments to a

foreign simple trust or a foreign grantor

trust are generally the beneficiaries or

owners of the trust. This is similar to the

treatment accorded to payments to

foreign partnerships, where the

partners, rather than the partnership, are

generally considered the payees of

income paid to the partnership.

Therefore, the documentation rules

applicable to foreign simple trusts and

foreign grantor trusts generally accord

with those applicable to foreign

partnerships. The trust itself provides a

flow-through withholding certificate

with which it associates the

withholding certificates or, if permitted,

documentary evidence of its

beneficiaries or owners. The foreign

simple trust or foreign grantor trust

must also associate with its flowthrough withholding certificate a

withholding statement identical to that

provided by foreign partnerships and

nonqualified intermediaries. The IRS

may permit a foreign trust to function as

a withholding foreign trust. A

withholding foreign trust would

generally be subject to the same

provisions as a withholding foreign

partnership.

Section 1.1441–1(e)(6) provides

presumption rules for payments of

amounts subject to withholding to

foreign trusts and estates. Whether a

payee is a trust or estate is determined

under the general presumption rules of

§ 1.1441–1(b)(3)(ii). A trust or estate is

presumed to be U.S. unless there are

indicia of foreign status. If a payee is

presumed to be a foreign trust, but its

status as a complex, simple, or grantor

trust is unknown, it will be treated as a

complex trust. If the trust is known to

be a foreign simple or grantor trust, its

beneficiaries or owners will generally be

presumed to be foreign with respect to

payments of amounts subject to

withholding.

F. Changes to § 1441–6

Section 1.1441–6 contains the

provisions for claiming a reduced rate of

withholding under an income tax treaty.

Section 1.1441–6(b) has been revised to

clarify the requirements for claiming

treaty benefits. Specifically, the

provisions of paragraph (b)(2), as

originally drafted, which related to use

of documentary evidence, have been

moved to newly revised paragraphs

(c)(1) and (2) so that all the

documentary evidence rules appear in

the same paragraph. Paragraph (b)(2)

now contains the provisions relating to

treaty claims made by interest holders of

fiscally transparent entities. Clarifying

changes to those rules, which appeared

in former paragraph (b)(4), have also

been made.

Section 1.1441–6(c)(1) and (2), as

originally drafted, required a foreign

person to establish residency by

obtaining a certified taxpayer

identification number (certified TIN)

from the IRS. Those provisions required

a person claiming a reduced rate of

withholding to submit either a

certificate of residency or certain other

prescribed documentation, plus

affidavits regarding compliance with the

limitation on benefits provisions of a

treaty and with the regulations under

section 894. In Notice 99–8, the IRS

announced that it would not implement

the procedures for obtaining certified

TINs until January 1, 2002.

The certified TIN procedures have

been removed. New paragraph (b)(3),

however, provides authority for the IRS

to issue guidance on requirements that

a treaty claimant must follow to

establish residency and compliance

with other requirements imposed by

treaties and the Internal Revenue Code,

such as limitation on benefits provisions

and the requirement that the claimant

derive the income under section 894.

Treasury and the IRS fully intend to

implement such procedures. However,

Treasury and the IRS determined that it

was appropriate to delay

32164 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

implementation of the requirement

while withholding agents and beneficial

owners implement other requirements

under the regulation. In addition, the

IRS will examine ways to more

effectively implement the certified TIN

requirement.

Paragraphs (c)(3) and (4) prescribe the

types of documentation that can be used

to claim treaty benefits for income from

marketable instruments paid outside the

United States to offshore accounts.

Former paragraph (b)(2) stated that

documentary evidence could be used, in

certain cases, to claim treaty benefits if

the documentary evidence was

accompanied by the certifications

required in paragraph (c)(5). Paragraph

(c)(5) contained a requirement that a

beneficial owner applying for a certified

TIN provide the IRS with certifications,

made in an affidavit signed under

penalties of perjury, that the beneficial

owner was in compliance with any

applicable limitation on benefits

provisions contained in a treaty and that

the beneficial owner derives the income

for which treaty benefits will be

claimed. It was unclear from the

regulations, as drafted, whether the

certifications that were provided to

withholding agents were required to be

made in affidavits signed under

penalties of perjury or whether the

affidavit requirement only applied to

obtaining certified TINs. Although

Treasury and the IRS believe it is

important that statements regarding

compliance with limitation on benefits

provisions and section 894 be given in

conjunction with documentary evidence

provided to a withholding agent, a

penalties of perjury requirement would

impose a burden that undermines the

use of documentary evidence. One

reason for permitting use of

documentary evidence is to eliminate,

as much as possible, the need for a

penalties of perjury statement. Thus, the

affidavit and penalties of perjury

requirements have been eliminated with

respect to documentary evidence

provided to a withholding agent. The

IRS may, however, require an affidavit

in connection with the certified TIN

procedures that it will establish. The

affidavit requirement in paragraph

(c)(4), stating that the information on

documentary evidence is true and

complete, has also been eliminated.

G. Changes to § 1.1441–7

Section 1.1441–7 defines the term

withholding agent and provides various

rules relating to the obligations of

withholding agents, including certain

due diligence requirements regarding

the documentation they receive from

payees.

1. Withholding Agent Defined

§ 1.1441–7(a) provides the definition

of a withholding agent as well as a

withholding agent’s obligation to

withhold the appropriate amount of

taxes and file returns. The section has

been revised by removing language

stating that a withholding foreign

partnership does not have to file Forms

1042–S for payments made to foreign

partners because it is required to

provide Forms K–1. The reason for this

change is discussed in section E. 2 of

this Explanation of Provisions.

Some U.S. withholding agents

commented that foreign persons,

including U.S. branches of foreign

persons, were taking the position that

they were not withholding agents for

purposes of chapter 3 of the Internal

Revenue Code. Any person, whether

U.S. or foreign, that pays, or has control,

receipt, custody, or disposal of an

amount subject to withholding is a

withholding agent. In addition, with

respect to a single item of income, each

person that handles the payment is a

withholding agent. Thus, there may be

more than one withholding agent with

respect to a payment of an amount

subject to withholding. Examples have

been added in new paragraph (a)(2) to

illustrate these principles. In particular,

examples were added to emphasize that

foreign persons that pay, or have

control, receipt, or custody, of amounts

subject to withholding are withholding

agents, including U.S. branches of

foreign persons.

2. Reason To Know

Section 1.1441–7(b)(2)(ii), as

originally drafted, provided the

exclusive rules for determining when a

withholding agent that is a financial

institution making a payment of income

from marketable securities has reason to

know that documentation provided to

the withholding agent is unreliable.

Commentators noted that the language

of paragraph (b)(2)(ii) was inconsistent

about whether the rules applied only to

withholding certificates (i.e., Forms W–

8) or also to documentary evidence. In

addition, many commentators noted

that the rules could not be reasonably

applied to documentary evidence

received through tiers of intermediaries,

because that documentation would

often be in a foreign language. They

further argued that the rules relating to

P.O. box addresses were unreasonable

because in some countries P.O. box

addresses are standard. Finally,

commentators noted that the means for

curing otherwise unreliable

documentation were, in some instances,

too restrictive.

Section 1.1441–7 (b)(3) through (10)

have been added to address the

comments. Some of the changes made to

paragraph (b) reflect rules in the model

qualified intermediary agreement

contained in Rev. Proc. 2000–12.

Paragraphs (b)(4) through (b)(9) relate to

the obligations of a withholding agent

for account holders that have a direct

account relationship with the

withholding agent. The rules are limited

to direct account relationships because

they often rely on account information

that will exist only if such a relationship

exists. However, under the rules of

paragraph (b)(10), which relate to

documentation from persons that are

not direct account holders, the rules in

paragraph (b)(4) through (9) apply to the

extent that they rely on information

contained on the face of a withholding

certificate, documentary evidence, or a

withholding statement.

Paragraph (b)(4) contains general rules

regarding the reliability of a

withholding certificate provided on

Form W–8. Paragraph (b)(5) contains

rules for when a Form W–8 will be

regarded as unreliable to establish a

beneficial owner’s foreign status and

applicable cure provisions. Paragraph

(b)(6) contains rules for when a Form

W–8 will be regarded as unreliable to

establish a beneficial owner’s claim of

treaty benefits and applicable cure

provisions. Paragraph (b)(7) provides

general rules relating to documentary

evidence. Paragraphs (b)(8) and (b)(9)

contain rules regarding documentary

evidence that is unreliable to establish

a beneficial owner’s status as a foreign

person or a resident of a treaty country,

respectively.

Paragraph (b)(10) provides rules

regarding due diligence standards for

documentation from payees received

through nonqualified intermediaries,

flow-through entities, and certain U.S.

branches of foreign banks and insurance

companies. Under paragraph (b)(10), a

withholding agent is required to review

the information contained in a

withholding statement provided by

those entities and may not rely on the

information contained in the

withholding statement to the extent it

does not support the claims made for

the payee. A withholding agent must

also review each withholding certificate

to verify that they support the claims

made and are consistent with the

information on the withholding

statement. Under a transition rule, this

review process does not apply to

withholding certificates received before

December 31, 2001, if the payment is

made prior to that date. If a withholding

certificate received before December 31,

2001, is relevant to a payment made

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32165

after that date, it must be reviewed for

accuracy and matched to the

information contained in the

withholding statement. Finally, a

withholding agent must review

documentary evidence to determine that

there is no obvious indication that the

payee is a U.S. non-exempt recipient or

no obvious indication that the

documentary evidence does not

establish the identity of the person who

provided the documentation.

H. Changes to § 1.1441–9

Section 1.1441–9 provides the rules

for payments made to foreign taxexempt entities and foreign

governments. Paragraph (b)(2) of that

section provided that if a tax-exempt

organization did not have a

determination from the IRS, it could

establish its exempt status by attaching

to its withholding certificate an opinion

of counsel concluding that the

organization is described in section

501(c) of the Internal Revenue Code. In

addition, if the opinion concluded that

the organization was described in

section 501(c)(3) and was not a private

foundation, an affidavit regarding the

operations and support of the

organization was required to be attached

to the organization’s withholding

certificate as well. The opinion of

counsel and affidavit was required to be

renewed whenever the certificate to

which it was attached was required to

be renewed.

Commentators stated that the

requirement that the opinion of taxexempt status be provided by an

attorney was too narrow and that an

opinion from any federally authorized

tax practitioner, as defined in section

7525(a)(3), should be permitted. In

addition, the requirement that the

opinion of counsel and the affidavit be

renewed whenever the certificate was

required to be renewed was confusing

because a withholding certificate from a

tax-exempt entity requires a TIN and,

provided the income paid is subject to

reporting, is valid indefinitely absent a

change in circumstances.

Treasury and IRS are currently

considering whether an opinion issued

by a person other than an attorney

authorized to practice before the IRS

should suffice. Although the Treasury

and IRS have not yet concluded that a

person other than an attorney should be

permitted to provide the opinion, the

regulation has been amended to permit

that possibility in future guidance. In

addition, the requirement to renew the

opinion and affidavit has been clarified

by stating that it must be renewed if

there is a change in facts or

circumstances relevant to the

organization’s status under section

501(c)(3).

I. Changes to § 1.1461–1

Section 1.1461–1 contains

requirements regarding the payment and

deposit of tax withheld under chapter 3

of the Internal Revenue Code and the

filing of a tax return (Form 1042) and

information returns (Forms 1042–S) by

withholding agents. Generally, the

paragraph has been amended to make a

withholding agent’s obligations clearer.

Paragraphs (b)(2) and (c)(4), as

originally drafted, stated that a

withholding agent was not required to

file a tax return or information return if

another withholding agent had done so.

Numerous exceptions to the rule were

provided. These paragraphs were

misleading because they implied that

the general rule was that a tax return

and information returns were not

required if there was another

withholding agent in the chain of

payment required to file a tax return and

information returns. The exceptions to

the rule, however, required every

withholding agent that made payments

of an amount subject to withholding to

a foreign person to file a tax return and

information returns in every situation,

except that a nonqualified intermediary

or flow-through entity was not required

to file a tax return and information

returns for payments that it made

provided that it furnished to a

withholding agent sufficient

information for the withholding agent to

correctly withhold and report the

payment. Section 1.1461–1(b) and (c)

have been clarified to state that a

withholding agent that makes a payment

of an amount subject to reporting to a

recipient must file a Form 1042–S and

provide a copy to the recipient. The

terms recipient and amount subject to

reporting are defined in paragraphs

(c)(1)(ii) and (c)(2), respectively. A

recipient includes a beneficial owner

(including a foreign complex trust and

estate), a qualified intermediary, a

withholding foreign partnership, a

withholding foreign trust, an authorized

foreign agent, a U.S. branch treated as a

U.S. person, a nonwithholding foreign

partnership or foreign simple trust

receiving income effectively connected

with a U.S. trade or business, any payee

presumed to be a foreign person, and

any other person for whom a Form

1042–S is required by the instructions to

the form. A nonqualified intermediary,

a disregarded entity, a flow-through

entity, and a U.S. branch that is not

treated as a U.S. person are not

recipients. Amounts paid to such

entities are reported as paid to the

persons on whose behalf the entity acts

or to the interest holders in the entity.

The term amount subject to reporting

generally means amount subject to

withholding as defined under § 1.1441–

2(a).

The regulation has also been clarified

by providing a more extensive, but not

exhaustive, list of those amounts subject

to reporting and those amounts for

which there is an exception to reporting.

See new § 1.1461–1(c)(2). Paragraph

(c)(2)(i)(C), as originally drafted, stated

that the amount of effectively connected

income that was required to be reported

with respect to a notional principal

contract was the net income described

in § 1.446–3(d). Commentators objected

to this requirement because their

systems are programmed to report cash

payments, not accrued amounts. New

paragraph (c)(2)(i)(J) now provides that

the amount required to be reported is

limited to the amount of cash paid from

the notional principal contract.

Finally, the section has been clarified

by separately stating the reporting

requirements of U.S. withholding

agents, qualified intermediaries,

nonqualified intermediaries, and flowthrough entities. Withholding agents

should note, in particular, that

information regarding nonqualified

intermediaries, flow-through entities,

and U.S. branches (other than U.S.

branches treated as U.S. persons) in

which a recipient is an account holder

or an interest holder must be included

on Form 1042–S. Such information is

important to the IRS’s efforts to monitor

compliance by such entities and

branches with the requirements of the

regulations.

J. Changes to the Regulations Under

Section 6041

Section 1.6041–1(d) has been revised

to require that the amount of a notional

principal contract payment reported on

Form 1099 is the amount of cash paid

on the contract for the calendar year.

This change conforms the Form 1099

reporting rule to that under § 1.1461–

1(c)(2)(i)(J).

Section 1.6041–4(a)(3) states that a

nonqualified intermediary, a qualified

intermediary, or certain U.S. branches of

foreign banks and insurance companies

that receive payments reportable under

section 6041 (e.g., rents, notional

principal contract income, and other

fixed or determinable income) are not

required to report the payments on

Form 1099 when they, in turn, make the

payment to their account holders unless

they know the payments are required to

be reported and were not so reported.

Similar exceptions apply to dividends,

gross proceeds from sales of securities,

and interest under §§ 1.6042–3(b)(1)(vi),

32166 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

1.6045–1(g)(v), and 1.6049–5(b)(14),

respectively. These provisions have

been modified to state that the

exception does not apply to a U.S.

branch of a foreign bank or insurance

company that agrees with a withholding

agent to be treated as a U.S. person. The

exception is inappropriate in this case

because such branches do not provide

payee documentation on Form W–9 (or

the name, address, TIN, and information

allocating the payment to the payee) to

a withholding agent. The exception is

also inappropriate if a qualified

intermediary assumes Form 1099

reporting responsibility. Therefore, the

exception has been changed to exclude

qualified intermediaries that assume

Form 1099 reporting. Finally, the

exceptions have been amended to state

that a nonqualified intermediary,

qualified intermediary, or U.S. branch is

deemed to know the required reporting

was not done in any case where the

intermediary or branch has failed to

provide documentation or other

information so that another payor can

do the reporting.

K. Changes to § 1.6041A–1

Section 1.6041A–1(d)(3)(i)(C) has

been added to provide an exception

from reporting remuneration for services

as a direct seller paid outside the United

States. Prior to this change,

remuneration for services was subject to

reporting in absence of documentation

establishing the direct seller’s status as

a foreign person because the

presumption rules of §§ 1.6049–5(d)(2)

and 1.1441–1(b)(3)(iii) treated a direct

seller as a U.S. non-exempt recipient.

Commentators stated that the

presumption was inaccurate because

most direct sellers abroad are foreign

persons. They also argued that obtaining

documentation from direct sellers to

rebut the presumption was overly

burdensome.

L. Changes to § 1.6045–1

Section 1.6045–1(g) provides an

exception from Form 1099 reporting for

a broker if a customer is considered an

exempt foreign person under that

section. Under § 1.6045–1(g)(1)(i), a

broker may treat a customer as an

exempt foreign person if the broker

receives a withholding certificate or

documentary evidence that establishes

the person’s status as a foreign person.

As originally drafted, the last sentence

of § 1.6045–1(g)(1)(i) stated that if a

withholding certificate was provided, a

withholding agent could rely on the

certificate to exempt the customer from

reporting only if the certificate included

a statement that the beneficial owner

had not been, and at the time the

certificate was furnished reasonably

expected not to be, present in the

United States for a period aggregating

183 days or more during each calendar

year. The regulation did not state

whether the a statement was required if

documentary evidence was provided.

Two clarifying changes have been

made to § 1.6045–1(g)(1)(i). First, the

regulation has been modified to require

the statement relating to presence in the

United States only from individuals.

Second, the regulation states that the

statement is not required if

documentary evidence is provided. The

statement is required on a withholding

certificate and not on documentary

evidence because a withholding

certificate is the documentation

required for an account maintained in

the United States. Documentary

evidence can only be used for amounts

paid outside the United States to an

offshore account and, therefore, the

likelihood that the person may be

present in the United States for the

relevant period is greatly reduced.

Clarifying changes have also been

made to § 1.6045–1(g)(3)(iv). The first

sentence of that section stated that a

broker could treat an intermediary, as

defined in § 1.1441–1(c)(13), as an

exempt recipient except when the

broker had actual knowledge or reason

to know the intermediary was acting on

behalf of a U.S. person. The exception

should only apply if the intermediary is

acting on behalf of a U.S. person who

is subject to reporting on Form 1099,

that is, a U.S. non-exempt recipient. The

regulation has been amended to make

this clear. An erroneous cite to

nonwithholding foreign partnerships

has also been eliminated.

In paragraph (g)(4) of § 1.6045–1,

Example 7 has been amended to reflect

the change to the regulations that now

generally treats accrued interest as an

amount that is not subject to

withholding. Under that example, a

foreign bank that is a U.S. payor effects

a sale of an interest bearing obligation

at an office outside the United States on

behalf of an undocumented account

holder. Under the regulation, as

originally drafted, the gross proceeds

from the sale, net of accrued interest,

were reported on Form 1099 as paid to

a payee that was presumed to be a U.S.

person. However, because the accrued

interest was considered an amount

subject to withholding, it was reportable

on Form 1042–S. Under the regulation,

as revised, accrued interest is treated as

an amount that is not subject to

withholding. Therefore, both the gross

proceeds, net of accrued interest, and

the accrued interest are now presumed

paid to a U.S. payee and reported on

Form 1099 under the presumption rule

§ 1.6049–5(d)(2). Two additional

examples have been added to paragraph

(g)(4) to illustrate the operation of the

presumption rules on a sale of a shortterm original issue discount instrument.

These examples were added to make

clear that a sale of an OID obligation

outside the United States is a gross

proceeds transaction and, therefore,

under the presumption rule of § 1.6049–

5(d)(2), presumed made to a U.S.

person. Whether the gross proceeds are

reportable depends on whether the

exception of § 1.6045–1(a) for sales

outside the United States by a non-U.S.

payor applies.

M. Changes to § 1.6049–5

Under § 1.6049–5(c)(1), a withholding

agent or payor may generally rely on

documentary evidence from a foreign

payee instead of a beneficial owner

withholding certificate on Form W–8 if

an amount is paid outside the United

States to an offshore account. An

offshore account is an account

maintained at an office or branch of a

U.S. or foreign bank or other financial

institution at any location outside the

United States and outside of a U.S.

possession. Under § 1.6049–5(e), an

amount is considered paid outside the

United States if the payor completes the

acts necessary to effect payment outside

the United States.

The regulations do not specifically

address whether partners of a

nonwithholding foreign partnership,

foreign beneficiaries of a foreign simple

trust, or foreign owners of a foreign

grantor trust can use documentary

evidence to establish their status as

foreign payees. Paragraph (c)(1) has

been amended to permit the use of

documentary evidence by foreign

partners, beneficiaries, and owners in

these situations. Documentary evidence

can also be used for purposes of chapter

3 of the Internal Revenue Code by virtue

of the incorporation of § 1.6049–5(c)(1)

in § 1.1441–1(e)(1)(ii)(A)(2). The use of

documentary evidence is appropriate

because the regulations generally treat

payments to foreign nonwithholding

foreign partnerships, foreign simple

trusts, and foreign grantor trusts similar

to payments made to nonqualified

intermediaries, and the latter are

permitted to provide documentary

evidence on behalf of their account

holders.

Section 1.6049–5(c)(4) provides rules

that apply to U.S. payors that make

payments outside the United States of

amounts not subject to withholding

(e.g., foreign source income and gross

proceeds from the sale of securities)

other than deposit interest and interest

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32167

or OID on short-term OID instruments.

Non-U.S. payors are generally exempt

from reporting these payments. There

were several issues under paragraph

(c)(4) as originally drafted. First, the

paragraph was internally inconsistent.

Paragraph (c)(4)(i) stated that a bank or

other financial institution could

establish a payee’s status as a foreign

person by relying on a written

declaration made on an account opening

statement that the payee was not a U.S.

person in two circumstances: (i) If it was

not customary in a country to obtain

documentary evidence to establish a

person’s identity, or (ii) if it was

customary to obtain documentary

evidence but it was not customary to

renew it. Paragraph (c)(4)(iv), however,

stated that a bank or financial

institution could not rely on a

declaration if it was customary to obtain

documentary evidence but not

customary to renew it. Second,

paragraph (c)(4)(i) did not permit a bank

or financial institution to rely on

documentary evidence to establish a

person’s foreign status if there was

indicia of U.S. status, including

employment by a U.S.-based

multinational organization. A

commentator noted that prohibiting use

of documentary evidence merely

because an account holder worked for a

U.S.-based multinational organization

was overly broad because such

organizations commonly employ local

employees and a withholding agent may

not know whether a particular

multinational is U.S. based. Finally,

paragraph (c)(4)(iii) required a bank or

financial institution that relied upon a

declaration of foreign status or nonrenewable documentary evidence to

send a negative confirmation statement

each year to the account holder stating

that the account holder was being

treated as a foreign payee and that the

account holder was obligated to notify

the bank or financial institution if it

became a U.S. citizen or U.S. resident.

A commentator argued that the expense

of such a requirement was not justified.

The commentator argued that if an

account holder legitimately establishes

foreign status, it is unlikely that the

account holder will become a U.S.

citizen or resident and that if it does,

there are factors, such as a change of

address, that will indicate a change in

the person’s status.

Paragraph (c)(4) has been amended to

remove the inconsistency and to take

the commentators’ comments into

account. Under paragraph (c)(4)(ii), as

revised, a declaration of foreign status

may be used only if it is not customary

to obtain documentary evidence. The

declaration may be relied upon only if

there is no address or other indicia of

U.S. status. If it is customary in the

country where a bank or financial

institution maintains a branch or office

to obtain, but not renew, documentary

evidence, then the bank or financial

institution may rely on the documentary

evidence without the need to renew it

provided that it may rely on the

documentation to establish foreign

status under the due diligence rules of

§ 1.1441–7(b)(7) and (8). The restriction

on using such documentation in the

case of a U.S. based multinational

employee has been removed. If,

however, the bank or financial

institution may rely on the documentary

evidence as establishing foreign status

even though there are indicia of U.S.

status, it can rely on the documentary

evidence only for a period of three full

calendar years after the calendar year in

which it is received. Finally, neither the

documentation rule of paragraph

(c)(4)(i) nor the declaration rule of

paragraph (c)(4)(ii) requires a payor to

send a negative confirmation.

Section 1.6049–5(d) contains

presumption rules that generally apply

for chapter 61 reporting if a payor lacks

required documentation from a payee.

Paragraph (d)(2) governs payments other

than payments to intermediaries or

flow-through entities. Paragraph (d)(2)(i)

has been clarified to state that the

presumption rules of § 1.1441–

1(b)(3)(iii)(D) (payments to offshore

accounts) do not apply to amounts that

are not subject to withholding. As

originally drafted, paragraph (d)(2)(i)

stated that the rules of § 1.1441–

1(b)(3)(iii) applied to all payments,

irrespective of whether they were

subject to withholding. Section 1.1441–

1(b)(3)(iii)(D), however, stated that it did

not apply to amounts that were not

subject to withholding. Revised

paragraph (d)(2)(i) eliminates the

inconsistency. Therefore, payments of

deposit interest, and interest or OID

arising from the redemption of an

obligation described in section

871(g)(1)(B)(i) paid to an offshore

account are presumed paid to a U.S.

payee. In addition, gross proceeds,

which are not amounts subject to

withholding, are also treated as paid to

U.S. persons under § 1.6045–1(g)(1)(i).

Under the exceptions of §§ 1.6045–

1(a)(1) and 1.6045–1(g)(3), however,

gross proceeds from the sale of a

security by a non-U.S. payor effected

outside the United States are not subject

to reporting.

The grace period rule in § 1.6049–

5(d)(2)(ii), as originally drafted, did not

cover the same payments as were

covered under the grace period rule of

§ 1.1441–1(b)(3)(iv) even though the

latter regulation cross-references

§ 1.6049–5(d)(2)(ii). For example, the

rule under the 1441 regulations, but not

the rule under section 6049, covered

dividends from any redeemable security

issued by an investment company and

amounts paid with respect to loans of

securities. Paragraph 5(d)(2)(ii) has been

amended to cover the same payments as

are covered by the grace period rule of

§ 1.1441–1(b)(3)(iv). In addition,

paragraph (d)(2)(ii) prior to amendment

stated that the grace period expired on

the earlier of the of the 90th day after

the grace period began, the date on

which documentation is provided, or

the last day of the calendar year.

Commentators stated that terminating

the grace period at the end of a calendar

year complicated systems programming

because there was a shrinking grace

period for payments made within 90

days of the end of the year. The

requirement to terminate the grace

period as of the close of a calendar year

has been eliminated because it is not

necessary.

Paragraph (d)(3) provides

presumption rules for payments made to

foreign intermediaries. With exceptions

for deposit interest and interest and OID

on short-term obligations, payments to

foreign intermediaries are presumed

made to foreign payees. Paragraph (d)(4)

provided different presumptions for

payments to partnerships. Under that

paragraph, payments made to foreign

partnerships were generally presumed

made to U.S. payees, even if the

partnership established its status as a

foreign partnership. Commentators

argued that the disparate treatment

between intermediaries and

partnerships was not justified because

they are treated similarly for other

purposes under the regulations. The

differences also complicated payors’

information systems. In response to

these comments, the presumption rules

of paragraph (d)(3) have been revised to

apply to payments made to all flowthrough entities (nonwithholding

foreign partnerships, foreign simple

trusts, and foreign grantor trusts).

Paragraph (d)(3)(ii) provides rules for

payments of amounts that are not

subject to withholding (e.g., foreign

source income and gross proceeds from

the sales of securities) other than

deposit interest and interest and OID on

short-term obligations paid to foreign

intermediaries and flow-through

entities. The paragraph required a payor

to presume that a payment was made to

an exempt recipient unless the payor

had actual knowledge that any person

for whom the intermediary was

collecting the payment was a U.S. nonVerDate 11<MAY>2000 13:52 May 19, 2000 Jkt 190000 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 E:\FR\FM\22MYR2.SGM pfrm02 PsN: 22MYR2
32168 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

exempt recipient. In that case, the

payment was treated as made to the U.S.

non-exempt recipient. The last sentence

of the paragraph, however, also

appeared to require a payor to presume

that a payment was made to a U.S. nonexempt recipient if it appeared that the

payment might be collected on behalf of

a U.S. non-exempt payee, because, for

example, an intermediary provided

Forms W–9 for some payees but did not

allocate a payment to any particular

payee. The application of the last

sentence of the paragraph, however, was

uncertain.

Paragraph (d)(3)(ii) has been revised

to generally reflect the principle that a

payment of an amount that is not

subject to withholding (other than shortterm OID and deposit interest) made to

an intermediary should not be subject to

Form 1099 reporting by a payor if the

payment would not be subject to Form

1099 reporting if made to a U.S. nonexempt recipient by an intermediary

that is not a U.S. payor. Thus, the

general rule is that a payment covered

by the paragraph (i.e., foreign source

income or gross proceeds) is presumed

paid to an exempt recipient unless the

payor has actual knowledge that the

amount is attributable to a U.S. nonexempt recipient.

As originally drafted, § 1.6049–

5(d)(3)(iii) provided special

presumption rules for payments of

deposit interest and interest or OID from

short-term original issue discount

obligations to foreign intermediaries. It

was not clear whether the presumption

rule of the paragraph applied to the

portion of the sale proceeds

representing OID from the sale or

exchange of short-term OID instrument

in a transaction other than a

redemption.

Under paragraph (d)(3)(iii) as revised,

a payment of deposit interest or interest

or OID on the redemption of a shortterm original issue discount obligation

paid to an intermediary or flow-through

entity is presumed paid to a U.S. payee.

The paragraph does not apply to sales

or exchanges (other than redemption) of

short-term OID instruments. Such sales

or exchanges are treated as gross

proceeds transactions, in conformance

with the rules in §§ 1.6045–1(c) and

(d)(3) and 31.3406(b)(2)–2, and are

subject to the general presumption rule

for payments made to foreign

intermediaries under § 1.6049–

5(d)(3)(ii). Therefore, gross proceeds

from the sale or exchange (other than a

redemption) of a short-term OID

instrument will generally be presumed

paid as made to an exempt recipient.

Intermediaries that are U.S. payors,

however, may themselves be required to

report such gross proceeds under

§ 1.6045–1(c) and (1)(g)(i) and the

presumption rule of § 1.6049–5(d)(2),

which applies to payments made to

persons other than an intermediary

because under that section gross

proceeds are generally considered paid

to U.S. payees under that section.

Paragraph (d)(3)(iii)(B) contained a

presumption rule for payments made to

exempt recipients that had not provided

documentation that they were acting as

intermediaries. The scope and

application of this rule were unclear.

Paragraph (d)(3)(iii)(B) has been

completely revised and now states that

a payment made to an exempt recipient

that the payor knows, or has reason to

know, is acting as an intermediary is

subject to the presumptions that apply

to intermediaries.

N. Withholding Certificate Transitional

Issues

The changes made by this regulation

will require revisions to instructions to

the withholding certificates issued on

Form W–8 and certain minor changes to

the forms themselves. Until Forms W–

8, and the instructions, are revised

withholding agents may rely on Forms

W–8BEN, W–8ECI, W–8EXP, and W–

8IMY as currently in effect but should

take into account, particularly with

respect to Form W–8IMY used by

intermediaries and flow-through

entities, that the instructions to the form

do not reflect the withholding statement

requirements contained in this

regulation. In particular, withholding

agents and providers of Form W–8IMY

should furnish a withholding statement

in connection with the form that

conforms to § 1.1441–1(e)(3)(iv).

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in

Executive Order 12866. Therefore, a

regulatory assessment is not required. It

has also been determined that section

553(b) of the Administrative Procedure

Act (5 U.S.C. chapter 5) does not apply

to these regulations. Finally, it has been

determined that the Regulatory

Flexibility Act (5 U.S.C. chapter 6) does

not apply to these regulations because

the regulations do not impose a

collection of information on small

entities. Pursuant to 7805(f) of the

Internal Revenue Code, the notice of

proposed rulemaking preceding these

regulations (61 FR 17614) was

submitted to the Small Business

Administration for comment on its

impact on small business.

Drafting Information

The principal authors of these

regulations are Carl Cooper, Laurie

Hatten-Boyd, and Kate Hwa of the

Office of Associate Chief Counsel

(International).

List of Subjects

26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

26 CFR Part 31

Employment taxes, Income taxes,

Penalties, Pensions, Railroad retirement,

Reporting and recordkeeping

requirements, Social security,

Unemployment compensation.

Adoption of Amendments to

Regulations

Accordingly, 26 CFR parts 1 and 31

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as

follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Effective January 1, 2001,

§ 1.1441–0 is amended by:

1. Revising the entry for § 1.1441–

1(b)(2)(vii).

2. Adding entries for § 1.1441–

1(b)(2)(vii)(A) through (F).

2a. Revising the entry for § 1.1441–

1(b)(3)(ii).

3. Adding entries for § 1.1441–

1(b)(3)(ii)(A) through (C).

4. Revising the entry for § 1.1441–

1(b)(3)(iv).

5. Revising entry for § 1.1441–

1(b)(3)(v)(B).

6. Revising the entry for § 1.1441–

1(b)(3)(vi).

7. Adding entries for § 1.1441–

1(b)(3)(vii)(A) and (B).

8. Adding entries for § 1.1441–

1(b)(6)(i) and (ii).

9. Revising the entries for § 1.1441–

1(c)(6)(ii), (c)(6)(ii)(B), (c)(6)(ii)(C), and

adding a new entry for § 1.1441–

1(c)(6)(ii)(D).

10. Adding entries for § 1.1441–

1(c)(12) through (29).

11. Revising the entry for § 1.1441–

1(d)(4).

12. Revising the entry for § 1.1441–

1(e)(3)(iii), (e)(3)(iv), and (e)(3)(iv)(A)

through (C).

13. Adding entries for § 1.1441–

1(e)(3)(iv)(D) and (E).

14. Adding entries for § 1.1441–

1(e)(4)(iv)(A), (B), and (C).

15. Revising the entries for § 1.1441–

1(e)(5)(v) and (e)(5)(v)(B) and (C).

16. Revising the entries for § 1.1441–

2(b)(3)(i) and (ii).

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32169

17. Removing the entries for § 1.1441–

2(b)(3)(iii) and (iv).

18. Revising the entry for § 1.1441–

5(a).

19. Revising the entries for § 1.1441–

5(b), (b)(1), (b)(2), and (b)(2)(i), adding

entries for § 1.1441–5(b)(2)(i)(A) and

(b)(2)(i)(B), and revising entries for

§ 1.1441–5(b)(2)(ii), (b)(2)(iii), (b)(2)(iv),

and (b)(2)(v).

20. Revising the entry for § 1.1441–

5(c)(1)(iv).

21. Removing the entries for § 1.1441–

5(c)(2)(ii)(A) and (B).

21. Revising the entry for § 1.1441–

5(c)(3).

22. Revising the entries for § 1.1441–

5(c)(3)(iii).

23. Revising the entries for § 1.1441–

5(c)(3)(iv) and (v).

24. Revising the entry for § 1.1441–

5(d).

25. Removing the entries for § 1.1441–

5(d)(3)(i) through (d)(3)(iv).

26. Revising the entry for § 1.1441–

5(d)(4).

27. Revising the entry for § 1.1441–

5(e).

28. Adding entries for § 1.1441–

5(e)(1), (e)(2), (e)(3), (e)(3)(i), (e)(3)(ii),

(e)(4), (e)(5), (e)(5)(i), (e)(5)(ii), (e)(5)(iii),

(e)(5)(iv), (e)(5)(v), (e)(6), (e)(6)(i),

(e)(6)(ii) and (e)(6)(iii).

29. Revising the entries for § 1.1441–

6(b)(2), (b)(2)(i) and (b)(2)(ii).

30. Adding entries for § 1.1441–

6(b)(2)(iii) and (b)(2)(iv).

31. Revising the entry for § 1.1441–

6(b)(3).

32. Revising the entry for § 1.1441–

6(b)(4).

33. Removing the entries for § 1.1441–

6(b)(4)(i), (b)(4)(ii), (b)(4)(ii)(A),

(b)(4)(ii)(B), (b)(4)(iii), and (b)(4)(iv).

34. Removing the entry for § 1.1441–

6(b)(5).

35. Revising the entry for § 1.1441–

6(c).

36. Revising the entry for § 1.1441–

6(c)(2).

37. Removing the entries for § 1.1441–

6(c)(2)(i), (c)(2)(ii), and (c)(2)(iii).

38. Revising the entries for § 1.1441–

6(c)(5), (c)(5)(i) and (c)(5)(ii).

39. Revising the entry for § 1.1441–

6(e).

40. Adding entries for § 1.1441–7(a)(1)

and (2).

41. Removing the entries for § 1.1441–

7(b)(2)(i) and (b)(2)(ii).

42. Revising the entry for § 1.1441–

7(b)(3).

43. Adding entries for § 1.1441–

7(b)(4), (b)(4)(i), (b)(4)(ii), and (b)(5)

through (b)(11).

The additions and revisions read as

follows.

§ 1.1441–0 Outline of regulation provisions

for section 1441.

* * * * *

§ 1.1441–1 Requirement for the deduction

and withholding of tax on payments to

foreign persons.

* * * * *

(b) * * *

(2) * * *

(vii) Rules for reliably associating a

payment with a withholding certificate or

other appropriate documentation.

(A) Generally.

(B) Special rules applicable to a

withholding certificate from a nonqualified

intermediary or flow-through entity.

(C) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that does not assume

primary withholding responsibility.

(D) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that assumes primary

withholding responsibility under chapter 3 of

the Internal Revenue Code.

(E) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that assumes primary

Form 1099 reporting and backup withholding

responsibility but not primary withholding

under chapter 3.

(F) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that assumes primary

withholding responsibility under chapter 3

and primary Form 1099 reporting and backup

withholding responsibility and a withholding

certificate provided by a withholding foreign

partnership.

(3) * * *

(ii) Presumptions of classification as

individual, corporation, partnership, etc.

(A) In general.

(B) No documentation provided.

(C) Documentary evidence furnished for

offshore account.

* * * * *

(iv) Grace period.

(v) * * *

(B) Beneficial owner documentation or

allocation information is lacking or

unreliable.

* * * * *

(vi) U.S. branches.

(vii) * * *

(A) In general.

(B) Special rule for offshore accounts.

* * * * *

(6) * * *

(i) In general.

(ii) Example.

* * * * *

(c) * * *

(6) * * *

(ii) Special rules.

* * * * *

(B) Foreign partnerships.

(C) Foreign simple trusts and foreign

grantor trusts.

(D) Other foreign trusts and foreign estates.

* * * * *

(12) Payee.

(13) Intermediary.

(14) Nonqualified intermediary.

(15) Qualified intermediary.

(16) Withholding certificate.

(17) Documentary evidence; other

appropriate documentation.

(18) Documentation.

(19) Payor.

(20) Exempt recipient.

(21) Non-exempt recipient.

(22) Reportable amounts.

(23) Flow-through entity.

(24) Foreign simple trust.

(25) Foreign complex trust.

(26) Foreign grantor trust.

(27) Partnership.

(28) Nonwithholding foreign partnership.

(29) Withholding foreign partnership.

(d) * * *

(4) When a payment to an intermediary or

flow-through entity may be treated as made

to a U.S. payee.

(e) * * *

(3) * * *

(iii) Intermediary withholding certificate

from a nonqualified intermediary.

(iv) Withholding statement provided by

nonqualified Intermediary.

(A) In general.

(B) General requirements.

(C) Content of withholding statement.

(D) Alternative procedures.

(E) Notice procedures.

* * * * *

(4) * * *

(iv) * * *

(A) In general.

(B) Requirements.

(C) Special requirements for transmission

of Forms W–8 by an intermediary. [Reserved]

* * * * *

(5) * * *

(v) Withholding statement.

* * * * *

(B) Content of withholding statement.

(C) Withholding rate pools.

* * * * *

§ 1.1441–2 Amounts subject to

withholding.

* * * * *

(b) * * *

(3) * * *

(i) Amount subject to tax.

(ii) Amounts subject to withholding.

* * * * *

§ 1.1441–5 Withholding on payments to

partnerships trusts, and estates.

(a) In general.

(b) Rules applicable to U.S. partnerships,

trusts, and estates.

(1) Payments to U.S. partnerships, trusts,

and estates.

