REG-242282-97 (formerly Intl-62-90, Intl-32-93, Intl-52-86, and Intl-52-94) (TD 8881-final) General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign

REG-242282-97 (formerly Intl-62-90, Intl-32-93, Intl-52-86, and Intl-52-94) (TD-8881-final) General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign

TD 8881

REG-242282-97 (formerly Intl-62-90, Intl-32-93, Intl-52-86, and Intl-52-94) (TD 8881-final) General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign

OMB: 1545-1484

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Monday,
May 22, 2000

Part II

Department of the
Treasury
Internal Revenue Service
26 CFR Parts 1 and 31
Revisions to Regulations Relating to
Withholding of Tax on Certain U.S.
Source Income Paid to Foreign Persons
and Revisions of Information Reporting
Regulations; Final Rule

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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.

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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.

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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

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

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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

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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.

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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

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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

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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

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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

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17:05 May 19, 2000

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

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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

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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

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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

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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

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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

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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

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32157

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’’

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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

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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

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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

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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

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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

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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

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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

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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

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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

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

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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).

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32161

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

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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

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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–

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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

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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

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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

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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

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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.

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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.

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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

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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
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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

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32165

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),

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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

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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

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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

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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

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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

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32167

§ 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. non-

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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

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13:52 May 19, 2000

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.

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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).

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

*

*

*

*

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*

17:05 May 19, 2000

§ 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.

*

*

*

*

*

*

*

*

*

*

*

(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.

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*

*

*

*

(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.

*

(6) * * *
(i) In general.
(ii) Example.

*

*

*

*

*

*

(b) * * *
(3) * * *
(i) Amount subject to tax.
(ii) Amounts subject to withholding.

*

*

(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.

*

(vi) U.S. branches.
(vii) * * *
(A) In general.
(B) Special rule for offshore accounts.

*

32169

*

*

*

*

§ 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.

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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.

*

*

*

*

*

*

*

*

17:05 May 19, 2000

*
*
*
*
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:

*

§ 1.1441–7 General provisions relating to
withholding agents.
(a) * * *

VerDate 112000

*

§ 1.1441–1 Requirement for the deduction
and withholding of tax on payments to
foreign persons.

*

(e) Competent authority.

*

(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.

*
*
*
*
(b) * * *
(2) Determination of payee and
payee’s status—(i) In general. Except as

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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

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

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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.

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32171

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

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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

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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

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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

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

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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

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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

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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

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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

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

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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–

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32175

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

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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

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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

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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

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

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(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.

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32177

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

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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

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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

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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

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

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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

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32179

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

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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

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17:05 May 19, 2000

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

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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

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

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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

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32181

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

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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

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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

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§ 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

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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

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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

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32183

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 4percent 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

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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

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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

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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

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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

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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

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32185

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,

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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 31percent 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

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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

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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

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

Determination of amounts to be

*

*
*
*
*
(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

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32187

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

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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:

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§ 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

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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).

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(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.

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(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

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32189

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

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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

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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

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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

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

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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

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32191

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.

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(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 90day 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

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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

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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

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

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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

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32193

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

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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

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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 90day 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

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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

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

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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,

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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

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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

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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

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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),

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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

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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

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32197

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.

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(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

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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

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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

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(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

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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

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32199

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

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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.

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(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

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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

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

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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

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32201

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
withhold.

Payment and returns of tax

*

*
*
*
*
(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

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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

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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;

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(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));

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(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

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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

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32203

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

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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

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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

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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

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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

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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

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32205

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) * * *

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(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

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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.

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(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

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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).

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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

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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

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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.

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citizen or a resident, you must notify us
within 30 days.

