53504 Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Proposed Rules

U.S.C. chapter 5) does not apply to these

regulations, and because the regulation

does not impose a collection of

information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed

rulemaking will be submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

comments that are submitted timely to

the IRS. All comments will be available

for public inspection and copying.

A public hearing has been scheduled

for January 26, 1998, at 10 a.m. in the

Commissioner’s Conference Room, room

3313, Internal Revenue Building, 1111

Constitution Ave, NW., Washington DC.

Because of access restrictions, visitors

will not be admitted beyond the Internal

Revenue Building lobby more than 15

minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons who wish to present oral

comments at the hearing must submit

comments and an outline of the topics

to be discussed and the time to be

devoted to each topic by January 5,

1998.

A period of 10 minutes will be

allotted to each person for making

comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Proposed Amendments to the

Regulations

Accordingly, CFR part 1 is proposed

to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority for part 1

continues to read in part as follows:

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

Par. 2. In § 1.1441–3, paragraph (b) is

revised to read as follows:

§ 1.1441–3 Determination of amount to be

withheld.

* * * * *

(b) Withholding on payments on

certain obligations—(1) Withholding at

time of payment of interest. When

making a payment on an interestbearing obligation, a withholding agent

must withhold under § 1.1441–1 upon

the gross amount of stated interest

payable on the interest payment date,

regardless of whether the payment

constitutes a return of capital or the

payment of income within the meaning

of section 61, unless the withholding

agent has knowledge of the actual

amount of interest paid. For this

purpose, the withholding agent may rely

on information provided by the issuer

(or its paying agent), on a representation

from the beneficial owner, or on

information that the withholding agent

has in its records. To the extent an

amount was withheld on an amount of

capital rather than interest, see rules for

adjustments, refunds, or credits under

§ 1.1441–1(b)(8).

(2) No withholding between interest

payment dates—(i) General rule. A

withholding agent is not required to

withhold under § 1.1441–1 upon

interest accrued on the date of a sale of

debt obligations 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(a) or

881(a)), unless the withholding agent

has knowledge of the amount paid as

interest. For purposes of this paragraph

(b)(2)(i), a withholding agent is treated

as having knowledge in the same

manner as a withholding agent has

knowledge for purposes of § 1.1441–

2(b)(3)(ii), dealing with withholding on

original issue discount. In addition,

notwithstanding lack of knowledge

(within the meaning of § 1.1441–

2(b)(3)(ii)), withholding is required on

the entire amount of stated interest paid

with respect to the obligation as

determined as of the date of original

issue if the withholding agent, pursuant

to the provisions in § 1.1441–1(b)(3),

treats the payment as made to a foreign

payee because it cannot associate the

payment with required documentation

and the amount would qualify as

portfolio interest. See § 1.1441–1(b)(8)

for adjustments to any amount that has

been overwithheld as a result of this

provision.

(ii) Applicable rules. Any exemption

from withholding pursuant to paragraph

(b)(2)(i) of this section 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 6049 and backup withholding

under section 3406. See § 1.6045–1(c)

for reporting requirements by brokers

with respect to sale proceeds. Any

exemption from withholding under

paragraph (b)(2)(i) of this section is not

a determination that the accrued interest

is not fixed or determinable annual or

periodical income. 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).

Michael P. Dolan,

Acting Commissioner of Internal Revenue.

[FR Doc. 97–26000 Filed 10–6–97; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–107872–97]

RIN 1545–AV27

Electronic Transmission of Form W–8

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations relating to the

submission of Form W–8, a withholding

certificate, needed for purposes of

chapters 3 and 61 of the Internal

Revenue Code (Code) and other

withholding or reporting provisions of

the Code, such as section 3402, 3405, or

3406. The proposed regulations provide

guidance to withholding agents and

payors who wish to establish an

electronic system for use by beneficial

owners or payees in furnishing Form

W–8. The proposed regulations state the

general requirements that such an

electronic system must satisfy so that a

withholding agent or payor may rely on

a Form W–8 transmitted through such a

system. These regulations affect

withholding agents and payors that

establish electronic systems and

beneficial owners and payees who use

these systems.