(2) Withholding by U.S. payees.

(i) U.S. partnerships.

(A) In general.

(B) Effectively connected income of

partners.

(ii) U.S. simple trusts.

(iii) U.S. complex trusts and U.S. estates.

(iv) U.S. grantor trusts.

(v) Subsequent distribution.

(c) * * *

(1) * * *

(iv) Examples.

* * * * *

(3) Nonwithholding foreign partnerships.

* * * * *

(iii) Withholding certificate from a

nonwithholding foreign partnership.

32170 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

(iv) Withholding statement provided by

nonwithholding foreign partnership.

(v) Withholding and reporting by a foreign

partnership.

(d) Presumption rules.

* * * * *

(4) Determination by a withholding foreign

partnership of the status of its partners.

(e) Foreign trusts and estates.

(1) In general.

(2) Payments to foreign complex trusts and

estates.

(3) Payees of payments to foreign simple

trusts and foreign grantor trusts.

(i) Payments for which beneficiaries and

owners are payees.

(ii) Payments for which trust is payee.

(4) Reliance on claim of foreign complex

trust or foreign estate status.

(5) Foreign simple trust and foreign grantor

trust.

(i) Reliance on claim of foreign simple trust

or foreign grantor trust status.

(ii) Reliance on claim of reduced

withholding by a foreign simple trust or

foreign grantor trust for its beneficiaries or

owners.

(iii) Withholding certificate from foreign

simple trust or foreign grantor trust.

(iv) Withholding statement provided by a

foreign simple trust or foreign grantor trust.

(v) Withholding foreign trusts.

(6) Presumption rules.

(i) In general.

(ii) Determination of status as U.S. or

foreign trust or estate in the absence of

documentation.

(iii) Determination of beneficiary or

owner’s status in the absence of certain

documentation.

* * * * *

§ 1.1441–6 Claim of reduced withholding

under an income tax treaty.

* * * * *

(b) * * *

(2) Payment to fiscally transparent entity.

(i) In general.

(ii) Certification by qualified intermediary.

(iii) Dual treatment.

(iv) Examples.

(3) Certified TIN.

(4) Claim of benefits under an income tax

treaty by a U.S. person.

(c) Exemption from requirement to furnish

a taxpayer identifying number and special

documentary evidence rules for certain

income.

* * * * *

(2) Income to which special rules apply.

* * * * *

(5) Statements regarding entitlement to

treaty benefits.

(i) Statement regarding conditions under a

limitation on benefits provision.

(ii) Statement regarding whether the

taxpayer derives the income.

* * * * *

(e) Competent authority.

* * * * *

§ 1.1441–7 General provisions relating to

withholding agents.

(a) * * *

(1) In general.

(2) Examples.

(b) * * *

(3) Financial institutions—limits on reason

to know.

(4) Rules applicable to withholding

certificates.

(i) In general.

(ii) Examples.

(5) Withholding certificate—establishment

of foreign status.

(6) Withholding certificate—claim of

reduced rate of withholding under treaty.

(7) Documentary evidence.

(8) Documentary evidence—establishment

of foreign status.

(9) Documentary evidence—claim of

reduced rate of withholding under treaty.

(10) Limits on reason to know—indirect

account holders.

(11) Additional guidance.

* * * * *

Par. 3. Effective January 1, 2001,

section 1.1441–1 is amended by:

1. Revising the first sentence of

paragraph (b)(2)(i).

2. Revising paragraphs (b)(2)(iv)(A),

(b)(2)(iv)(B)(3), and (b)(2)(iv)(C).

3. Revising paragraphs (b)(2)(v)(A)

and (b)(2)(v)(B).

4. Revising paragraph (b)(2)(vii).

5. Revising the first sentence of

paragraph (b)(3)(i).

6. Revising paragraph (b)(3)(ii).

7. Revising paragraphs (b)(3)(iii)(C)

and (b)(3)(iii)(D).

8. Revising paragraph (b)(3)(iv).

9. Revising paragraph (b)(3)(v).

10. Revising paragraphs (b)(3)(vi) and

(b)(3)(vii).

11. Revising paragraph (b)(6).

12. Revising paragraph (c)(2).

13. Revising paragraph (c)(6).

14. Adding paragraphs (c)(12) through

(c)(29).

15. Revising paragraphs (d)(2) through

(d) (4).

16. Revising paragraphs

(e)(1)(ii)(A)(1), (e)(1)(ii)(A)(3), and

(e)(1)(ii)(A)(4).

17. Revising paragraph (e)(3).

18. Revising paragraph (e)(4)(ii)(A).

19. Revising paragraphs (e)(4)(ii)(B)(1)

through (e)(4)(ii)(B)(4) and (e)(4)(ii)(B)

(6), and adding paragraph (e)(4)(ii)(B)(8).

20. Revising paragraph (e)(4)(iv).

21. Revising paragraph (e)(4)(vii).

22. Adding paragraph (e)(4)(ix)(A)(4)

and revising paragraph (e)(4)(ix)(C).

23. Revising paragraph (e)(5)(i) and

(e)(5)(iii) through (e)(5)(v).

The additions and revisions read as

follows:

§ 1.1441–1 Requirement for the deduction

and withholding of tax on payments to

foreign persons.

* * * * *

(b) * * *

(2) Determination of payee and

payee’s status—(i) In general. Except as

otherwise provided in this paragraph

(b)(2) and § 1.1441–5(c)(1) and (e)(3), a

payee is the person to whom a payment

is made, regardless of whether such

person is the beneficial owner of the

amount (as defined in paragraph (c)(6)

of this section). * * *

* * * * *

(iv) Payments to a U.S. branch of

certain foreign banks or foreign

insurance companies—(A) U.S. branch

treated as a U.S. person in certain cases.

A payment to a U.S. branch of a foreign

person is a payment to a foreign person.

However, a U.S. branch described in

this paragraph (b)(2)(iv)(A) and a

withholding agent (including another

U.S. branch described in this paragraph

(b)(2)(iv)(A)) may agree to treat the

branch as a U.S. person for purposes of

withholding on specified payments to

the U.S. branch. Notwithstanding the

preceding sentence, a withholding agent

making a payment to a U.S. branch

treated as a U.S. person under this

paragraph (b)(2)(iv)(A) shall not treat the

branch as a U.S. person for purposes of

reporting the payment made to the

branch. Therefore, a payment to such

U.S. branch shall be reported on Form

1042–S under § 1.1461–1(c). Further, a

U.S. branch that is treated as a U.S.

person under this paragraph

(b)(2)(iv)(A) shall not be treated as a

U.S. person for purposes of the

withholding certificate it may provide to

a withholding agent. Therefore, the U.S.

branch must furnish a U.S. branch

withholding certificate on Form W–8 as

provided in paragraph (e)(3)(v) of this

section and not a Form W–9. An

agreement to treat a U.S. branch as a

U.S. person must be evidenced by a U.S.

branch withholding certificate described

in paragraph (e)(3)(v) of this section

furnished by the U.S. branch to the

withholding agent. A U.S. branch

described in this paragraph (b)(2)(iv)(A)

is any U.S. branch of a foreign bank

subject to regulatory supervision by the

Federal Reserve Board or a U.S. branch

of a foreign insurance company required

to file an annual statement on a form

approved by the National Association of

Insurance Commissioners with the

Insurance Department of a State, a

Territory, or the District of Columbia.

The Internal Revenue Service (IRS) may

approve a list of U.S. branches that may

qualify for treatment as a U.S. person

under this paragraph (b)(2)(iv)(A) (see

§ 601.601(d)(2) of this chapter). See

§ 1.6049–5(c)(5)(vi) for the treatment of

U.S. branches as U.S. payors if they

make a payment that is subject to

reporting under chapter 61 of the

Internal Revenue Code. Also see

§ 1.6049–5(d)(1)(ii) for the treatment of

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32171

U.S. branches as foreign payees under

chapter 61 of the Internal Revenue

Code.

(B) * * *

(3) As a payment to a foreign person

of income that is effectively connected

with the conduct of a trade or business

in the United States if the withholding

agent cannot reliably associate the

payment with a withholding certificate

from the U.S. branch or any other

certificate or other appropriate

documentation from another person.

See § 1.1441–4(a)(2)(ii).

(C) Consequences to the U.S. branch.

A U.S. branch that is treated as a U.S.

person under paragraph (b)(2)(iv)(A) of

this section shall be treated as a separate

person solely for purposes of section

1441(a) and all other provisions of

chapter 3 of the Internal Revenue Code

and the regulations thereunder (other

than for purposes of reporting the

payment to the U.S. branch under

§ 1.1461–1(c) or for purposes of the

documentation such a branch must

furnish under paragraph (e)(3)(v) of this

section) for any payment that it receives

as such. Thus, the U.S. branch shall be

responsible for withholding on the

payment in accordance with the

provisions under chapter 3 of the

Internal Revenue Code and the

regulations thereunder and other

applicable withholding provisions of

the Internal Revenue Code. For this

purpose, it shall obtain and retain

documentation from payees or

beneficial owners of the payments that

it receives as a U.S. person in the same

manner as if it were a separate entity.

For example, if a U.S. branch receives

a payment on behalf of its home office

and the home office is a qualified

intermediary, the U.S. branch must

obtain a qualified intermediary

withholding certificate described in

paragraph (e)(3)(ii) of this section from

its home office. In addition, a U.S.

branch that has not provided

documentation to the withholding agent

for a payment that is, in fact, not

effectively connected income is a

withholding agent with respect to that

payment. See paragraph (b)(6) of this

section and § 1.1441–4(a)(2)(ii).

* * * * *

(v) Payments to a foreign

intermediary—(A) Payments treated as

made to persons for whom the

intermediary collects the payment.

Except as otherwise provided in

paragraph (b)(2)(v)(B) of this section, the

payee of a payment to a person that the

withholding agent may treat as a foreign

intermediary in accordance with the

provisions of paragraph (b)(3)(ii)(C) or

(b)(3)(v)(A) of this section is the person

or persons for whom the intermediary

collects the payment. Thus, for example,

the payee of a payment that the

withholding agent can reliably associate

with a withholding certificate from a

qualified intermediary (defined in

paragraph (e)(5)(ii) of this section) that

does not assume primary withholding

responsibility or a payment to a

nonqualified intermediary are the

persons for whom the qualified

intermediary or nonqualified

intermediary acts and not to the

intermediary itself. See paragraph

(b)(3)(v) of this section for presumptions

that apply if the payment cannot be

reliably associated with valid

documentation. For similar rules for

payments to flow-through entities, see

§ 1.1441–5(c)(1) and (e)(3).

(B) Payments treated as made to

foreign intermediary. The payee of a

payment to a person that the

withholding agent may treat as a

qualified intermediary is the qualified

intermediary to the extent that the

qualified intermediary assumes primary

withholding responsibility under

paragraph (e)(5)(iv) of this section for

the payment. For example if a qualified

intermediary assumes primary

withholding responsibility under

chapter 3 of the Internal Revenue Code

but does not assume primary reporting

or withholding responsibility under

chapter 61 or section 3406 of the

Internal Revenue Code and therefore

provides Forms W–9 for U.S. nonexempt recipients, the qualified

intermediary is the payee except to the

extent the payment is reliably associated

with a Form W–9 from a U.S. nonexempt recipient.

* * * * *

(vii) Rules for reliably associating a

payment with a withholding certificate

or other appropriate documentation—

(A) Generally. The presumption rules of

paragraph (b)(3) of this section and

§§ 1.1441–5(d) and (e)(6) and 1.6049–

5(d) apply to any payment, or portion of

a payment, that a withholding agent

cannot reliably associate with valid

documentation. Generally, a

withholding agent can reliably associate

a payment with valid documentation if,

prior to the payment, it holds valid

documentation (either directly or

through an agent), it can reliably

determine how much of the payment

relates to the valid documentation, and

it has no actual knowledge or reason to

know that any of the information,

certifications, or statements in, or

associated with, the documentation are

incorrect. Special rules apply for

payments made to intermediaries, flowthrough entities, and certain U.S.

branches. See paragraph (b)(2)(vii)(B)

through (F) of this section. The

documentation referred to in this

paragraph (b)(2)(vii) is documentation

described in paragraphs (c)(16) and (17)

of this section upon which a

withholding agent may rely to treat the

payment as a payment made to a payee

or beneficial owner, and to ascertain the

characteristics of the payee or beneficial

owner that are relevant to withholding

or reporting under chapter 3 of the

Internal Revenue Code and the

regulations thereunder. For purposes of

this paragraph (b)(2)(vii),

documentation also includes the

agreement that the withholding agent

has in effect with an authorized foreign

agent in accordance with § 1.1441–

7(c)(2)(i). A withholding agent that is

not required to obtain documentation

with respect to a payment is considered

to lack documentation for purposes of

this paragraph (b)(2)(vii). For example, a

withholding agent paying U.S. source

interest to a person that is an exempt

recipient, as defined in § 1.6049–

4(c)(1)(ii), is not required to obtain

documentation from that person in

order to determine whether an amount

paid to that person is reportable under

an applicable information reporting

provision under chapter 61 of the

Internal Revenue Code. The

withholding agent must, however, treat

the payment as made to an

undocumented person for purposes of

chapter 3 of the Internal Revenue Code.

Therefore, the presumption rules of

paragraph (b)(3)(iii) of this section apply

to determine whether the person is

presumed to be a U.S. person (in which

case, no withholding is required under

this section), or whether the person is

presumed to be a foreign person (in

which case 30-percent withholding is

required under this section). See

paragraph (b)(3)(v) of this section for

special reliance rules in the case of a

payment to a foreign intermediary and

§ 1.1441–5(d) and (e)(6) for special

reliance rules in the case of a payment

to a flow-through entity.

(B) Special rules applicable to a

withholding certificate from a

nonqualified intermediary or flowthrough entity. (1) In the case of a

payment made to a nonqualified

intermediary, a flow-through entity (as

defined in paragraph (c)(23) of this

section), and a U.S. branch described in

paragraph (b)(2)(iv) of this section (other

than a branch that is treated as a U.S.

person), a withholding agent can

reliably associate the payment with

valid documentation only to the extent

that, prior to the payment, the

withholding agent can allocate the

32172 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

payment to a valid nonqualified

intermediary, flow-through, or U.S.

branch withholding certificate; the

withholding agent can reliably

determine how much of the payment

relates to valid documentation provided

by a payee as determined under

paragraph (c)(12) of this section (i.e., a

person that is not itself an intermediary,

flow-through entity, or U.S. branch);

and the withholding agent has sufficient

information to report the payment on

Form 1042–S or Form 1099, if reporting

is required. See paragraph (e)(3)(iii) of

this section for the requirements of a

nonqualified intermediary withholding

certificate, paragraph (e)(3)(v) of this

section for the requirements of a U.S.

branch certificate, and §§ 1.1441–

5(c)(3)(iii) and (e)(5)(iii) for the

requirements of a flow-through

withholding certificate. Thus, a

payment cannot be reliably associated

with valid documentation provided by a

payee to the extent such documentation

is lacking or unreliable, or to the extent

that information required to allocate and

report all or a portion of the payment to

each payee is lacking or unreliable. If a

withholding certificate attached to an

intermediary, U.S. branch, or flowthrough withholding certificate is

another intermediary, U.S. branch, or

flow-through withholding certificate,

the rules of this paragraph (b)(2)(vii)(B)

apply by treating the share of the

payment allocable to the other

intermediary, U.S. branch, or flowthrough entity as if the payment were

made directly to such other entity. See

paragraph (e)(3)(iv)(D) of this section for

rules permitting information allocating a

payment to documentation to be

received after the payment is made. (2) The rules of paragraph

(b)(2)(vii)(B)(1) of this section are

illustrated by the following examples:

Example 1. WH, a withholding agent,

makes a payment of U.S. source interest to

NQI, an intermediary that is a nonqualified

intermediary. NQI provides a valid

intermediary withholding certificate under

paragraph (e)(3)(iii) of this section. NQI does

not, however, provide valid documentation

from the persons on whose behalf it receives

the interest payment, and, therefore, the

interest payment cannot be reliably

associated with valid documentation

provided by a payee. WH must apply the

presumption rules of paragraph (b)(3)(v) of

this section to the payment.

Example 2. The facts are the same as in

Example 1, except that NQI does attach valid

beneficial owner withholding certificates (as

defined in paragraph (e)(2)(i) of this section)

from A, B, C, and D establishing their status

as foreign persons. NQI does not, however,

provide WH with any information allocating

the payment among A, B, C, and D and,

therefore, WH cannot determine the portion

of the payment that relates to each beneficial

owner withholding certificate. The interest

payment cannot be reliably associated with

valid documentation from a payee and WH

must apply the presumption rules of

paragraph (b)(3)(v) of this section to the

payment. See, however, paragraph

(e)(3)(iv)(D) of this section providing special

rules permitting allocation information to be

received after a payment is made.

Example 3. The facts are the same as in

Example 2, except that NQI does provide

allocation information associated with its

intermediary withholding certificate

indicating that 25 percent of the interest

payment is allocable to A and 25 percent to

B. NQI does not provide any allocation

information regarding the remaining 50

percent of the payment. WH may treat 25

percent of the payment as made to A and 25

percent as made to B. The remaining 50

percent of the payment cannot be reliably

associated with valid documentation from a

payee, however, since NQI did not provide

information allocating the payment. Thus,

the remaining 50 percent of the payment is

subject to the presumption rules of paragraph

(b)(3)(v) of this section.

Example 4. WH makes a payment of U.S.

source interest to NQI1, an intermediary that

is not a qualified intermediary. NQI1

provides WH with a valid nonqualified

intermediary withholding certificate as well

a valid beneficial owner withholding

certificates from A and B and a valid

nonqualified intermediary withholding

certificate from NQI2. NQI2 has provided

valid beneficial owner documentation from C

sufficient to establish C’s status as a foreign

person. Based on information provided by

NQI1, WH can allocate 20 percent of the

interest payment to A, and 20 percent to B.

Based on information that NQI2 provided

NQI1 and that NQI1 provides to WH, WH can

allocate 60 percent of the payment to NQI 2,

but can only allocate one half of that

payment (30 percent) to C. Therefore, WH

cannot reliably associate 30 percent of the

payment made to NQI2 with valid

documentation and must apply the

presumption rules of paragraph (b)(3)(v) of

this section to that portion of the payment.

(C) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that does not

assume primary withholding

responsibility. (1) If a payment is made

to a qualified intermediary that does not

assume primary withholding

responsibility under chapter 3 of the

Internal Revenue Code or primary Form

1099 reporting and backup withholding

responsibility under chapter 61 and

section 3406 of the Internal Revenue

Code for the payment, a withholding

agent can reliably associate the payment

with valid documentation only to the

extent that, prior to the payment, the

withholding agent has received a valid

qualified intermediary withholding

certificate and the withholding agent

can reliably determine the portion of the

payment that relates to a withholding

rate pool, as defined in paragraph

(e)(5)(v)(C) of this section. In the case of

a withholding rate pool attributable to a

U.S. non-exempt recipient, a payment

cannot be reliably associated with valid

documentation unless, prior to the

payment, the qualified intermediary has

provided the U.S. person’s Form W–9

(or, in the absence of the form, the

name, address, and TIN, if available, of

the U.S. person) and sufficient

information for the withholding agent to

report the payment on Form 1099. See

paragraph (e)(5)(v)(C)(2) of this section

for special rules regarding allocation of

payments among U.S. non-exempt

recipients.

(2) The rules of this paragraph

(b)(2)(vii)(C) are illustrated by the

following examples:

Example 1. WH, a withholding agent,

makes a payment of U.S. source dividends to

QI. QI provides WH with a valid qualified

intermediary withholding certificate on

which it indicates that it does not assume

primary withholding responsibility under

chapter 3 of the Internal Revenue Code or

primary Form 1099 reporting and backup

withholding responsibility under chapter 61

and section 3406 of the Internal Revenue

Code. QI does not provide any information

allocating the dividend to withholding rate

pools. WH cannot reliably associate the

payment with valid payee documentation

and therefore must apply the presumption

rules of paragraph (b)(3)(v) of this section.

Example 2. WH makes a payment of U.S.

source dividends to QI. QI has 5 customers:

A, B, C, D, and E. QI has obtained

documentation from A and B establishing

their entitlement to a 15 percent rate of tax

on U.S. source dividends under an income

tax treaty. C is a U.S. person that is an

exempt recipient as defined in paragraph

(c)(20) of this section. D and E are U.S. nonexempt recipients who have provided Forms

W–9 to QI. A, B, C, D, and E are each entitled

to 20 percent of the dividend payment. QI

provides WH with a valid qualified

intermediary withholding certificate as

described in paragraph (e)(2)(ii) of this

section with which it associates the Forms

W–9 from D and E. QI associates the

following allocation information with its

qualified intermediary withholding

certificate: 40 percent of the payment is

allocable to the 15 percent withholding rate

pool, and 20 percent is allocable to each of

D and E. QI does not provide any allocation

information regarding the remaining 20

percent of the payment. WH cannot reliably

associate 20 percent of the payment with

valid documentation and, therefore, must

apply the presumption rules of paragraph

(b)(3)(v) of this section to that portion of the

payment. The 20 percent of the payment

allocable to the 15 percent withholding rate

pool, and the portion of the payments

allocable to D and E are payments that can

be reliably associated with documentation.

(D) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that assumes

primary withholding responsibility

under chapter 3 of the Internal Revenue

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32173

Code. (1) In the case of a payment made

to a qualified intermediary that assumes

primary withholding responsibility

under chapter 3 of the Internal Revenue

Code with respect to that payment (but

does not assume primary Form 1099

reporting and backup withholding

responsibility under chapter 61 and

section 3406 of the Internal Revenue

Code), a withholding agent can reliably

associate the payment with valid

documentation only to the extent that,

prior to the payment, the withholding

agent has received a valid qualified

intermediary withholding certificate

and the withholding agent can reliably

determine the portion of the payment

that relates to the withholding rate pool

for which the qualified intermediary

assumes primary withholding

responsibility under chapter 3 of the

Internal Revenue Code and the portion

of the payment attributable to

withholding rate pools for each U.S.

non-exempt recipient for whom the

qualified intermediary has provided a

Form W–9 (or, in absence of the form,

the name, address, and TIN, if available,

of the U.S. non-exempt recipient). See

paragraph (e)(5)(v)(C)(2) of this section

for alternative allocation procedures for

payments made to U.S. persons that are

not exempt recipients.

(2) Examples. The following examples

illustrate the rules of paragraph

(b)(2)(vii)(D)(1) of this section:

Example 1. WH makes a payment of U.S.

source interest to QI, a qualified

intermediary. QI provides WH with a

withholding certificate that indicates that QI

will assume primary withholding

responsibility under chapter 3 of the Internal

Revenue Code with respect to the payment.

In addition, QI attaches a Form W–9 from A,

a U.S. non-exempt recipient, as defined in

paragraph (c)(21) of this section, and

provides the name, address, and TIN of B, a

U.S. person that is also a non-exempt

recipient but who has not provided a Form

W–9. QI associates a withholding statement

with its qualified intermediary withholding

certificate indicating that 10 percent of the

payment is attributable to A, and 10 percent

to B, and that QI will assume primary

withholding responsibility with respect to

the remaining 80 percent of the payment. WH

can reliably associate the entire payment

with valid documentation. Although under

the presumption rule of paragraph (b)(3)(v) of

this section, an undocumented person

receiving U.S. source interest is generally

presumed to be a foreign person, WH has

actual knowledge that B is a U.S. non-exempt

recipient and therefore must report the

payment on Form 1099 and backup withhold

on the interest payment under section 3406.

Example 2. The facts are the same as in

Example 1, except that no Forms W–9 or

other information have been provided for the

20 percent of the payment that is allocable

to A and B. Thus, QI has accepted

withholding responsibility for 80 percent of

the payment, but has provided no

information for the remaining 20 percent. In

this case, 20 percent of the payment cannot

be reliably associated with valid

documentation, and WH must apply the

presumption rule of paragraph (b)(3)(v) of

this section.

(E) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that assumes

primary Form 1099 reporting and

backup withholding responsibility but

not primary withholding under chapter

3. (1) If a payment is made to a qualified

intermediary that assumes primary

Form 1099 reporting and backup

withholding responsibility for the

payment (but does not assume primary

withholding responsibility under

chapter 3 of the Internal Revenue Code),

a withholding agent can reliably

associate the payment with valid

documentation only to the extent that,

prior to the payment, the withholding

agent has received a valid qualified

intermediary withholding certificate

and the withholding agent can reliably

determine the portion of the payment

that relates to a withholding rate pool or

pools provided as part of the qualified

intermediary’s withholding statement

and the portion of the payment for

which the qualified intermediary

assumes primary Form 1099 reporting

and backup withholding responsibility.

(2) The following example illustrates

the rules of paragraph (b)(2)((vii)(D)(1)

of this section:

Example. WH makes a payment of U.S.

source dividends to QI, a qualified

intermediary. QI has provided WH with a

valid qualified intermediary withholding

certificate. QI states on its withholding

statement accompanying the certificate that it

assumes primary Form 1099 reporting and

backup withholding responsibility but does

not assume primary withholding

responsibility under chapter 3 of the Internal

Revenue Code. QI represents that 15 percent

of the dividend is subject to a 30 percent rate

of withholding, 75 percent of the dividend is

subject to a 15 percent rate of withholding,

and that QI assumed primary Form 1099

reporting and backup withholding for the

remaining 10 percent of the payment. The

entire payment can be reliably associated

with valid documentation.

(F) Special rules applicable to a

withholding certificate provided by a

qualified intermediary that assumes

primary withholding responsibility

under chapter 3 and primary Form 1099

reporting and backup withholding

responsibility and a withholding

certificate provided by a withholding

foreign partnership. If a payment is

made to a qualified intermediary that

assumes both primary withholding

responsibility under chapter 3 of the

Internal Revenue Code and primary

Form 1099 reporting and backup

withholding responsibility under

chapter 61 and section 3406 of the

Internal Revenue Code for the payment,

a withholding agent can reliably

associate a payment with valid

documentation provided that it receives

a valid qualified intermediary

withholding certificate as described in

paragraph (e)(3)(ii) of this section. In the

case of a payment made to a

withholding foreign partnership, the

withholding agent can reliably associate

the payment with valid documentation

to the extent it can associate the

payment with a valid withholding

certificate described in § 1.1441–

5(c)(2)(iv).

(3) Presumptions regarding payee’s

status in the absence of

documentation—(i) General rules. A

withholding agent that cannot, prior to

the payment, reliably associate (within

the meaning of paragraph (b)(2)(vii) of

this section) a payment of an amount

subject to withholding (as described in

§ 1.1441–2(a)) with valid documentation

may rely on the presumptions of this

paragraph (b)(3) to determine the status

of the payee as a U.S. or a foreign person

and the payee’s other relevant

characteristics (e.g., as an owner or

intermediary, as an individual, trust,

partnership, or corporation). * * *

(ii) Presumptions of classification as

individual, corporation, partnership,

etc. (A) In general. A withholding agent

that cannot reliably associate a payment

with a valid withholding certificate or

that has received valid documentary

evidence under §§ 1.1441–1(e)(1)(ii)(2)

and 1.6049–5(c)(1) or (4) but cannot

determine a payee’s classification from

the documentary evidence must apply

the rules of this paragraph (b)(3)(ii) to

determine the payee’s classification as

an individual, trust, estate, corporation,

or partnership. The fact that a payee is

presumed to have a certain status under

the provisions of this paragraph (b)(3)(ii)

does not mean that it is excused from

furnishing documentation if

documentation is otherwise required to

obtain a reduced rate of withholding

under this section. For example, if, for

purposes of this paragraph (b)(3)(ii), a

payee is presumed to be a tax-exempt

organization based on § 1.6049–

4(c)(1)(ii)(B), the withholding agent

cannot rely on this presumption to

reduce the rate of withholding on

payments to such person (if such person

is also presumed to be a foreign person

under paragraph (b)(3)(iii)(A) of this

section) because a reduction in the rate

of withholding for payments to a foreign

tax-exempt organization generally

requires that a valid Form W–8

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described in § 1.1441–9(b)(2) be

furnished to the withholding agent.

(B) No documentation provided. If the

withholding agent cannot reliably

associate a payment with a valid

withholding certificate or valid

documentary evidence, it must presume

that the payee is an individual, a trust,

or an estate, if the payee appears to be

such person (e.g., based on the payee’s

name or other indications). In the

absence of reliable indications that the

payee is an individual, trust, or an

estate, the withholding agent must

presume that the payee is a corporation

or one of the persons enumerated under

§ 1.6049–4(c)(1)(ii)(B) through (Q) if it

can be so treated under § 1.6049–

4(c)(1)(ii)(A)(1) or any one of the

paragraphs under § 1.6049–4(c)(1)(ii)(B)

through (Q) without the need to furnish

documentation. If the withholding agent

cannot treat a payee as a person

described in § 1.6049–4(c)(1)(ii)(A)(1)

through (Q), then the payee shall be

presumed to be a partnership. If such a

partnership is presumed to be foreign, it

is not the beneficial owner of the

income paid to it. See paragraph (c)(6)

of this section. If such a partnership is

presumed to be domestic, it is a U.S.

non-exempt recipient for purposes of

chapter 61 of the Internal Revenue

Code.

(C) Documentary evidence furnished

for offshore account. If the withholding

agent receives valid documentary

evidence, as described in § 1.6049–

5(c)(1) or (4), with respect to an offshore

account from an entity but the

documentary evidence does not

establish the entity’s classification as a

corporation, trust, estate, or partnership,

the withholding agent may presume (in

the absence of actual knowledge

otherwise) that the entity is the type of

person enumerated under § 1.6049–

4(c)(1)(ii)(B) through (Q) if it can be so

treated under any one of those

paragraphs without the need to furnish

documentation. If the withholding agent

cannot treat a payee as a person

described in § 1.6049–4(c)(1)(ii)(B)

through (Q), then the payee shall be

presumed to be a corporation unless the

withholding agent knows, or has reason

to know, that the entity is not classified

as a corporation for U.S. tax purposes,

the withholding agent is required to

presume the payee is a U.S. person

under paragraph (b)(3)(iii) of this

section, or there are indicia of U.S.

status. If the withholding agent must

presume the payee is a U.S. person, or

there are indicia of U.S. status, the

withholding agent shall treat the entity

as a partnership, and therefore as a U.S.

non-exempt recipient for purposes of

chapter 61 of the Internal Revenue

Code; however backup withholding

under section 3406 shall not apply if

backup withholding is not required

under § 31.3406(g)–1(e) of this chapter.

Indicia of U.S. status exists if payments

are regularly made to a payee in the

United States, the payee has an account

with the same withholding agent in the

United States, or the payee has a U.S.

address. If a payee is, or is presumed to

be, a corporation under this paragraph

(b)(3)(ii)(C) and a foreign person under

paragraph (b)(3)(iii) of this section, a

withholding agent shall not treat the

payee as the beneficial owner of income

if the withholding agent knows, or has

reason to know, that the payee is not the

beneficial owner of the income. For this

purpose, a withholding agent shall have

reason to know that the payee is not a

beneficial owner if the documentary

evidence indicates that the payee is a

bank, broker, intermediary, custodian,

or other agent, or is treated under

§ 1.6049–4(c)(1)(ii)(B) through (Q) as

such a person. A withholding agent

may, however, treat such a person as a

beneficial owner if the foreign person

provides a statement, in writing and

signed by a person with authority to

sign the statement, that is attached to

the documentary evidence stating it is

the beneficial owner of the income.

(iii) * * *

(C) Pensions, annuities, etc. A

payment from a trust described in

section 401(a), an annuity plan

described in section 403(a), a payment

with respect to any annuity, custodial

account, or retirement income account

described in section 403(b), or a

payment from an individual retirement

account or individual retirement

annuity described in section 408 that a

withholding agent cannot reliably

associate with documentation is

presumed to be made to a U.S. person

only if the withholding agent has a

record of a Social Security number for

the payee and relies on a mailing

address described in the following

sentence. A mailing address is an

address used for purposes of

information reporting or otherwise

communicating with the payee that is

an address in the United States or in a

foreign country with which the United

States has an income tax treaty in effect

and the treaty provides that the payee,

if an individual resident in that country,

would be entitled to an exemption from

U.S. tax on amounts described in this

paragraph (b)(3)(iii)(C). Any payment

described in this paragraph (b)(3)(iii)(C)

that is not presumed to be made to a

U.S. person is presumed to be made to

a foreign person. A withholding agent

making a payment to a person presumed

to be a foreign person may not reduce

the 30-percent amount of withholding

required on such payment unless it

receives a withholding certificate

described in paragraph (e)(2)(i) of this

section furnished by the beneficial

owner. For reduction in the 30-percent

rate, see §§ 1.1441–4(e) or 1.1441–6(b).

(D) Certain payments to offshore

accounts. A payment is presumed made

to a foreign payee if the payment is

made outside the United States (as

defined in § 1.6049–5(e)) to an offshore

account (as defined in § 1.6049–5(c)(1))

and the withholding agent does not

have actual knowledge that the payee is

a U.S. person. See § 1.6049–5(d)(2) and

(3) for exceptions to this rule.

(iv) Grace period. A withholding

agent may choose to apply the

provisions of § 1.6049–5(d)(2)(ii)

regarding a 90-day grace period for

purposes of this paragraph (b)(3) (by

applying the term withholding agent

instead of the term payor) to amounts

described in § 1.1441–6(c)(2) and to

amounts covered by a Form 8233

described in § 1.1441–4(b)(2)(ii). Thus,

for these amounts, a withholding agent

may choose to treat an account holder

as a foreign person and withhold under

chapter 3 of the Internal Revenue Code

(and the regulations thereunder) while

awaiting documentation. For purposes

of determining the rate of withholding

under this section, the withholding

agent must withhold at the unreduced

30-percent rate at the time that the

amounts are credited to an account.

However, a withholding agent who can

reliably associate the payment with a

withholding certificate that is otherwise

valid within the meaning of the

applicable provisions except for the fact

that it is transmitted by facsimile may

rely on that facsimile form for purposes

of withholding at the claimed reduced

rate. For reporting of amounts credited

both before and after the grace period,

see § 1.1461–1(c)(4)(i)(A). The following

adjustments shall be made at the

expiration of the grace period:

(A) If, at the end of the grace period,

the documentation is not furnished in

the manner required under this section

and the account holder is presumed to

be a U.S. non-exempt recipient, then

backup withholding applies to amounts

credited to the account after the

expiration of the grace period only.

Amounts credited to the account during

the grace period shall be treated as

owned by a foreign payee and

adjustments must be made to correct

any underwithholding on such amounts

in the manner described in § 1.1461–2.

(B) If, at the end of the grace period,

the documentation is not furnished in

the manner required under this section,

or if documentation is furnished that

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32175

does not support the claimed rate

reduction, and the account holder is

presumed to be a foreign person then

adjustments must be made to correct

any underwithholding on amounts

credited to the account during the grace

period, based on the adjustment

procedures described in § 1.1461–2.

(v) Special rules applicable to

payments to foreign intermediaries—(A)

Reliance on claim of status as foreign

intermediary. The presumption rules of

paragraph (b)(3)(v)(B) of this section

apply to a payment made to an

intermediary (whether the intermediary

is a qualified or nonqualified

intermediary) that has provided a valid

withholding certificate under paragraph

(e)(3)(ii) or (iii) of this section (or has

provided documentary evidence

described in paragraph (b)(3)(ii)(C) of

this section that indicates it is a bank,

broker, custodian, intermediary, or other

agent) to the extent the withholding

agent cannot treat the payment as being

reliably associated with valid

documentation under the rules of

paragraph (b)(2)(vii) of this section. For

this purpose, a U.S. person’s foreign

branch that is a qualified intermediary

defined in paragraph (e)(5)(ii) of this

section shall be treated as a foreign

intermediary. A payee that the

withholding agent may not reliably treat

as a foreign intermediary under this

paragraph (b)(3)(v)(A) is presumed to be

a payee other than an intermediary

whose classification as an individual,

corporation, partnership, etc., must be

determined in accordance with

paragraph (b)(3)(ii) of this section to the

extent relevant. In addition, such payee

is presumed to be a U.S. or a foreign

payee based upon the presumptions

described in paragraph (b)(3)(iii) of this

section. The provisions of paragraph

(b)(3)(v)(B) of this section are not

relevant to a withholding agent that can

reliably associate a payment with a

withholding certificate from a person

representing to be a qualified

intermediary to the extent the qualified

intermediary has assumed primary

withholding responsibility in

accordance with paragraph (e)(5)(iv) of

this section.

(B) Beneficial owner documentation

or allocation information is lacking or

unreliable. Any portion of a payment

that the withholding agent may treat as

made to a foreign intermediary (whether

a nonqualified or a qualified

intermediary) but that the withholding

agent cannot treat as reliably associated

with valid documentation under the

rules of paragraph (b)(2)(vii) of this

section is presumed made to an

unknown, undocumented foreign payee.

As a result, a withholding agent must

deduct and withhold 30 percent from

any payment of an amount subject to

withholding. If a withholding certificate

attached to an intermediary certificate is

another intermediary withholding

certificate or a flow-through

withholding certificate, the rules of this

paragraph (b)(3)(v)(B) (or § 1.1441–

5(d)(3) or (e)(6)(iii)) apply by treating

the share of the payment allocable to the

other intermediary or flow-through

entity as if it were made directly to the

other intermediary or flow-through

entity. Any payment of an amount

subject to withholding that is presumed

made to an undocumented foreign

person must be reported on Form 1042–

S. See § 1.1461–1(c). See § 1.6049–5(d)

for payments that are not subject to

withholding.

(vi) U.S. branches. The rules of

paragraph (b)(3)(v)(B) of this section

shall apply to payments to a U.S. branch

described in paragraph (b)(2)(iv)(A) of

this section that has not agreed to be

treated as a U.S. person.

(vii) Joint payees—(A) In general.

Except as provided in paragraph

(b)(3)(vii)(B) of this section, if a

withholding agent makes a payment to

joint payees and cannot reliably

associate a payment with valid

documentation from all payees, the

payment is presumed made to an

unidentified U.S. person. However, if

one of the joint payees provides a Form

W–9 furnished in accordance with the

procedures described in §§ 31.3406(d)–

1 through 31.3406(d)–5 of this chapter,

the payment shall be treated as made to

that payee. See § 31.3406(h)–2 of this

chapter for rules to determine the

relevant payee if more than one Form

W–9 is provided. For purposes of

applying this paragraph (b)(3), the grace

period rules in paragraph (b)(3)(iv) of

this section shall apply only if each

payee meets the conditions described in

paragraph (b)(3)(iv) of this section.

(B) Special rule for offshore accounts.

If a withholding agent makes a payment

to joint payees and cannot reliably

associate a payment with valid

documentation from all payees, the

payment is presumed made to an

unknown foreign payee if the payment

is made outside the United States (as

defined in § 1.6059–5(e)) to an offshore

account (as defined in § 1.6049–5(c)(1)).

* * * * *

(6) Rules of withholding for payments

by a foreign intermediary or certain U.S.

branches—(i) In general. A foreign

intermediary described in paragraph

(e)(3)(i) of this section or a U.S. branch

described in paragraph (b)(2)(iv) of this

section that receives an amount subject

to withholding (as defined in § 1.1441–

2(a)) shall be required to withhold (if

another withholding agent has not

withheld the full amount required) and

report such payment under chapter 3 of

the Internal Revenue Code and the

regulations thereunder except as

otherwise provided in this paragraph

(b)(6). A nonqualified intermediary or

U.S. branch described in paragraph

(b)(2)(iv) of this section (other than a

branch that is treated as a U.S. person)

shall not be required to withhold or

report if it has provided a valid

nonqualified intermediary withholding

certificate or a U.S. branch withholding

certificate, it has provided all of the

information required by paragraph

(e)(3)(iv) of this section (withholding

statement), and it does not know, and

has no reason to know, that another

withholding agent failed to withhold the

correct amount or failed to report the

payment correctly under § 1.1461–1(c).

A qualified intermediary’s obligations to

withhold and report shall be determined

in accordance with its qualified

intermediary withholding agreement.