DATES: Written comments and requests

for a public hearing must be received by

January 12, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–107872–97),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions

may be hand delivered between the

hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG–107872–97),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue,

NW., Washington, DC. Alternatively,

taxpayers may submit comments

electronically via the Internet by
Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Proposed Rules 53505

selecting the ‘‘Tax Regs’’ option on the

IRS Home Page, or by submitting

comments directly to the IRS Internet

site at www.irs.ustreas.gov/prod/

taxlregs/comments.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Lilo Hester,

202–622–3840; concerning submissions,

Evangelista Lee, 202–622–8452 (not tollfree numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to the Income Tax

Regulations (26 CFR part 1) under

section 1441 of the Internal Revenue

Code (Code). These amendments are

proposed to provide general procedures

for withholding agents and payors to

establish acceptable electronic systems.

Final regulations published in the

Rules and Regulations section of this

issue of the Federal Register add

§ 1.1441–1(e)(4)(iv) which authorizes

the electronic transmission of a Form

W–8 described in § 1.1441–1(e)(1)(i). In

addition, by cross-reference contained

in § 1.6049–5(c)(2) (published as a final

rule in the Rules and Regulations

section of this issue of the Federal

Register), the regulation authorizes

electronic transmission of a Form W–8

furnished for purposes of chapter 61 of

the Code (i.e., information reporting) or

for purposes of another income tax

withholding provision of the Code, such

as section 3406.

Pursuant to chapter 3 (or, in certain

cases, chapter 61) of the Code, a

beneficial owner or a payee (i.e., a

person who receives a payment) must

furnish a withholding certificate to a

withholding agent or payor in order to

establish its status as a foreign person

and entitlement to a reduced rate of

withholding. By establishing foreign

status, and other relevant

characteristics, a beneficial owner or

payee may be entitled to a reduction or

exemption in the amount of

withholding under chapter 3 of the

Code or an exemption from information

reporting under chapter 61 of the Code

or from backup withholding under

section 3406. The receipt of a

withholding certificate affects the

amount of tax that the withholding

agent or payor may be required to

withhold from the payment, and the

type and form of information that it

must provide to the IRS. The regulations

under sections 1441 and 1443

specifically identify Form W–8 (or an

acceptable substitute form) as the

required form of the withholding

certificate.

These proposed regulations apply to

electronic transmission of Forms W–8.

The regulations do not apply to Form

8233 for use by individuals who claim

a reduced rate of withholding under an

income tax convention for services

performed in the United States. See

§ 1.1441–4(b)(2). In addition, the

regulations do not apply to

documentary evidence (described in

§ 1.6049–5(c)(1)) that may be substituted

for the Form W–8 with respect to certain

payments made to accounts maintained

outside of the United States. However,

the IRS and Treasury invite comments

on any computer technology (e.g.,

imaging) that could make electronic

transmission of documentary evidence

possible.

Explanation of Provisions

1. Type and Design of System

Determined by Withholding Agent or

Payor Subject to Specific Requirements

Under the proposed regulations, a

withholding agent or payor may choose

to establish an electronic system to

receive or transmit Forms W–8 (or such

other form as the IRS may prescribe),

including a payor or withholding agent

that is an intermediary. The

withholding agent or payor may

determine the type of system (such as

telephone or computer) available for

that purpose. The system must,

however, (1) reliably identify the user,

(2) ensure that the information received

is the information sent, and (3)

document occasions of user access that

result in a submission, renewal, or

modification of the withholding

certificate. The proposed regulations

envision that implementation of these

specific requirements necessitates a

direct relationship between the

withholding agent or payor and the

beneficial owner or payee. The

proposed regulations reserve on

applicable standards for systems used

by intermediaries to transmit forms

received from another payor or

withholding agent. The IRS and

Treasury recognize the importance of

allowing the electronic transmission of

Forms W–8 through one or more

intermediaries (i.e., persons not acting

for their own account). Therefore,

comments are solicited regarding the

logistical operation of an electronic

transmission system for use by an

intermediary satisfying the IRS

requirements that the integrity,

accuracy, and reliability of the original

electronic transmission through an

intermediary system is adequately

protected.