(ii) Examples. The following

examples illustrate the rules of

paragraph (b)(6)(i) of this section:

Example 1. FB, a foreign bank, acts as

intermediary for five different persons, A, B,

C, D, and E, each of whom owns U.S.

securities that generate U.S. source

dividends. The dividends are paid by USWA,

a U.S. withholding agent. FB furnished

USWA with a nonqualified intermediary

withholding certificate, described in

paragraph (e)(3)(iii) of this section, to which

it attached the withholding certificates of

each of A, B, C, D, and E. The withholding

certificates from A and B claim a 15 percent

reduced rate of withholding under an income

tax treaty. C, D, and E claim no reduced rate

of withholding. FB provides a withholding

statement that meets all of the requirements

of paragraph (e)(3)(iv) of this section,

including information allocating 20 percent

of each dividend payment to each of A, B,

C, D, and E. FB does not have actual

knowledge or reason to know that USWA did

not withhold the correct amounts or report

the dividends on Forms 1042–S to each of A,

B, C, D, and E. FB is not required to withhold

or to report the dividends to A, B, C, D, and

E.

Example 2. The facts are the same as in

Example 1, except that FB did not provide

any information for USWA to determine how

much of the dividend payments were made

to A, B, C, D, and E. Because USWA could

not reliably associate the dividend payments

with documentation under paragraph

(b)(2)(vii) of this section, USWA applied the

presumption rules of paragraph (b)(3)(v) of

this section and withheld 30 percent from all

dividend payments. In addition, USWA filed

a single Form 1042–S reporting the payment

to an unknown foreign payee. FB is deemed

to know that USWA did not report the

payment to A, B, C, D, and E because it did

not provide all of the information required on

32176 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

a withholding statement under paragraph

(e)(3)(iv) of this section (i.e., allocation

information). Although FB is not required to

withhold on the payment because the full 30

percent withholding was imposed by USWA,

it is required to report the payments on

Forms 1042–S to A, B, C, D, and E. FB’s

intentional failure to do so will subject it to

intentional disregard penalties under

sections 6721 and 6722.

* * * * *

(c) * * *

(2) Foreign and U.S. person. The term

foreign person means a nonresident

alien individual, a foreign corporation,

a foreign partnership, a foreign trust, a

foreign estate, and any other person that

is not a U.S. person described in the

next sentence. Solely for purposes of the

regulations under chapter 3 of the

Internal Revenue Code, the term foreign

person also means, with respect to a

payment by a withholding agent, a

foreign branch of a U.S. person that

furnishes an intermediary withholding

certificate described in paragraph

(e)(3)(ii) of this section. Such a branch

continues to be a U.S. payor for

purposes of chapter 61 of the Internal

Revenue Code. See § 1.6049–5(c)(4). A

U.S. person is a person described in

section 7701(a)(30), the U.S. government

(including an agency or instrumentality

thereof), a State (including an agency or

instrumentality thereof), or the District

of Columbia (including an agency or

instrumentality thereof).

* * * * *

(6) Beneficial owner—(i) General rule.

This paragraph (c)(6) defines the term

beneficial owner for payments of

income other than a payment for which

a reduced rate of withholding is claimed

under an income tax treaty. The term

beneficial owner means the person who

is the owner of the income for tax

purposes and who beneficially owns

that income. A person shall be treated

as the owner of the income to the extent

that it is required under U.S. tax

principles to include the amount paid in

gross income under section 61

(determined without regard to an

exclusion or exemption from gross

income under the Internal Revenue

Code). Beneficial ownership of income

is determined under the provisions of

section 7701(l) and the regulations

under that section and any other

applicable general U.S. tax principles,

including principles governing the

determination of whether a transaction

is a conduit transaction. Thus, a person

receiving income in a capacity as a

nominee, agent, or custodian for another

person is not the beneficial owner of the

income. In the case of a scholarship, the

student receiving the scholarship is the

beneficial owner of that scholarship. In

the case of a payment of an amount that

is not income, the beneficial owner

determination shall be made under this

paragraph (c)(6) as if the amount were

income.

(ii) Special rules—(A) General rule.

The beneficial owners of income paid to

an entity described in this paragraph

(c)(6)(ii) are those persons described in

paragraphs (c)(6)(ii)(B) through (D) of

this section.

(B) Foreign partnerships. The

beneficial owners of income paid to a

foreign partnership (whether a

nonwithholding or a withholding

foreign partnership) are the partners in

the partnership, unless they themselves

are not the beneficial owners of the

income under this paragraph (c)(6). For

example, a partnership (first tier) that is

a partner in another partnership (second

tier) is not the beneficial owner of

income paid to the second tier

partnership since the first tier

partnership is not the owner of the

income under U.S. tax principles.

Rather, the partners of the first tier

partnership are the beneficial owners (to

the extent they are not themselves

persons that are not beneficial owners

under this paragraph (c)(6)). See

§ 1.1441–5(b) for applicable withholding

procedures for payments to a domestic

partnership. See also § 1.1441–5(c)(3)(ii)

for applicable withholding procedures

for payments to a foreign partnership

where one of the partners (at any level

in the chain of tiers) is a domestic

partnership.

(C) Foreign simple trusts and foreign

grantor trusts. The beneficial owners of

income paid to a foreign simple trust, as

described in paragraph (c)(23) of this

section, are the beneficiaries of the trust,

unless they themselves are not the

beneficial owners of the income under

this paragraph (c)(6). The beneficial

owners of income paid to a foreign

grantor trust, as described in paragraph

(c)(26) of this section, are the persons

treated as the owners of the trust, unless

they themselves are not the beneficial

owners of the income under this

paragraph (c)(6).

(D) Other foreign trusts and foreign

estates. The beneficial owner of income

paid to a foreign complex trust as

defined in paragraph (c)(25) of this

section or to a foreign estate is the

foreign complex trust or estate itself.

* * * * *

(12) Payee. For purposes of chapter 3

of the Internal Revenue Code, the term

payee of a payment is determined under

paragraph (b)(2) of this section,

§ 1.1441–5(c)(1) (relating to

partnerships), and § 1.1441–5(e)(2) and

(3) (relating to trusts and estates) and

includes foreign persons, U.S. exempt

recipients, and U.S. non-exempt

recipients. A nonqualified intermediary

and a qualified intermediary (to the

extent it does not assume primary

withholding responsibility) are not

payees if they are acting as

intermediaries and not the beneficial

owner of income. In addition, a flowthrough entity is not a payee unless the

income is (or is deemed to be)

effectively connected with the conduct

of a trade or business in the United

States. See § 1.6049–5(d)(1) for rules to

determine the payee for purposes of

chapter 61 of the Internal Revenue

Code. See §§ 1.1441–1(b)(3), 1.1441–

5(d), and (e)(6) and 1.6049–5(d)(3) for

presumption rules that apply if a

payee’s identity cannot be determined

on the basis of valid documentation.

(13) Intermediary. An intermediary

means, with respect to a payment that

it receives, a person that, for that

payment, acts as a custodian, broker,

nominee, or otherwise as an agent for

another person, regardless of whether

such other person is the beneficial

owner of the amount paid, a flowthrough entity, or another intermediary.

(14) Nonqualified intermediary. A

nonqualified intermediary means any

intermediary that is not a qualified

intermediary, as defined in paragraph

(e)(5)(ii) of this section, or a qualified

intermediary that is not acting in its

capacity as a qualified intermediary

with respect to a payment. For example,

to the extent an entity that is a qualified

intermediary provides another

withholding agent with a foreign

beneficial owner withholding certificate

as defined in paragraph (e)(2)(i) of this

section, the entity is not acting in its

capacity as a qualified intermediary.

Notwithstanding the preceding

sentence, a qualified intermediary is

acting as a qualified intermediary to the

extent it provides another withholding

agent with Forms W–9, or other

information regarding U.S. non-exempt

recipients pursuant to its qualified

intermediary agreement with the IRS.

(15) Qualified intermediary. The term

qualified intermediary is defined in

paragraph (e)(5)(ii) of this section.

(16) Withholding certificate. The term

withholding certificate means a Form

W–8 described in paragraph (e)(2)(i) of

this section (relating to foreign

beneficial owners), paragraph (e)(3)(i) of

this section (relating to foreign

intermediaries), § 1.1441–5(c)(2)(iv),

(c)(3)(iii), and (e)(3)(iv) (relating to flowthrough entities), a Form 8233 described

in § 1.1441–4(b)(2), a Form W–9 as

described in paragraph (d) of this

section, a statement described in

§ 1.871–14(c)(2)(v) (relating to portfolio

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32177

interest), or any other certificates that

under the Internal Revenue Code or

regulations certifies or establishes the

status of a payee or beneficial owner as

a U.S. or a foreign person.

(17) Documentary evidence; other

appropriate documentation. The terms

documentary evidence or other

appropriate documentation refer to

documents other than a withholding

certificate that may be provided for

payments made outside the United

States to offshore accounts or any other

evidence that under the Internal

Revenue Code or regulations certifies or

establishes the status of a payee or

beneficial owner as a U.S. or foreign

person. See §§ 1.1441–6(b)(2), (c)(3) and

(4) (relating to treaty benefits), and

1.6049–5(c)(1) and (4) (relating to

chapter 61 reporting). Also see § 1.1441–

4(a)(3)(ii) regarding documentary

evidence for notional principal

contracts.

(18) Documentation. The term

documentation refers to both

withholding certificates, as defined in

paragraph (c)(16) of this section, and

documentary evidence or other

appropriate documentation, as defined

in paragraph (c)(17) of this section.

(19) Payor. The term payor is defined

in § 31.3406(a)–2 of this chapter and

§ 1.6049–4(a)(2) and generally includes

a withholding agent, as defined in

§ 1.1441–7(a). The term also includes

any person that makes a payment to an

intermediary, flow-through entity, or

U.S. branch that is not treated as a U.S.

person to the extent the intermediary,

flow-through, or U.S. branch provides a

Form W–9 or other appropriate

information relating to a payee so that

the payment can be reported under

chapter 61 of the Internal Revenue Code

and, if required, subject to backup

withholding under section 3406. This

latter rule does not preclude the

intermediary, flow-through entity, or

U.S. branch from also being a payor.

(20) Exempt recipient. The term

exempt recipient means a person that is

exempt from reporting under chapter 61

of the Internal Revenue Code and

backup withholding under section 3406

and that is described in §§ 1.6041–3(q),

1.6045–2(b)(2)(i), and 1.6049–4(c)(1)(ii),

and § 5f.6045–1(c)(3)(i)(B) of this

chapter. Exempt recipients are not

exempt from withholding under chapter

3 of the Internal Revenue Code unless

they are U.S. persons or foreign persons

entitled to an exemption from

withholding under chapter 3.

(21) Non-exempt recipient. A nonexempt recipient is any person that is

not an exempt recipient under

paragraph (c)(20) of this section.

(22) Reportable amounts. Reportable

amounts are defined in paragraph

(e)(3)(vi) of this section.

(23) Flow-through entity. A flowthrough entity means any entity that is

described in this paragraph (c)(23) and

that may provide documentation on

behalf of others to a withholding agent.

The entities described in this paragraph

are a foreign partnership (other than a

withholding foreign partnership), a

foreign simple trust (other than a

withholding foreign trust) that is

described in paragraph (c)(24) of this

section, a foreign grantor trust (other

than a withholding foreign trust) that is

described in paragraph (c)(25) of this

section, or, for any payments for which

a reduced rate of withholding under an

income tax treaty is claimed, any entity

to the extent the entity is considered to

be fiscally transparent under section 894

with respect to the payment by an

interest holder’s jurisdiction.

(24) Foreign simple trust. A foreign

simple trust is a foreign trust that is

described in section 651(a).

(25) Foreign complex trust. A foreign

complex trust is a foreign trust other

than a trust described in section 651(a)

or sections 671 through 679.

(26) Foreign grantor trust. A foreign

grantor trust is a foreign trust but only

to the extent all or a portion of the

income of the trust is treated as owned

by the grantor or another person under

sections 671 through 679.

(27) Partnership. The term

partnership means any entity treated as

a partnership under § 301.7701–2 or –3

of this chapter.

(28) Nonwithholding foreign

partnership. A nonwithholding foreign

partnership is a foreign partnership that

is not a withholding foreign partnership,

as defined in § 1.1441–5(c)(2)(i).

(29) Withholding foreign partnership.

A withholding foreign partnership is

defined in § 1.1441–5(c)(2)(i).

(d) * * *

(2) Payments for which a Form W–9

is otherwise required. A withholding

agent may treat as a U.S. payee any

person who is required to furnish a

Form W–9 and who furnishes it in

accordance with the procedures

described in §§ 31.3406(d)–1 through

31.3406(d)–5 of this chapter (including

the requirement that the payee furnish

its taxpayer identifying number (TIN)) if

the withholding agent meets all the

requirements described in § 31.3406(h)–

3(e) of this chapter regarding reliance by

a payor on a Form W–9. Providing a

Form W–9 or valid substitute form shall

serve as a statement that the person

whose name is on the form is a U.S.

person. Therefore, a foreign person,

including a U.S. branch treated as a U.S.

person under paragraph (b)(2)(iv) of this

section, shall not provide a Form W–9.

A U.S. branch of a foreign person may

establish its status as a foreign person

exempt from reporting under chapter 61

and backup withholding under section

3406 by providing a withholding

certificate on Form W–8.

(3) Payments for which a Form W–9

is not otherwise required. In the case of

a payee who is not required to furnish

a Form W–9 under section 3406 (e.g., a

person exempt from reporting under

chapter 61 of the Internal Revenue

Code), the withholding agent may treat

the payee as a U.S. payee if the payee

provides the withholding agent with a

Form W–9 or a substitute form

described in § 31.3406(h)–3(c)(2) of this

chapter (relating to forms for exempt

recipients) that contains the payee’s

name, address, and TIN. The form must

be signed under penalties of perjury by

the payee if so required by the form or

by § 31.3406(h)–3 of this chapter.

Providing a Form W–9 or valid

substitute form shall serve as a

statement that the person whose name

is on the certificate is a U.S. person. A

Form W–9 or valid substitute form shall

not be provided by a foreign person,

including any U.S. branch of a foreign

person whether or not the branch is

treated as a U.S. person under paragraph

(b)(2)(iv) of this section. See paragraph

(e)(3)(v) of this section for withholding

certificates provided by U.S. branches

described in paragraph (b)(2)(iv) of this

section. The procedures described in

§ 31.3406(h)–2(a) of this chapter shall

apply to payments to joint payees. A

withholding agent that receives a Form

W–9 to satisfy this paragraph (d)(3)

must retain the form in accordance with

the provisions of § 31.3406(h)–3(g) of

this chapter, if applicable, or of

paragraph (e)(4)(iii) of this section

(relating to the retention of withholding

certificates) if § 31.3406(h)–3(g) of this

chapter does not apply. The rules of this

paragraph (d)(3) are only intended to

provide a method by which a

withholding agent may determine that a

payee is a U.S. person and do not

otherwise impose a requirement that

documentation be furnished by a person

who is otherwise treated as an exempt

recipient for purposes of the applicable

information reporting provisions under

chapter 61 of the Internal Revenue Code

(e.g., § 1.6049–4(c)(1)(ii) for payments of

interest).

(4) When a payment to an

intermediary or flow-through entity may

be treated as made to a U.S. payee. A

withholding agent that makes a payment

to an intermediary (whether a qualified

intermediary or nonqualified

intermediary), a flow-through entity, or

32178 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

a U.S. branch described in paragraph

(b)(2)(iv) of this section may treat the

payment as made to a U.S. payee to the

extent that, prior to the payment, the

withholding agent can reliably associate

the payment with a Form W–9

described in paragraph (d)(2) or (3) of

this section attached to a valid

intermediary, flow-through, or U.S.

branch withholding certificate described

in paragraph (e)(3)(i) of this section or

to the extent the withholding agent can

reliably associate the payment with a

Form W–8 described in paragraph

(e)(3)(v) of this section that evidences an

agreement to treat a U.S. branch

described in paragraph (b)(2)(iv) of this

section as a U.S. person. In addition, a

withholding agent may treat the

payment as made to a U.S. payee only

if it complies with the electronic

confirmation procedures described in

paragraph (e)(4)(v) of this section, if

required, and it has not been notified by

the IRS that any of the information on

the withholding certificate or other

documentation is incorrect or

unreliable. In the case of a Form W–9

that is required to be furnished for a

reportable payment that may be subject

to backup withholding, the withholding

agent may be notified in accordance

with section 3406(a)(1)(B) and the

regulations under that section. See

applicable procedures under section

3406(a)(1)(B) and the regulations under

that section for payors who have been

notified with regard to such a Form W–

9. Withholding agents who have been

notified in relation to other Forms W–

9, including under section 6724(b)

pursuant to section 6721, may rely on

the withholding certificate or other

documentation only to the extent

provided under procedures as

prescribed by the IRS (see

§ 601.601(d)(2) of this chapter).

(e) * * * (1) * * *

(ii) * * * (A) * * *

(1) That the withholding agent can

reliably associate the payment with a

beneficial owner withholding certificate

described in paragraph (e)(2) of this

section furnished by the person whose

name is on the certificate or attached to

a valid foreign intermediary, flowthrough, or U.S. branch withholding

certificate;

* * * * *

(3) That the withholding agent can

reliably associate the payment with a

valid qualified intermediary

withholding certificate, as described in

paragraph (e)(3)(ii) of this section, and

the qualified intermediary has provided

sufficient information for the

withholding agent to allocate the

payment to a withholding rate pool

other than a withholding rate pool or

pools established for U.S. non-exempt

recipients;

(4) That the withholding agent can

reliably associate the payment with a

withholding certificate described in

§ 1.1441–5(c)(3)(iii) or (e)(5)(iii) from a

flow-through entity claiming the income

is effectively connected income;

* * * * *

(3) Intermediary, flow-through, or U.S.

branch withholding certificate—(i) In

general. An intermediary withholding

certificate is a Form W–8 by which a

payee represents that it is a foreign

person and that it is an intermediary

(whether a qualified or nonqualified

intermediary) with respect to a payment

and not the beneficial owner. See

paragraphs (e)(3)(ii) and (iii) of this

section. A flow-through withholding

certificate is a Form W–8 used by a

flow-through entity as defined in

paragraph (c)(23) of this section. See

§ 1.1441–5(c)(3)(iii) (a nonwithholding

foreign partnership), § 1.1441–5(e)(5)(iii)

(a foreign simple trust or foreign grantor

trust) or § 1.1441–6(b)(2) (foreign entity

presenting claims on behalf of its

interest holders for a reduced rate of

withholding under an income tax

treaty). A U.S. branch certificate is a

Form W–8 furnished under paragraph

(e)(3)(v) of this section by a U.S. branch

described in paragraph (b)(2)(iv) of this

section. See paragraph (e)(4)(viii) of this

section for applicable reliance rules.

(ii) Intermediary withholding

certificate from a qualified

intermediary. A qualified intermediary

shall provide a qualified intermediary

withholding certificate for reportable

amounts received by the qualified

intermediary. See paragraph (e)(3)(vi) of

this section for the definition of

reportable amount. A qualified

intermediary withholding certificate is

valid only if it is furnished on a Form

W–8, an acceptable substitute form, or

such other form as the IRS may

prescribe, it is signed under penalties of

perjury by a person with authority to

sign for the qualified intermediary, its

validity has not expired, and it contains

the following information, statement,

and certifications—

(A) The name, permanent residence

address (as described in paragraph

(e)(2)(ii) of this section), qualified

intermediary employer identification

number (QI–EIN), and the country

under the laws of which the

intermediary is created, incorporated, or

governed. A qualified intermediary that

does not act in its capacity as a qualified

intermediary must not use its QI–EIN.

Rather the intermediary should provide

a nonqualified intermediary

withholding certificate, if it is acting as

an intermediary, and should use the

taxpayer identification number, if any,

that it uses for all other purposes;

(B) A certification that, with respect to

accounts it identifies on its withholding

statement (as described in paragraph

(e)(5)(v) of this section), the qualified

intermediary is not acting for its own

account but is acting as a qualified

intermediary;

(C) A certification that the qualified

intermediary has provided, or will

provide, a withholding statement as

required by paragraph (e)(5)(v) of this

section; and

(D) Any other information,

certifications, or statements as may be

required by the form or accompanying

instructions in addition to, or in lieu of,

the information and certifications

described in this paragraph (e)(3)(ii) or

paragraph (e)(3)(v) of this section. See

paragraph (e)(5)(v) of this section for the

requirements of a withholding statement

associated with the qualified

intermediary withholding certificate.

(iii) Intermediary withholding

certificate from a nonqualified

intermediary. A nonqualified

intermediary shall provide a

nonqualified intermediary withholding

certificate for reportable amounts

received by the nonqualified

intermediary. See paragraph (e)(3)(vi) of

this section for the definition of

reportable amount. A nonqualified

intermediary withholding certificate is

valid only to the extent it is furnished

on a Form W–8, an acceptable substitute

form, or such other form as the IRS may

prescribe, it is signed under penalties of

perjury by a person authorized to sign

for the nonqualified intermediary, it

contains the information, statements,

and certifications described in this

paragraph (e)(3)(iii) and paragraph

(e)(3)(iv) of this section, its validity has

not expired, and the withholding

certificates and other appropriate

documentation for all persons to whom

the certificate relates are associated with

the certificate. Withholding certificates

and other appropriate documentation

consist of beneficial owner withholding

certificates described in paragraph

(e)(2)(i) of this section, intermediary and

flow-through withholding certificates

described in paragraph (e)(3)(i) of this

section, withholding foreign partnership

certificates described in § 1.1441–

5(c)(2)(iv), documentary evidence

described in §§ 1.1441–6(c)(3) or (4) and

1.6049–5(c)(1), and any other

documentation or certificates applicable

under other provisions of the Internal

Revenue Code or regulations that certify

or establish the status of the payee or

beneficial owner as a U.S. or a foreign

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32179

person. If a nonqualified intermediary is

acting on behalf of another nonqualified

intermediary or a flow-through entity,

then the nonqualified intermediary

must associate with its own withholding

certificate the other nonqualified

intermediary withholding certificate or

the flow-through withholding certificate

and separately identify all of the

withholding certificates and other

appropriate documentation that are

associated with the withholding

certificate of the other nonqualified

intermediary or flow-through entity.

Nothing in this paragraph (e)(3)(iii) shall

require an intermediary to furnish

original documentation. Copies of

certificates or documentary evidence

may be transmitted to the U.S.

withholding agent, in which case the

nonqualified intermediary must retain

the original documentation for the same

time period that the copy is required to

be retained by the withholding agent

under paragraph (e)(4)(iii) of this section

and must provide it to the withholding

agent upon request. For purposes of this

paragraph (e)(3)(iii), a valid

intermediary withholding certificate

also includes a statement described in

§ 1.871–14(c)(2)(v) furnished for interest

to qualify as portfolio interest for

purposes of sections 871(h) and 881(c).

The information and certifications

required on a Form W–8 described in

this paragraph (e)(3)(iii) are as follows—

(A) The name and permanent resident

address (as described in paragraph

(e)(2)(ii) of this section) of the

nonqualified intermediary, and the

country under the laws of which the

nonqualified intermediary is created,

incorporated, or governed;

(B) A certification that the

nonqualified intermediary is not acting

for its own account;

(C) If the nonqualified intermediary

withholding certificate is used to

transmit withholding certificates or

other appropriate documentation for

more than one person on whose behalf

the nonqualified intermediary is acting,

a withholding statement associated with

the Form W–8 that provides all the

information required by paragraph

(e)(3)(iv) of this section; and

(D) Any other information,

certifications, or statements as may be

required by the form or accompanying

instructions in addition to, or in lieu of,

the information, certifications, and

statements described in this paragraph

(e)(3)(iii) or paragraph (e)(3)(iv) of this

section.

(iv) Withholding statement provided

by nonqualified intermediary—(A) In

general. A nonqualified intermediary

shall provide a withholding statement

required by this paragraph (e)(3)(iv) to

the extent the nonqualified intermediary

is required to furnish, or does furnish,

documentation for payees on whose

behalf it receives reportable amounts (as

defined in paragraph (e)(3)(vi) of this

section) or to the extent it otherwise

provides the documentation of such

payees to a withholding agent. A

nonqualified intermediary is not

required to disclose information

regarding persons for whom it collects

reportable amounts unless it has actual

knowledge that any such person is a

U.S. non-exempt recipient as defined in

paragraph (c)(21) of this section.

Information regarding U.S. non-exempt

recipients required under this paragraph

(e)(3)(iv) must be provided irrespective

of any requirement under foreign law

that prohibits the disclosure of the

identity of an account holder of a

nonqualified intermediary or financial

information relating to such account

holder. Although a nonqualified

intermediary is not required to provide

documentation and other information

required by this paragraph (e)(3)(iv) for

persons other than U.S. non-exempt

recipients, a withholding agent that

does not receive documentation and

such information must apply the

presumption rules of paragraph (b) of

this section, §§ 1.1441–5(d) and (e)(6)

and 1.6049–5(d) or the withholding

agent shall be liable for tax, interest, and

penalties. A withholding agent must

apply the presumption rules even if it

is not required under chapter 61 of the

Internal Revenue Code to obtain

documentation to treat a payee as an

exempt recipient and even though it has

actual knowledge that the payee is a

U.S. person. For example, if a

nonqualified intermediary fails to

provide a withholding agent with a

Form W–9 for an account holder that is

a U.S. exempt recipient, the

withholding agent must presume (even

if it has actual knowledge that the

account holder is a U.S. exempt

recipient), that the account holder is an

undocumented foreign person with

respect to amounts subject to

withholding. See paragraph (b)(3)(v) of

this section for applicable

presumptions. Therefore, the

withholding agent must withhold 30

percent from the payment even though

if a Form W–9 had been provided, no

withholding or reporting on the

payment attributable to a U.S. exempt

recipient would apply. Further, a

nonqualified intermediary that fails to

provide the documentation and the

information under this paragraph

(e)(3)(iv) for another withholding agent

to report the payments on Forms 1042–

S and Forms 1099 is not relieved of its

responsibility to file information

returns. See paragraph (b)(6) of this

section. Therefore, unless the

nonqualified intermediary itself files

such returns and provides copies to the

payees, it shall be liable for penalties

under sections 6721 (failure to file

information returns), and 6722 (failure

to furnish payee statements), including

the penalties under those sections for

intentional failure to file information

returns. In addition, failure to provide

either the documentation or the

information required by this paragraph

(e)(3)(iv) results in a payment not being

reliably associated with valid

documentation. Therefore, the

beneficial owners of the payment are

not entitled to reduced rates of

withholding and if the full amount

required to be held under the

presumption rules is not withheld by

the withholding agent, the nonqualified

intermediary must withhold the

difference between the amount withheld

by the withholding agent and the

amount required to be withheld. Failure

to withhold shall result in the

nonqualified intermediary being liable

for tax under section 1461, interest, and

penalties, including penalties under

section 6656 (failure to deposit) and

section 6672 (failure to collect and pay

over tax).

(B) General requirements. A

withholding statement must be

provided prior to the payment of a

reportable amount and must contain the

information specified in paragraph

(e)(3)(iv)(C) of this section. The

statement must be updated as often as

required to keep the information in the

withholding statement correct prior to

each subsequent payment. The

withholding statement forms an integral

part of the withholding certificate

provided under paragraph (e)(3)(iii) of

this section, and the penalties of perjury

statement provided on the withholding

certificate shall apply to the

withholding statement. The withholding

statement may be provided in any

manner the nonqualified intermediary

and the withholding agent mutually

agree, including electronically. If the

withholding statement is provided

electronically, there must be sufficient

safeguards to ensure that the

information received by the withholding

agent is the information sent by the

nonqualified intermediary and all

occasions of user access that result in

the submission or modification of the

withholding statement information must

be recorded. In addition, an electronic

system must be capable of providing a

hard copy of all withholding statements

provided by the nonqualified

32180 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

intermediary. A withholding agent will

be liable for tax, interest, and penalties

in accordance with paragraph (b)(7) of

this section to the extent it does not

follow the presumption rules of

paragraph (b)(3) of this section or

§§ 1.1441–5(d) and (e)(6), and 1.6049–

5(d) for any payment of a reportable

amount, or portion thereof, for which it

does not have a valid withholding

statement prior to making a payment.

(C) Content of withholding statement.

The withholding statement provided by

a nonqualified intermediary must

contain the information required by this

paragraph (e)(3)(iv)(C).

(1) The withholding statement must

contain the name, address, TIN (if any)

and the type of documentation

(documentary evidence, Form W–9, or

type of Form W–8) for every person

from whom documentation has been

received by the nonqualified

intermediary to the withholding agent

and whether that person is a U.S.

exempt recipient, a U.S. non-exempt

recipient, or a foreign person. See

paragraphs (c)(2), (20), and (21) of this

section for the definitions of foreign

person, U.S. exempt recipient, and U.S.

non-exempt recipient. In the case of a

foreign person, the statement must

indicate whether the foreign person is a

beneficial owner or an intermediary,

flow-through entity, or U.S. branch

described in paragraph (b)(2)(iv) of this

section and include the type of

recipient, based on recipient codes used

for filing Forms 1042–S, if the foreign

person is a recipient as defined in

§ 1.1461–1(c)(1)(ii).

(2) The withholding statement must

allocate each payment, by income type,

to every payee (including U.S. exempt

recipients) for whom documentation has

been provided. Any payment that

cannot be reliably associated with valid

documentation from a payee shall be

treated as made to an unknown payee in

accordance with the presumption rules

of paragraph (b) of this section and

§§ 1.1441–5(d) and (e)(6) and 1.6049–

5(d). For this purpose, a type of income

is determined by the types of income

required to be reported on Forms 1042–

S or 1099, as appropriate.

Notwithstanding the preceding

sentence, deposit interest (including

original issue discount) described in

section 871(i)(2)(A) or 881(d) and

interest or original issue discount on

short-term obligations as described in

section 871(g)(1)(B) or 881(e) is only

required to be allocated to the extent it

is required to be reported on Form 1099

or Form 1042–S. See § 1.6049–8

(regarding reporting of bank deposit

interest to certain foreign persons). If a

payee receives income through another

nonqualified intermediary, flow-through

entity, or U.S. branch described in

paragraph (e)(2)(iv) of this section (other

than a U.S. branch treated as a U.S.

person), the withholding certificate

must also state, with respect to the

payee, the name, address, and TIN, if

known, of the other nonqualified

intermediary or U.S. branch from which

the payee directly receives the payment

or the flow-through entity in which the

payee has a direct ownership interest. If

another nonqualified intermediary,

flow-through entity, or U.S. branch fails

to allocate a payment, the name of the

nonqualified intermediary, flow-through

entity, or U.S. branch that failed to

allocate the payment shall be provided

with respect to such payment.

(3) If a payee is identified as a foreign

person, the nonqualified intermediary

must specify the rate of withholding to

which the payee is subject, the payee’s

country of residence and, if a reduced

rate of withholding is claimed, the basis

for that reduced rate (e.g., treaty benefit,

portfolio interest, exempt under section

501(c)(3), 892, or 895). The allocation

statement must also include the

taxpayer identification numbers of those

foreign persons for whom such a

number is required under paragraph

(e)(4)(vii) of this section or § 1.1441–

6(b)(1) (regarding claims for treaty

benefits). In the case of a claim of treaty

benefits, the nonqualified

intermediary’s withholding statement

must also state whether the limitation

on benefits and section 894 statements

required by § 1.1441–6(c)(5) have been

provided, if required, in the beneficial

owner’s Form W–8 or associated with

such owner’s documentary evidence.

(4) The withholding statement must

also contain any other information the

withholding agent reasonably requests

in order to fulfill its obligations under

chapter 3, chapter 61 of the Internal

Revenue Code, and section 3406.

(D) Alternative procedures—(1) In

general. Under the alternative

procedures of this paragraph

(e)(3)(iv)(D), a nonqualified

intermediary may provide information

allocating a payment of a reportable

amount to each payee (including U.S.

exempt recipients) otherwise required

under paragraph (e)(3)(iv)(B)(2) of this

section after a payment is made. To use

the alternative procedure of this

paragraph (e)(3)(iv)(D), the nonqualified

intermediary must inform the

withholding agent on a statement

associated with its nonqualified

intermediary withholding certificate

that it is using the procedure under this

paragraph (e)(3)(iv)(D) and the

withholding agent must agree to the

procedure. If the requirements of the

alternative procedure are met, a

withholding agent, including the

nonqualified intermediary using the

procedures, can treat the payment as

reliably associated with documentation

and, therefore, the presumption rules of

paragraph (b)(3) of this section and

§§ 1.1441–5(d) and (e)(6) and 1.6049–

5(d) do not apply even though

information allocating the payment to

each payee has not been received prior

to the payment. See paragraph

(e)(3)(iv)(D)(7) of this section, however,

for a nonqualified intermediary’s

liability for tax and penalties if the

requirements of this paragraph

(e)(3)(iv)(D) are not met. These

alternative procedures shall not be used

for payments that are allocable to U.S.

non-exempt recipients. Therefore, a

nonqualified intermediary is required to

provide a withholding agent with

information allocating payments of

reportable amounts to U.S. non-exempt

recipients prior to the payment being

made by the withholding agent.

(2) Withholding rate pools. In place of

the information required in paragraph

(e)(3)(iv)(B)(2) of this section allocating

payments to each payee, the

nonqualified intermediary must provide

a withholding agent with withholding

rate pool information prior to the

payment of a reportable amount. The

withholding statement must contain all

other information required by paragraph

(e)(3)(iv)(B) of this section. Further, each

payee listed in the withholding

statement must be assigned to an

identified withholding rate pool. To the

extent a nonqualified intermediary is

required to, or does provide,

documentation, the alternative

procedures do not relieve the

nonqualified intermediary from the

requirement to provide documentation

prior to the payment being made.

Therefore, withholding certificates or

other appropriate documentation and all

information required by paragraph

(e)(3)(iv)(B) of this section (other than

allocation information) must be

provided to a withholding agent before

any new payee receives a reportable

amount. In addition, the withholding

statement must be updated by assigning

a new payee to a withholding rate pool

prior to the payment of a reportable

amount. A withholding rate pool is a

payment of a single type of income,

determined in accordance with the

categories of income used to file Form

1042–S, that is subject to a single rate

of withholding. A withholding rate pool

may be established by any reasonable

method to which the nonqualified

intermediary and a withholding agent

agree (e.g., by establishing a separate

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32181

account for a single withholding rate

pool, or by dividing a payment made to

a single account into portions allocable

to each withholding rate pool). The

nonqualified intermediary shall

determine withholding rate pools based

on valid documentation or, to the extent

a payment cannot be reliably associated

with valid documentation, the

presumption rules of paragraph (b)(3) of

this section and §§ 1.1441–5(d) and

(e)(6) and 1.6049–5(d).

(3) Allocation information. The

nonqualified intermediary must provide

the withholding agent with sufficient

information to allocate the income in

each withholding rate pool to each

payee (including U.S. non-exempt

recipients) within the pool no later than

January 31 of the year following the year

of payment. Any payments that are not

allocated to payees for whom

documentation has been provided shall

be allocated to an undocumented payee

in accordance with the presumption

rules of paragraph (b)(3) of this section

and §§ 1.1441–5(d) and (e)(6) and

1.6049–5(d). Notwithstanding the

preceding sentence, deposit interest

(including original issue discount)

described in section 871(i)(2)(A) or

881(d) and interest or original issue

discount on short-term obligations as

described in section 871(g)(1)(B) or

881(e) is not required to be allocated to

a U.S. exempt recipient or a foreign

payee, except as required under

§ 1.6049–8 (regarding reporting of

deposit interest paid to certain foreign

persons).

(4) Failure to provide allocation

information. If a nonqualified

intermediary fails to provide allocation

information, if required, by January 31

for any withholding rate pool, a

withholding agent shall not apply the

alternative procedures of this paragraph

(e)(3)(iv)(D) to any payments of

reportable amounts paid after January

31 in the taxable year following the

calendar year for which allocation

information was not given and any

subsequent taxable year. Further, the

alternative procedures shall be

unavailable for any other withholding

rate pool even though allocation

information was given for that other

pool. Therefore, the withholding agent

must withhold on a payment of a

reportable amount in accordance with

the presumption rules of paragraph

(b)(3) of this section, and §§ 1.1441–5(d)

and (e)(6) and 1.6049–5(d), unless the

nonqualified intermediary provides all

of the information, including

information sufficient to allocate the

payment to each specific payee,

required by paragraph (e)(3)(iv)(A)

through (C) of this section prior to the

payment. A nonqualified intermediary

must allocate at least 90 percent of the

income required to be allocated for each

withholding rate pool or the

nonqualified intermediary will be

treated as having failed to provide

allocation information for purposes of

this paragraph (e)(3)(iv)(D). See

paragraph (e)(3)(iv)(D)(7) of this section

for liability for tax and penalties if a

nonqualified intermediary fails to

provide allocation information in whole

or in part.

(5) Cure provision. A nonqualified

intermediary may cure any failure to

provide allocation information by

providing the required allocation

information to the withholding agent no

later than February 14 following the

calendar year of payment. If the

withholding agent receives the

allocation information by that date, it

may apply the adjustment procedures of

§ 1.1461–2 to any excess withholding

for payments made on or after February

1 and on or before February 14. Any

nonqualified intermediary that fails to

cure by February 14, may request the

ability to use the alternative procedures

of this paragraph (e)(3)(iv)(D) by

submitting a request, in writing, to the

Assistant Commissioner (International).

The request must state the reason that

the nonqualified intermediary did not

comply with the alternative procedures

of this paragraph (e)(3)(iv)(D) and steps

that the nonqualified intermediary has

taken, or will take, to ensure that no

failures occur in the future. If the

Assistant Commissioner (International)

determines that the alternative

procedures of this paragraph

(e)(3)(iv)(D) may apply, a determination

to that effect will be issued by the IRS

to the nonqualified intermediary.

(6) Form 1042–S reporting in case of

allocation failure. If a nonqualified

intermediary fails to provide allocation

information by February 14 following

the year of payment for a withholding

rate pool, the withholding agent must

file Forms 1042-S for payments made to

each payee in that pool (other than U.S.

exempt recipients) in the prior calendar

year by pro rating the payment to each

payee (including U.S. exempt

recipients) listed in the withholding

statement for that withholding rate pool.

If the nonqualified intermediary fails to

allocate10 percent or less of an amount

required to be allocated for a

withholding rate pool, a withholding

agent shall report the unallocated

amount as paid to a single unknown

payee in accordance with the

presumption rules of paragraph (b) of

this section and §§ 1.1441–5(d) and

(e)(6) and 1.6049–5(d). The portion of

the payment that can be allocated to

specific recipients, as defined in

§ 1.1461–1(c)(1)(ii), shall be reported to

each recipient in accordance with the

rules of § 1.1461–1(c).

(7) Liability for tax, interest, and

penalties. If a nonqualified intermediary

fails to provide allocation information

by February 14 following the year of

payment for all or a portion of the

payments made to any withholding rate

pool, the withholding agent from whom

the nonqualified intermediary received

payments of reportable amounts shall

not be liable for any tax, interest, or

penalties, due solely to the errors or

omissions of the nonqualified

intermediary. See § 1.1441–7(b)(2)

through (10) for the due diligence

requirements of a withholding agent.

Because failure by the nonqualified

intermediary to provide allocation

information results in a payment not

being reliably associated with valid

documentation, the beneficial owners

for whom the nonqualified intermediary

acts are not entitled to a reduced rate of

withholding. Therefore, the

nonqualified intermediary, as a

withholding agent, shall be liable for

any tax not withheld by the withholding

agent in accordance with the

presumption rules, interest on the under

withheld tax if the nonqualified

intermediary fails to pay the tax timely,

and any applicable penalties, including

the penalties under sections 6656

(failure to deposit), 6721 (failure to file

information returns) and 6722 (failure to

file payee statements). Failure to

provide allocation information for more

than 10 percent of the payments made

to a particular withholding rate pool

will be presumed to be an intentional

failure within the meaning of sections

6721(e) and 6722(c). The nonqualified

intermediary may rebut the

presumption.

(8) Applicability to flow-through

entities and certain U.S. branches. See

paragraph (e)(3)(v) of this section and

§ 1.1441–5(c)(3)(iv) and (e)(5)(iv) for the

applicability of this paragraph (e)(3)(iv)

to U.S. branches described in paragraph

(b)(2)(iv) of this section (other than U.S.

branches treated as U.S. persons) and

flow-through entities.

(E) Notice procedures. The IRS may

notify a withholding agent that the

alternative procedures of paragraph

(e)(3)(iv)(D) of this section are not

applicable to a specified nonqualified

intermediary, a U.S. branch described in

paragraph (b)(2)(iv) of this section, or a

flow-through entity. If a withholding

agent receives such a notice, it must

commence withholding in accordance

with the presumption rules of paragraph

(b)(3) of this section and §§ 1.1441–5(d)

and (e)(6) and 1.6049–5(d) unless the

32182 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

nonqualified intermediary, U.S. branch,

or flow-through entity complies with

the procedures in paragraphs

(e)(3)(iv)(A) through (C) of this section.

In addition, the IRS may notify a

withholding agent, in appropriate

circumstances, that it must apply the

presumption rules of paragraph (b)(3) of

this section and §§ 1.1441–5(d) and

(e)(6) and 1.6049–5(d) to payments

made to a nonqualified intermediary, a

U.S. branch, or a flow-through entity

even if the nonqualified intermediary,

U.S. branch or flow-through entity

provides allocation information prior to

the payment. A withholding agent that

receives a notice under this paragraph

(e)(3)(iv)(E) must commence

withholding in accordance with the

presumption rules within 30 days of the

date of the notice. The IRS may

withdraw its prohibition against using

the alternative procedures of paragraph

(e)(3)(iv)(D) of this section, or its

requirement to follow the presumption

rules, if the nonqualified intermediary,

U.S. branch, or flow-through entity can

demonstrate to the satisfaction of the

Assistant Commissioner (International)

or his delegate that it is capable of

complying with the rules under chapter

3 of the Internal Revenue Code and any

other conditions required by the

Assistant Commissioner (International).

(v) Withholding certificate from

certain U.S. branches. A U.S. branch

certificate is a withholding certificate

provided by a U.S. branch described in

paragraph (b)(2)(iv) of this section that

is not the beneficial owner of the

income. The withholding certificate is

provided with respect to reportable

amounts and must state that such

amounts are not effectively connected

with the conduct of a trade or business

in the United States. The withholding

certificate must either transmit the

appropriate documentation for the

persons for whom the branch receives

the payment (i.e., as an intermediary) or

be provided as evidence of its agreement

with the withholding agent to be treated

as a U.S. person with respect to any

payment associated with the certificate.

A U.S. branch withholding certificate is

valid only if it is furnished on a Form

W–8, an acceptable substitute form, or

such other form as the IRS may

prescribe, it is signed under penalties of

perjury by a person authorized to sign

for the branch, its validity has not

expired, and it contains the information,

statements, and certifications described

in this paragraph (e)(3)(v). If the

certificate is furnished to transmit

withholding certificates and other

documentation, it must contain the

information, certifications, and

statements described in paragraphs

(e)(3)(v)(A) through (C) of this section

and in paragraphs (e)(3)(iii) and (iv)

(alternative procedures) of this section,

applying the term U.S. branch instead of

the term nonqualified intermediary. If

the certificate is furnished pursuant to

an agreement to treat the U.S. branch as

a U.S. person, the information and

certifications required on the

withholding certificate are limited to the

following—

(A) The name of the person of which

the branch is a part and the address of

the branch in the United States;

(B) A certification that the payments

associated with the certificate are not

effectively connected with the conduct

of its trade or business in the United

States; and

(C) Any other information,

certifications, or statements as may be

required by the form or accompanying

instructions in addition to, or in lieu of,

the information and certification

described in this paragraph (e)(3)(v).

(vi) Reportable amounts. For purposes

of chapter 3 of the Internal Revenue

Code, a nonqualified intermediary,

qualified intermediary, flow-through

entity, and U.S. branch described in

paragraph (b)(2)(iv) of this section (other

than a U.S. branch that agrees to be

treated as a U.S. person) must provide

a withholding certificate and associated

documentation and other information

with respect to reportable amounts. For

purposes of the regulations under

chapter 3 of the Internal Revenue Code,

the term reportable amount means an

amount subject to withholding within

the meaning of § 1.1441–2(a), bank

deposit interest (including original issue

discount) and similar types of deposit

interest described in section 871(i)(2)(A)

or 881(d) that are from sources within

the United States, and any amount of

interest or original issue discount from

sources within the United States on the

redemption of certain short-term

obligations described in section

871(g)(1)(B) or 881(e). Reportable

amounts shall not include amounts

received on the sale or exchange (other

than a redemption) of an obligation

described in section 871(g)(1)(B) or

881(e) that is effected at an office

outside the United States. See § 1.6045–

1(g)(3) to determine whether a sale is

effected at an office outside the United

States. Reportable amounts also do not

include payments with respect to

deposits with banks and other financial

institutions that remain on deposit for a

period of two weeks or less, to amounts

of original issue discount arising from a

sale and repurchase transaction that is

completed within a period of two weeks

or less, or to amounts described in

§ 1.6049–5(b)(7), (10) or (11) (relating to

certain obligations issued in bearer

form). While short-term OID and bank

deposit interest are not subject to

withholding under chapter 3 of the

Internal Revenue Code, such amounts

may be subject to information reporting

under section 6049 if paid to a U.S.

person who is not an exempt recipient

described in § 1.6049–4(c)(1)(ii) and to

backup withholding under section 3406

in the absence of documentation. See

§ 1.6049–5(d)(3)(iii) for applicable

procedures when such amounts are paid

to a foreign intermediary.

(4) * * *

(ii) Period of validity—(A) Three-year

period. A withholding certificate

described in paragraph (e)(2)(i) of this

section, or a certificate described in

§ 1.871–14(c)(2)(v) (furnished to qualify

interest as portfolio interest for purposes

of sections 871(h) and 881(c)), shall

remain valid until the earlier of the last

day of the third calendar year following

the year in which the withholding

certificate is signed or the day that a

change in circumstances occurs that

makes any information on the certificate

incorrect. For example, a withholding

certificate signed on September 30,

2001, remains valid through December

31, 2004, unless circumstances change

that make the information on the form

no longer correct. Documentary

evidence described in §§ 1.1441–6(c)(3)

or (4) or 1.6049–5(c)(1) shall remain

valid until the earlier of the last day of

the third calendar year following the

year in which the documentary

evidence is provided to the withholding

agent or the day that a change in

circumstances occurs that makes any

information on the documentary

evidence incorrect.

(B) * * *

(1) A withholding certificate

described in paragraph (e)(2)(ii) of this

section that is furnished with a TIN,

provided that the withholding agent

reports at least one payment annually to

the beneficial owner under § 1.1461–

1(c) or the TIN furnished on the

certificate is reported to the IRS under

the procedures described in § 1.1461–

1(d). For example, assume a

withholding agent receives a Form W–

8 in 2001 from a beneficial owner with

respect to an account that contains

bonds, the interest on which must be

reported on Form 1042–S under

§ 1.1461–1(c). The Form W–8 contains a

valid TIN and the withholding agent

reports on Forms 1042–S interest to the

beneficial owner for 2001 through 2005.

In 2005, the beneficial owner sells some

of the bonds. For purposes of the

exemption from Form 1099 reporting

under § 1.6045–1(g), the withholding

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32183

agent may consider the Form W–8 as

valid, even though the payment of the

sales proceeds is not reportable on Form

1042–S under § 1.1461–1(c) and even

though the Form W–8 was provided

more than three years previously.

(2) A certificate described in

paragraph (e)(3)(ii) of this section (a

qualified intermediary withholding

certificate) but not including the

withholding certificates, documentary

evidence, statements or other

information associated with the

certificate.

(3) A certificate described in

paragraph (e)(3)(iii) of this section (a

nonqualified intermediary certificate),

but not including the withholding

certificates, documentary evidence,

statements or other information

associated with the certificate.

(4) A certificate described in

paragraph (e)(3)(v) of this section (a U.S.

branch withholding certificate), but not

including the withholding certificates,

documentary evidence, statements or

other information associated with the

certificate.

* * * * *

(6) A certificate described in § 1.1441–

5(c)(3)(iii) (a withholding certificate

from a nonwithholding foreign

partnership) but not including the

withholding certificates, documentary

evidence, statements or other

information required to be associated

with the certificate.

* * * * *

(8) A withholding certificate

described in § 1.1441–5(e)(5)(iii)

provided by a foreign simple trust or a

foreign grantor trust to transmit

documentation of beneficiaries or

owners, but not including the

withholding certificates, documentary

evidence, statements or other

information associated with the

certificate.

* * * * *

(iv) Electronic transmission of

information—(A) In general. A

withholding agent may establish a

system for a beneficial owner or payee

to electronically furnish a Form W–8, an

acceptable substitute Form W–8, or such

other form as the Internal Revenue

Service may prescribe. The system must

meet the requirements described in

paragraph (e)(4)(iv)(B) of this section. A

withholding agent may accept Forms

W–8 that are furnished electronically on

or after January 1, 2000, provided the

requirements of paragraph (e)(4)(iv)(B)

of this section are met.

(B) Requirements—(1) In general. The

electronic system must ensure that the

information received is the information

sent, and must document all occasions

of user access that result in the

submission renewal, or modification of

a Form W–8. In addition, the design and

operation of the electronic system,

including access procedures, must make

it reasonably certain that the person

accessing the system and furnishing

Form W–8 is the person named in the

Form.

(2) Same information as paper Form

W–8. The electronic transmission must

provide the withholding agent or payor

with exactly the same information as the

paper Form W–8.

(3) Perjury statement and signature

requirements. The electronic

transmission must contain an electronic

signature by the person whose name is

on the Form W–8 and the signature

must be under penalties of perjury in

the manner described in this paragraph

(e)(4)(iv)(B)(3).

(i) Perjury statement. The perjury

statement must contain the language

that appears on the paper Form W–8.

The electronic system must inform the

person whose name is on the Form W–

8 that the person must make the

declaration contained in the perjury

statement and that the declaration is

made by signing the Form W–8. The

instructions and the language of the

perjury statement must immediately

follow the person’s certifying statements

and immediately precede the person’s

electronic signature.

(ii) Electronic signature. The act of the

electronic signature must be effected by

the person whose name is on the

electronic Form W–8. The signature

must also authenticate and verify the

submission. For this purpose, the terms

authenticate and verify have the same

meanings as they do when applied to a

written signature on a paper Form W–

8. An electronic signature can be in any

form that satisfies the foregoing

requirements. The electronic signature

must be the final entry in the person’s

Form W–8 submission.

(4) Requests for electronic Form W–8

data. Upon request by the Internal

Revenue Service during an examination,

the withholding agent must supply a

hard copy of the electronic Form W–8

and a statement that, to the best of the

withholding agent’s knowledge, the

electronic Form W–8 was filed by the

person whose name is on the form. The

hard copy of the electronic Form W–8

must provide exactly the same

information as, but need not be identical

to, the paper Form W–8.

(C) Special requirements for

transmission of Forms W–8 by an

intermediary. [Reserved]

* * * * *

(vii) Requirement of taxpayer

identifying number. A TIN must be

stated on a withholding certificate when

required by this paragraph (e)(4)(vii). A

TIN is required to be stated on—

(A) A withholding certificate on

which a beneficial owner is claiming the

benefit of a reduced rate under an

income tax treaty (other than for

amounts described in § 1.1441–6(c)(2);

(B) A withholding certificate on

which a beneficial owner is claiming

exemption from withholding because

income is effectively connected with a

U.S. trade or business;

(C) A withholding certificate on

which a beneficial owner is claiming

exemption from withholding under

section 871(f) for certain annuities

received under qualified plans;

(D) A withholding certificate on

which a beneficial owner is claiming an

exemption based solely on a foreign

organization’s claim of tax exempt

status under section 501(c) or private

foundation status (however, a TIN is not

required from a foreign private

foundation that is subject to the 4-

percent tax under section 4948(a) on

income if that income would be exempt

from withholding but for section 4948(a)

(e.g., portfolio interest));

(E) A withholding certificate from a

person representing to be a qualified

intermediary described in paragraph

(e)(5)(ii) of this section;

(F) A withholding certificate from a

person representing to be a withholding

foreign partnership described in

§ 1.1441–5(c)(2)(i));

(G) A withholding certificate from a

person representing to be a foreign

grantor trust with 5 or fewer grantors;

(H) A withholding certificate

provided by a foreign organization that

is described in section 501(c);

(I) A withholding certificate from a

person representing to be a U.S. branch

described in paragraph (b)(2)(iv) of this

section.

* * * * *

(ix) * * *

(A) * * *

(4) A withholding agent may rely on

documentation furnished by a beneficial

owner or payee to an agent of the

withholding agent. The agent may retain

the documentation as part of an

information system maintained for a

single or multiple withholding agents

provided that the system permits any

withholding agent that uses the system

to easily access data regarding the

nature of the documentation, the

information contained in the

documentation, and its validity, and

must allow the withholding agent to

easily transmit data into the system

regarding any facts of which it becomes

aware that may affect the reliability of

32184 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

the documentation. The withholding

agent must be able to establish how and

when it has accessed the data regarding

the documentation and, if applicable,

how and when it has transmitted data

regarding any facts of which it became

aware that may affect the reliability of

the documentation. In addition, the

withholding agent must be able to

establish that any data it has transmitted

to the information system has been

processed and appropriate due diligence

has been exercised regarding the

validity of the documentation.

* * * * *

(C) Special rule for brokers—(1) In

general. A withholding agent may rely

on the certification of a broker that the

broker holds a valid beneficial owner

withholding certificate described in

paragraph (e)(2)(i) of this section or

other appropriate documentation for

that beneficial owner with respect to

any readily tradable instrument, as

defined in § 31.3406(h)–1(d) of this

chapter, if the broker is a United States

person (including a U.S. branch treated

as a U.S. person under paragraph

(b)(2)(iv) of this section) that is acting as

the agent of a beneficial owner and the

U.S. broker has been provided a valid

Form W–8 or other appropriate

documentation. The certification must

be in writing or in electronic form and

contain all of the information required

of a nonqualified intermediary under

paragraphs (e)(3)(iv)(B) and (C) of this

section. If a U.S. broker chooses to use

this paragraph (e)(4)(ix)(C), that U.S.

broker will be solely responsible for

applying the rules of § 1.1441–7(b) to

the withholding certificates or other

appropriate documentation. For

purposes of this paragraph (c)(4)(ix)(C),

the term broker means a person treated

as a broker under § 1.6045–1(a).

(2) The following example illustrates

the rules of this paragraph (e)(4)(ix)(C):

Example. SCO is a U.S. securities clearing

organization that provides clearing services

for correspondent broker, CB, a U.S.

corporation. Pursuant to a fully disclosed

clearing agreement, CB fully discloses the

identity of each of its customers to SCO. Part

of SCO’s clearing duties include the crediting

of income and gross proceeds of readily

tradeable instruments (as defined in

§ 31.3406(h)–1(d)) to each customer’s

account. For each disclosed customer that is

a foreign beneficial owner, CB provides SCO

with information required under paragraphs

(e)(3)(iv)(B) and (C) of this section that is

necessary to apply the correct rate of

withholding and to file Forms 1042–S. SCO

may use the representations and beneficial

owner information provided by CB to

determine the proper amount of withholding

and to file Forms 1042–S. CB is responsible

for determining the validity of the

withholding certificates or other appropriate

documentation under § 1.1441–1(b).

* * * * *

(5) Qualified intermediaries—(i)

General rule. A qualified intermediary,

as defined in paragraph (e)(5)(ii) of this

section, may furnish a qualified

intermediary withholding certificate to a

withholding agent. The withholding

certificate provides certifications on

behalf of other persons for the purpose

of claiming and verifying reduced rates

of withholding under section 1441 or

1442 and for the purpose of reporting

and withholding under other provisions

of the Internal Revenue Code, such as

the provisions under chapter 61 and

section 3406 (and the regulations under

those provisions). Furnishing such a

certificate is in lieu of transmitting to a

withholding agent withholding

certificates or other appropriate

documentation for the persons for

whom the qualified intermediary

receives the payment, including interest

holders in a qualified intermediary that

is fiscally transparent under the

regulations under section 894. Although

the qualified intermediary is required to

obtain withholding certificates or other

appropriate documentation from

beneficial owners, payees, or interest

holders pursuant to its agreement with

the IRS, it is generally not required to

attach such documentation to the

intermediary withholding certificate.

Notwithstanding the preceding sentence

a qualified intermediary must provide a

withholding agent with the Forms W–9,

or disclose the names, addresses, and

taxpayer identifying numbers, if known,

of those U.S. non-exempt recipients for

whom the qualified intermediary

receives reportable amounts (within the

meaning of paragraph (e)(3)(vi) of this

section) to the extent required in the

qualified intermediary’s agreement with

the IRS. A person may claim qualified

intermediary status before an agreement

is executed with the IRS if it has applied

for such status and the IRS authorizes

such status on an interim basis under

such procedures as the IRS may

prescribe.

* * * * *

(iii) Withholding agreement—(A) In

general. The IRS may, upon request,

enter into a withholding agreement with

a foreign person described in paragraph

(e)(5)(ii) of this section pursuant to such

procedures as the IRS may prescribe in

published guidance (see § 601.601(d)(2)

of this chapter). Under the withholding

agreement, a qualified intermediary

shall generally be subject to the

applicable withholding and reporting

provisions applicable to withholding

agents and payors under chapters 3 and

61 of the Internal Revenue Code, section

3406, the regulations under those

provisions, and other withholding

provisions of the Internal Revenue

Code, except to the extent provided

under the agreement.

(B) Terms of the withholding

agreement. Generally, the agreement

shall specify the type of certifications

and documentation upon which the

qualified intermediary may rely to

ascertain the classification (e.g.,

corporation or partnership) and status

(i.e., U.S. or foreign) of beneficial

owners and payees who receive

payments collected by the qualified

intermediary and, if necessary,

entitlement to the benefits of a reduced

rate under an income tax treaty. The

agreement shall specify if, and to what

extent, the qualified intermediary may

assume primary withholding

responsibility in accordance with

paragraph (e)(5)(iv) of this section. It

shall also specify the extent to which

applicable return filing and information

reporting requirements are modified so

that, in appropriate cases, the qualified

intermediary may report payments to

the IRS on an aggregated basis, without

having to disclose the identity of

beneficial owners and payees. However,

the qualified intermediary may be

required to provide to the IRS the name

and address of those foreign customers

who benefit from a reduced rate under

an income tax treaty pursuant to the

qualified intermediary arrangement for

purposes of verifying entitlement to

such benefits, particularly under an

applicable limitation on benefits

provision. Under the agreement, a

qualified intermediary may agree to act

as an acceptance agent to perform the

duties described in § 301.6109–

1(d)(3)(iv)(A) of this chapter. The

agreement may specify the manner in

which applicable procedures for

adjustments for underwithholding and

overwithholding, including refund

procedures, apply in the context of a

qualified intermediary arrangement and

the extent to which applicable

procedures may be modified. In

particular, a withholding agreement

may allow a qualified intermediary to

claim refunds of overwithheld amounts.

If relevant, the agreement shall specify

the manner in which the qualified

intermediary may deal with payments to

other intermediaries and flow-through

entities. In addition, the agreement shall

specify the manner in which the IRS

will verify compliance with the

agreement. In appropriate cases, the IRS

may agree to rely on audits performed

by an intermediary’s approved auditor.

In such a case, the IRS’s audit may be

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32185

limited to the audit of the auditor’s

records (including work papers of the

auditor and reports prepared by the

auditor indicating the methodology

employed to verify the entity’s

compliance with the agreement). For

this purpose, the agreement shall

specify the auditor or class of auditors

that are approved. Generally, an auditor

will not be approved if the auditor is not

subject to laws, regulations, or rules that

impose sanctions for failure to exercise

its independence and to perform the

audit competently. The agreement may

include provisions for the assessment

and collection of tax in the event that

failure to comply with the terms of the

agreement results in the failure by the

withholding agent or the qualified

intermediary to withhold and deposit

the required amount of tax. Further, the

agreement may specify the procedures

by which deposits of amounts withheld

are to be deposited, if different from the

deposit procedures under the Internal

Revenue Code and applicable

regulations. To determine whether to

enter a qualified intermediary

withholding agreement and the terms of

any particular withholding agreement,

the IRS will consider appropriate factors

including whether or not the foreign

person agrees to assume primary

withholding responsibility, the type of

local know-your-customer laws and

practices to which it is subject, the

extent and nature of supervisory and

regulatory control exercised under the

laws of the foreign country over the

foreign person, the volume of

investments in U.S. securities

(determined in dollar amounts and

number of account holders), the

financial condition of the foreign

person, and whether the qualified

intermediary is a resident of a country

with which the United States has an

income tax treaty.

(iv) Assignment of primary

withholding responsibility. Any person

who meets the definition of a

withholding agent under § 1.1441–7(a)

(whether a U.S. person or a foreign

person) is required to withhold and

deposit any amount withheld under

§ 1.1461–1(a) and to make the returns

prescribed by § 1.1461–1(b) and (c). If

permitted by its qualified intermediary

agreement, a qualified intermediary

agreement may, however, inform a

withholding agent from which it

receives a payment that it will assume

the primary obligation to withhold,

deposit, and report amounts under

chapter 3 of the Internal Revenue Code

and/or under chapter 61 of the Internal

Revenue Code and section 3406. If a

withholding agent makes a payment of

an amount subject to withholding, as

defined in § 1.1441–2(a), or a reportable

payment, as defined in section 3406(b),

to a qualified intermediary that

represents to the withholding agent that

it has assumed primary withholding

responsibility for the payment, the

withholding agent is not required to

withhold on the payment. The

withholding agent is not required to

determine that the qualified

intermediary agreement actually permits

the qualified intermediary to assume

primary withholding responsibility. A

qualified intermediary that assumes

primary withholding responsibility

under chapter 3 of the Internal Revenue

Code or primary reporting and backup

withholding responsibility under

chapter 61 and section 3406 is not

required to assume primary withholding

responsibility for all accounts it has

with a withholding agent but must

assume primary withholding

responsibility for all payments made to

any one account that it has with the

withholding agent. A qualified

intermediary may agree with the

withholding agent to assume primary

withholding responsibility under

chapter 3 and section 3406, only if

expressly permitted to do so under its

agreement with the IRS.

(v) Withholding statement—(A) In

general. A qualified intermediary must

provide each withholding agent from

which it receives reportable amounts, as

defined in paragraph (e)(3)(vi) of this

section, as a qualified intermediary with

a written statement (the withholding

statement) containing the information

specified in paragraph (e)(5)(v)(B) of this

section. A withholding statement is not

required, however, if all of the

information a withholding agent needs

to fulfill its withholding and reporting

requirements is contained in the

withholding certificate. The qualified

intermediary agreement may require, in

appropriate circumstances, the qualified

intermediary to include information in

its withholding statement relating to

payments other than payments of

reportable amounts. The withholding

statement forms an integral part of the

qualified intermediary’s qualified

intermediary withholding certificate

and the penalties of perjury statement

provided on the withholding certificate

shall apply to the withholding statement

as well. The withholding statement may

be provided in any manner, and in any

form, to which qualified intermediary

and the withholding agent mutually

agree, including electronically. If the

withholding statement is provided

electronically, there must be sufficient

safeguards to ensure that the

information received by the withholding

agent is the information sent by

qualified intermediary and must also

document all occasions of user access

that result in the submission or

modification of withholding statement

information. In addition, the electronic

system must be capable of providing a

hard copy of all withholding statements

provided by the qualified intermediary.

The withholding statement shall be

updated as often as necessary for the

withholding agent to meet its reporting

and withholding obligations under

chapters 3 and 61 of the Internal

Revenue Code and section 3406. A

withholding agent will be liable for tax,

interest, and penalties in accordance

with paragraph (b)(7) of this section to

the extent it does not follow the

presumption rules of paragraph (b)(3) of

this section, §§ 1.1441–5(d) and (e)(6),

and 1.6049–5(d) for any payment, or

portion thereof, for which it does not

have a valid withholding statement

prior to making a payment.

(B) Content of withholding statement.

The withholding statement must

contain sufficient information for a

withholding agent to apply the correct

rate of withholding on payments from

the accounts identified on the statement

and to properly report such payments

on Forms 1042–S and Forms 1099, as

applicable. The withholding statement

must—

(1) Designate those accounts for

which the qualified intermediary acts as

a qualified intermediary;

(2) Designate those accounts for

which qualified intermediary assumes

primary withholding responsibility

under chapter 3 of the Internal Revenue

Code and/or primary reporting and

backup withholding responsibility

under chapter 61 and section 3406; and

(3) Provide information regarding

withholding rate pools, as described in

paragraph (e)(5)(v)(C) of this section.

(C) Withholding rate pools—(1) In

general. Except to the extent it has

assumed both primary withholding

responsibility under chapter 3 of the

Internal Revenue Code and primary

reporting and backup withholding

responsibility under chapter 61 and

section 3406 with respect to a payment,

a qualified intermediary shall provide as

part of its withholding statement the

withholding rate pool information that

is required for the withholding agent to

meet its withholding and reporting

obligations under chapters 3 and 61 of

the Internal Revenue Code and section

3406. A withholding rate pool is a

payment of a single type of income,

determined in accordance with the

categories of income reported on Form

1042–S or Form 1099, as applicable,

32186 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

that is subject to a single rate of

withholding. A withholding rate pool

may be established by any reasonable

method on which the qualified

intermediary and a withholding agent

agree (e.g., by establishing a separate

account for a single withholding rate

pool, or by dividing a payment made to

a single account into portions allocable

to each withholding rate pool). To the

extent a qualified intermediary does not

assume primary reporting and backup

withholding responsibility under

chapter 61 and section 3406, a qualified

intermediary’s withholding statement

must establish a separate withholding

rate pool for each U.S. non-exempt

recipient account holder that the

qualified intermediary has disclosed to

the withholding agent unless the

qualified intermediary uses the

alternative procedures in paragraph

(e)(5)(v)(C)(2) of this section. A qualified

intermediary shall determine

withholding rate pools based on valid

documentation that it obtains under its

withholding agreement with the IRS, or

if a payment cannot be reliably

associated with valid documentation,

under the applicable presumption rules.

If a qualified intermediary has an

account holder that is another

intermediary (whether a qualified

intermediary or a nonqualified

intermediary) or a flow-through entity,

the qualified intermediary may combine

the account holder information

provided by the intermediary or flowthrough entity with the qualified

intermediary’s direct account holder

information to determine the qualified

intermediary’s withholding rate pools.

(2) Alternative procedure for U.S.

non-exempt recipients. If permitted

under its agreement with the IRS, a

qualified intermediary may, by mutual

agreement with a withholding agent,

establish a single withholding rate pool

(not subject to backup withholding) for

all U.S. non-exempt recipient account

holders for whom the qualified

intermediary has provided Forms W–9

prior to the withholding agent paying

any reportable payments, as defined in

section 3406(b), and a separate

withholding rate pool (subject to 31-

percent withholding) for all U.S. nonexempt recipient account holders for

whom a qualified intermediary has not

provided Forms W–9 prior to the

withholding agent paying any reportable

payments. If a qualified intermediary

chooses the alternative procedure of this

paragraph (e)(5)(v)(C)(2), the qualified

intermediary must provide sufficient

information to the withholding agent no

later than January 15 of the year

following the year in which the

reportable payments are paid that

allocates the reportable payments to

each U.S. non-exempt recipient account

holder. Failure to provide such

information will result in the

application of penalties to the qualified

intermediary under sections 6721 and

6722, as well as any other applicable

penalties, and may result in the

termination of the qualified

intermediary’s withholding agreement

with the IRS. A withholding agent shall

not be liable for tax, interest, or

penalties for failure to backup withhold

or report information under chapter 61

of the Internal Revenue Code due solely

to the errors or omissions of the

qualified intermediary. If a qualified

intermediary fails to provide the

allocation information required by this

paragraph (e)(5)(v)(C)(2), the

withholding agent shall report the entire

amount paid from the withholding rate

pool to an unknown recipient, or

otherwise in accordance with the

appropriate Form 1099 and the

instructions accompanying the form.

* * * * *

Par 4. Effective January 1, 2001,

§ 1.1441–2 is amended by:

1. Revising paragraph (a).

2. Revising paragraph (b)(1)(i).

3. Removing paragraph (b)(2)(ii),

redesignating paragraph (b)(2)(iii) as

paragraph (b)(2)(ii), and adding the

word ‘‘and’’ after the semicolon in

paragraph (b)(2)(i).

4. Revising paragraph (b)(3).

The revisions read as follows:

§ 1.1441–2 Amounts subject to

withholding.

(a) In general. For purposes of the

regulations under chapter 3 of the

Internal Revenue Code, the term

amounts subject to withholding means

amounts from sources within the United

States that constitute either fixed or

determinable annual or periodical

income described in paragraph (b) of

this section or other amounts subject to

withholding described in paragraph (c)

of this section. For purposes of this

paragraph (a), an amount shall be

treated as being from sources within the

United States if the source of the

amount cannot be determined at the

time of payment. See § 1.1441–3(d)(1)

for determining the amount to be

withheld from a payment in the absence

of information at the time of payment

regarding the source of the amount.

Amounts subject to withholding include

amounts that are not fixed or

determinable annual or periodical

income and upon which withholding is

specifically required under a provision

of this section or another section of the

regulations under chapter 3 of the

Internal Revenue Code (such as

corporate distributions upon which

withholding is required under § 1.1441–

3(c)(1) that do not constitute dividend

income). Amounts subject to

withholding do not include—

(1) Amounts described in § 1.1441–

1(b)(4)(i) to the extent they involve

interest on obligations in bearer form or

on foreign-targeted registered

obligations (but, in the case of a foreigntargeted registered obligation, only to

the extent of those amounts paid to a

registered owner that is a financial

institution within the meaning of

section 871(h)(5)(B) or a member of a

clearing organization which member is

the beneficial owner of the obligation);

(2) Amounts described in § 1.1441–

1(b)(4)(ii) (dealing with bank deposit

interest and similar types of interest

(including original issue discount)

described in section 871(i)(2)(A) or

881(d));

(3) Amounts described in § 1.1441–

1(b)(4)(iv) (dealing with interest or

original issue discount on certain shortterm obligations described in section

871(g)(1)(B) or 881(e));

(4) Amounts described in § 1.1441–

1(b)(4)(xx) (dealing with income from

certain gambling winnings exempt from

tax under section 871(j));

(5) Amounts paid as part of the

purchase price of an obligation sold or

exchanged between interest payment

dates, unless the sale or exchange is part

of a plan the principal purpose of which

is to avoid tax and the withholding

agent has actual knowledge or reason to

know of such plan;

(6) Original issue discount paid as

part of the purchase price of an

obligation sold or exchanged in a

transaction other than a redemption of

such obligation, unless the purchase is

part of a plan the principal purpose of

which is to avoid tax and the

withholding agent has actual knowledge

or reason to know of such plan; and

(7) Insurance premiums paid with

respect to a contract that is subject to

the section 4371 excise tax.

(b) Fixed or determinable annual or

periodical income—(1) In general—(i)

Definition. For purposes of chapter 3 of

the Internal Revenue Code and the

regulations thereunder, fixed or

determinable annual or periodical

income includes all income included in

gross income under section 61

(including original issue discount)

except for the items specified in

paragraph (b)(2) of this section. Items of

income that are excluded from gross

income under a provision of law

without regard to the U.S. or foreign

status of the owner of the income, such

as interest excluded from gross income

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32187

under section 103(a) or qualified

scholarship income under section 117,

shall not be treated as fixed or

determinable annual or periodical

income under chapter 3 of the Internal

Revenue Code. Income excluded from

gross income under section 892 (income

of foreign governments) or section 115

(income of a U.S. possession) is fixed or

determinable annual or periodical

income since the exclusion from gross

income under those sections is

dependent on the foreign status of the

owner of the income. See § 1.306–3(h)

for treating income from the disposition

of section 306 stock as fixed or

determinable annual or periodical

income.

* * * * *

(3) Original issue discount—(i)

Amount subject to tax. An amount

representing original issue discount is

fixed or determinable annual or

periodical income that is subject to tax

under sections 871(a)(1)(C) and

881(a)(3) to the extent provided in those

sections and this paragraph (b)(3) if not

otherwise excluded under paragraph (a)

of this section. An amount of original

issue discount is subject to tax with

respect to a foreign beneficial owner of

an obligation carrying original issue

discount upon a sale or exchange of the

obligation or when a payment is made

on such obligation. The amount taxable

is the amount of original issue discount

that accrued while the foreign person

held the obligation up to the time that

the obligation is sold or exchanged or

that a payment is made on the

obligation, reduced by any amount of

original issue discount that was taken

into account prior to that time (due to

a payment made on the obligation). In

the case of a payment made on the

obligation, the tax due on the amount of

original issue discount may not exceed

the amount of the payment reduced by

the tax imposed on any portion of the

payment that is qualified stated interest.

(ii) Amounts subject to withholding. A

withholding agent must withhold on the

taxable amount of original issue

discount paid on the redemption of an

original issue discount obligation unless

an exception to withholding applies

(e.g., portfolio interest or treaty

exception). In addition, withholding is

required on the taxable amount of

original issue discount upon the sale or

exchange of an original issue discount

obligation, other than in a redemption,

to the extent the withholding agent has

actual knowledge or reason to know that

the sale or exchange is part of a plan the

principal purpose of which is to avoid

tax. If a withholding agent cannot

determine the taxable amount of

original issue discount on the

redemption of an original issue discount

obligation (or on the sale or exchange of

such an obligation if the principal

purpose of the sale is to avoid tax), then

it must withhold on the entire amount

of original issue discount accrued from

the date of issue until the date of

redemption (or the date the obligation is

sold or exchanged) determined on the

basis of the most recently published

‘‘List of Original Issue Discount

Instruments’’ (IRS Publication 1212,

available from the IRS Forms

Distribution Center) or similar list

published by the IRS as if the beneficial

owner of the obligation had held the

obligation since its original issue.

(iii) Exceptions to withholding. To the

extent that this paragraph (b)(3) applies

to require withholding by a person other

than an issuer of an original issue

discount obligation, or the issuer’s

agent, it shall apply only to obligations

issued after December 31, 2000.

* * * * *

Par. 5. Effective January 1, 2001,

§ 1.1441–3 is amended by:

1. Revising paragraph (b)(2)(i).

2. Revising paragraph (c)(1).

3. Revising paragraph (c)(4)(i)(C).

The revisions read as follows:

§ 1.1441–3 Determination of amounts to be

withheld.

* * * * *

(b) * * *

(2) No withholding between interest

payment dates—(i) In general. A

withholding agent is not required to

withhold under § 1.1441–1 upon

interest accrued on the date of a sale or

exchange of a debt obligation when that

sale occurs between two interest

payment dates (even though the amount

is treated as interest under § 1.61–7(c) or

(d) and is subject to tax under section

871 or 881). See § 1.6045–1(c) for

reporting requirements by brokers with

respect to sale proceeds. See § 1.61–7(c)

regarding the character of payments

received by the acquirer of an obligation

subsequent to such acquisition (that is,

as a return of capital or interest accrued

after the acquisition). Any exemption

from withholding pursuant to this

paragraph (b)(2)(i) applies without a

requirement that documentation be

furnished to the withholding agent.

However, documentation may have to

be furnished for purposes of the

information reporting provisions under

section 6045 or 6049 and backup

withholding under section 3406. The

exemption from withholding granted by

this paragraph (b)(2) is not a

determination that the accrued interest

is not fixed or determinable annual or

periodical income under section 871(a)

or 881(a).

* * * * *

(c) Corporate distributions—(1)

General rule. A corporation making a

distribution with respect to its stock or

any intermediary (described in

§ 1.1441–1(c)(13)) making a payment of

such a distribution is required to

withhold under section 1441, 1442, or

1443 on the entire amount of the

distribution, unless it elects to reduce

the amount of withholding under the

provisions of this paragraph (c). Any

exceptions from withholding provided

by this paragraph (c) apply without any

requirement to furnish documentation

to the withholding agent. However,

documentation may have to be

furnished for purposes of the

information reporting provisions under

section 6042 or 6045 and backup

withholding under section 3406. See

§ 1.1461–1(c) to determine whether

amounts excepted from withholding

under this section are considered

amounts that are subject to reporting.

* * * * *

(4) * * * (i) * * *

(C) Coordination with REIT

withholding. Withholding is required

under section 1441 (or 1442 or 1443) on

the portion of a distribution from a REIT

that is not designated as a capital gain

dividend, a return of basis, or a

distribution in excess of a shareholder’s

adjusted basis in the stock of the REIT

that is treated as a capital gain under

section 301(c)(3). A distribution in

excess of a shareholder’s adjusted basis

in the stock of the REIT is, however,

subject to withholding under section

1445, unless the interest in the REIT is

not a U.S. real property interest (e.g., an

interest in a domestically controlled

REIT under section 897(h)(2)). In

addition, withholding is required under

section 1445 on the portion of the

distribution designated by a REIT as a

capital gain dividend. See § 1.1445–8.

* * * * *

Par. 6. Effective January 1, 2001,

§ 1.1441–4 is amended by:

1. Revising paragraph (a)(3)(i).

2. Revising paragraph (b)(1)(ii).

The revisions read as follows:

§ 1.1441–4 Exemptions from withholding

for certain effectively connected income

and other amounts.

(a) * * *

(3) Income on notional principal

contracts—(i) General rule. A

withholding agent that pays amounts

attributable to a notional principal

contract described in § 1.863–7(a) or

1.988–2(e) shall have no obligation to

withhold on the amounts paid under the

32188 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

terms of the notional principal contract

regardless of whether a withholding

certificate is provided. However, a

withholding agent must file returns

under § 1.1461–1(b) and (c) reporting

the income that it must treat as

effectively connected with the conduct

of a trade or business in the United

States under the provisions of this

paragraph (a)(3). Except as otherwise

provided in paragraph (a)(3)(ii) of this

section, a withholding agent must treat

the income as effectively connected

with the conduct of a U.S. trade or

business if the income is paid to, or to

the account of, a qualified business unit

of a foreign person located in the United

States or, if the payment is paid to, or

to the account of, a qualified business

unit of a foreign person located outside

the United States, the withholding agent

knows, or has reason to know, the

payment is effectively connected with

the conduct of a trade or business

within the United States. Income on a

notional principal contract does not

include the amount characterized as

interest under the provisions of § 1.446–

3(g)(4).

* * * * *

(b) * * * (1) * * *

(ii) Such compensation would be

subject to withholding under section

3402 but for the provisions of section

3401(a) (not including section

3401(a)(6)) and the regulations under

that section. This paragraph (b)(1)(ii)

does not apply to payments to a

nonresident alien individual from any

trust described in section 401(a), any

annuity plan described in section

403(a), any annuity, custodial account,

or retirement income account described

in section 403(b), or an individual

retirement account or individual

retirement annuity described in section

408. Instead, these payments are subject

to withholding under this section to the

extent they are exempted from the

definition of wages under section

3401(a)(12) or to the extent they are

from an annuity, custodial account, or

retirement income account described in

section 403(b), or an individual

retirement account or individual

retirement annuity described in section

408. Thus, for example, payments to a

nonresident alien individual from a

trust described in section 401(a) are

subject to withholding under section

1441 and not under section 3405 or

section 3406.

* * * * *

Par. 7. Effective January 1, 2001, in

§ 1.1441–5 paragraphs (a) through (e) are

revised to read as follows:

§ 1.1441–5 Withholding on payments to

partnerships, trusts, and estates.

(a) In general. This section describes

the rules that apply to payments made

to partnerships, trusts, and estates.

Paragraph (b) of this section prescribes

the rules that apply to a withholding

agent making a payment to a U.S.

partnership, trust, or estate. It also

prescribes the obligations of a U.S.

partnership, trust, or estate that makes

a payment to a foreign partner,

beneficiary, or owner. Paragraph (c) of

this section prescribes rules that apply

to a withholding agent that makes a

payment to a foreign partnership.

Paragraph (d) of this section provides

presumption rules that apply to

payments made to foreign partnerships.

Paragraph (e) of this section prescribes

rules, including presumption rules, that

apply to a withholding agent that makes

a payment to a foreign trust or foreign

estate.