2. Relationship Between Paper and

Electronic Withholding Certificate

The electronic transmission must

contain exactly the same information as

the paper Form W–8 (or such other form

as the IRS may prescribe). Any

guidance, such as regulations or

instructions, that applies to the paper

Form W–8 also applies to electronically

transmitted forms.

3. Electronic Filing Optional

Section 1.1441–1(e)(4)(iv) authorizing

the use of electronic systems was

promulgated to assist in reducing

burdens (in terms of cost and time) on

withholding agents, payors, payees, and

beneficial owners. The use of an

electronic system for the transmission of

Form W–8 is merely an alternative to

the use of a paper form. Electronic

transmission of Form W–8 is not

mandatory. A withholding agent or

payor may not mandate the use of

electronic systems to receive or transmit

the forms. Thus, a payee or beneficial

owner may furnish a Form W–8 to the

withholding agent or payor on paper.

4. Signature Under Penalties of Perjury

Section 6061 generally provides that

any return, statement, or other

document required to be made under

any provision of the internal revenue

laws or regulations shall be signed in

accordance with forms or regulations

prescribed by the Secretary. Section

301.6061–1(b) provides that the

Secretary may prescribe in forms,

instructions, or other appropriate

guidance the method of signing any

return, statement, or other document

required to be made under any

provision of the internal revenue laws

or regulations. Section 6065 provides

that, except as provided by the

Secretary, any return, statement or other

document shall contain or be verified by

a written declaration that it is made

under the penalties of perjury. These

requirements apply to a Form W–8 (or

such other form as the Internal Revenue

Service may prescribe), including one

that is filed electronically, as provided

in § 1.1441–1(e)(2)(ii), (3)(ii), (3)(iii), and

(3)(v), and § 1.1441–5(c)(2)(iv) and

(3)(iii) of the final regulations. The

proposed regulations, therefore, include

guidance on the perjury statement and

the signature requirements for Forms

W–8 that are filed electronically.

5. IRS Requests for Electronic Data

Upon request by the IRS in the course

of an examination, a withholding agent

or payor must supply a hard copy of the

information contained on the

electronically transmitted Form W–8

and a statement that, to the best of the
53506 Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 / Proposed Rules

withholding agent’s knowledge, the

electronic Form W–8 was furnished by

the person whose name is on the form.

The printout of the Form W–8

information must be provided to the IRS

in English.

Proposed Effective Date

These regulations are proposed to

become effective January 1, 1999.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory

assessment is not required. It also has

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) does not apply to these

regulations, and, because the proposed

regulations do not impose a collection

of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to

section 7805(f) of the Code, this notice

of proposed rulemaking will be

submitted to the Small Business

Administration for comment on its

impact on small business.

Comments and Requests for a Public

Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

written comments (a signed original and

eight copies) that are submitted timely

(in the manner described in the

ADDRESSES portion of this preamble) to

the IRS. All comments will be available

for public inspection and copying.

A public hearing may be scheduled if

requested in writing by any person that

submits written comments. If a public

hearing is scheduled, notice of the date,

time, and place for the hearing will be

published in the Federal Register.

Drafting Information: The principal

author of these regulations is Lilo A.

Hester, Office of the Associate Chief

Counsel (International), IRS. However,

other personnel from the IRS and

Treasury Department participated in

their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

proposed to be 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. In § 1.1441–1, paragraph

(e)(4)(iv) is revised to read as follows:

§ 1.1441–1 Requirement for the deduction

and withholding of tax on payments to

foreign persons.

* * * * *

(e) * * *

(4) * * *

(iv) Electronic transmission of

information—(A) In general. A

withholding agent may establish a

system for beneficial owners or payees

to furnish electronically Forms W–8 (or

such other form as the Internal Revenue

Service may prescribe). The system also

may enable the withholding agent to

electronically transmit Forms W–8 to

another person. The system must meet

the requirements described in paragraph

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

(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 be signed by way of

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 Forms 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 a

facsimile of, the paper Form W–8.

(C) Special requirements for

transmission of Forms W–8 by an

intermediary. [Reserved].

* * * * *

Michael P. Dolan,

Acting Commissioner of Internal Revenue.

[FR Doc. 97–26001 Filed 10–6–97; 8:45 am]

BILLING CODE 4830–01–P