(b) Rules applicable to U.S.

partnerships, trusts, and estates—(1)

Payments to U.S. partnerships, trusts,

and estates. No withholding is required

under section 1.1441–1(b)(1) on a

payment of an amount subject to

withholding (as defined in § 1.1441–

2(a)) that a withholding agent may treat

as made to a U.S. payee. Therefore, if a

withholding agent can reliably associate

(within the meaning of § 1.1441–

2(b)(vii)) a Form W–9 provided in

accordance with § 1.1441–1(d)(2) or (4)

by a U.S. partnership, U.S. trust, or a

U.S. estate the withholding agent may

treat the payment as made to a U.S.

payee and the payment is not subject to

withholding under section 1441 even

though the partnership, trust, or estate

may have foreign partners, beneficiaries,

or owners. A withholding agent is also

not required to withhold under section

1441 on a payment it makes to an entity

presumed to be a U.S. payee under

paragraphs (d)(2) and (e)(6)(ii) of this

section.

(2) Withholding by U.S. payees—(i)

U.S. partnerships—(A) In general. A

U.S. partnership is required to withhold

under § 1.1441–1 as a withholding agent

on an amount subject to withholding (as

defined in § 1.1441–2(a)) that is

includible in the gross income of a

partner that is a foreign person. Subject

to paragraph (b)(2)(v) of this section, a

U.S. partnership shall withhold when

any distributions that include amounts

subject to withholding (including

guaranteed payments made by a U.S.

partnership) are made. To the extent a

foreign partner’s distributive share of

income subject to withholding has not

actually been distributed to the foreign

partner, the U.S. partnership must

withhold on the foreign partner’s

distributive share of the income on the

earlier of the date that the statement

required under section 6031(b) is mailed

or otherwise provided to the partner or

the due date for furnishing the

statement.

(B) Effectively connected income of

partners. Withholding on items of

income that are effectively connected

income in the hands of the partners who

are foreign persons is governed by

section 1446 and not by this section. In

such a case, partners in a domestic

partnership are not required to furnish

a withholding certificate in order to

claim an exemption from withholding

under section 1441(c)(1) and § 1.1441–4.

(ii) U.S. simple trusts. A U.S. trust

that is described in section 651(a) (a

U.S. simple trust) is required to

withhold under chapter 3 of the Internal

Revenue Code as a withholding agent on

the distributable net income includible

in the gross income of a foreign

beneficiary to the extent the

distributable net income is an amount

subject to withholding (as defined in

§ 1.1441–2(a)). A U.S. simple trust shall

withhold when a distribution is made to

a foreign beneficiary. The U.S. trust may

make a reasonable estimate of the

portion of the distribution that

constitutes distributable net income

consisting of an amount subject to

withholding and apply the appropriate

rate of withholding to the estimated

amount. If, at the end of the taxable year

in which the distribution is made, the

U.S. simple trust determines that it

underwithheld under section 1441 or

1442, the trust shall be liable as a

withholding agent for the amount under

withheld under section 1461. No

penalties shall be imposed for failure to

withhold and deposit the tax if the U.S.

simple trust’s estimate was reasonable

and the trust pays the underwithheld

amount on or before the due date of

Form 1042 under section 1461. Any

payment of underwithheld amounts by

the U.S. simple trust shall not be treated

as income subject to additional

withholding even if that amount is

treated as additional income to the

foreign beneficiary, unless the

additional amount is income to the

foreign beneficiary as a result of a

contractual arrangement between the

parties regarding the satisfaction of the

foreign beneficiary’s tax liability. To the

extent a U.S. simple trust is required to,

but does not, distribute such income to

a foreign beneficiary, the U.S. trust must

withhold on the foreign beneficiary’s

allocable share at the time the income

is required (without extension) to be

reported on Form 1042-S under

§ 1.1461–1(c).

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32189

(iii) U.S. complex trusts and U.S.

estates. A U.S. trust that is not a trust

described in section 651(a) (a U.S.

complex trust) is required to withhold

under chapter 3 of the Internal Revenue

Code as a withholding agent on the

distributable net income includible in

the gross income of a foreign beneficiary

to the extent the distributable net

income consists of an amount subject to

withholding (as defined in § 1.1441–

2(a)) that is, or is required to be,

distributed currently. The U.S. complex

trust shall withhold when a distribution

is made to a foreign beneficiary. The

trust may use the same procedures

regarding an estimate of the amount

subject to withholding as a U.S. simple

trust under paragraph (b)(2)(ii) of this

section. To the extent an amount subject

to withholding is required to be, but is

not actually distributed, the U.S.

complex trust must withhold on the

foreign beneficiary’s allocable share at

the time the income is required to be

reported on Form 1042-S under

§ 1.1461–1(c), without extension. A U.S.

estate is required to withhold under

chapter 3 of the Internal Revenue Code

on the distributable net income

includible in the gross income of a

foreign beneficiary to the extent the

distributable net income consists of an

amount subject to withholding (as

defined in § 1.1441–2(a)) that is actually

distributed. A U.S. estate may also use

the reasonable estimate procedures of

paragraph (b)(2)(ii) of this section.

However, those procedures apply to an

estate that has a taxable year other than

a calendar year only if the estate files an

amended return on Form 1042 for the

calendar year in which the distribution

was made and pays the underwithheld

tax and interest within 60 days after the

close of the taxable year in which the

distribution was made.

(iv) U.S. grantor trusts. A U.S. trust

that is described in section 671 through

679 (a U.S. grantor trust) must withhold

on any income includible in the gross

income of a foreign person that is

treated as an owner of the grantor trust

to the extent the amount includible

consists of an amount that is subject to

withholding (as described in § 1.1441–

2(a)). The withholding must occur at the

time the income is received by, or

credited to, the trust.

(v) Subsequent distribution. If a U.S.

partnership or U.S. trust withholds on a

foreign partner, beneficiary, or owner’s

share of an amount subject to

withholding before the amount is

actually distributed to the partner,

beneficiary, or owner, withholding is

not required when the amount is

subsequently distributed.

(c) Foreign partnerships—(1)

Determination of payee—(i) Payments

treated as made to partners. Except as

otherwise provided in paragraph

(c)(1)(ii) of this section, the payees of a

payment to a person that the

withholding agent may treat as a

nonwithholding foreign partnership

under paragraph (c)(3)(i) or (d)(2) of this

section are the partners (looking through

partners that are foreign intermediaries

or flow-through entities) as follows—

(A) If the withholding agent can

reliably associate a partner’s distributive

share of the payment with a valid Form

W–9 provided under § 1.1441–1(d), the

partner is a U.S. payee;

(B) If the withholding agent can

reliably associate a partner’s distributive

share of the payment with a valid Form

W–8, or other appropriate

documentation, provided under

§ 1.1441–1(e)(1)(ii), the partner is a

payee that is a foreign beneficial owner;

(C) If the withholding agent can

reliably associate a partner’s distributive

share of the payment with a qualified

intermediary withholding certificate

under § 1.1441–1(e)(3)(ii), a

nonqualified intermediary withholding

certificate under § 1.1441–1(e)(3)(iii), or

a U.S. branch certificate under § 1.1441–

1(e)(3)(v), then the rules of § 1.1441–

1(b)(2)(v) shall apply to determine who

the payee is in the same manner as if the

partner’s distributive share of the

payment had been paid directly to such

intermediary or U.S. branch;

(D) If the withholding agent can

reliably associate the partner’s

distributive share with a withholding

foreign partnership certificate under

paragraph (c)(2)(iv) of this section or a

nonwithholding foreign partnership

certificate under paragraph (c)(3)(iii) of

this section, then the rules of this

paragraph (c)(1)(i) or paragraph (c)(1)(ii)

of this section shall apply to determine

whether the payment is treated as made

to the partners of the higher-tier

partnership under this paragraph

(c)(1)(i) or to the higher-tier partnership

itself (under the rules of paragraph

(c)(1)(ii) of this section) in the same

manner as if the partner’s distributive

share of the payment had been paid

directly to the higher-tier foreign

partnership;

(E) If the withholding agent can

reliably associate the partner’s

distributive share with a withholding

certificate described in paragraph (e) of

this section regarding a foreign trust or

estate, then the rules of paragraph (e) of

this section shall apply to determine

who the payees are; and

(F) If the withholding agent cannot

reliably associate the partner’s

distributive share with a withholding

certificate or other appropriate

documentation, the partners are

considered to be the payees and the

presumptions described in paragraph

(d)(3) of this section shall apply to

determine their classification and status.

(ii) Payments treated as made to the

partnership. A payment to a person that

the withholding agent may treat as a

foreign partnership is treated as a

payment to the foreign partnership and

not to its partners only if—

(A) The withholding agent can

reliably associate the payment with a

withholding certificate described in

paragraph (c)(2)(iv) of this section

(withholding certificate of a

withholding foreign partnership);

(B) The withholding agent can

reliably associate the payment with a

withholding certificate described in

paragraph (c)(3)(iii) of this section

(nonwithholding foreign partnership)

certifying that the payment is income

that is effectively connected with the

conduct of a trade or business in the

United States; or

(C) The withholding agent can treat

the income as effectively connected

income under the presumption rules of

§ 1.1441–4(a)(2)(ii) or (3)(i).

(iii) Rules for reliably associating a

payment with documentation. For rules

regarding the reliable association of a

payment with documentation, see

§ 1.1441–1(b)(2)(vii). In the absence of

documentation, see §§ 1.1441–1(b)(3)

and 1.6049–5(d) and paragraphs (d) and

(e)(6) of this section for applicable

presumptions.

(iv) Examples. The rules of

paragraphs (c)(1)(i) and (ii) of this

section are illustrated by the following

examples:

Example 1. FP is a nonwithholding foreign

partnership organized in Country X. FP has

two partners, FC, a foreign corporation, and

USP, a U.S. partnership. USWH, a U.S.

withholding agent, makes a payment of U.S.

source interest to FP. FP has provided USWH

with a valid nonwithholding foreign

partnership certificate, as described in

paragraph (c)(3)(iii) of this section, with

which it associates a beneficial owner

withholding certificate from FC and a Form

W–9 from USP together with the withholding

statement required by paragraph (c)(3)(iv) of

this section. USWH can reliably associate the

payment of interest with the withholding

certificates from FC and USP. Under

paragraph (c)(1)(i) of this section, the payees

of the interest payment are FC and USP.

Example 2. The facts are the same as in

Example 1, except that FP1, a

nonwithholding foreign partnership, is a

partner in FP rather than USP. FP1 has two

partners, A and B, both foreign persons. FP

provides USWH with a valid nonwithholding

foreign partnership certificate, as described

in paragraph (c)(3)(iii) of this section, with

which it associates a beneficial owner

32190 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

withholding certificate from FC and a

nonwithholding foreign partnership

certificate from FP1. In addition, foreign

beneficial owner withholding certificates

from A and B are associated with the

nonwithholding foreign partnership

withholding certificate from FP1. FP also

provides the withholding statement required

by paragraph (c)(3)(iv) of this section. USWH

can reliably associate the interest payment

with the withholding certificates provided by

FC, A, and B. Therefore, under paragraph

(c)(1)(i) of this section, the payees of the

interest payment are FC, A, and B.

Example 3. USWH makes a payment of

U.S. source dividends to WFP, a withholding

foreign partnership. WFP has two partners,

FC1 and FC2, both foreign corporations.

USWH can reliably associate the payment

with a valid withholding foreign partnership

withholding certificate from WFP. Therefore,

under paragraph (c)(1)(ii)(A) of this section,

WFP is the payee of the dividends.

Example 4. USWH makes a payment of

U.S. source royalties to FP, a foreign

partnership. USWH can reliably associate the

royalties with a valid withholding certificate

from FP on which FP certifies that the

income is effectively connected with the

conduct of a trade or business in the United

States. Therefore, under paragraph

(c)(1)(ii)(B) of this section, FP is the payee of

the royalties.

(2) Withholding foreign

partnerships—(i) Reliance on claim of

withholding foreign partnership status.

A withholding foreign partnership is a

foreign partnership that has entered into

an agreement with the Internal Revenue

Service (IRS), as described in paragraph

(c)(2)(ii) of this section, with respect to

distributions and guaranteed payments

it makes to its partners. A withholding

agent that can reliably associate a

payment with a certificate described in

paragraph (c)(2)(iv) of this section may

treat the person to whom it makes the

payment as a withholding foreign

partnership for purposes of withholding

under chapter 3 of the Internal Revenue

Code, information reporting under

chapter 61 of the Internal Revenue

Code, backup withholding under

section 3406, and withholding under

other provisions of the Internal Revenue

Code. Furnishing such a certificate is in

lieu of transmitting to a withholding

agent withholding certificates or other

appropriate documentation for its

partners. Although the withholding

foreign partnership generally will be

required to obtain withholding

certificates or other appropriate

documentation from its partners

pursuant to its agreement with the IRS,

it will generally not be required to

attach such documentation to its

withholding foreign partnership

withholding certificate. A foreign

partnership may act as a qualified

intermediary under § 1.1441–1(e)(5)

with respect to payments it makes to

persons other than its partners. In

addition, the IRS may permit a foreign

partnership to act as a qualified

intermediary under § 1.1441–

1(e)(5)(ii)(D) with respect to its partners

in appropriate circumstances.

(ii) Withholding agreement. The IRS

may, upon request, enter into a

withholding agreement with a foreign

partnership pursuant to such

procedures as the IRS may prescribe in

published guidance (see § 601.601(d)(2)

of this chapter). Under the withholding

agreement, a foreign partnership shall

generally be subject to the applicable

withholding and reporting provisions

applicable to withholding agents and

payors under chapters 3 and 61 of the

Internal Revenue Code, section 3406,

the regulations under those provisions,

and other withholding provisions of the

Internal Revenue Code, except to the

extent provided under the agreement.

Under the agreement, a foreign

partnership may agree to act as an

acceptance agent to perform the duties

described in § 301.6109–1(d)(3)(iv)(A) of

this chapter. The agreement may specify

the manner in which applicable

procedures for adjustments for

underwithholding and overwithholding,

including refund procedures, apply to

the withholding foreign partnership and

its partners and the extent to which

applicable procedures may be modified.

In particular, a withholding agreement

may allow a withholding foreign

partnership to claim refunds of

overwithheld amounts on behalf of its

customers. In addition, the agreement

must specify the manner in which the

IRS will audit the foreign partnership’s

books and records in order to verify the

partnership’s compliance with its

agreement. A withholding foreign

partnership must file a return on Form

1042 and information returns on Form

1042–S. The withholding foreign

partnership agreement may also require

a withholding foreign partnership to file

a partnership return under section

6031(a) and partner statements under

6031(b).

(iii) Withholding responsibility. A

withholding foreign partnership must

assume primary withholding

responsibility under chapter 3 of the

Internal Revenue Code. It is not required

to provide information to the

withholding agent regarding each

partner’s distributive share of the

payment. The withholding foreign

partnership will be responsible for

reporting the payments under § 1.1461–

1(c) and chapter 61 of the Internal

Revenue Code. A withholding agent

making a payment to a withholding

foreign partnership is not required to

withhold any amount under chapter 3 of

the Internal Revenue Code on a payment

to the withholding foreign partnership,

unless it has actual knowledge or reason

to know that the foreign partnership is

not a withholding foreign partnership.

The withholding foreign partnership

shall withhold the payments under the

same procedures and at the same time

as prescribed for withholding by a U.S.

partnership under paragraph (b)(2) of

this section, except that, for purposes of

determining the partner’s status, the

provisions of paragraph (d)(4) of this

section shall apply.

(iv) Withholding certificate from a

withholding foreign partnership. The

rules of § 1.1441–1(e)(4) shall apply to

withholding certificates described in

this paragraph (c)(2)(iv). A withholding

certificate furnished by a withholding

foreign partnership is valid with regard

to any partner on whose behalf the

certificate is furnished only if it is

furnished on a Form W–8, an acceptable

substitute form, or such other form as

the IRS may prescribe, it is signed under

penalties of perjury by a partner with

authority to sign for the partnership, its

validity has not expired, and it contains

the information, statement, and

certifications described in this

paragraph (c)(2)(iv) as follows—

(A) The name, permanent residence

address (as described in § 1.1441–

1(e)(2)(ii)), and the employer

identification number of the

partnership, and the country under the

laws of which the partnership is created

or governed;

(B) A certification that the partnership

is a withholding foreign partnership

within the meaning of paragraph

(c)(2)(i) of this section; and

(C) Any other information,

certifications or statements as may be

required by the withholding foreign

partnership agreement with the IRS or

the form or accompanying instructions

in addition to, or in lieu of, the

information, statements, and

certifications described in this

paragraph (c)(2)(iv).

(3) Nonwithholding foreign

partnerships—(i) Reliance on claim of

foreign partnership status. A

withholding agent may treat a person as

a nonwithholding foreign partnership if

it receives from that person a

nonwithholding foreign partnership

withholding certificate as described in

paragraph (c)(3)(iii) of this section. A

withholding agent that does not receive

a nonwithholding foreign partnership

withholding certificate, or does not

receive a valid withholding certificate,

from an entity it knows, or has reason

to know, is a foreign partnership, must

apply the presumption rules of

§§ 1.1441–1(b)(3) and 1.6049–5(d) and

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32191

paragraphs (d) and (e)(6) of this section.

In addition, to the extent a withholding

agent cannot, prior to a payment,

reliably associate the payment with

valid documentation from a payee that

is associated with the nonwithholding

foreign partnership withholding

certificate or has insufficient

information to report the payment on

Form 1042–S or Form 1099, to the

extent reporting is required, must also

apply the presumption rules. See

§ 1.1441–1(b)(2)(vii)(A) and (B) for rules

regarding reliable association. See

paragraph (c)(3)(iv) of this section and

§ 1.1441–1(e)(3)(iv) for alternative

procedures permitting allocation

information to be received after a

payment is made.

(ii) Reliance on claim of reduced

withholding by a partnership for its

partners. This paragraph (c)(3)(ii)

describes the manner in which a

withholding agent may rely on a claim

of reduced withholding when making a

payment to a nonwithholding foreign

partnership. To the extent that a

withholding agent treats a payment to a

nonwithholding foreign partnership as a

payment to the nonwithholding foreign

partnership’s partners (whether direct or

indirect) in accordance with paragraph

(c)(1)(i) of this section, it may rely on a

claim for reduced withholding by the

partner if, prior to the payment, the

withholding agent can reliably associate

the payment (within the meaning of

§ 1.1441–1(b)(2)(vii)) with a valid

withholding certificate or other

appropriate documentation from the

partner that establishes entitlement to a

reduced rate of withholding. A

withholding certificate or other

appropriate documentation that

establishes entitlement to a reduced rate

of withholding is a beneficial owner

withholding certificate described in

§ 1.1441–1(e)(2)(i), documentary

evidence described in § 1.1441–6(c)(3)

or (4) or 1.6049–5(c)(1) (for a partner

claiming to be a foreign person and a

beneficial owner, determined under the

provisions of § 1.1441–1(c)(6)), a Form

W–9 described in § 1.1441–1(d) (for a

partner claiming to be a U.S. payee), or

a withholding foreign partnership

withholding certificate described in

paragraph (c)(2)(iv) of this section.

Unless a nonwithholding foreign

partnership withholding certificate is

provided for income claimed to be

effectively connected with the conduct

of a trade or business in the United

States, a claim must be presented for

each portion of the payment that

represents an item of income includible

in the distributive share of a partner as

required under paragraph (c)(3)(iii)(C) of

this section. When making a claim for

several partners, the partnership may

present a single nonwithholding foreign

partnership withholding certificate to

which the partners’ certificates or other

appropriate documentation are

associated. Where the nonwithholding

foreign partnership withholding

certificate is provided for income

claimed to be effectively connected with

the conduct of a trade or business in the

United States under paragraph

(c)(3)(iii)(D) of this section, the claim

may be presented without having to

identify any partner’s distributive share

of the payment.

(iii) Withholding certificate from a

nonwithholding foreign partnership. A

nonwithholding foreign partnership

shall provide a nonwithholding foreign

partnership withholding certificate with

respect to reportable amounts received

by the nonwithholding foreign

partnership. A nonwithholding foreign

partnership withholding certificate is

valid only to the extent it is furnished

on a Form W–8 (or an acceptable

substitute form or such other form as the

IRS may prescribe), it is signed under

penalties of perjury by a partner with

authority to sign for the partnership, its

validity has not expired, and it contains

the information, statements, and

certifications described in this

paragraph (c)(3)(iii) and paragraph

(c)(3)(iv) of this section, and the

withholding certificates and other

appropriate documentation for all the

persons to whom the certificate relates

are associated with the certificate. The

rules of § 1.1441–1(e)(4) shall apply to

withholding certificates described in

this paragraph (c)(3)(iii). No

withholding certificates or other

appropriate documentation from

persons who derive income through a

partnership (whether or not U.S. exempt

recipients) are required to be associated

with the nonwithholding foreign

partnership withholding certificate if

the certificate is furnished solely for

income claimed to be effectively

connected with the conduct of a trade

or business in the United States.

Withholding certificates and other

appropriate documentation that may be

associated with the nonwithholding

foreign partnership withholding

certificate consist of beneficial owner

withholding certificates under § 1.1441–

1(e)(2)(i), intermediary withholding

certificates under § 1.1441–1(e)(3)(i),

withholding foreign partnership

withholding certificates under

paragraph (c)(2)(iv) of this section,

nonwithholding foreign partnership

withholding certificates under this

paragraph (c)(3)(iii), withholding

certificates from foreign trusts or estates

under paragraph (e) of this section,

documentary evidence described in

§ 1.1441–6(c)(3) or (4) or documentary

evidence described in § 1.6049–5(c)(1),

and any other documentation or

certificates applicable under other

provisions of the Internal Revenue Code

or regulations that certify or establish

the status of the payee or beneficial

owner as a U.S. or a foreign person.

Nothing in this paragraph (c)(3)(iii) shall

require a nonwithholding foreign

partnership to furnish original

documentation. Copies of certificates or

documentary evidence may be

transmitted to the U.S. withholding

agent, in which case the

nonwithholding foreign partnership

must retain the original documentation

for the same time period that the copy

is required to be retained by the

withholding agent under § 1.1441–

1(e)(4)(iii) and must provide it to the

withholding agent upon request. The

information, statement, and

certifications required on the

withholding certificate are as follows—

(A) The name, permanent residence

address (as described in § 1.1441–

1(e)(2)(ii)), and the employer

identification number of the

partnership, if any, and the country

under the laws of which the partnership

is created or governed;

(B) A certification that the person

whose name is on the certificate is a

foreign partnership;

(C) A withholding statement

associated with the nonwithholding

foreign partnership withholding

certificate that provides all of the

information required by paragraph

(c)(3)(iv) of this section and § 1.1441–

1(e)(3)(iv). No withholding statement is

required, however, for a

nonwithholding foreign partnership

withholding certificate furnished for

income claimed to be effectively

connected with the conduct of a trade

or business in the United States;

(D) A certification that the income is

effectively connected with the conduct

of a trade or business in the United

States, if applicable; and

(E) Any other information,

certifications, or statements required by

the form or accompanying instructions

in addition to, or in lieu of, the

information and certifications described

in this paragraph (c)(3)(iii).

(iv) Withholding statement provided

by nonwithholding foreign partnership.

The provisions of § 1.1441–1(e)(3)(iv)

(regarding a withholding statement)

shall apply to a nonwithholding foreign

partnership by substituting the term

nonwithholding foreign partnership for

the term nonqualified intermediary.

32192 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

(v) Withholding and reporting by a

foreign partnership. A nonwithholding

foreign partnership described in this

paragraph (c)(3) that receives an amount

subject to withholding (as defined in

§ 1.1441–2(a)) shall be required to

withhold and report such payment

under chapter 3 of the Internal Revenue

Code and the regulations thereunder

except as otherwise provided in this

paragraph (c)(3)(v). A nonwithholding

foreign partnership shall not be required

to withhold and report if it has provided

a valid nonwithholding foreign

partnership withholding certificate, it

has provided all of the information

required by paragraph (c)(3)(iv) of this

section (withholding statement), and it

does not know, and has no reason to

know, that another withholding agent

failed to withhold the correct amount or

failed to report the payment correctly

under § 1.1461–1(c). A withholding

foreign partnership’s obligations to

withhold and report shall be determined

in accordance with its withholding

foreign partnership agreement.

(d) Presumption rules—(1) In general.

This paragraph (d) contains the

applicable presumptions for a

withholding agent (including a

partnership) to determine the

classification and status of a partnership

and its partners in the absence of

documentation. The provisions of

§ 1.1441–1(b)(3)(iv) (regarding the 90-

day grace period) and § 1.1441–

1(b)(3)(vii) through (ix) shall apply for

purposes of this paragraph (d).

(2) Determination of partnership

status as U.S. or foreign in the absence

of documentation. In the absence of a

valid representation of U.S. partnership

status in accordance with paragraph

(b)(1) of this section or of foreign

partnership status in accordance with

paragraph (c)(2)(i) or (3)(i) of this

section, the withholding agent shall

determine the classification of the payee

under the presumptions set forth in

§ 1.1441–1(b)(3)(ii). If the withholding

agent treats the payee as a partnership

under § 1.1441–1(b)(3)(ii), the

withholding agent shall presume the

partnership to be a U.S. partnership

unless there are indicia of foreign status.

If there are indicia of foreign status, the

withholding agent may presume the

partnership to be foreign. Indicia of

foreign status exist only if the

withholding agent has actual knowledge

of the payee’s employer identification

number and that number begins with

the two digits ‘‘98,’’ the withholding

agent’s communications with the payee

are mailed to an address in a foreign

country, or the payment is made outside

the United States (as defined in

§ 1.6049–5(e)). For rules regarding

reliable association with a withholding

certificate from a domestic or a foreign

partnership, see § 1.1441–1(b)(2)(vii).

(3) Determination of partners’ status

in the absence of certain

documentation. If a nonwithholding

foreign partnership has provided a

nonwithholding foreign partnership

withholding certificate under paragraph

(c)(3)(iii) of this section that would be

valid except that the withholding agent

cannot reliably associate all or a portion

of the payment with valid

documentation from a partner of the

partnership, then the withholding agent

may apply the presumption rule of this

paragraph (d)(3) with respect to all or a

portion of the payment for which

documentation has not been received.

See § 1.1441–1(b)(2)(vii)(A) and (B) for

rules regarding reliable association. The

presumption rule of this paragraph

(d)(3) also applies to a person that is

presumed to be a foreign partnership

under the rule of paragraph (d)(2) of this

section. Any portion of a payment that

the withholding agent cannot treat as

reliably associated with valid

documentation from a partner may be

presumed made to a foreign payee. As

a result, any payment of an amount

subject to withholding is subject to

withholding at a rate of 30 percent. Any

payment that is presumed to be made to

an undocumented foreign payee must be

reported on Form 1042–S. See § 1.1461–

1(c).

(4) Determination by a withholding

foreign partnership of the status of its

partners. A withholding foreign

partnership shall determine whether the

partners or some other persons are the

payees of the partners’ distributive

shares of any payment made by a

withholding foreign partnership by

applying the rules of § 1.1441–1(b)(2),

paragraph (c)(1) of this section (in the

case of a partner that is a foreign

partnership), and paragraph (e)(3) of this

section (in the case of a partner that is

a foreign estate or a foreign trust).

Further, the provisions of paragraph

(d)(3) of this section shall apply to

determine the status of partners and the

applicable withholding rates to the

extent that, at the time the foreign

partnership is required to withhold on

a payment, it cannot reliably associate

the amount with documentation for any

one or more of its partners.

(e) Foreign trusts and estates—(1) In

general. This paragraph (e) provides

rules applicable to payments of amounts

subject to withholding (as defined in

§ 1.1441–2(a)) that a withholding agent

may treat as made to any foreign trust

or a foreign estate. For rules relating to

payments to a U.S. trust or a U.S. estate,

see paragraph (b) of this section. For the

definitions of foreign simple trust,

foreign complex trust, and foreign

grantor trust, see § 1.1441–1(c)(24), (25),

and (26).

(2) Payments to foreign complex trusts

and foreign estates. Under § 1.1441–

1(c)(6)(ii)(D), a foreign complex trust or

foreign estate is generally considered to

be the beneficial owner of income paid

to the foreign complex trust or foreign

estate. See paragraph (e)(4) of this

section for rules describing when a

withholding agent may treat a payment

as made to a foreign complex trust or a

foreign estate.

(3) Payees of payments to foreign

simple trusts and foreign grantor

trusts—(i) Payments for which

beneficiaries and owners are payees. For

purposes of the regulations under

chapters 3 and 61 of the Internal

Revenue Code and section 3406, a

foreign simple trust is not a beneficial

owner or a payee of a payment. Also, a

foreign grantor trust (or a portion of a

trust that is a foreign grantor trust) is not

considered a beneficial owner or a

payee of a payment. Except as otherwise

provided in paragraph (e)(3)(ii) of this

section, the payees of a payment made

to a person that the withholding agent

may treat as a foreign simple trust or a

foreign grantor trust (or a portion of a

trust that is a foreign grantor trust) are

determined under the rules of this

paragraph (e)(3)(i). The payees shall be

treated as the beneficial owners if they

may be so treated under § 1.1441–

1(c)(6)(ii)(C) and they provide

documentation supporting their status

as the beneficial owners. The payees of

a payment to a foreign simple trust or

foreign grantor trust are determined as

follows—

(A) If the withholding agent can

reliably associate a payment with a

valid Form W–9 provided under

§ 1.1441–1(d) from a beneficiary or

owner of the foreign trust, then the

beneficiary or owner is a U.S. payee;

(B) If the withholding agent can

reliably associate a payment with a

valid Form W–8, or other appropriate

documentation, provided under

§ 1.1441–1(e)(1)(ii) from a beneficiary or

owner of the foreign trust, then the

beneficiary or owner is a payee that is

a foreign beneficial owner;

(C) If the withholding agent can

reliably associate a payment with a

qualified intermediary withholding

certificate under § 1.1441–1(e)(3)(ii), a

nonqualified intermediary withholding

certificate under § 1.1441–1(e)(3)(ii), or

a U.S. branch withholding certificate

under § 1.1441–1(e)(3)(v), then the rules

of § 1.1441–1(b)(2)(v) shall apply to

determine the payee in the same manner

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32193

as if the payment had been paid directly

to such intermediary or U.S. branch;

(D) If the withholding agent can

reliably associate a payment with a

withholding foreign partnership

withholding certificate under paragraph

(c)(2)(iv) of this section or a

nonwithholding foreign partnership

withholding certificate under paragraph

(c)(3)(iii) of this section, then the rules

of paragraph (c)(1)(i) or (ii) of this

section shall apply to determine the

payee;

(E) If the withholding agent can

reliably associate the payment with a

foreign simple trust withholding

certificate or a foreign grantor trust

withholding certificate (both described

in paragraph (e)(5)(iii) of this section)

from a second or higher-tier foreign

simple trust or foreign grantor trust,

then the rules of this paragraph (e)(3)(i)

or paragraph (e)(3)(ii) of this section

shall apply to determine whether the

payment is treated as made to a

beneficiary or owner of the higher-tier

trust or to the trust itself in the same

manner as if the payment had been

made directly to the higher-tier trust;

and

(F) If the withholding agent cannot

reliably associate a payment with a

withholding certificate or other

appropriate documentation, the payees

shall be determined by applying the

presumptions described in paragraph

(e)(6) of this section.

(ii) Payments for which trust is payee.

A payment to a person that the

withholding agent may treat as made to

a foreign trust under paragraph (e)(5)(iii)

of this section is treated as a payment

to the trust, and not to a beneficiary of

the trust, only if—

(A) The withholding agent can

reliably associate the payment with a

foreign complex trust withholding

certificate under paragraph (e)(4) of this

section;

(B) The withholding agent can

reliably associate the payment with a

foreign simple trust withholding

certificate under paragraph (e)(5)(iii) of

this section certifying that the payment

is income that is treated as effectively

connected with the conduct of a trade

or business in the United States; or

(C) The withholding agent can treat

the income as effectively connected

income under the presumption rules of

§ 1.1441–4(a)(3)(i).

(4) Reliance on claim of foreign

complex trust or foreign estate status. A

withholding agent may treat a payment

as made to a foreign complex trust or a

foreign estate if the withholding agent

can reliably associate the payment with

a beneficial owner withholding

certificate described in § 1.1441–

1(e)(2)(i) or other documentary evidence

under § 1.1441–6(c)(3) or (4) (regarding

a claim for treaty benefits) or § 1.6049–

5(c)(1) (regarding documentary evidence

to establish foreign status for purposes

of chapter 61 of the Internal Revenue

Code) that establishes the foreign

complex trust or foreign estate’s status

as a beneficial owner. See paragraph

(e)(6) of this section for presumption

rules if documentation is lacking.

(5) Foreign simple trust and foreign

grantor trust—(i) Reliance on claim of

foreign simple trust or foreign grantor

trust status. A withholding agent may

treat a person as a foreign simple trust

or foreign grantor trust if it receives

from that person a foreign simple trust

or foreign grantor trust withholding

certificate as described in paragraph

(e)(5)(iii) of this section. A withholding

agent must apply the presumption rules

of §§ 1.1441–1(b)(3) and 1.6049–5(d)

and paragraphs (d) and (e)(6) of this

section to the extent it cannot, prior to

the payment, reliably associate a

payment (within the meaning of

§ 1.1441–1(b)(2)(vii)) with a valid

foreign simple trust or foreign grantor

trust withholding certificate, it cannot

reliably determine how much of the

payment relates to valid documentation

provided by a payee (e.g., a person that

is not itself a nonqualified intermediary,

flow-through entity, or U.S. branch)

associated with the foreign simple trust

or foreign grantor trust withholding

certificate, or it does not have sufficient

information to report the payment on

Form 1042–S or Form 1099, if reporting

is required. See § 1.1441–1(b)(2)(vii)(A)

and (B).

(ii) Reliance on claim of reduced

withholding by a foreign simple trust or

foreign grantor trust for its beneficiaries

or owners. This paragraph (e)(5)(ii)

describes the manner in which a

withholding agent may rely on a claim

of reduced withholding when making a

payment to a foreign simple trust or

foreign grantor trust. To the extent that

a withholding agent treats a payment to

a foreign simple trust or foreign grantor

trust as a payment to payees other than

the trust in accordance with paragraph

(e)(3)(i) of this section, it may rely on a

claim for reduced withholding by a

beneficiary or owner if, prior to the

payment, the withholding agent can

reliably associate the payment (within

the meaning of § 1.1441–1(b)(2)(vii))

with a valid withholding certificate or

other appropriate documentation from a

payee or beneficial owner that

establishes entitlement to a reduced rate

of withholding. A withholding

certificate or other appropriate

documentation that establishes

entitlement to a reduced rate of

withholding is a beneficial owner

withholding certificate described in

§ 1.1441–1(e)(2)(i) or documentary

evidence described in § 1.1441–6(c)(3)

or(4) or in § 1.6049–5(c)(1) (for a

beneficiary or owner claiming to be a

foreign person and a beneficial owner,

determined under the provisions of

§ 1.1441–1(c)(6)), a Form W–9 described

in § 1.1441–1(d) (for a beneficiary or

owner claiming to be a U.S. payee), or

a withholding foreign partnership

withholding certificate described in

paragraph (c)(2)(iv) of this section.

Unless a foreign simple trust or foreign

grantor trust withholding certificate is

provided for income treated as income

effectively connected with the conduct

of a trade or business in the United

States, a claim must be presented for

each payee’s portion of the payment.

When making a claim for several

payees, the trust may present a single

foreign simple trust or foreign grantor

trust withholding certificate with which

the payees’ certificates or other

appropriate documentation are

associated. Where the foreign simple

trust or foreign grantor trust

withholding certificate is provided for

income that is treated as effectively

connected with the conduct of a trade

or business in the United States under

paragraph (e)(5)(iii)(D) of this section,

the claim may be presented without

having to identify any partner’s

distributive share of the payment.

(iii) Withholding certificate from

foreign simple trust or foreign grantor

trust. A withholding certificate

furnished by a foreign simple trust or a

foreign grantor trust that is not a

withholding foreign trust (within the

meaning of paragraph (e)(5)(v) of this

section) is valid only if it is furnished

on a Form W–8, an acceptable substitute

form, or such other form as the IRS may

prescribe, it is signed under penalties of

perjury by a trustee, its validity has not

expired, it contains the information,

statements, and certifications required

by this paragraph (e)(5)(iii) and

§ 1.1441–1(e)(3)(iv), and the

withholding certificates or other

appropriate documentation for all of the

payees (as determined under paragraph

(e)(3)(i) of this section) to whom the

certificate relates are associated with the

foreign simple trust or foreign grantor

trust withholding certificate. The rules

of § 1.1441–1(e)(4) shall apply to

withholding certificates described in

this paragraph (e)(5)(iii). No

withholding certificates or other

appropriate documentation from

persons who derive income through a

foreign simple trust or a foreign grantor

trust (whether or not U.S. exempt

32194 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

recipients) are required to be associated

with the foreign simple trust or foreign

grantor trust withholding certificate if

the certificate is furnished solely for

income that is treated as effectively

connected with the conduct of a trade

or business in the United States.

Withholding certificates and other

appropriate documentation (as

determined under paragraph (e)(3)(i) of

this section) that may be associated with

a foreign simple trust or foreign grantor

trust withholding certificate consist of

beneficial owner withholding

certificates under § 1.1441–1(e)(2)(i),

intermediary withholding certificates

under § 1.1441–1(e)(3)(i), withholding

foreign partnership withholding

certificates under paragraph (c)(2)(iv) of

this section, nonwithholding foreign

partnership withholding certificates

under paragraph (c)(3)(iii) of this

section, withholding certificates from

foreign trusts or estates under paragraph

(e)(4) or (5)(iii) of this section,

documentary evidence described in

§§ 1.1441–6(c)(3) or (4), or 1.6049–

5(c)(1), and any other documentation or

certificates applicable under other

provisions of the Internal Revenue Code

or regulations that certify or establish

the status of the payee or beneficial

owner as a U.S. or a foreign person.

Nothing in this paragraph (e)(5)(iii) shall

require a foreign simple trust or foreign

grantor trust to provide original

documentation. Copies of certificates or

documentary evidence may be passed

up to the U.S. withholding agent, in

which case the foreign simple trust or

foreign grantor trust must retain the

original documentation for the same

time period that the copy is required to

be retained by the withholding agent

under § 1.1441–1(e)(4)(iii) and must

provide it to the withholding agent

upon request. The information,

statement, and certifications required on

a foreign simple trust or foreign grantor

trust withholding certificate are as

follows—

(A) The name, permanent residence

address (as described in § 1.1441–

1(e)(2)(ii)), and the employer

identification number, if required, of the

trust and the country under the laws of

which the trust is created;

(B) A certification that the person

whose name is on the certificate is a

foreign simple trust or a foreign grantor

trust;

(C) A withholding statement

associated with the foreign simple trust

or foreign grantor trust withholding

certificate that provides all of the

information required by paragraph

(e)(5)(iv) of this section. No withholding

statement is required, however, for a

foreign simple trust withholding

certificate furnished for income that is

treated as effectively connected with the

conduct of a trade or business in the

United States;

(D) A certification on a foreign simple

trust withholding certificate that the

income is treated as effectively

connected with the conduct of a trade

or business in the United States, if

applicable; and

(E) Any other information,

certifications, or statements required by

the form or accompanying instructions

in addition to, or in lieu of, the

information, certifications, and

statements described in this paragraph

(e)(5)(iii);

(iv) Withholding statement provided

by a foreign simple trust or foreign

grantor trust. The provisions of

§ 1.1441–1(e)(3)(iv) (regarding a

withholding statement) shall apply to a

foreign simple trust or foreign grantor

trust by substituting the term foreign

simple trust or foreign grantor trust for

the term nonqualified intermediary.

(v) Withholding foreign trusts. The

IRS may enter an agreement with a

foreign trust to treat the trust or estate

as a withholding foreign trust. Such an

agreement shall generally follow the

same principles as an agreement with a

withholding foreign partnership under

paragraph (c)(2)(ii) of this section. A

withholding agent may treat a payment

to a withholding foreign trust in the

same manner the withholding agent

would treat a payment to a withholding

foreign partnership. The IRS may also

enter an agreement to treat a trust as a

qualified intermediary in appropriate

circumstances. See § 1.1441–

1(e)(5)(ii)(D).

(6) Presumption rules—(i) In general.

This paragraph (e)(6) contains the

applicable presumptions for a

withholding agent (including a trust or

estate) to determine the classification

and status of a trust or estate and its

beneficiaries or owners in the absence of

valid documentation. The provisions of

§ 1.1441–1(b)(3)(iv) (regarding the 90-

day grace period) and § 1.1441–

1(b)(3)(vii) through (ix) shall apply for

purposes of this paragraph (e)(6).

(ii) Determination of status as U.S. or

foreign trust or estate in the absence of

documentation. In the absence of valid

documentation that establishes the U.S.

status of a trust or estate under

paragraph (b)(1) of this section and of

documentation that establishes the

foreign status of a trust or estate under

paragraph (e)(4) or (5)(iii) of this section,

the withholding agent shall determine

the classification of the payee based

upon the presumptions set forth in

§ 1.1441–1(b)(3)(ii). If, based upon those

presumptions, the withholding agent

classifies the payee as a trust or estate,

the trust or estate shall be presumed to

be a U.S. trust or U.S. estate unless there

are indicia of foreign status, in which

case the trust or estate shall be

presumed to be foreign. Indicia of

foreign status exists if the withholding

agent has actual knowledge of the

payee’s employer identification number

and that number begins with the two

digits ‘‘98,’’ the withholding agent’s

communications with the payee are

mailed to an address in a foreign

country, or the payment is made outside

the United States (as defined in

§ 1.6049–5(e)). If an undocumented

payee is presumed to be a foreign trust

it shall be presumed to be a foreign

complex trust. If a withholding agent

has documentary evidence that

establishes that an entity is a foreign

trust, but the withholding agent cannot

determine whether the foreign trust is a

complex trust, a simple trust, or foreign

grantor trust, the withholding agent may

presume that the trust is a foreign

complex trust.

(iii) Determination of beneficiary or

owner’s status in the absence of certain

documentation. If a foreign simple trust

or foreign grantor trust has provided a

foreign simple trust or foreign grantor

trust withholding certificate under

paragraph (e)(5)(iii) of this section but

the payment to such trust cannot be

reliably associated with valid

documentation from a specific

beneficiary or owner of the trust, then

any portion of a payment that a

withholding agent cannot treat as

reliably associated with valid

documentation from a beneficiary or

owner may be presumed made to a

foreign payee. As a result, any payment

of an amount subject to withholding is

subject to withholding at a rate of 30

percent. Any such payment that is

presumed to be made to an

undocumented foreign person must be

reported on Form 1042–S. See § 1.1461–

1(c).

* * * * *

Par. 8. Effective January 1, 2001,

§ 1.1441–6 is amended by:

1. Revising paragraphs (b)(1), (b)(2),

and (b)(3).

2. Removing paragraph (b)(4) and

redesignating paragraph (b)(5) as new

paragraph (b)(4).

3. Revising paragraphs (c) and (e).

The revisions read as follows:

§ 1.1441–6 Claim of reduced withholding

under an income tax treaty.

* * * * *

(b) Reliance on claim of reduced

withholding under an income tax

treaty—(1) In general. The withholding

imposed under section 1441, 1442, or

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32195

1443 on any payment to a foreign

person is eligible for reduction under

the terms of an income tax treaty only

to the extent that such payment is

treated as derived by a resident of an

applicable treaty jurisdiction, such

resident is a beneficial owner, and all

other requirements for benefits under

the treaty are satisfied. See section 894

and the regulations thereunder to

determine whether a resident of a treaty

country derives the income. Absent

actual knowledge or reason to know

otherwise, a withholding agent may rely

on a claim that a beneficial owner is

entitled to a reduced rate of withholding

based upon an income tax treaty if, prior

to the payment, the withholding agent

can reliably associate the payment with

a beneficial owner withholding

certificate, described in § 1.1441–1(e)(2),

that contains the information necessary

to support the claim, or, in the case of

a payment of income described in

paragraph (c)(2) of this section made

outside the United States with respect to

an offshore account, documentary

evidence described in paragraphs (c)(3),

(4) and (5) of this section. See

§§ 1.6049–5(e) for the definition of

payments made outside the United

States and 1.6049–5(c)(1) for the

definition of offshore account. For

purposes of this paragraph (b)(1), a

beneficial owner withholding certificate

described in § 1.1441–1(e)(2)(i) contains

information necessary to support the

claim for a treaty benefit only if it

includes the beneficial owner’s taxpayer

identifying number (except as otherwise

provided in paragraph (c)(1) of this

section) and the representations that the

beneficial owner derives the income

under section 894 and the regulations

thereunder, if required, and meets the

limitation on benefits provisions of the

treaty, if any. The withholding

certificate must also contain any other

representations required by this section

and any other information,

certifications, or statements as may be

required by the form or accompanying

instructions in addition to, or in place

of, the information and certifications

described in this section. Absent actual

knowledge or reason to know that the

claims are incorrect (and subject to the

standards of knowledge in § 1.1441–

7(b)), a withholding agent may rely on

the claims made on a withholding

certificate or on documentary evidence.

A withholding agent may also rely on

the information contained in a

withholding statement provided under

§§ 1.1441–1(e)(3)(iv) and 1.1441–

5(c)(3)(iv) and (e)(5)(iv) to determine

whether the appropriate statements

regarding section 894 and limitation on

benefits have been provided in

connection with documentary evidence.

If the beneficial owner is a person

related to the withholding agent within

the meaning of section 482, the

withholding certificate must also

contain a representation that the

beneficial owner will file the statement

required under § 301.6114–1(d) of this

chapter (if applicable). The requirement

to file an information statement under

section 6114 for income subject to

withholding applies only to amounts

received during the calendar year that,

in the aggregate, exceed $500,000. See

§ 301.6114–1(d) of this chapter. The

Internal Revenue Service (IRS) may

apply the provisions of § 1.1441–

1(e)(1)(ii)(B) to notify the withholding

agent that the certificate cannot be

relied upon to grant benefits under an

income tax treaty. See § 1.1441–

1(e)(4)(viii) regarding reliance on a

withholding certificate by a withholding

agent. The provisions of § 1.1441–

1(b)(3)(iv) dealing with a 90-day grace

period shall apply for purposes of this

section.

(2) Payment to fiscally transparent

entity—(i) In general. If the person

claiming a reduced rate of withholding

under an income tax treaty is the

interest holder of an entity that is

considered to be fiscally transparent (as

defined in the regulations under section

894) by the interest holder’s jurisdiction

with respect to an item of income, then,

with respect to such income derived by

that person through the entity, the entity

shall be treated as a flow-through entity

and may provide a flow-through

withholding certificate with which the

withholding certificate or other

documentary evidence of the interest

holder that supports the claim for treaty

benefits is associated. For purposes of

the preceding sentence, interest holders

do not include any direct or indirect

interest holders that are themselves

treated as fiscally transparent entities

with respect to that income by the

interest holder’s jurisdiction. See

§ 1.1441–1(c)(23) and (e)(3)(i) for the

definition of flow-through entity and

flow-through withholding certificate.

The entity may provide a beneficial

owner withholding certificate, or

beneficial owner documentation, with

respect to any remaining portion of the

income to the extent the entity is

receiving income and is not treated as

fiscally transparent by its own

jurisdiction. Further, the entity may

claim a reduced rate of withholding

with respect to the portion of a payment

for which it is not treated as fiscally

transparent if it meets all the

requirements to make such a claim and,

in the case of treaty benefits, it provides

the documentation required by

paragraph (b)(1) of this section. If dual

claims, as described in paragraph

(b)(2)(iii) of this section, are made,

multiple withholding certificates may

have to be furnished. Multiple

withholding certificates may also have

to be furnished if the entity receives

income for which a reduction of

withholding is claimed under a

provision of the Internal Revenue Code

(e.g., portfolio interest) and income for

which a reduction of withholding is

claimed under an income tax treaty.

(ii) Certification by qualified

intermediary. Notwithstanding

paragraph (b)(2)(i) of this section, a

foreign entity that is fiscally transparent,

as defined in the regulations under

section 894, that is also a qualified

intermediary for purposes of claiming a

reduced rate of withholding under an

income tax treaty for its interest holders

(who are deriving the income paid to

the entity as residents of an applicable

treaty jurisdiction) may furnish a single

qualified intermediary withholding

certificate, as described in § 1.1441–

1(e)(3)(ii), for amounts for which it

claims a reduced rate of withholding

under an income tax treaty on behalf of

its interest holders.

(iii) Dual treatment. Under paragraph

(b)(2)(i) of this section, a withholding

agent may make a payment to a foreign

entity that is simultaneously claiming to

be the beneficial owner of a portion of

the income (whether or not it is also

claiming a reduced rate of tax on its

own behalf) and a reduced rate on

behalf of persons in their capacity as

interest holders in the entity with

respect to the same, or a different,

portion of the income. If the same

portion of a payment may be reliably

associated with both the entity’s claim

and an interest holder’s claim, the

withholding agent may choose to reject

both claims and request new

documentation and information

allocating the payment among the

beneficial owners of the payment or the

withholding agent may choose which

claim to apply. If the entity and the

interest holder’s claims are reliably

associated with separate portions of the

payment, the withholding agent may, at

its option, accept such dual claims

based on withholding certificates or

other appropriate documentation

furnished by the entity and its interest

holders with respect to their respective

shares of the payment even though this

will result in the withholding agent

treating the entity differently with

respect to different portions of the same

payment. Alternatively, the withholding

agent may choose to apply only the

32196 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

claim made by the entity, provided the

entity may be treated as a beneficial

owner of the income. If the withholding

agent does not accept claims for a

reduced rate of withholding presented

by any one or more of the interest

holders, or by the entity, any interest

holder or the entity may subsequently

claim a refund or credit of any amount

so withheld to the extent the interest

holder’s or entity’s share of such

withholding exceeds the amount of tax

due.

(iv) Examples. The following

examples illustrate the rules of this

paragraph (b)(2):

Example 1. (i) Facts. Entity E is a business

organization formed under the laws of

country Y. Country Y has an income tax

treaty with the United States. The treaty

contains a limitation on benefits provision. E

receives U.S. source royalties from

withholding agent W and claims a reduced

rate of withholding under the U.S.-Y tax

treaty on its own behalf (rather than on

behalf of its interest holders). E furnishes a

beneficial owner withholding certificate

described in paragraph (b)(1) of this section

that represents that E is a resident of country

Y (within the meaning of the U.S.-Y tax

treaty), is the beneficial owner of the income,

derives the income under section 894 and the

regulations thereunder, and is not precluded

from claiming benefits by the treaty’s

limitation on benefits provision.

(ii) Analysis. Absent actual knowledge or

reason to know otherwise, W may rely on the

representations made by E to apply a reduced

rate of withholding.

Example 2. (i) Facts. The facts are the same

as under Example 1, except that one of E’s

interest holders, H, is an entity organized in

country Z. The U.S.-Z tax treaty reduces the

rate on royalties to zero whereas the rate on

royalties under the U.S.-Y tax treaty

applicable to E is 5 percent. H is not fiscally

transparent under country Z’s tax law with

respect to such income. H furnishes a

beneficial owner withholding certificate to E

that represents that H derives, within the

meaning of section 894 and the regulations

thereunder, its share of the royalty income

paid to E as a resident of country Z, is the

beneficial owner of the royalty income, and

is not precluded from claiming treaty benefits

by virtue of the limitation on benefits

provision in the U.S.-Z treaty. E furnishes to

W a flow-through withholding certificate

described in § 1.1441–1(e)(3)(i) to which it

attaches H’s beneficial owner withholding

certificate and a withholding statement for

the portion of the payment that H claims as

its distributive share of the royalty income.

E also furnishes to W a beneficial owner

withholding certificate for itself for the

portion of the payment that H does not claim

as its distributive share.

(ii) Analysis. Absent actual knowledge or

reason to know otherwise, W may rely on the

documentation furnished by E to treat the

royalty payment to a single foreign entity (E)

as derived by different residents of tax treaty

countries as a result of the claims presented

under different treaties. W may, at its option,

grant dual treatment, that is, a reduced rate

of zero percent under the U.S.-Z treaty on the

portion of the royalty payment that H claims

to derive as a resident of country Z and a

reduced rate of 5 percent under the U.S.-Y

treaty for the balance. However, under

paragraph (b)(2)(iii) of this section, W may,

at its option, treat E as the only relevant

person deriving the royalty and grant benefits

under the U.S.-Y treaty only.

Example 3. (i) Facts. E is a business

organization formed under the laws of

country X. Country X has an income tax

treaty with the United States. E has two

interest holders, H1, organized in country Y,

and H2, organized in country Z. E receives

from W, a U.S. withholding agent, U.S.

source royalties and interest that is eligible

for the portfolio interest exception under

sections 871(h) and 881(c), provided W

receives the appropriate beneficial owner

statement required under section 871(h)(5). E

is classified as a corporation under U.S. tax

law principles. Country X, E’s country of

organization, treats E as an entity that is not

fiscally transparent with respect to items of

income under the regulations under section

894. Under the U.S.-X income tax treaty,

royalties are subject to 5 percent rate of

withholding. Country Y, H1’s country of

organization, treats E as fiscally transparent

with respect to items of income under section

894 and H1 as not fiscally transparent with

respect to items of income. Under the

country Y-U.S. income tax treaty, royalties

are exempt from U.S. tax. Country Z, H2’s

country of organization, treats E as not

fiscally transparent under section 894 with

respect to items of income. E provides W

with a flow-through beneficial owner

withholding certificate with which it

associates a beneficial owner withholding

certificate from H1. H1’s withholding

certificate states that H1 is a resident of

country Y, derives the royalty income under

section 894, meets the applicable limitations

on benefits provisions of the U.S.-Y treaty,

and is the beneficial owner of the income.

The withholding statement attached to E’s

flow-through withholding certificate

allocates one-half of the royalty payment to

H1. E also provides W with a beneficial

owner withholding certificate for the interest

income and the remaining one-half of the

royalty income. The withholding certificate

states that E is a resident of country X,

derives the royalty income under section 894,

meets the limitation on benefits provisions of

the U.S.-X treaty, and is the beneficial owner

of the income.

(ii) Analysis. Absent actual knowledge or

reason to know that the claims are incorrect,

W may treat one-half of the royalty derived

by E as subject to a 5 percent withholding

rate and one-half of the royalty as derived by

H1 and subject to no withholding. Further, it

may treat all of the interest as being paid to

E and as qualifying for the portfolio interest

exception. W can, at its option, treat the

entire royalty as paid to E and subject it to

withholding at a 5 percent rate of

withholding. In that case, H1 would be

entitled to claim a refund with respect to its

one-half of the royalty.

(3) Certified TIN. The IRS may issue

guidance requiring a foreign person

claiming treaty benefits and for whom a

TIN is required to establish with the

IRS, at the time the TIN is requested or

after the TIN is issued, that the person

is a resident in a treaty country and

meets other conditions (such as

limitation on benefits provisions) of the

treaty. See § 601.601(d)(2) of this

chapter.

* * * * *

(c) Exemption from requirement to

furnish a taxpayer identifying number

and special documentary evidence rules

for certain income—(1) General rule. In

the case of income described in

paragraph (c)(2) of this section, a

withholding agent may rely on a

beneficial owner withholding certificate

described in paragraph (b)(1) of this

section without regard to the

requirement that the withholding

certificate include the beneficial

owner’s taxpayer identifying number. In

the case of payments of income

described in paragraph (c)(2) of this

section made outside the United States

(as defined in § 1.6049–5(e)) with

respect to an offshore account (as

defined in § 1.6049–5(c)(1)), a

withholding agent may, as an alternative

to a withholding certificate described in

paragraph (b)(1) of this section, rely on

a certificate of residence described in

paragraph (c)(3) of this section or

documentary evidence described in

paragraph (c)(4) of this section, relating

to the beneficial owner, that the

withholding agent has reviewed and

maintains in its records in accordance

with § 1.1441-1(e)(4)(iii). In the case of

a payment to a person other than an

individual, the certificate of residence

or documentary evidence must be

accompanied by the statements

described in paragraphs (c)(5)(i) and (ii)

of this section regarding limitation on

benefits and whether the amount paid is

derived by such person or by one of its

interest holders. The withholding agent

maintains the reviewed documents by

retaining either the documents viewed

or a photocopy thereof and noting in its

records the date on which, and by

whom, the documents were received

and reviewed. This paragraph (c)(1)

shall not apply to amounts that are

exempt from withholding based on a

claim that the income is effectively

connected with the conduct of a trade

or business in the United States.

(2) Income to which special rules

apply. The income to which paragraph

(c)(1) of this section applies is dividends

and interest from stocks and debt

obligations that are actively traded,

dividends from any redeemable security

issued by an investment company

registered under the Investment

Company Act of 1940 (15 U.S.C. 80a–1),

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32197

dividends, interest, or royalties from

units of beneficial interest in a unit

investment trust that are (or were upon

issuance) publicly offered and are

registered with the Securities and

Exchange Commission under the

Securities Act of 1933 (15 U.S.C. 77a)

and amounts paid with respect to loans

of securities described in this paragraph

(c)(2). For purposes of this paragraph

(c)(2), a stock or debt obligation is

actively traded if it is actively traded

within the meaning of section 1092(d)

and § 1.1092(d)–1 when documentation

is provided.

(3) Certificate of residence. A

certificate of residence referred to in

paragraph (c)(1) of this section is a

certification issued by an appropriate

tax official of the treaty country of

which the taxpayer claims to be a

resident that the taxpayer has filed its

most recent income tax return as a

resident of that country (within the

meaning of the applicable tax treaty).

The certificate of residence must have

been issued by such official within three

years prior to its being presented to the

withholding agent, or such other period

as the IRS may prescribe in published

guidance (see § 601.601(d)(2) of this

chapter). See § 1.1441–1(e)(4)(ii)(A) for

the period during which a withholding

agent may rely on a certificate of

residence. The competent authorities

may agree to a different procedure for

certifying residence, in which case such

procedure shall govern for payments

made to a person claiming to be a

resident of the country with which such

an agreement is in effect.

(4) Documentary evidence

establishing residence in the treaty

country—(i) Individuals. For an

individual, the documentary evidence

referred to in paragraph (c)(1) of this

section is any documentation that

includes the individuals name, address,

and photograph, is an official document

issued by an authorized governmental

body (i.e., a government or agency

thereof, or a municipality), and has been

issued no more than three years prior to

presentation to the withholding agent. A

document older than three years may be

relied upon as proof of residence only

if it is accompanied by additional

evidence of the person’s residence in

the treaty country (e.g., a bank

statement, utility bills, or medical bills).

Documentary evidence must be in the

form of original documents or certified

copies thereof.

(ii) Persons other than individuals.

For a person other than an individual,

the documentary evidence referred to in

paragraph (c)(1) of this section is any

documentation that includes the name

of the entity and the address of its

principal office in the treaty country,

and is an official document issued by an

authorized governmental body (e.g., a

government or agency thereof, or a

municipality).

(5) Statements regarding entitlement

to treaty benefits—(i) Statement

regarding conditions under a limitation

on benefits provision. In addition to the

documentary evidence described in

(c)(4)(ii) of this section, a taxpayer that

is not an individual must provide a

statement that it meets one or more of

the conditions set forth in the limitation

on benefits article (if any, or in a similar

provision) contained in the applicable

tax treaty.

(ii) Statement regarding whether the

taxpayer derives the income. A taxpayer

that is not an individual must also

provide, in addition to the documentary

evidence and the statement described in

paragraph (c)(5)(i) of this section, a

statement that any income for which it

intends to claim benefits under an

applicable income tax treaty is income

that will properly be treated as derived

by itself as a resident of the applicable

treaty jurisdiction within the meaning of

section 894 and the regulations

thereunder. This requirement does not

apply if the taxpayer furnishes a

certificate of residence that certifies that

fact.

* * * * *

(e) Competent authority. The

procedures described in this section

may be modified to the extent the U.S.

competent authority may agree with the

competent authority of a country with

which the United States has an income

tax treaty in effect.

* * * * *

Par. 9. Effective January 1, 2001,

§ 1.1441–7 is amended by:

1. Revising paragraphs (a), (b)(2) and

(b)(3).

2. Adding paragraphs (b)(4) through

(b)(11).

The revisions and additions read as

follows:

§ 1.1441–7 General provisions relating to

withholding agents.

(a) Withholding agent defined—(1) In

general. For purposes of chapter 3 of the

Internal Revenue Code and the

regulations under such chapter, the term

withholding agent means any person,

U.S. or foreign, that has the control,

receipt, custody, disposal, or payment of

an item of income of a foreign person

subject to withholding, including (but

not limited to) a foreign intermediary

described in § 1.1441–1(e)(3)(i), a

foreign partnership, or a U.S. branch

described in § 1.1441–1(b)(2)(iv)(A) or

(E). See §§ 1.1441–1(b)(2) and (3) and

1.1441–5(c), (d), and (e), for rules to

determine whether a payment is

considered made to a foreign person.

Any person who meets the definition of

a withholding agent is required to

deposit any tax withheld under

§ 1.1461–1(a) and to make the returns

prescribed by § 1.1461–1(b) and (c),

except as otherwise may be required by

a qualified intermediary withholding

agreement, a withholding foreign

partnership agreement, or a withholding

foreign trust agreement. When several

persons qualify as withholding agents

with respect to a single payment, only

one tax is required to be withheld and

deposited. See § 1.1461–1. A person

who, as a nominee described in

§ 1.6031(c)–1T, has furnished to a

partnership all of the information

required to be furnished under

§ 1.6031(c)–1T(a) shall not be treated as

a withholding agent if it has notified the

partnership that it is treating the

provision of information to the

partnership as a discharge of its

obligations as a withholding agent.

(2) Examples. The following examples

illustrate the rules of paragraph (a)(1) of

this section:

Example 1. USB is a broker organized in

the United States. USB pays U.S. source

dividends and interest, which are amounts

subject to withholding under § 1.1441–2(a),

to FC, a foreign corporation that has an

investment account with USB. USB is a

withholding agent as defined in paragraph

(a)(1) of this section.

Example 2. USB is a bank organized in the

United States. FB is a bank organized in

country X. X has an omnibus account with

USB through which FB invests in debt and

equity instruments that pay amounts subject

to withholding as defined in § 1.1441–2(a).

FB is a nonqualified intermediary, as defined

in § 1.1441–1(c)(14). Both USB and FB are

withholding agents as defined in paragraph

(a)(1) of this section.

Example 3. The facts are the same as in

Example 2, except that FB is a qualified

intermediary. Both USB and FB are

withholding agents as defined in paragraph

(a)(1) of this section.

Example 4. FB is a bank organized in

country X. FB has a branch in the United

States. FB’s branch has customers that are

foreign persons who receive amounts subject

to withholding, as defined in § 1.1441–2(a).

FB is a withholding agent under paragraph

(a)(1) of this section and is required to

withhold and report payments of amounts

subject to withholding in accordance with

chapter 3 of the Internal Revenue Code.

Example 5. X is a foreign corporation. X

pays dividends to shareholders who are

foreign persons. Under section 861(a)(2)(B), a

portion of the dividends are from sources

within the United States and constitute

amounts subject to withholding within the

meaning of § 1.1441–2(a). The dividends are

not subject to tax under section 884(a). See

884(e)(3). X is a withholding agent under

paragraph (a)(1) of this section.

32198 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

(b) * * *

(2) Reason to know. A withholding

agent shall be considered to have reason

to know if its knowledge of relevant

facts or of statements contained in the

withholding certificates or other

documentation is such that a reasonably

prudent person in the position of the

withholding agent would question the

claims made.

(3) Financial institutions—limits on

reason to know. For purposes of this

paragraph (b)(3) and paragraphs (b)(4)

through (b)(10) of this section, the terms

withholding certificate, documentary

evidence, and documentation are

defined in § 1.1441–1(c)(16), (17) and

(18). Except as otherwise provided in

paragraphs (b)(4) through (b)(9) of this

section, a withholding agent that is a

financial institution (including a

regulated investment company) that has

a direct account relationship with a

beneficial owner (a direct account

holder) has a reason to know, with

respect to amounts described in

§ 1.1441–6(c)(2), that documentation

provided by the direct account holder is

unreliable or incorrect only if one or

more of the circumstances described in

paragraphs (b)(4) through (b)(9) of this

section exist. If a direct account holder

has provided documentation that is

unreliable or incorrect under the rules

of paragraph (b)(4) through (b)(9) of this

section, the withholding agent may

require new documentation.

Alternatively, the withholding agent

may rely on the documentation

originally provided if the rules of

paragraphs (b)(4) through (b)(9) of this

section permit such reliance based on

additional statements and

documentation. Paragraph (b)(10) of this

section provides limits on reason to

know for financial institutions that

receive beneficial owner documentation

from persons (indirect account holders)

that have an account relationship with,

or an ownership interest in, a direct

account holder. For rules regarding

reliance on Form W–9, see § 31.3406(g)-

3(e)(2) of this chapter.

(4) Rules applicable to withholding

certificates—(i) In general. A

withholding agent has reason to know

that a beneficial owner withholding

certificate provided by a direct account

holder in connection with a payment of

an amount described in § 1.1441–6(c)(2)

is unreliable or incorrect if the

withholding certificate is incomplete

with respect to any item on the

certificate that is relevant to the claims

made by the direct account holder, the

withholding certificate contains any

information that is inconsistent with the

direct account holder’s claim, the

withholding agent has other account

information that is inconsistent with the

direct account holder’s claim, or the

withholding certificate lacks

information necessary to establish

entitlement to a reduced rate of

withholding. A withholding agent shall

also treat a withholding certificate as

unreliable or incorrect if the name of the

person on the withholding certificate

indicates that the person is a

corporation, partnership, trust, estate, or

an individual, and the person’s claim of

classification (e.g. individual,

partnership, corporation) is not

consistent with such indication and a

difference in classification would result

in a different rate of withholding or a

difference in the person or persons to

whom the payment is reported under

§ 1.1461–1(c) of chapter 61 of the

Internal Revenue Code. For purposes of

establishing a direct account holder’s

status as a foreign person or resident of

a treaty country a withholding

certificate shall be considered unreliable

or inconsistent with an account holder’s

claims only if it is not reliable under the

rules of paragraph (b)(5) and (6) of this

section. A withholding agent that relies

on an agent to review and maintain a

withholding certificate is considered to

know or have reason to know the facts

within the knowledge of the agent.

(ii) Examples. The rules of paragraph

(b)(4) of this section are illustrated by

the following examples:

Example 1. F, a foreign person that has a

direct account relationship with USB, a bank

that is a U.S. person, provides USB with a

beneficial owner withholding certificate for

the purpose of claiming a reduced rate of

withholding on U.S. source dividends. F

resides in a treaty country that has a

limitation on benefits provision in its income

tax treaty with the United States. The

withholding certificate, however, does not

contain a statement regarding limitations on

benefits or deriving the income under section

894 as required by § 1.1441–6(b)(1). USB

cannot rely on the withholding certificate to

grant a reduced rate of withholding because

it is incomplete with respect to the claim

made by F.

Example 2. F, a foreign person that has a

direct account relationship with USB, a

broker that is a U.S. person, provides USB

with a withholding certificate for the purpose

of claiming the portfolio interest exception

under section 881(c), which applies to

foreign corporations. F indicates on its

withholding certificate, however, that it is a

partnership. USB may not treat F as a

beneficial owner of the interest for purposes

of the portfolio interest exception because F

has indicated on its withholding certificate

that it is a foreign partnership, and therefore

under § 1.1441–1(c)(6)(ii) it is not the

beneficial owner of the interest payment.

(5) Withholding certificate—

establishment of foreign status. A

withholding agent has reason to know

that a beneficial owner withholding

certificate (as defined in § 1.1441–

1(e)(2)) provided by a direct account

holder in connection with a payment of

an amount described in § 1.1441–6(c)(2)

is unreliable or incorrect for purposes of

establishing the account holder’s status

as a foreign person if the certificate is

described in paragraph (b)(5)(i) or (ii) of

this section.

(i) A withholding certificate is

unreliable or incorrect if the

withholding certificate has a permanent

residence address (as defined in

§ 1.1441–1(e)(2)(ii)) in the United States,

the withholding certificate has a mailing

address in the United States, the

withholding agent has a residence or

mailing address as part of its account

information that is an address in the

United States, or the direct account

holder notifies the withholding agent of

a new residence or mailing address in

the United States (whether or not

provided on a withholding certificate).

A withholding agent may, however, rely

on the beneficial owner withholding

certificate as establishing the account

holder’s foreign status if it may do so

under the provisions of paragraph

(b)(5)(i)(A) or (B) of this section.

(A) A withholding agent may treat a

direct account holder as a foreign

person if the beneficial owner

withholding certificate has been

provided by an individual and—

(1) The withholding agent has in its

possession or obtains documentary

evidence (which does not contain a U.S.

address) that is no more than three years

old, the documentary evidence supports

the claim of foreign status, and the

direct account holder provides the

withholding agent with a reasonable

explanation, in writing, supporting the

account holder’s foreign status; or

(2) The account is maintained at an

office of the withholding agent outside

the United States and the withholding

agent is required to report annually a

payment to the direct account holder on

a tax information statement that is filed

with the tax authority of the country in

which the office is located and that

country has an income tax treaty in

effect with the United States.

(B) A withholding agent may treat an

account holder as a foreign person if the

beneficial owner withholding certificate

has been provided by an entity that the

withholding agent does not know, or

does not have reason to know, is a flowthrough entity and—

(1) The withholding agent has in its

possession, or obtains, documentation

that substantiates that the entity is

actually organized or created under the

laws of a foreign country; or

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32199

(2) The account is maintained at an

office of the withholding agent outside

the United States and the withholding

agent is required to report annually a

payment to the direct account holder on

a tax information statement that is filed

with the tax authority of the country in

which the office is located and that

country has an income tax treaty in

effect with the United States.

(ii) A beneficial owner withholding

certificate is unreliable or incorrect if it

is provided with respect to an offshore

account (as defined in § 1.6049–5(c)(1))

and the direct account holder has

standing instructions directing the

withholding agent to pay amounts from

its account to an address or an account

maintained in the United States. The

withholding agent may treat the direct

account holder as a foreign person,

however, if the direct account holder

provides a reasonable explanation in

writing that supports its foreign status.

(6) Withholding certificate—claim of

reduced rate of withholding under

treaty. A withholding agent has reason

to know that a withholding certificate

(other than Form W–9) provided by a

direct account holder in connection

with a payment of an amount described

in § 1.1441–6(c)(2) is unreliable or

incorrect for purposes of establishing

that the direct account holder is a

resident of a country with which the

United States has an income tax treaty

if it is described in paragraphs (b)(6)(i)

through (iii) of this section.

(i) A beneficial owner withholding

certificate is unreliable or incorrect if

the permanent residence address on the

beneficial owner withholding certificate

is not in the country whose treaty is

invoked, or the direct account holder

notifies the withholding agent of a new

permanent residence address that is not

in the treaty country. A withholding

agent may, however, treat a direct

account holder as entitled to a reduced

rate of withholding under an income tax

treaty if the direct account holder

provides a reasonable explanation for

the permanent residence address

outside the treaty country (e.g., the

address is the address of a branch of the

beneficial owner located outside the

treaty country in which the entity is a

resident) or the withholding agent has

in its possession, or obtains,

documentary evidence that establishes

residency in a treaty country.

(ii) A beneficial owner withholding

certificate is unreliable or incorrect if

the permanent residence address on the

withholding certificate is in the

applicable treaty country but the

withholding certificate contains a

mailing address outside the treaty

country or the withholding agent has a

mailing address as part of its account

information that is outside the treaty

country. A mailing address that is a P.O.

Box, in-care-of address, or address at a

financial institution (if the financial

institution is not a beneficial owner)

shall not preclude a withholding agent

from treating the direct account holder

as a resident of a treaty country if such

address is in the treaty country. If a

withholding agent has a mailing address

(whether or not contained on the

withholding certificate) outside the

applicable treaty country, the

withholding agent may nevertheless

treat a direct account holder as a

resident of an applicable treaty country

if—

(A) The withholding agent has in its

possession, or obtains, additional

documentation supporting the direct

account holder’s claim of residence in

the applicable treaty country (and the

additional documentation does not

contain an address outside the treaty

country);

(B) The withholding agent has in its

possession, or obtains, documentation

that establishes that the direct account

holder is an entity organized in a treaty

country (or an entity managed and

controlled in a treaty country, if the

applicable treaty so requires);

(C) The withholding agent knows that

the address outside the applicable treaty

country (other than a P.O. box, or incare-of address) is a branch of a bank or

insurance company that is a resident of

the applicable treaty country; or

(D) The withholding agent obtains a

written statement from the direct

account holder that reasonably

establishes entitlement to treaty

benefits.

(iii) A beneficial owner withholding

certificate is unreliable or incorrect to

establish entitlement to a reduced rate

of withholding under an income tax

treaty if the direct account holder has

standing instructions for the

withholding agent to pay amounts from

its account to an address or an account

outside the treaty country unless the

direct account holder provides a

reasonable explanation, in writing,

establishing the direct account holder’s

residence in the applicable treaty

country.

(7) Documentary evidence. A

withholding agent shall not treat

documentary evidence provided by a

direct account holder as valid if the

documentary evidence does not

reasonably establish the identity of the

person presenting the documentary

evidence. For example, documentary

evidence is not valid if it is provided in

person by a direct account holder that

is a natural person and the photograph

or signature on the documentary

evidence, if any, does not match the

appearance or signature of the person

presenting the document. A

withholding agent shall not rely on

documentary evidence to reduce the

rate of withholding that would

otherwise apply under the presumption

rules of §§ 1.1441–1(b)(3), 1.1441–5(d)

and (e)(6), and 1.6049–5(d) if the

documentary evidence contains

information that is inconsistent with the

direct account holder’s claim of a

reduced rate of withholding, the

withholding agent has other account

information that is inconsistent with the

direct account holder’s claim, or the

documentary evidence lacks

information necessary to establish

entitlement to a reduced rate of

withholding. For example, if a direct

account holder provides documentary

evidence to claim treaty benefits and the

documentary evidence establishes the

direct account holder’s status as a

foreign person and a resident of a treaty

country, but the account holder fails to

provide the treaty statements required

by § 1.1441–6(c)(5), the documentary

evidence does not establish the direct

account holder’s entitlement to a

reduced rate of withholding. For

purposes of establishing a direct

account holder’s status as a foreign

person or resident of a country with

which the United States has an income

tax treaty with respect to income

described in § 1.1441–6(c)(2),

documentary evidence shall be

considered unreliable or incorrect only

if it is not reliable under the rules of

paragraph (b)(8) and (9) of this section.

(8) Documentary evidence—

establishment of foreign status. A

withholding agent has reason to know

that documentary evidence provided in

connection with a payment of an

amount described in § 1.1441–6(c)(2) is

unreliable or incorrect for purposes of

establishing the direct account holder’s

status as a foreign person if the

documentary evidence is described in

paragraphs (b)(8)(i), (ii), (iii) or (iv) of

this section.

(i) A withholding agent shall not treat

documentary evidence provided by an

account holder after December 31, 2000,

as valid for purposes of establishing the

direct account holder’s foreign status if

the only mailing or residence address

that is available to the withholding

agent is an address at a financial

institution (unless the financial

institution is a beneficial owner of the

income), an in-care-of address, or a P.O.

box. In this case, the withholding agent

must obtain additional documentation

that is sufficient to establish the direct

account holder’s status as a foreign

32200 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

person. A withholding agent shall not

treat documentary evidence provided by

an account holder before January 1,

2001, as valid for purposes of

establishing a direct account holder’s

status as a foreign person if it has actual

knowledge that the direct account

holder is a U.S. person or if it has a

mailing or residence address for the

direct account holder in the United

States. If a withholding agent has an

address for the direct account holder in

the United States, the withholding agent

may nevertheless treat the direct

account holder as a foreign person if it

can so treat the direct account holder

under the rules of paragraph (b)(8)(ii) of

this section. ’

(ii) Documentary evidence is

unreliable or incorrect to establish a

direct account holder’s status as a

foreign person if the withholding agent

has a mailing or residence address

(whether or not on the documentation)

for the direct account holder in the

United States or if the direct account

holder notifies the withholding agent of

a new address in the United States. A

withholding agent may, however, rely

on documentary evidence as

establishing the direct account holder’s

foreign status if it may do so under the

provisions of paragraph (b)(8)(ii)(A) or

(B) of this section.

(A) A withholding agent may treat a

direct account holder that is an

individual as a foreign person even if it

has a mailing or residence address for

the direct account holder in the United

States if the withholding agent—

(1) Has in its possession or obtains

additional documentary evidence

(which does not contain a U.S. address)

supporting the claim of foreign status

and a reasonable explanation in writing

supporting the account holder’s foreign

status;

(2) Has in its possession or obtains a

valid beneficial owner withholding

certificate on Form W–8 and the Form

W–8 contains a permanent residence

address outside the United States and a

mailing address outside the United

States (or if a mailing address is inside

the United States the direct account

holder provides a reasonable

explanation in writing supporting the

direct account holder’s foreign status);

or

(3) The account is maintained at an

office of the withholding agent outside

the United States and the withholding

agent is required to report annually a

payment to the direct account holder on

a tax information statement that is filed

with the tax authority of the country in

which the office is located and that

country has an income tax treaty in

effect with the United States.

(B) A withholding agent may treat a

direct account holder that is an entity

(other than a flow-through entity) as a

foreign person even if it has a mailing

or residence address for the direct

account holder in the United States if

the withholding agent—

(1) Has in its possession, or obtains,

documentation that substantiates that

the entity is actually organized or

created under the laws of a foreign

country;

(2) Obtains a valid beneficial owner

withholding certificate on Form W–8

and the Form W–8 contains a

permanent residence address outside

the United States and a mailing address

outside the United States (or if a mailing

address is inside the United States the

direct account holder provides

additional documentary evidence

sufficient to establish the direct account

holder’s foreign status); or

(3) The account is maintained at an

office of the withholding agent outside

the United States and the withholding

agent is required to report annually a

payment to the direct account holder on

a tax information statement that is filed

with the tax authority of the country in

which the office is located and that

country has an income tax treaty in

effect with the United States.

(iii) Documentary evidence is

unreliable or incorrect if the direct

account holder has standing

instructions directing the withholding

agent to pay amounts from its account

to an address or an account maintained

in the United States. The withholding

agent may treat the direct account

holder as a foreign person, however, if

the account holder provides a

reasonable explanation in writing that

supports its foreign status.

(9) Documentary evidence—claim of

reduced rate of withholding under

treaty. A withholding agent has reason

to know that documentary evidence

provided in connection with a payment

of an amount described in § 1.1441–

6(c)(2) is unreliable or incorrect for

purposes of establishing that a direct

account holder is a resident of a country

with which the United States has an

income tax treaty if it is described in

paragraph (b)(9)(i) or (ii) of this section.

(i) Documentary evidence is

unreliable or incorrect if the

withholding agent has a mailing or

residence address for the direct account

holder (whether or not on the

documentary evidence) that is outside

the applicable treaty country, or the

only address that the withholding agent

has (whether in or outside of the

applicable treaty country) is a P.O. box,

an in-care-of address, or the address of

a financial institution (if the financial

institution is not the beneficial owner).

If a withholding agent has a mailing or

residence address for the direct account

holder outside the applicable treaty

country, the withholding agent may

nevertheless treat a direct account

holder as a resident of an applicable

treaty country if the withholding

agent—

(A) Has in its possession, or obtains,

additional documentary evidence

supporting the direct account holder’s

claim of residence in the applicable

treaty country (and the documentary

evidence does not contain an address

outside the applicable treaty country, a

P.O. box, an in-care-of address, or the

address of a financial institution);

(B) Has in its possession, or obtains,

documentary evidence that establishes

the direct account holder is an entity

organized in a treaty country (or an

entity managed and controlled in a

treaty country, if the applicable treaty so

requires); or

(C) Obtains a valid beneficial owner

withholding certificate on Form W–8

that contains a permanent residence

address and a mailing address in the

applicable treaty country.

(ii) Documentary evidence is

unreliable or incorrect if the direct

account holder has standing

instructions directing the withholding

agent to pay amounts from its account

to an address or an account maintained

outside the treaty country unless the

direct account holder provides a

reasonable explanation, in writing,

establishing the direct account holder’s

residence in the applicable treaty

country.

(10) Limits on reason to know—

indirect account holders. A financial

institution that receives documentation

from a payee through a nonqualified

intermediary, a flow-through entity, or a

U.S. branch described in § 1.1441–

1(b)(2)(iv) (other than a U.S. branch that

is treated as a U.S. person) with respect

to a payment of an amount described in

§ 1.1441–6(c)(2) has reason to know that

the documentation is unreliable or

incorrect if a reasonably prudent person

in the position of a withholding agent

would question the claims made. This

standard requires, but is not limited to,

a withholding agent’s compliance with

the rules of paragraphs (b)(10)(i) through

(iii).

(i) The withholding agent must review

the withholding statement described in

§ 1.1441–1(e)(3)(iv) and may not rely on

information in the statement to the

extent the information does not support

the claims made for any payee. For this

purpose, a withholding agent may not

treat a payee as a foreign person if an

address in the United States is provided

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32201

for such payee and may not treat a

person as a resident of a country with

which the United States has an income

tax treaty if the address for that person

is outside the applicable treaty country.

Notwithstanding a U.S. address or an

address outside a treaty country, the

withholding agent may treat a payee as

a foreign person or a foreign person as

a resident of a treaty country if a

reasonable explanation is provided, in

writing, by the nonqualified

intermediary, flow-through entity, or

U.S. branch supporting the payee’s

foreign status or the foreign person’s

residency in a treaty country.

(ii) The withholding agent must

review each withholding certificate in

accordance with the requirements of

paragraphs (b)(5) and (6) of this section

and verify that the information on the

withholding certificate is consistent

with the information on the withholding

statement required under § 1.1441–

1(e)(3)(iv). If there is a discrepancy

between the withholding certificate and

the withholding statement, the

withholding agent may choose to rely

on the withholding certificate, if valid,

and instruct the nonqualified

intermediary, flow-through entity, or

U.S. branch to correct the withholding

statement or apply the presumption

rules of §§ 1.1441–1(b), 1.1441–5(d) and

(e)(6), and 1.6049–5(d) to the payment

allocable to the payee who provided the

withholding certificate relates. A

withholding agent that receives a

withholding certificate before December

31, 2001, is not required to review the

information on withholding certificates

or determine if it is consistent with the

information on the withholding

statement until December 31, 2001. A

withholding agent may withhold and

report in accordance with a withholding

statement until December 31, 2001,

unless it has actually performed the

verification procedures required by this

paragraph (b)(10)(ii) and determined

that the withholding statement is

inaccurate with respect to a particular

payee.

(iii) The withholding agent must

review the documentary evidence

provided by the nonqualified

intermediary, flow-through entity, or

U.S. branch to determine that there is no

obvious indication that the payee is a

U.S. non-exempt recipient or that the

documentary evidence does not

establish the identity of the person who

provided the documentation (e.g., the

documentary evidence does not appear

to be an identification document).

(11) Additional guidance. The IRS

may prescribe other circumstances for

which a withholding certificate or

documentary evidence is unreliable or

incorrect in addition to the

circumstances described in paragraph

(b) of this section to establish an

account holder’s status as a foreign

person or a beneficial owner entitled to

a reduced rate of withholding in

published guidance (see § 601.601(d)(2)

of this chapter).

* * * * *

Par. 10. Effective January 1, 2001,

§ 1.1441–9 is amended by revising

paragraph (b)(2) to read as follows:

§ 1.1441–9 Exemption from withholding on

exempt income of a foreign tax-exempt

organization, including foreign private

foundations.

* * * * *

(b) * * *

(2) Withholding certificate. A

withholding certificate under this

paragraph (b)(2) is valid only if it is a

Form W–8 and if, in addition to other

applicable requirements, the Form W–8

includes the taxpayer identifying

number of the organization whose name

is on the certificate, and it certifies that

the Internal Revenue Service (IRS) has

issued a favorable determination letter

(and the date thereof) that is currently

in effect, what portion, if any, of the

amounts paid constitute income

includible under section 512 in

computing the organization’s unrelated

business taxable income, and, if the

organization is described in section

501(c)(3), whether it is a private

foundation described in section 509.

Notwithstanding the preceding

sentence, if the organization cannot

certify that it has been issued a

favorable determination letter that is

still in effect, its withholding certificate

is nevertheless valid under this

paragraph (b)(2) if the organization

attaches to the withholding certificate

an opinion that is acceptable to the

withholding agent from a U.S. counsel

(or any other person as the IRS may

prescribe in published guidance (see

§ 601.601(d)(2) of this chapter))

concluding that the organization is

described in section 501(c). If the

determination letter or opinion of

counsel to which the withholding

certificate refers concludes that the

organization is described in section

501(c)(3), and the certificate further

certifies that the organization is not a

private foundation described in section

509, an affidavit of the organization

setting forth sufficient facts concerning

the operations and support of the

organization for the Internal Revenue

Service (IRS) to determine that such

organization would be likely to qualify

as an organization described in section

509(a)(1), (2), (3), or (4) must be attached

to the withholding certificate. An

organization that provides an opinion of

U.S. counsel or an affidavit may provide

the same opinion or affidavit to more

than one withholding agent provided

that the opinion is acceptable to each

withholding agent who receives it in

conjunction with a withholding

certificate. Any such opinion of counsel

or affidavit must be renewed whenever

there is a change in facts or

circumstances that are relevant to

determine the organization’s status

under section 501(c) or, if relevant, that

the organization is or is not a private

foundation described in section 509.

* * * * *

Par. 12. Effective January 1, 2001,

§ 1.1461–1 is amended by:

1. Removing the last sentence of

paragraph (a)(1).

2. Removing paragraphs (b)(2) and

(b)(3) and redesignating paragraph (b)(4)

as new paragraph (b)(2).

3. Revising paragraphs (c)(1), (c)(2),

(c)(3), and (c)(4).

4. Removing paragraphs (c)(5), (c)(6),

and (c)(7), and redesignating paragraph

(c)(8) as new paragraph (c)(5).

The revisions read as follows:

§ 1.1461–1 Payment and returns of tax

withhold.

* * * * *

(c) Information returns—(1) Filing

requirement—(i) In general. A

withholding agent (other than an

individual who is not acting in the

course of a trade or business with

respect to a payment) must make an

information return on Form 1042–S (or

such other form as the IRS may

prescribe) to report the amounts subject

to reporting, as defined in paragraph

(c)(2) of this section, that were paid

during the preceding calendar year.

Notwithstanding the preceding

sentence, any person that withholds or

is required to withhold an amount

under sections 1441, 1442, or 1443 must

file a Form 1042–S for the payment

withheld upon whether or not that

person is engaged in a trade or business

and whether or not the payment is an

amount subject to reporting. A Form

1042–S shall be prepared for each

recipient of an amount subject to

reporting. The Form 1042–S shall be

prepared in such manner as the form

and accompanying instructions

prescribe. One copy of the Form 1042–

S shall be filed with the IRS on or before

March 15 of the calendar year following

the year in which the amount subject to

reporting was paid. It shall be filed with

a transmittal form as provided in the

instructions to the Form 1042–S and to

the transmittal form. Withholding

certificates, documentary evidence, or

other statements or documentation

32202 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

provided to a withholding agent are not

required to be attached to the form.

Another copy of the Form 1042–S must

be furnished to the recipient for whom

the form is prepared (or any other

person, as required under this paragraph

(c) or the instructions to the form) on or

before March 15 of the calendar year

following the year in which the amount

subject to reporting was paid. The

withholding agent must retain a copy of

each Form 1042–S for the statute of

limitations on assessment and collection

applicable to the Form 1042 to which

the Form 1042–S relates.

(ii) Recipient—(A) Defined. For

purposes of this section, the term

recipient means—

(1) A beneficial owner as defined in

paragraph (c)(6) of this section,

including a foreign estate or a foreign

complex trust, as defined in § 1.1441–

1(c)(25);

(2) A qualified intermediary as

defined in § 1.1441–1(e)(5)(ii);

(3) A withholding foreign partnership

as defined in § 1.1441–5(c)(2) or a

withholding foreign trust under

§ 1.1441–5(e)(5)(v);

(4) An authorized foreign agent as

defined in § 1.1441–7(c);

(5) A U.S. branch that is treated as a

U.S. person under § 1.1441–

1(b)(2)(iv)(A);

(6) A nonwithholding foreign

partnership or a foreign simple trust as

defined in § 1.1441–1(c)(24), but only to

the extent the income is (or is treated as)

effectively connected with the conduct

of a trade or business in the United

States by such entity;

(7) A payee, as defined in § 1.1441–

1(b)(2) that is presumed to be a foreign

person under the presumption rules of

§ 1.1441–1(b)(3); 1.1441–5(d) or (e)(6),

or 1.6049–5(d); and

(8) Any other person as required on

Form 1042–S or the instructions to the

form.

(B) Persons that are not recipients. A

recipient does not include—

(1) A nonqualified intermediary;

(2) A payment to a wholly-owned

entity that is disregarded under

§ 301.7701–2(c)(2) of this chapter as an

entity separate from its owner;

(3) A flow-through entity, as defined

in § 1.1441–1(c)(23) (to the extent it is

receiving amounts subject to reporting

other than income effectively connected

with the conduct of a trade or business

in the United States); and

(4) A U.S. branch described in

§ 1.1441–1(b)(2)(iv) that is not treated as

a U.S. person under that section.

(2) Amounts subject to reporting—(i)

In general. Subject to the exceptions

described in paragraph (c)(2)(ii) of this

section, amounts subject to reporting on

Form 1042–S are amounts paid to a

foreign payee (including persons

presumed to be foreign) that are

amounts subject to withholding as

defined in § 1.1441–2(a). Amounts

subject to reporting include amounts

subject to withholding even if no

amount is deducted and withheld from

the payment because of a treaty or

Internal Revenue Code exception to

taxation or because an amount withheld

was reimbursed to the payee under the

adjustment procedures of § 1.1461–2. In

addition, amounts subject to reporting

include any amounts paid to a foreign

payee on which a withholding agent

withheld an amount (either under

chapter 3 of the Internal Revenue Code

or section 3406) whether or not the

amount is subject to withholding.

Amounts subject to reporting include,

but are not limited to, the following

items—

(A) The entire amount of a corporate

distribution (whether actual or deemed)

irrespective of any estimate of the

portion of the distribution that

represents a taxable dividend;

(B) Interest, including the portion of

a notional principal contract payment

that is characterized as interest. Interest

shall also be reported on Form 1042-S

if it is bank deposit interest paid to

nonresident alien individuals as

required under § 1.6049–8;

(C) Rents;

(D) Royalties;

(E) Compensation for dependent and

independent personal services

performed in the United States;

(F) Annuities;

(G) Pension distributions and other

deferred income;

(H) Gambling winnings that are not

exempt from tax under section 871(j);

(I) Income from the cancellation of

indebtedness unless the withholding

agent is unrelated to the debtor and does

not have knowledge of the facts that

give rise to the payment (see § 1.1441–

2(d));

(J) Amounts that are (or are presumed

to be) effectively connected with the

conduct of a trade or business in the

United States (including deposit interest

as defined in sections 871(i)(2)(A) and

881(d)) even if no withholding

certificate is required to be furnished by

the payee or beneficial owner. In the

case of amounts paid on a notional

principal contract described in

§ 1.1441–4(a)(3) that are presumed to be

effectively connected with the conduct

of a trade or business in the United

States, the amount required to be

reported is limited to the amount of

cash paid from the notional principal

contract;

(K) Scholarship, fellowship, or grant

income and compensation for personal

services that is not excludible from

gross income under section 117

(whether or not the taxable scholarship,

fellowship, grant income, or

compensation for personal services is

exempt from tax under an income tax

treaty) paid to foreign students, trainees,

teachers, or researchers;

(L) Amounts paid to foreign

governments, international

organizations, or the Bank for

International Settlements, whether or

not documentation must be provided;

(M) Interest (including original issue

discount) paid with respect to foreigntargeted registered obligations described

in § 1.871–14(e)(2) to the extent the

documentation requirements described

in § 1.871–14(e)(3) and (4) are required

to be satisfied (taking into account the

provisions of § 1.871–14(e)(4)(ii), if

applicable); and

(N) Original issue discount paid on

the redemption of an OID obligation.

The amount to be reported is the

amount of OID includible in the gross

income of the holder of the obligation,

if known, or, if not known, the total

amount of original issue discount

determined as if the holder held the

obligation from its original issuance. A

withholding agent may determine the

total amount of OID by using the most

recently published ‘‘List of Original

Issue Discount Instruments,’’

(Publication 1212, available from the

IRS Forms Distribution Centers).

(ii) Exceptions to reporting. The

amounts listed in this paragraph

(c)(2)(ii) are not required to be reported

on Form 1042–S—

(A) Interest (including original issue

discount) that is deposit interest under

sections 871(i)(2)(A) and 881(d) and that

is not effectively connected with the

conduct of a trade or business in the

United States, unless reporting is

required under § 1.6049–8 (regarding

payments to certain foreign residents) or

is interest that is effectively connected

with the conduct of a trade or business

in the United States;

(B) Interest or original issue discount

on certain short-term obligations,

described in section 871(g)(1)(B) or

881(a)(3);

(C) Interest paid on obligations sold

between interest payment dates and the

portion of the purchase price of an OID

obligation that is sold or exchanged in

a transaction other than a redemption,

unless the sale or exchange is part of a

plan, the principal purpose of which is

to avoid tax and the withholding agent

has actual knowledge or reason to know

of such plan (see § 1.1441–2(a)(5) and

(6));

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32203

(D) Any item required to be reported

on a Form W–2, including an item

required to be shown on Form W–2

solely by reason of § 1.6041–2 (relating

to return of information for payments to

employees) or § 1.6052–1 (relating to

information regarding payment of wages

in the form of group-term life

insurance);

(E) Any item required to be reported

on Form 1099, and such other forms as

are prescribed pursuant to the

information reporting provisions of

sections 6041 through 6050P and the

regulations under those sections;

(F) Amounts paid on a notional

principal contract described in

§ 1.1441–4(a)(3)(i) that are not

effectively connected with the conduct

of a trade or business in the United

States (or not treated as effectively

connected pursuant to § 1.1441–

4(a)(3)(ii));

(G) Amounts required to be reported

on Form 8288 (U.S. Withholding Tax

Return for Dispositions by Foreign

Persons of U.S. Real Property Interests)

or Form 8804 (Annual Return for

Partnership Withholding Tax (section

1446)). A withholding agent that must

report a distribution partly on a Form

8288 or 8804 and partly on a Form

1042–S may elect to report the entire

amount on a Form 8288 or 8804;

(H) Interest on a registered obligation

that is targeted to foreign markets and

qualifies as portfolio interest to the

extent it is paid to a registered owner

that is a financial institution or member

of a clearing organization that has

provided the proper withholding

certificates (see §§ 1.1441–1(b)(4)(i) and

1.1441–2(a));

(I) Interest on a foreign targeted bearer

obligation (see §§ 1.1441–1(b)(4)(i) and

1.1441–2(a));

(J) Gain described in section 301(c)(3);

and

(K) Amounts described in § 1.1441–

1(b)(4)(xviii) (dealing with certain

amounts paid by the U.S. government).

(3) Required information. The

information required to be furnished

under this paragraph (c)(3) shall be

based upon the information provided by

or on behalf of the recipient of an

amount subject to reporting (as

corrected and supplemented based on

the withholding agent’s actual

knowledge) or the presumption rules of

§§ 1.1441–1(b)(3), 1.1441–4(a); 1.1441–

5(d) and (e); 1.1441–9(b)(3) or 1.6049–

5(d). The Form 1042–S must include the

following information, if applicable—

(i) The name, address, and taxpayer

identifying number of the withholding

agent;

(ii) A description of each category of

income paid based on the income codes

provided on the form (e.g., interest,

dividends, royalties, etc.) and the

aggregate amount in each category

expressed in U.S. dollars;

(iii) The rate of withholding applied

or the basis for exempting the payment

from withholding (based on exemption

codes provided on the form);

(iv) The name and address of the

recipient;

(v) The name and address of any

nonqualified intermediary, flow-through

entity, or U.S. branch as described in

§ 1.1441–1(b)(2)(iv) (other than a branch

that is treated as a U.S. person) to which

the payment was made;

(vi) The taxpayer identifying number

of the recipient if required under

§ 1.1441–1(e)(4)(vii) or if actually

known to the withholding agent making

the return;

(vii) The taxpayer identifying number

of a nonqualified intermediary or flowthrough entity (to the extent it is not a

recipient) or other flow-through entity

to the extent it is known to the

withholding agent;

(viii) The country (based on the

country codes provided on the form) of

the recipient and of any nonqualified

intermediary or flow-through entity the

name of which appears on the form; and

(ix) Such information as the form or

the instructions may require in addition

to, or in lieu of, information required

under this paragraph (c)(3).

(4) Method of reporting—(i) Payments

by U.S. withholding agents to recipients.

A withholding agent that is a U.S.

person (other than a foreign branch of a

U.S. person that is a qualified

intermediary as defined in § 1.1441–

1(e)(5)(ii)) and that makes payments of

amounts subject to reporting on Form

1042–S must file a separate Form 1042–

S for each recipient who receives such

amount. For purposes of this paragraph

(c)(4), a U.S. person includes a U.S.

branch described in § 1.1441–

1(e)(2)(iv)(A) or (E) that agrees to be

treated as a U.S. person. Except as may

otherwise be required on Form 1042–S

or the instructions to the form, only

payments for which the income code,

exemption code, withholding rate and

recipient code are the same may be

reported on a single Form 1042–S. See

paragraph (c)(4)(ii) of this section for

reporting of payments made to a person

that is not a recipient.

(A) Payments to beneficial owners. If

a U.S. withholding agent makes a

payment directly to a beneficial owner

it must complete Form 1042–S treating

the beneficial owner as the recipient.

Under the grace period rule of § 1.1441–

1(b)(3)(iv), a U.S. withholding agent

may, under certain circumstances, treat

a payee as a foreign person while the

withholding agent awaits a valid

withholding certificate. A U.S.

withholding agent who relies on the

grace period rule to treat a payee as a

foreign person must file a Form 1042–

S to report all payments on Form 1042–

S during the period that person was

presumed to be foreign even if that

person is later determined to be a U.S.

person based on appropriate

documentation or is presumed to be a

U.S. person after the grace period ends.

In the case of joint owners, a

withholding agent may provide a single

Form 1042–S made out to the owner

whose status the U.S. withholding agent

relied upon to determine the applicable

rate of withholding. If, however, any

one of the owners requests its own Form

1042–S, the withholding agent must

furnish a Form 1042–S to the person

who requests it. If more than one Form

1042–S is issued for a single payment,

the aggregate amount paid and tax

withheld that is reported on all Forms

1042–S cannot exceed the total amounts

paid to joint owners and the tax

withheld thereon.

(B) Payments to a qualified

intermediary, a withholding foreign

partnership, or a withholding foreign

trust. A U.S. withholding agent that

makes payments to a qualified

intermediary (whether or not the

qualified intermediary assumes primary

withholding responsibility), a

withholding foreign partnership, or a

withholding foreign trust shall complete

Forms 1042–S treating the qualified

intermediary or withholding foreign

partnership as the recipient. The U.S.

withholding agent must complete a

separate Form 1042–S for each

withholding rate pool. A withholding

rate pool is a payment of a single type

of income (determined by the income

codes on Form 1042–S) that is subject

to a single rate of withholding. A

qualified intermediary that does not

assume primary withholding

responsibility on all payments it

receives provides information regarding

the proportions of income subject to a

particular withholding rate to the

withholding agent on a withholding

statement associated with a qualified

intermediary withholding certificate. A

qualified intermediary may provide a

U.S. withholding agent with

information regarding withholding rate

pools for U.S. non-exempt recipients (as

defined under § 1.1441–1(c)(21)).

Amounts paid with respect to such

withholding rate pools must be reported

on Form 1099 completed for each U.S.

non-exempt recipient to the extent they

are subject to Form 1099 reporting.

These amounts must not be reported on

32204 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

Form 1042–S. In addition, the qualified

intermediary may provide the U.S.

withholding agent information

regarding withholding rate pools for

U.S. persons that are exempt recipients

as defined under § 1.1441–1(c)(20). If

such information is provided, a U.S.

withholding agent should not report

such withholding rate pools on Form

1042–S.

(C) Amounts paid to U.S. branches

treated as U.S. persons. A U.S.

withholding agent making a payment to

a U.S. branch of a foreign person

described in § 1.1441–1(b)(2)(iv) shall

complete Form 1042–S as follows—

(1) If the branch has provided the U.S.

withholding agent with a withholding

certificate that evidences its agreement

with the withholding agent to be treated

as a U.S. person, the U.S. withholding

agent files Forms 1042–S treating the

U.S. branch as the recipient;

(2) If the branch has provided the U.S.

withholding agent with a withholding

certificate that transmits information

regarding beneficial owners, qualified

intermediaries, withholding foreign

partnerships, or other recipients, the

U.S. withholding agent must complete a

separate Form 1042–S for each recipient

whose documentation is associated with

the U.S. branch’s withholding

certificate; or

(3) If the U.S. withholding agent

cannot reliably associate a payment

with a valid withholding certificate

from the U.S. branch, it shall treat the

U.S. branch as the recipient and report

the income as effectively connected

with the conduct of a trade or business

in the United States.

(D) Amounts paid to an authorized

foreign agent. If a U.S. withholding

agent makes a payment to an authorized

foreign agent, the withholding agent

files Forms 1042–S treating the

authorized foreign agent as the

recipient, provided that the authorized

foreign agent reports the payments on

Forms 1042–S to each recipient to

which it makes payments. If the

authorized foreign agent fails to report

the amounts paid on Forms 1042–S for

each recipient to which the payment is

made, the U.S. withholding agent

remains responsible for such reporting.

(E) Dual Claims. A U.S. withholding

agent may make a payment to a foreign

entity that is simultaneously claiming a

reduced rate of tax on its own behalf for

a portion of the payment and a reduced

rate on behalf of persons in their

capacity as interest holders in that

entity on the remaining portion. See

§ 1.1441–6(b)(2)(iii). If the claims are

consistent and the withholding agent

accepts the multiple claims, the

withholding agent must file a separate

Form 1042–S for those payments for

which the entity is treated as the

beneficial owner and Forms 1042–S for

each of the interest holder in the entity

for which the interest holder is treated

as the recipient. For those payments for

which the interest holder in an entity is

treated as the recipient, the U.S.

withholding agent shall prepare the

Form 1042–S in the same manner as a

payment made to a nonqualified

intermediary or flow-through entity as

set forth in paragraph (c)(4)(ii) of this

section. If the claims are consistent but

the withholding agent has not chosen to

accept the multiple claims, or if the

claims are inconsistent, the withholding

agent must file a separate Form 1042–

S for the person or persons it has chosen

to treat as the recipients.

(ii) Payments made by U.S.

withholding agents to persons that are

not recipients—(A) Amounts paid to a

nonqualified intermediary, a flowthrough entity, and certain U.S.

branches. If a U.S. withholding agent

makes a payment to a nonqualified

intermediary, a flow-through entity, or a

U.S. branch described in § 1.1441–

1(b)(2)(iv) (other than a branch that

agrees to be treated as a U.S. person), it

must complete a separate Form 1042–S

for each recipient to the extent the

withholding agent can reliably associate

a payment with valid documentation

(within the meaning of § 1.1441–

1(b)(2)(vii)) from the recipient which is

associated with the withholding

certificate provided by the nonqualified

intermediary, flow-through entity, or

U.S. branch. If a payment is made

through tiers of nonqualified

intermediaries or flow-through entities,

the withholding agent must nevertheless

complete Form 1042–S for the

recipients to the extent it can reliably

associate the payment with

documentation from the recipients. A

withholding agent that is completing a

Form 1042–S for a recipient that

receives a payment through a

nonqualified intermediary, a flowthrough entity, or a U.S. branch must

include on the Form 1042–S the name

of the nonqualified intermediary or

flow-through entity from which the

recipient directly receives the payment.

If a U.S. withholding agent cannot

reliably associate the payment, or any

portion of the payment, with valid

documentation from a recipient either

because no such documentation has

been provided or because the

nonqualified intermediary, flow-through

entity, or U.S. branch has failed to

provide sufficient allocation

information so that the withholding

agent can associate the payment, or any

portion thereof, with valid

documentation, then the withholding

agent must report the payments as made

to an unknown recipient in accordance

with the appropriate presumption rules

for that payment. Thus, if under the

presumption rules the payment is

presumed to be made to a foreign

person, the withholding agent must

generally withhold 30 percent of the

payment and report the payment on

Form 1042–S made out to an unknown

recipient and shall also include the

name of the nonqualified intermediary

or flow-through entity that received the

payment on behalf of the unknown

recipient. If, however, the recipient is

presumed to be a U.S. non-exempt

recipient (as defined in § 1.1441–

1(c)(21)), the withholding agent must

withhold on the payment as required

under section 3406 and report the

payment as made to an unknown

recipient on the appropriate Form 1099

as required under chapter 61 of the

Internal Revenue Code.

(B) Disregarded entities. If a U.S.

withholding agent makes a payment to

a disregarded entity but receives a valid

withholding certificate or other

documentary evidence from a foreign

person that is the single owner of a

disregarded entity, the withholding

agent must file a Form 1042–S treating

the foreign single owner as the

recipient. The taxpayer identifying

number on the Form 1042–S, if

required, must be the foreign single

owner’s TIN.

(iii) Reporting by qualified

intermediaries, withholding foreign

partnerships, and withholding foreign

trusts. A qualified intermediary, a

withholding foreign partnership, and a

withholding foreign trust shall report

payments on Form 1042–S as provided

in their agreements with the IRS and the

instructions to the form.

(iv) Reporting by a nonqualified

intermediary, flow-through entity, and

certain U.S. branches. A nonqualified

intermediary, flow-through entity, or

U.S. branch described in § 1.1441–

1(e)(2)(iv) (other than a U.S. branch that

is treated as a U.S. person) is a

withholding agent and must file Forms

1042–S for amounts paid to recipients

in the same manner as a U.S.

withholding agent. A Form 1042–S will

not be required, however, if another

withholding agent has reported the

same amount to the same recipient for

which the nonqualified intermediary,

flow-through entity, or U.S. branch

would be required to file a return and

the entire amount that should be

withheld from such payment has been

withheld. A nonqualified intermediary,

flow-through entity, or U.S. branch must

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32205

report payments made to recipients to

the extent it has failed to provide the

appropriate documentation to another

withholding agent together with the

information required for that

withholding agent to reliably associate

the payment with the recipient

documentation or to the extent it knows,

or has reason to know, that less than the

required amount has been withheld. A

nonqualified intermediary or flowthrough entity that is required to report

a payment on Form 1042–S must follow

the same rules as apply to a U.S.

withholding agent under paragraph

(c)(4)(i) and (ii) of this section.

(v) Pro rata reporting for allocation

failures. If a nonqualified intermediary,

flow-through entity, or U.S. branch

described in § 1.1441–1(b)(2)(iv) (other

than a branch treated as a U.S. person)

that uses the alternative procedures of

§ 1.1441–1(e)(3)(iv)(D) fails to provide

information sufficient to allocate the

amount subject to reporting paid to a

withholding rate pool to the payees

identified for that pool, then the

withholding agent shall report the

payment in accordance with the rule

provided in § 1.1441–1(e)(3)(iv)(D)(6).

(vi) Other withholding agents. Any

person that is a withholding agent not

described in paragraph (c)(4)(i), (iii), or

(iv) of this section (e.g., a foreign person

that is not a qualified intermediary,

flow-through entity, or U.S. branch)

shall file Form 1042–S in the same

manner as a U.S. withholding agent and

in accordance with the instructions to

the form.

* * * * *

Par. 11. Effective January 1, 2001,

§ 1.6041–1 is amended by revising

paragraph (d)(5) to read as follows:

§ 1.6041–1 Return of information as to

payments of $600 or more.

* * * * *

(d) * * *

(5) Notional principal contracts.

Except as provided in paragraphs

(b)(5)(i) and (ii) of this section, amounts

paid after December 31, 2000, with

respect to notional principal contracts

referred to in § 1.863–7 or 1.988–2(e) to

persons who are not described in

§ 1.6049–4(c)(1)(ii) are required to be

reported in returns of information under

this section. The amount required to be

reported under this paragraph (d)(5) is

limited to the amount of cash paid from

the notional principal contract as

described in § 1.446–3(d). A nonperiodic payment is reportable for the

year in which an actual payment is

made. Any amount of interest

determined under the provisions of

§ 1.446–3(g)(4) (dealing with interest in

the case of a significant non-periodic

payment) is reportable under this

paragraph (d)(5) and not under section

6049 (see § 1.6049–5(b)(15)). See

§ 1.6041–4(a)(4) for reporting exceptions

regarding payments to foreign persons.

See, however, § 1.1461–1(c)(1) for

reporting amounts described under this

paragraph (d)(5) that are paid to foreign

persons. The provisions of § 1.6049–5(d)

shall apply for determining whether a

payment with respect to a notional

principal contract is made to a foreign

person. See § 1.6049–4(a) for a

definition of payor. For purposes of this

paragraph (d)(5), a payor includes a

middleman defined in § 1.6049–4(f)(4).

(i) An amount paid with respect to a

notional principal contract is not

required to be reported if the payment

is made outside the United States (as

defined in § 1.6049–5(e)) by a non-U.S.

payor or a non-U.S. middleman.

(ii) An amount paid with respect to a

notional principal contract is not

required to be reported if the payment

is made outside the United States (as

defined in § 1.6049–5(e)) by a payor that

has no actual knowledge that the payee

is a U.S. person, and the payor is—

(A) A U.S. payor or U.S. middleman

that is not a U.S. person (such as a

controlled foreign corporation defined

in section 957(a) or certain foreign

corporations or foreign partnerships

engaged in a U.S. trade or business); or

(B) A foreign branch of a U.S. bank.

See § 1.6049–5(c)(5) for a definition of a

U.S. payor, a U.S. middleman, a nonU.S. payor, and a non-U.S. middleman.

* * * * *

Par. 12. Effective January 1, 2001,

§ 1.6041–4 is amended by 1. Revising

paragraph (a)(3).

2. Adding paragraph (a)(6).

The revision and addition read as

follows:

§ 1.6041–4 Foreign-related items and other

exceptions.

(a) * * *

(3) Returns of information are not

required for amounts paid by a foreign

intermediary described in § 1.1441–

1(c)(13) that it has received in its

capacity as an intermediary and that are

associated with a valid withholding

certificate described in § 1.1441–

1(e)(3)(ii) or (iii) and payments made by

a U.S. branch of a foreign bank or of a

foreign insurance company described in

§ 1.1441–1(b)(2)(iv) (other than a U.S.

branch that is treated as a U.S. person)

that are associated with a valid

withholding certificate described in

§ 1.1441–1(e)(3)(v), which certificate the

intermediary or branch has furnished to

the payor or middleman from whom it

has received the payment, unless, and to

the extent, the intermediary or branch

knows that the payments are required to

be reported under § 1.6041–1 and were

not so reported. For example, if a

foreign intermediary or U.S. branch

described in § 1.1441–1(b)(2)(iv) fails to

provide information regarding U.S.

persons that are not exempt from

reporting under § 1.6041–3(q) to the

person from whom the intermediary or

U.S. branch receives the payment, the

foreign intermediary or U.S. branch

must report the payment on an

information return. The exception of

this paragraph (a)(3) shall not apply to

a qualified intermediary that assumes

reporting responsibility under chapter

61 of the Internal Revenue Code.

* * * * *

(6) For rules concerning direct sellers,

see § 1.6041A–1(d)(3)(i)(C).

* * * * *

Par. 13. Effective January 1, 2001,

§ 1.6041A–1 is amended by:

1. Revising paragraph (d)(3)(i)(B).

2. Adding paragraph (d)(3)(i)(C).

The revision and addition read as

follows:

§ 1.6041A–1 Returns regarding payments

of remuneration for services and certain

direct sales.

* * * * *

(d) * * *

(3) * * * (i) * * *

(B) Returns of information are not

required for payments of remuneration

for services from sources outside the

United States (determined under the

provisions of part I, subchapter N,

chapter 1 of the Internal Revenue Code

and the regulations under those

provisions) if payments are made

outside the United States by a non-U.S.

payor or non U.S. middleman. For a

definition of non U.S. payor or non-U.S.

middleman, see § 1.6049–5(c)(5). For

circumstances in which a payment is

considered to be made outside the

United States, see § 1.6049–5(e).

(C) Returns of information are not

required under sections 6041 or 6041A

for amounts paid outside of the United

States (within the meaning of § 1.6049–

5(e)) as remuneration for services as a

direct seller (within the meaning of

section 3508) performed outside of the

United States or for sales described in

section 6041A(b) made outside of the

United States of consumer products for

resale outside of the United States.

* * * * *

Par. 14. Effective January 1, 2001,

§ 1.6042–3 is amended by revising

paragraph (b)(1)(vi) to read as follows:

§ 1.6042–3 Dividends subject to reporting.

* * * * *

(b) * * * (1) * * *

32206 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

(vi) Payments made by a foreign

intermediary described in § 1.1441–

1(c)(13) of amounts that it has received

in its capacity as an intermediary and

that are associated with a valid

withholding certificate described in

§ 1.1441–1(e)(3)(ii) or (iii) and payments

made by a U.S. branch of a foreign bank

or of a foreign insurance company

described in § 1.1441–1(b)(2)(iv) (other

than a U.S. branch that is treated as a

U.S. person) that are associated with a

valid withholding certificate described

in § 1.1441–1(e)(3)(v), which certificate

the intermediary or branch has

furnished to the payor or middleman

from whom it has received the payment,

unless, and to the extent, the

intermediary or branch knows that the

payments are required to be reported

under § 1.6042–2 and were not so

reported. For example, if a foreign

intermediary or U.S. branch described

in § 1.1441–1(b)(2)(iv) fails to provide

information regarding U.S. persons that

are not exempt from reporting under

§ 1.6049–4(c)(1)(ii) to the person from

whom the intermediary or U.S. branch

receives the payment, the amount paid

by the foreign intermediary or U.S.

branch to such person is a dividend.

The exception of this paragraph

(b)(1)(vi) shall not apply to a qualified

intermediary that assumes reporting

responsibility under chapter 61 of the

Internal Revenue Code.

* * * * *

Par. 15. Effective January 1, 2001,

§ 1.6045–1 is amended by:

1. Removing the last sentence of

paragraph (g)(1)(i) and adding two new

sentences in its place.

2. Revising paragraph (g)(3)(iv).

3. Revising paragraph (g)(4), Example

7.

4. Adding Examples 8 and 9 to

paragraph (g)(4).

The additions and revisions read as

follows:

§ 1.6045–1 Returns of information of

brokers and barter exchanges.

* * * * *

(g) * * * (1) * * *

(i) * * * For purposes of this

paragraph (g)(1)(i), a broker that is

required to obtain, or chooses to obtain,

a beneficial owner withholding

certificate described in § 1.1441–

1(e)(2)(i) from an individual may rely on

the withholding certificate only to the

extent the certificate includes a

certification that the beneficial owner

has not been, and at the time the

certificate is furnished, reasonably

expects not to be present in the United

States for a period aggregating 183 days

or more during each calendar year to

which the certificate pertains. The

certification is not required if a broker

receives documentary evidence under

§ 1.6049–5(c)(1) or (4).

* * * * *

(3) * * *

(iv) Special rules where the customer

is a foreign intermediary or certain U.S.

branches. A foreign intermediary, as

defined in § 1.1441–1(c)(13), is an

exempt foreign person, except when the

broker has actual knowledge or reason

to know (within the meaning of

§ 1.6049–5(c)(3)) that the person for

whom the intermediary acts is a U.S.

person that is not exempt from reporting

under § 5f.6045–1(c)(3) of this chapter

or the broker is required to presume

under § 1.6049–5(d)(3) that the payee is

a U.S. person that is not an exempt

recipient. If an intermediary, as defined

in § 1.1441–1(c)(13), or a U.S. branch

described in § 1.1441–1(b)(2)(iv) (other

than a U.S. branch that is treated as a

U.S. person) receives a payment from a

payor or middleman, which payment

the payor or middleman can associate

with a valid withholding certificate

described in § 1.1441–1(e)(3)(ii), (iii), or

(v) furnished by such intermediary or

U.S. branch, then the intermediary or

U.S. branch is not required to report

such payment when it, in turn, pays the

amount to the person whose name is on

the certificate furnished by the

intermediary or U.S. branch to the payor

or middleman, unless, and to the extent,

the intermediary or U.S. branch knows

that the payment is required to be

reported under this section and was not

so reported. For example, if a foreign

intermediary or U.S. branch fails to

provide information regarding U.S.

persons that are not exempt from

reporting under § 5f.6045–1(c)(3) of this

chapter to the person from whom the

intermediary or U.S. branch receives the

payment, the foreign intermediary or

U.S. branch must report the payment on

an information return. The exception of

this paragraph (g)(3)(iv) shall not apply

to a qualified intermediary that assumes

reporting responsibility under chapter

61 of the Internal Revenue Code.

(4) * * *

Example 7. Customer A, an individual,

owns U.S. corporate bonds issued in

registered form after July 18, 1984 and

carrying a stated rate of interest. The bonds

are held through an account with foreign

bank, X, and are held in street name. X is a

wholly-owned subsidiary of a U.S. company

and is not a qualified intermediary within the

meaning of § 1.1441–1(e)(5)(ii). X has no

documentation regarding A. A instructs X to

sell the bonds. In order to effect the sale, X

acts through its agent in the United States, Y.

Y sells the bonds and remits the sales

proceeds to X. X credits A’s account in the

foreign country. X does not provide

documentation to Y.

(i) Y’s obligations to withhold and report.

Y treats X as the customer, and not A,

because Y cannot treat X as an intermediary

because it has received no documentation

from X. Y is not required to report the sales

proceeds under the multiple broker

exception under § 5f.6045–1(c)(3)(ii) of this

chapter, because X is an exempt recipient.

Further, Y is not required to report the

amount of accrued interest paid to X on Form

1042–S under § 1.1461–1(c)(2)(ii) because

accrued interest is not an amount subject to

reporting unless the withholding agent

knows that the obligation is being sold with

a primary purpose of avoiding tax.

(ii) X’s obligations to withhold and report.

Although X has effected, within the meaning

of paragraph (a)(1) of this section, the sale of

a security at an office outside the United

States under paragraph (g)(3)(iii) of this

section, X is treated as a broker, under

paragraph (a)(1) of this section, because as a

wholly-owned subsidiary of a U.S.

corporation, X is a U.S. payor. See § 1.6049–

5(c)(5). Under the presumptions described in

§ 1.6049–5(d)(2), X must presume that, with

respect to the sales proceeds, A is a U.S.

person who is not an exempt recipient.

Therefore the payment of sales proceeds to A

by X is reportable on a Form 1099 under

paragraph (c)(2) of this section. X has no

obligation to backup withhold on the

payment based on the exemption under

§ 31.3406(g)–1(e) of this chapter, unless X has

actual knowledge that A is a U.S. person that

is not an exempt recipient. X is also required

to separately report the accrued interest (see

paragraph (d)(3) of this section) on Form

1099 under section 6049 because A is also

presumed to be a U.S. person who is not an

exempt recipient under the presumption rule

in § 1.6049–5(d)(2) and § 1.1441–1(b)(3)(iii)

since accrued interest is not an amount

subject to reporting and therefore the

presumption of foreign status for offshore

accounts under § 1.1441–1(b)(3)(iii)(D) does

not apply.

Example 8. The facts are the same as in

Example 7, except that instead of U.S.

corporate bonds that carry stated interest, A

owns original issue discount instruments

described in section 871(g)(1)(B)(i) (i.e.,

obligations payable 183 days or less from the

date of original issue). In addition, the sale

is in a transaction other than a redemption.

(i) Y’s obligations to withhold and report.

Y is not required to report the sales proceeds

under the multiple broker exception under

§ 5f.6045–1(c)(3)(ii) of this chapter, because X

is an exempt recipient.

(ii) X’s obligations to withhold and report.

Although X has effected, within the meaning

of paragraph (a)(1) of this section, the sale of

a security at an office outside the United

States under paragraph (g)(3)(iii) of this

section, X is treated as a broker, under

paragraph (a)(1) of this section, because as a

wholly-owned subsidiary of a U.S.

corporation, X is a U.S. payor. See § 1.6049–

5(c)(5). Under the presumptions described in

§ 1.6049–5(d)(2), X must presume that, with

respect to the sales proceeds, A is a U.S.

person who is not an exempt recipient.

Therefore the payment of sales proceeds to A

by X is reportable on a Form 1099 under

paragraph (c)(2) of this section. X has no

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32207

obligation to backup withhold on the

payment based on the exemption under

§ 31.3406(g)–1(e) of this chapter, unless X has

actual knowledge that A is a U.S. person that

is not an exempt recipient. X is not required

to separately report the amount of accrued

original issue discount. See paragraph (d)(3)

of this section.

Example 9. The facts are the same as in

Example 8, except that X is a foreign

corporation that is not a U.S. payor under

§ 1.6049–5(c).

(i) Y’s obligations to withhold and report.

Y is not required to report the sales proceeds

under the multiple broker exception under

§ 5f.6045–1(c)(3)(ii) of this chapter, because X

is the person responsible for paying the

proceeds from the sale to A.

(ii) X’s obligations to withhold and report.

Although A is presumed to be a U.S. payee

under the presumptions of § 1.6049–5(d)(2),

X is not considered to be a broker under

paragraph (a)(1) of this section because it is

a not a U.S. payor under § 1.6049–5(c)(5).

Therefore X is not required to report the sale

under paragraph (c)(2) of this section.

* * * * *

Par. 16. Effective January 1, 2001,

§ 1.6049–4 is amended by revising the

introductory text of paragraph (c)(1)(ii)

to read as follows:

§ 1.6049–4 Return of information as to

interest paid and original issue discount

includible in gross income after December

31, 1982.

* * * * *

(c) * * * (1) * * *

(ii) Exempt recipient defined. The

term exempt recipient means any person

described in paragraphs (c)(1)(ii)(A)

through (Q) of this section. An exempt

recipient is generally exempt from

information reporting without filing a

certificate claiming exempt status unless

the provisions of this paragraph (c)(1)(ii)

require a payee to file a certificate.

A payor may, in any case, require a

payee that is a U.S. person not

otherwise required to file a certificate

under this paragraph (c)(1)(ii) to file a

certificate in order to qualify as an

exempt recipient. See § 31.3406(h)–

3(a)(1)(iii) and (c)(2) of this chapter for

the certificate that a payee that is a U.S.

person must provide when a payor

requires the certificate to treat the payee

as an exempt recipient under this

paragraph (c)(1)(ii). A payor may treat a

payee as an exempt recipient based

upon a properly completed form as

described in § 31.3406(h)–3(e)(2) of this

chapter, its actual knowledge that the

payee is a person described in this

paragraph (c)(1)(ii), or the indicators

described in this paragraph (c)(1)(ii).

* * * * *

Par. 17. Effective January 1, 2001,

§ 1.6049–5 is amended by:

1. Adding a sentence at the end of

paragraph (b)(10)(ii).

2. Adding a sentence at the end of the

introductory text of paragraph (b)(11).

3. Revising paragraph (b)(14).

4. Adding a sentence at the end of

paragraph (c)(1).

5. Revising paragraph (c)(4).

6. In paragraph (c)(6), removing

Example 3 and redesignating Examples

4 and 5 as Examples 3 and 4,

respectively; in newly designated

Example 3, revise the language ‘‘The

facts are the same as in Example 3’’ to

read ‘‘The facts are the same as in

Example 2’’; in addition, in newly

designated Example 4, revise the

language ‘‘The facts are the same as in

Example 4’’ to read ‘‘The facts are the

same as in Example 3’’.

7. Revising the first sentence of

paragraph (d)(1) introductory text.

8. Revising paragraphs (d)(2)(i) and

(d)(2)(ii), (d)(3), and (d)(4).

9. Removing paragraph (d)(5).

The additions and revisions read as

follows:

§ 1.6049–5 Interest and original issue

discount subject to reporting after

December 31, 1982.

* * * * *

(b) * * *

(10) * * *

(ii) * * * The exemption from

reporting described in this paragraph

(b)(10) shall not apply if the payor has

actual knowledge that the payee is a

U.S. person who is not an exempt

recipient.

(11) * * * The exemption from

reporting described in this paragraph

(b)(11) shall not apply if the payor has

actual knowledge that the payee is a

U.S. person who is not an exempt

recipient.

* * * * *

(14) Payments made by a foreign

intermediary described in § 1.1441–

1(e)(3)(i) of amounts that it has received

in its capacity as an intermediary and

that are associated with a valid

withholding certificate described in

§ 1.1441–1(e)(3)(ii) or (iii) and payments

made by a U.S. branch of a foreign bank

or of a foreign insurance company

described in § 1.1441–1(b)(2)(iv) (other

than a U.S. branch that is treated as a

U.S. person) that are associated with a

valid withholding certificate described

in § 1.1441–1(e)(3)(v), which certificate

the intermediary or branch has

furnished to the payor or middleman

from whom it has received the payment,

unless, and to the extent, the

intermediary or branch knows that the

payments are required to be reported

under § 1.6049–4 and were not so

reported. For example, if a foreign

intermediary or U.S. branch described

in § 1.1441–1(b)(2)(iv) fails to provide

information regarding U.S. persons that

are not exempt from reporting under

§ 1.6049–4(c)(1)(ii) to the person from

whom the intermediary or U.S. branch

receives the payment, the amount paid

by the foreign intermediary or U.S.

branch to such person is interest or

original issue discount. The exception

of this paragraph (b)(14) shall not apply

to a qualified intermediary that assumes

reporting responsibility under chapter

61 of the Internal Revenue Code.

* * * * *

(c) * * * (1) * * * A payor may also

rely on documentary evidence

associated with a flow-through

withholding certificate for payments

treated as made to foreign partners of a

nonwithholding foreign partnership, as

defined in § 1.1441–1(c)(28), the foreign

beneficiaries of a foreign simple trust, as

defined in § 1.1441–1(c)(24), or foreign

owners of a foreign grantor trust, as

defined in § 1.1441–1(c)(26), even

though the partnership or trust account

is maintained in the United States.

* * * * *

(4) Special documentation rules for

certain payments. This paragraph (c)(4)

modifies the provisions of this

paragraph (c) for payments to offshore

accounts maintained at a bank or other

financial institution of amounts that are

not subject to withholding under

chapter 3 of the Internal Revenue Code,

other than amounts described in

paragraph (d)(3)(iii) of this section

(dealing with U.S. short-term OID and

U.S. bank deposit interest). Amounts are

not subject to withholding under

chapter 3 of the Internal Revenue Code

if they are not included in the definition

of amounts subject to withholding

under § 1.1441–2(a) (e.g., deposit

interest with foreign branches of U.S.

banks, foreign source income, or broker

proceeds).

(i) Special rule when non-renewable

documentary evidence is customary. If it

is customary in the country in which a

branch or office of a bank or other

financial institution is located to obtain

documentary evidence described in

paragraph (c)(1) of this section, but it is

not customary for such documentary

evidence to be renewed, then a payor

may, in lieu of obtaining a withholding

certificate, request such documentary

evidence for an account maintained at

such branch or office. The bank or other

financial institution may rely on such

documentary evidence to treat a person

as a foreign person without renewing

such documentary evidence in

accordance with paragraph (c)(2) of this

section and § 1.1441–1(e)(4)(ii) if it may

rely on the documentary evidence as

sufficient to establish the person’s

32208 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

foreign status under § 1.1441–7(b)(7)

and (8). If, however, the bank or other

financial institution may, under

§ 1.1441–7(b)(8) treat a payee as a

foreign person even though it has a

residence or mailing address for the

payee in the United States, or has

standing instructions to pay amounts

from its account to an address in the

United States or an account maintained

in the United States, then the payor

shall rely on the documentary evidence

only for a period of three full calendar

years after the calendar year in which

the documentary evidence is provided

to the payor or, if earlier, until the payor

is aware of a change of circumstances

that affects the validity of the

documentation as establishing the

payee’s status as a foreign person.

(ii) Statement in lieu of documentary

evidence. If under the local laws,

regulations, or practices applicable to a

type of account or transaction it is not

customary to obtain documentary

evidence described in paragraph (c)(1)

of this section, the bank or other

financial institution may, instead of

obtaining a beneficial owner

withholding certificate described in

§ 1.1441–1(e)(2)(i) or documentary

evidence described in paragraph (c)(1)

of this section, establish a payee’s

foreign status based on the statement

described in this paragraph (4)(ii) (or

such substitute statement as the Internal

Revenue Service may prescribe) made

on an account opening form. The

statement shall be valid only if the

mailing and residence addresses of the

payee are outside the United States and

there are no other indicia of U.S. status.

If reliance is not permitted because

there are indicia of U.S. status then the

payor must obtain either documentary

evidence described in paragraph (c)(1)

of this section or a Form W–8 described

in § 1.1441–1(e)(2)(i) to treat the

customer as a foreign payee. In such a

case, the form or documentary evidence

must be renewed every three years in

accordance with the renewal procedures

set forth in § 1.1441–1(e)(4)(ii)(A) for as

long as indicia of U.S. status continue

to be present. The statement referred to

in this paragraph (c)(4)(i) of this section

must appear near the signature line and

must read as follows:

By opening this account and signing below,

the account owner represents and

warrants that he/she/it is not a U.S.

person for purposes of U.S. Federal

income tax and that he/she/it is not

acting for, or on behalf of, a U.S. person.

A false statement or misrepresentation of

tax status by a U.S. person could lead to

penalties under U.S. law. If your tax

status changes and you become a U.S.

citizen or a resident, you must notify us

within 30 days.

(iii) Continuous validity of

declaration of foreign status subject to

due diligence by financial institution. A

declaration of foreign status described

in paragraph (c)(4)(ii) of this section

does not expire unless the bank or

financial institution becomes aware of

circumstances indicating that the

customer may be a U.S. person.

(iv) Exception for existing accounts.

The rules of paragraphs (c)(4)(i) and (iii)

of this section shall apply to accounts

opened on or after January 1, 2001. For

accounts opened before 2001, a bank or

other financial institution may rely on

the rules contained in §§ 35a.9999–3(ii)

Q&A 34 and 35a.9999–4T Q&A 1 and 5

of this chapter in effect prior to January

1, 2001 (see 26 CFR Parts 30–39 revised

as of April 1, 2000).

* * * * *

(d) * * * (1) Identifying the payee.

The provisions of §§ 1.1441–1(b)(2),

1.1441–5(c)(1), (e)(2) and (3) shall apply

(by applying the term payor instead of

the term withholding agent) to identify

the payee for purposes of this section

(and other sections of the regulations

under this chapter to which this

paragraph (d)(1) applies), except to the

extent provided in this paragraph (d)(1)

in the case of a payment of amounts that

are not subject to withholding under

chapter 3 of the Internal Revenue

Code. * * *

* * * * *

(2) Presumptions of classification and

U.S. or foreign status in the absence of

documentation—(i) In general. Except

as otherwise provided in this paragraph

(d)(2)(i), for purposes of this section

(and other sections of regulations under

this chapter to which this paragraph

(d)(2) applies), the provisions of

§ 1.1441–1(b)(3)(i), (ii), (iii), (vii), (viii),

and (ix) and 1.1441–5(d) and (e)(6) shall

apply (by applying the term payor

instead of the term withholding agent) to

determine the classification (e.g.,

individual, corporation, partnership,

trust), status (i.e., a U.S. or a foreign

person), and other relevant

characteristics (e.g., beneficial owner or

intermediary) of a payee if a payment

cannot be reliably associated with valid

documentation under § 1.1441–

1(b)(2)(vii) irrespective of whether the

payments are subject to withholding

under chapter 3 of the Internal Revenue

Code. The provisions of § 1.1441–

1(b)(3)(iii)(D) and (vii)(B) shall not

apply, however, to payments of amounts

that are not subject to withholding. In

addition, § 1.1441–5(d)(2) shall not

apply to treat a partnership as a foreign

partnership with respect to amounts

that are not subject to withholding

unless the payor has actual knowledge

of the payee’s employer identification

number and that number begins with

the two digits ‘‘98.’’ The rules of

§ 1.1441–1(b)(2)(vii) shall apply for

purposes of determining when a

payment can reliably be associated with

documentation, by applying the term

payor instead of the term withholding

agent. For this purpose, the

documentary evidence or statement

described in paragraph (c)(4) of this

section can be treated as documentation

with which a payment can be

associated.

(ii) Grace period in the case of indicia

of a foreign payee. When the conditions

of this paragraph (d)(2)(ii) are satisfied,

the 30-day grace period provisions

under section 3406(e) shall not apply

and the provisions of this paragraph

(d)(2)(ii) shall apply instead. A payor

that, at any time during the grace period

described in this paragraph (d)(2)(ii),

credits an account with payments

described in § 1.1441–6(c)(2) that are

reportable under sections 6042, 6045,

6049, or 6050N may, instead of treating

the account as owned by a U.S. person

and applying backup withholding under

section 3406, if applicable, choose to

treat the account as owned by a foreign

person if, at the beginning of the grace

period, the address that the payor has in

its records for the account holder is in

a foreign country, the payor has been

furnished the information contained in

a withholding certificate described in

§ 1.1441–1(e)(2)(i) or (3)(i) (by way of a

facsimile copy of the certificate or other

non-qualified electronic transmission of

the information required to be stated on

the certificate), or the payor holds a

withholding certificate that is no longer

reliable other than because the validity

period as described in § 1.1441–

1(e)(4)(ii)(A) has expired. In the case of

a newly opened account, the grace

period begins on the date that the payor

first credits the account.

In the case of an existing account for

which the payor holds a Form W–8 or

documentary evidence of foreign status,

the grace period begins on the date that

the payor first credits the account after

the existing documentation held with

regard to the account can no longer be

relied upon (other than because the

validity period described in § 1.1441–

1(e)(4)(ii)(A) has expired). A new

account shall be treated as an existing

account if the account holder already

holds an account at the branch location

at which the new account is opened. It

shall also be treated as an existing

account if an account is held at another

branch location if the institution

maintains a coordinated account

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32209

information system described in

§ 1.1441–1(e)(4)(ix). The grace period

terminates on the earlier of the close of

the 90th day from the date on which the

grace period begins or the date that the

documentation is provided. The grace

period also terminates when the

remaining balance in the account (due

to withdrawals or otherwise) is equal to

or less than 31 percent of the total

amounts credited since the beginning of

the grace period that would be subject

to backup withholding if the provisions

of this paragraph (d)(2)(ii) did not apply.

At the end of the grace period, the payor

shall treat the amounts credited to the

account during the grace period as paid

to a U.S. or foreign payee depending

upon whether documentation has been

furnished and the nature of any such

documentation furnished upon which

the payor may rely to treat the account

as owned by a U.S. or foreign payee. If

the documentation has not been

received on or before the date of

expiration of the grace period, the payor

may also apply the presumptions

described in this paragraph (d) to

amounts credited to the account after

the date on which the grace period

expires (until such time as the payor can

reliably associate the documentation

with amounts credited). See

§ 31.6413(a)–3(a)(1)(iv) of this chapter

for treating backup withheld amounts

under section 3406 as erroneously

withheld when the documentation

establishing foreign status is furnished

prior to the end of the calendar year in

which backup withholding occurs. If the

provisions of this paragraph (d)(2)(ii)

apply, the provisions of § 31.3406(d)–3

of this chapter shall not apply. For

purposes of this paragraph (d)(2)(ii), an

account holder’s reinvestment of gross

proceeds of a sale into other instruments

constitutes a withdrawal and a nonqualified electronic transmission of

information on a withholding certificate

is a transmission that is not in

accordance with the provisions of

§ 1.1441–1(e)(4)(iv). See § 1.1092(d)–1

for a definition of the term actively

traded for purposes of this paragraph

(d)(2)(ii).

* * * * *

(3) Payments to foreign intermediaries

or flow-through entities—(i) Payments of

amounts subject to withholding under

chapter 3 of the Internal Revenue Code.

In the case of payments of amounts that

the payor may treat as made to a foreign

intermediary or flow-through entity in

accordance with §§ 1.1441–1(b)(3)(ii)(C)

and (b)(3)(v)(A), 1.1441–5(c) or (e) and

that are subject to withholding under

§ 1.1441–2(a), the provisions of

§§ 1.1441-1(b)(2)(v) and 1.1441–5(c)(1),

(e)(2), and (3) shall apply (by applying

the term payor instead of the term

withholding agent) to identify the payee.

If a payment of an amount subject to

withholding cannot be reliably

associated with valid documentation

from a payee in accordance with

§ 1.1441–1(b)(2)(vii) the presumption

rules of § 1.1441–1(b)(3)(v) and

§ 1.1441–5(d) and (e)(6) shall apply to

determine the payees status for

purposes of this section (and other

sections of regulations under this

chapter to which this paragraph (d)(3)

applies).

(ii) Payments of amounts not subject

to withholding under chapter 3 of the

Internal Revenue Code. Except as

provided in paragraph (d)(3)(iii) of this

section, amounts that are not subject to

withholding under chapter 3 of the

Internal Revenue Code that the payor

may treat as paid to a foreign

intermediary or flow-through entity

shall be treated as made to an exempt

recipient described in § 1.6049–4(c)

except to the extent that the payor has

actual knowledge that any person for

whom the intermediary or flow-through

entity is collecting the payment is a U.S.

person who is not an exempt recipient.

In the case of such actual knowledge,

the payor shall treat the payment that it

knows is allocable to such U.S. person

as a payment to a U.S. payee who is not

an exempt recipient.

(iii) Special rule for payments of

certain short-term original issue

discount and bank deposit interest—(A)

General rule. A payment of U.S. source

deposit interest described in section

871(i)(2)(A) or 881(d)(3) or interest or

original issue discount on the

redemption of an obligation with a

maturity from the date of issue of 183

days or less (short-term OID) described

in section 871(g)(1)(B) or 881(e) that the

payor may treat as paid to a foreign

intermediary or flow-through entity in

accordance with the provisions of

§ 1.1441-1(b)(3)(ii)(C) or (v)(A) shall be

treated as paid to an undocumented

U.S. payee that is not an exempt

recipient under paragraph § 1.6049–4(c)

unless the payor has documentation

from the payees of the payment and the

payment is allocated to foreign payees,

as a group, and to each U.S. non-exempt

recipient payee. See § 1.1441–

1(e)(3)(iv)(C)(2).

(B) Payee may be an intermediary. If

a payment is made to a person described

in § 1.6049–4(c)(1)(ii) that has not

provided an intermediary withholding

certificate under § 1.1441–1(e)(3)(i) but

the payor knows or has reason to know

that the payee may be an intermediary,

the payor must apply the rules of

paragraph (d)(3)(iii)(A) of this section. A

payor has reason to know that such a

person may be an intermediary if that

person has provided documentation

under § 1.1441–3(b)(ii)(C) or (v)(A) for

another account with the same payor.

(iv) Short-term deposits and

repurchase transactions. The provisions

of paragraph (d)(3)(ii) of this section and

not paragraph (d)(3)(iii) of this section

shall apply to deposits with banks and

other financial institutions that remain

on deposit for a period of two weeks or

less, to amounts of original issue

discount arising from a sale and

repurchase transaction that is completed

within a period of two weeks or less, or

to amounts described in paragraphs

(b)(7), (10) and (11) of this section

(relating to certain obligations issued in

bearer form).

(4) Examples. The rules of paragraphs

(d)(1) through (3) of this section are

illustrated by the following examples:

Example 1. (i) Facts. USP is a U.S.

payor as defined in paragraph (c)(5) of

this section. USP pays interest from

sources within the United States to an

account maintained in the United States

by X. The interest is not deposit interest

described in sections 871(i)(2)(A) or

881(d). USP does not have a

withholding certificate from X as

defined in § 1.1441–1(c)(16). Moreover,

USP cannot treat X as an exempt

recipient, as defined in § 1.6049–

4(c)(1)(ii), without documentation and

there is no indication that X is an

individual, trust, or estate.

(ii) Analysis. The U.S. source interest

is an amount subject to withholding as

defined in § 1.1441–2(a). Under

paragraph (d)(1) of this section, USP

must apply the provisions of §§ 1.1441–

1(b)(2) and 1.1441–5(c) and (e) to

determine the payee of the interest.

Under § 1.1441–1(b)(2)(i), X, the person

to whom the payment is made, is

considered to be the payee, unless X is

determined to be a flow-through entity,

in which case the rules of § 1.1441–5

apply to determine the payee. Under

paragraph (d)(2)(i) of this section, the

rules of § 1.1441–1(b)(3)(ii) apply to

determine the classification of a payee

as an individual, trust, estate,

corporation, or partnership. Under

§ 1.1441–1(b)(3)(ii)(B), X is presumed to

be a partnership, since X does not

appear to be an individual, trust or

estate, and X cannot be presumed to be

an exempt recipient in the absence of

documentation. Paragraph (d)(2)(i) of

this section requires USP to apply the

provisions of §§ 1.1441–1(b)(3)(iii) and

1.1441–5(d) to determine whether X is

presumed to be a U.S. or foreign

partnership. Under §§ 1.1441–1(b)(3)(iii)

and 1.1441–5(d)(2), X is presumed to be

32210 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

a U.S. partnership in absence of any

indicia of foreign partnership status.

The U.S. source interest paid to X is

reportable under section 6049 on Form

1099 and the interest is subject to

backup withholding under section 3406

because X has not provided its TIN on

a valid Form W–9.

Example 2. (i) Facts. The facts are the same

as in Example 1, except that the interest paid

by USP is from sources outside the United

States.

(ii) Analysis. Interest from sources outside

the United States is not an amount subject to

withholding, as defined in § 1.1441–2(a).

Under paragraph (d)(1) of this section, USP

must apply the provisions of §§ 1.1441–

1(b)(2) and 1.1441–5(c) and (e) to determine

the payee. Under § 1.1441–1(b)(2)(i), X, the

person to whom the payment is made, is

considered to be the payee, unless X is

determined to be a flow-through entity, in

which case the rules of § 1.1441–5(c) or (e)

apply to determine the payee. Under

paragraph (d)(2)(i) of this section, the rules of

§ 1.1441–1(b)(3)(ii) apply to determine the

classification of a payee as an individual,

trust, estate, corporation, or partnership.

These rules apply irrespective of whether the

payment is an amount subject to

withholding. Under § 1.1441–1(b)(3)(ii)(B), X

is presumed to be a partnership, since X does

not appear to be an individual, trust or estate,

and X cannot be presumed to be an exempt

recipient in the absence of documentation.

Paragraph (d)(2)(i) of this section requires

USP to apply the provisions of §§ 1.1441–

1(b)(3)(iii) and 1.1441–5(d) to determine

whether, X is presumed to be a U.S. or

foreign partnership. Under §§ 1.1441–

1(b)(3)(iii) and 1.1441–5(d)(2), X is presumed

to be a U.S. partnership in absence of any

indicia of foreign partnership status. The

foreign source interest is a payment subject

to reporting on Form 1099 under § 1.6049–

5(a). Further, because X is a non-exempt

recipient that has failed to provide its TIN on

a valid Form W–9, the foreign source interest

is subject to backup withholding under

section 3406.

Example 3. (i) Facts. USP is a U.S. payor

as defined in paragraph (c)(5) of this section.

USP makes a payment of U.S. source interest

outside the United States to an offshore

account of X. See paragraphs (c)(1) for a

definition of offshore account and (e) for a

payment outside the United States. USP does

not have a withholding certificate from X as

defined in § 1.1441–1(c)(16) nor does it have

documentary evidence as described in

§ 1.1441–1(e)(1)(ii)(A)(2) and 1.6049–5(c)(1).

(ii) Analysis. The interest is an amount

subject to withholding as defined in

§ 1.1441–2(a). Under paragraph (d)(1) of this

section, USP must apply the provisions of

§ 1.1441–1(b)(2) and § 1.1441–5(c) and (e) to

determine the payee. Under § 1.1441–

1(b)(2)(i), X, the person to whom the payment

is made, is considered to be the payee, unless

X is determined to be a flow-through entity,

in which case the rules of § 1.1441–5(c) or (e)

apply to determine the payee. Under

paragraph (d)(2)(i) of this section, the rules of

§ 1.1441–1(b)(3)(ii) apply to determine the

classification of a payee as an individual,

trust, estate, corporation, or partnership.

Under § 1.1441–1(b)(3)(ii)(B), X is presumed

to be a partnership, since X does not appear

to be an individual, trust or estate, and X

cannot be presumed to be an exempt

recipient in the absence of documentation.

Paragraph (d)(2)(i) of this section requires

USP to apply the provisions of §§ 1.1441–

1(b)(3)(iii) and 1.1441–5(d) to determine

whether, X is presumed to be a U.S. or

foreign partnership. Under §§ 1.1441–

1(b)(3)(iii)(D) and 1.1441–5(d)(2), X is

presumed to be a foreign partnership.

Therefore, under paragraph (d)(1) of this

section and § 1.1441–5(c)(1)(i)(E), the payees

of the interest are presumed to be the

partners of X. Under § 1.1441–5(d)(3), the

partners are presumed to be undocumented

foreign persons. Therefore, USP must

withhold 30 percent of the interest payment

under § 1.1441–1(b)(1) and report the

payment on Form 1042–S in accordance with

§ 1.1461–1(c).

Example 4. (i) Facts. The facts are the same

as in Example 3, except that the interest is

paid by F, a non-U.S. payor. (ii) Analysis.

The analysis and result are the same as in

Example 3. F is a withholding agent under

§ 1.1441–7 and its status as a non-U.S. payor

under paragraph (c)(5) of this section is

irrelevant.

Example 5. (i) Facts. USP is a U.S. payor

as defined in paragraph (c)(5) of this section.

USP makes a payment outside the United

States of interest from sources outside the

United States to an offshore account of X.

USP does not have a withholding certificate

from X as defined in § 1.1441–1(c)(16) nor

does it have documentary evidence as

described in §§ 1.1441–1(e)(1)(ii)(A)(2) and

1.6049–5(c)(1). USP does not have actual

knowledge of an employer identification

number for X. X does not appear to be an

individual, trust, or estate and cannot be

treated as an exempt recipient, as defined in

§ 1.6049–4(c)(1)(ii) in the absence of

documentation.

(ii) Analysis. The interest is not an amount

subject to withholding as defined in

§ 1.1441–2(a). Under paragraph (d)(1) of this

section, USP must apply the rules of

§§ 1.1441–1(b)(2) and 1.1441–5(c) and (e) to

determine the payee of the interest. Under

§ 1.1441–1(b)(2)(i), X, the person to whom

the payment is made, is considered to be the

payee, unless X is determined to be a flowthrough entity, in which case the rules of

§ 1.1441–5(c) or (e) apply to determine the

payee. Under paragraph (d)(2)(i) of this

section, § 1.1441–1(b)(3)(ii) applies to

determine X’s classification as an individual,

trust, estate, corporation or partnership.

Under § 1.1441–1(b)(3)(ii)(B), X is treated as

a partnership, since it does not appear to be

an individual, trust, or estate and cannot be

treated as an exempt recipient without

documentation. Paragraph (d)(2)(i) of this

section requires USP to apply the provisions

of §§ 1.1441–1(b)(3)(iii) and 1.1441–5(d) to

determine whether, X is presumed to be a

U.S. or foreign partnership. Paragraph

(d)(2)(i) also states that the presumptions of

foreign status for payments made to offshore

accounts contained in §§ 1.1441–

1(b)(3)(iii)(D) and 1.1441–5(d)(2) do not

apply to amounts that are not subject to

withholding. Therefore, under §§ 1.1441–

1(b)(3)(iii) and 1.1441–5(d)(2), X is presumed

to be a U.S. partnership because it does not

have actual knowledge that X’s employer

identification number begins with the digits

‘‘98.’’ Therefore, USP must treat X as a U.S.

person that is not an exempt recipient and

report the payment on Form 1099 under

section 6049. Under § 31.3406(g)–1(e) of this

chapter, however, USP is not required to

backup withhold on the payment unless it

has actual knowledge that X is a U.S. person

that is not an exempt recipient.

Example 6. (i) Facts. The facts are the same

as in Example 5, except that the interest is

paid by F, a non-U.S. payor, as defined under

paragraph (c)(5) of this section.

(ii) Analysis. The analysis is the same as

under Example 5. However, because F is a

non-U.S. payor paying foreign source interest

outside the United States, paragraph (b)(6) of

this section exempts the payment from

reporting under section 6049.

Example 7. (i) Facts. USP, a U.S. payor as

defined in paragraph (c)(5) of this section,

makes a payment of U.S. source interest to

NQI, a foreign corporation and a nonqualified

intermediary as defined in § 1.1441–1(c)(14).

The interest is not deposit interest as defined

in sections 871(i)(2)(A) and 881(d). The

interest is paid inside the United States to an

account maintained in the United States. NQI

has provided USP with a nonqualified

intermediary withholding certificate, as

described in § 1.1441–1(e)(3)(iii), but has not

attached any documentation from the

persons on whose behalf it acts or a

withholding statement as described in

§ 1.1441–1(e)(3)(iv).

(ii) Analysis. U.S. source interest is an

amount subject to withholding under

§ 1.1441–2(a). USP may treat the payment as

made to a foreign intermediary under

§ 1.1441–1(b)(3)(v)(A) because USP has

received a nonqualified intermediary

withholding certificate from NQI. Under

paragraph (d)(3)(i) of this section, USP must

apply § 1.1441–1(b)(2)(v) to determine the

payees of the payment. Under § 1.1441–

1(b)(2)(v)(A), USP must treat the persons on

whose behalf NQI is acting as the payees.

Paragraph (d)(3)(i) of this section also

requires USP to apply the presumption rules

of § 1.1441–1(b)(3)(v) if it cannot reliably

associate the payment with valid

documentation from a payee. See § 1.1441–

1(b)(2)(vii). Under § 1.1441–1(b)(3)(v)(B), the

interest is treated as paid to an unknown

foreign payee because it cannot be reliably

associated with documentation under

§ 1.1441–1(b)(2)(vii). Therefore, the payment

is not subject to reporting on Form 1099

under paragraph (b)(12) of this section

because the payment is presumed made to a

foreign person. The payment is subject to

withholding, however, under § 1.1441–1(b) at

a rate of 30 percent and is subject to reporting

on Form 1042–S under § 1.1461–1(c).

Example 8. (i) Facts. The facts are the same

as in Example 7, except that the interest is

paid outside the United States, as defined in

paragraph (e) of this section to an offshore

account, as defined in paragraph (c)(1) of this

section.

(ii) Analysis. The analysis and results are

the same as in Example 7. The rules of

Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations 32211

§ 1.1441–1(b)(3)(v) apply irrespective of

where the account is maintained or the

payment made.

Example 9. (i) Facts. The facts are the same

as in Example 8, except that the interest is

paid by F, a non-U.S. payor, as defined in

paragraph (c)(5) of this section.

(ii) Analysis. The analysis and results are

the same as in Example 7.

Example 10. (i) USP, a U.S. payor as

defined in paragraph (c)(5) of this section,

makes a payment of foreign source interest to

NQI, a foreign corporation and a nonqualified

intermediary as defined in § 1.1441–1(c)(14).

NQI has provided USP with a nonqualified

intermediary withholding certificate, as

described in § 1.1441–1(e)(3)(iii), but has not

attached any documentation from the

persons on whose behalf it acts or a

withholding statement as described in

§ 1.1441–1(e)(3)(iv).

(ii) Analysis. Foreign source interest is not

an amount subject to withholding under

chapter 3 of the Internal Revenue Code. See

§ 1.1441–2(a). Under paragraph (d)(3)(ii)(A)

of this section, amounts that are not subject

to withholding under chapter 3 of the

Internal Revenue Code that a payor may treat

as paid to a foreign intermediary are treated

as made to an exempt recipient described in

§ 1.6049–4(c). Therefore, the foreign source

interest is not subject to reporting on Form

1099.

Example 11. (i) Facts. USP is a U.S. payor

as defined in paragraph (c)(5) of this section.

USP pays U.S. source original issue discount

from the redemption of an obligation

described in section 871(g)(1)(B) to NQI, a

foreign corporation that is a nonqualified

intermediary as defined in § 1.1441–1(c)(14).

The redemption proceeds are paid to an

account NQI has with USP in the United

States. NQI provides a nonqualified

intermediary withholding certificate as

described in § 1.1441–1(e)(3)(iii) but does not

attach any payee documentation or a

withholding statement described in § 1.1441–

1(e)(3)(iv).

(ii) Analysis. Under paragraph (d)(3)(ii)(A)

of this section, USP must treat the payment

as made to an undocumented U.S. payee that

is not an exempt recipient and report the

payment on Form 1099. Further, because the

payment is made inside the United States,

the exception to backup withholding for

offshore accounts contained in § 31.3406(g)–

1(e) of this chapter does not apply and the

payment is subject to backup withholding.

Example 12. (i) Facts. P, a payor, makes a

payment to NQI of U.S. source interest on

debt obligations issued prior to July 18, 1984.

Therefore, the interest does not qualify as

portfolio interest under section 871(h) or

881(d). NQI is a nonqualified foreign

intermediary, as defined in § 1.1441–1(c)(14),

and has furnished P a valid nonqualified

intermediary withholding certificate

described in § 1.1441–1(e)(3)(iii) to which it

has attached a valid Form W–9 for A, and

two valid beneficial owner Forms W–8, one

for B and one for C. A is not an exempt

recipient under § 1.6049–4(c). NQI furnishes

a withholding statement, described in

§ 1.1441–1(e)(3)(iv), in which it allocates 20

percent of the U.S. source interest to A, but

does not allocate the remaining 80 percent of

the interest between B and C. B’s

withholding certificate indicates that B is a

foreign pension fund, exempt from U.S. tax

under the U.S. income tax treaty with

Country T. C’s withholding certificate

indicates that C is a foreign corporation not

entitled to a reduced rate of withholding.

(ii) Analysis. Under paragraph (d)(3)(i) of

this section, P applies the rules of § 1.1441–

1(b)(2)(v) to determine the payees of the

interest. Under that section, the payees are

the persons on whose behalf NQI acts—A, B

and C. Because P can reliably associate 20

percent of the payment with valid

documentation provided by A, P must treat

20 percent of the interest as paid to A, a U.S.

person not exempt from reporting, and report

the payment on Form 1099. P cannot reliably

associate the remaining 80 percent of the

payment with valid documentation under

§ 1.1441–1(b)(2)(vii) and, therefore, under

paragraph (d)(3)(i) of this section must apply

the presumption rules of § 1.1441–1(b)(3)(v).

Under that section, the interest is presumed

paid to an unknown foreign payee. Under

paragraph (b)(12) of this section, P is not

required to report the interest presumed paid

to a foreign person on Form 1099. Under

§ 1.1441–1(b), 80 percent of the interest is

subject to 30 percent withholding, however,

and the interest is reportable on Form 1042-

S under § 1.1461–1(c).

Example 13. (i) Facts. The facts are the

same as in Example 12, except that P can

reliably associate 30 percent of the payment

of interest to B, but cannot reliably associate

the remaining 70 percent with A or C.

(ii) Analysis. Under paragraph (d)(3)(i) of

this section, P applies the rules of § 1.1441–

1(b)(2)(v) to determine the payees of the

interest. Under that section, the payees are

the persons on whose behalf NQI acts—A, B

and C. Because P can reliably associate 30

percent of the payment with B, a foreign

pensions fund exempt from withholding

under an income tax treaty, P may treat that

payment as paid to B and not subject to

reporting on Form 1099 under paragraph

(b)(12) of this section. P cannot reliably

associate the remaining 70 percent of the

payment with valid documentation under

§ 1.1441–1(b)(2)(vii) and, therefore, under

paragraph (d)(3)(i) of this section must apply

the presumption rules of § 1.1441–1(b)(3)(v).

Under that section, the interest is presumed

paid to an unknown foreign payee. Under

paragraph (b)(12) of this section, P is not

required to report the interest presumed paid

to a foreign person on Form 1099. Under

§ 1.1441–1(b), 80 percent of the interest is

subject to 30 percent withholding, however,

and the interest is reportable on Form 1042-

S under § 1.1461–1(c).

Example 14. (i) Facts. The facts are the

same as in Example 12, except that P also

makes a payment of foreign source interest to

NQI.

(ii) Analysis. Under paragraph (d)(3)(ii)(A),

P may treat the foreign source interest as paid

to an exempt recipient as defined in

§ 1.6049–4(c) and not subject to reporting on

Form 1099 even though some or all of the

foreign source interest may in fact be owned

by A, the U.S. person that is not exempt from

reporting.

* * * * *

Parts 1 and 31 [Amended]

Par. 18. Effective January 1, 2001, in

the list below, for each section indicated

in the left column remove the language

in the middle column and add the

language in the right column:

Section Remove Add

1.1441–1(b)(1), first sentence ........................... to a beneficial owner that is a U.S. person ..... to a payee that is a U.S. person.

1.1441–1(b)(2)(iii)(A), last sentence .................. 1.1441–6(b)(4) .................................................. 1.1441–6(b)(2).

1.1441–1(b)(2)(iii)(B), third sentence ................ 1.1441–6(b)(4) .................................................. 1.1441–6(b)(2).

1.1441–1(b)(2)(vi), second sentence ................ 1.6049–5(c)(4) .................................................. 1.6049–5(c)(1).

1.1441–1(b)(4)(iii), last sentence ....................... § 1.6049–5(c)(4) ............................................... § 1.6049–5(c)(1).

1.1441–1(b)(4)(v), third sentence ...................... § 1.6049–5(c)(4) ............................................... § 1.6049–5(c).

1.1441–1(b)(4)(xviii), third sentence .................. is required ......................................................... is not required.

1.1441–1(b)(7)(i)(A) ........................................... § 1.1441–4(a)(2)(i) or (3) .................................. § 1.1441–4(a)(2)(ii) or (3)(i).

1.1441–1(b)(7)(iii), first sentence ...................... § 1.1441–4(a)(2)(i) or (3) .................................. § 1.1441–4(a)(2)(ii) or (3)(i).

1.14441–1(b)(9), second sentence ................... a withholding certificate .................................... an intermediary or flow-through withholding

certificate.

1.1441–1(b)(9), second sentence ..................... a U.S. beneficial owner .................................... a U.S. payee.

1.1441–1(e)(1)(ii)(A)(2) ...................................... with respect to an offshore account ................. to an offshore account.

1.1441–1(e)(2)(i), fifth sentence ........................ See § 1.1441–6(b)(4)(ii) .................................... See § 1.1441–6(b)(2).

1.1441–1(e)(2)(ii), sixth sentence ...................... See § 1.1441–6(b)(4)(i) .................................... See § 1.1441–6(b).

1.1441–1(e)(4)(viii), introductory text, second

sentence.

§ 1.1441–6(b)(2)(ii) ........................................... § 1.1441–6(c)(2).

1.1441–1(e)(4)(viii), third sentence ................... § 1.1441–6(b)(4)(ii) ........................................... § 1.1441–6(b)(1).

32212 Federal Register / Vol. 65, No. 99 / Monday, May 22, 2000 / Rules and Regulations

Section Remove Add

1.1441–3(c)(2)(i), introductory text, second

sentence.

estimate of earnings and profits, ...................... estimates under this paragraph (c)(2).

1.1441–4(a)(3)(ii) ............................................... payment to a foreign financial institution (within the meaning of § 1.165–12(c)(1)(iv)) shall.payment shall.

1.1441–4(a)(3)(ii) ............................................... counterparty ...................................................... payee.

1.1441–7(b)(1), first sentence ........................... is incorrect. ....................................................... is unreliable or incorrect.

1.1441–7(b)(1), third sentence .......................... contained in, or attached to, a withholding certificate.contained in, or associated with, a withholding

certificate.

1.1441–7(b)(1), third sentence .......................... are not correct and ........................................... are incorrect or unreliable and.

1.1461–1(b)(2), first sentence ........................... Form 1042X ...................................................... Form 1042.

1.6045–1(j), first sentence ................................. the end of the second calendar month following the close of the calendar year of

such reporting period.

February 28 of the following calendar year.

1.6049–4(c)(1)(ii)(A), second sentence ............. meets the .......................................................... meets one of the.

31.3406(h)–3(a), introductory text, first sentence.the payee certifies ............................................ a payee that is a U.S. person certifies.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: May 5, 2000.

Jonathan Talisman,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 00–11937 Filed 5–15–00; 8:45 am]

BILLING CODE 4830–01–U