that are not subject to withholding
unless the payor has actual knowledge
of the payee’s employer identification
(iii) Continuous validity of
number and that number begins with
declaration of foreign status subject to
due diligence by financial institution. A the two digits ‘‘98.’’ The rules of
§ 1.1441–1(b)(2)(vii) shall apply for
declaration of foreign status described
purposes of determining when a
in paragraph (c)(4)(ii) of this section
payment can reliably be associated with
does not expire unless the bank or
documentation, by applying the term
financial institution becomes aware of
payor instead of the term withholding
circumstances indicating that the
agent. For this purpose, the
customer may be a U.S. person.
documentary evidence or statement
(iv) Exception for existing accounts.
The rules of paragraphs (c)(4)(i) and (iii) described in paragraph (c)(4) of this
section can be treated as documentation
of this section shall apply to accounts
with which a payment can be
opened on or after January 1, 2001. For
associated.
accounts opened before 2001, a bank or
(ii) Grace period in the case of indicia
other financial institution may rely on
of a foreign payee. When the conditions
the rules contained in §§ 35a.9999–3(ii)
of this paragraph (d)(2)(ii) are satisfied,
Q&A 34 and 35a.9999–4T Q&A 1 and 5
the 30-day grace period provisions
of this chapter in effect prior to January
1, 2001 (see 26 CFR Parts 30–39 revised under section 3406(e) shall not apply
and the provisions of this paragraph
as of April 1, 2000).
(d)(2)(ii) shall apply instead. A payor
*
*
*
*
*
that, at any time during the grace period
(d) * * * (1) Identifying the payee.
described in this paragraph (d)(2)(ii),
The provisions of §§ 1.1441–1(b)(2),
1.1441–5(c)(1), (e)(2) and (3) shall apply credits an account with payments
described in § 1.1441–6(c)(2) that are
(by applying the term payor instead of
reportable under sections 6042, 6045,
the term withholding agent) to identify
6049, or 6050N may, instead of treating
the payee for purposes of this section
the account as owned by a U.S. person
(and other sections of the regulations
and applying backup withholding under
under this chapter to which this
section 3406, if applicable, choose to
paragraph (d)(1) applies), except to the
treat the account as owned by a foreign
extent provided in this paragraph (d)(1)
person if, at the beginning of the grace
in the case of a payment of amounts that
period, the address that the payor has in
are not subject to withholding under
its records for the account holder is in
chapter 3 of the Internal Revenue
a foreign country, the payor has been
Code. * * *
furnished the information contained in
*
*
*
*
*
a withholding certificate described in
(2) Presumptions of classification and § 1.1441–1(e)(2)(i) or (3)(i) (by way of a
U.S. or foreign status in the absence of
facsimile copy of the certificate or other
documentation—(i) In general. Except
non-qualified electronic transmission of
as otherwise provided in this paragraph the information required to be stated on
(d)(2)(i), for purposes of this section
the certificate), or the payor holds a
(and other sections of regulations under withholding certificate that is no longer
this chapter to which this paragraph
reliable other than because the validity
(d)(2) applies), the provisions of
period as described in § 1.1441–
§ 1.1441–1(b)(3)(i), (ii), (iii), (vii), (viii),
1(e)(4)(ii)(A) has expired. In the case of
and (ix) and 1.1441–5(d) and (e)(6) shall a newly opened account, the grace
apply (by applying the term payor
period begins on the date that the payor
instead of the term withholding agent) to first credits the account.
determine the classification (e.g.,
In the case of an existing account for
individual, corporation, partnership,
which the payor holds a Form W–8 or
trust), status (i.e., a U.S. or a foreign
documentary evidence of foreign status,
person), and other relevant
the grace period begins on the date that
characteristics (e.g., beneficial owner or the payor first credits the account after
intermediary) of a payee if a payment
the existing documentation held with
cannot be reliably associated with valid regard to the account can no longer be
documentation under § 1.1441–
relied upon (other than because the
1(b)(2)(vii) irrespective of whether the
validity period described in § 1.1441–
payments are subject to withholding
1(e)(4)(ii)(A) has expired). A new
under chapter 3 of the Internal Revenue account shall be treated as an existing
Code. The provisions of § 1.1441–
account if the account holder already
1(b)(3)(iii)(D) and (vii)(B) shall not
holds an account at the branch location
apply, however, to payments of amounts at which the new account is opened. It
that are not subject to withholding. In
shall also be treated as an existing
addition, § 1.1441–5(d)(2) shall not
account if an account is held at another
apply to treat a partnership as a foreign
branch location if the institution
partnership with respect to amounts
maintains a coordinated account

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

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(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

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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

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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,

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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

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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

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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 1042S under § 1.1461–1(c).

Section

Remove

Add

1.1441–1(b)(1), first sentence ...........................
1.1441–1(b)(2)(iii)(A), last sentence ..................
1.1441–1(b)(2)(iii)(B), third sentence ................
1.1441–1(b)(2)(vi), second sentence ................
1.1441–1(b)(4)(iii), last sentence .......................
1.1441–1(b)(4)(v), third sentence ......................
1.1441–1(b)(4)(xviii), third sentence ..................
1.1441–1(b)(7)(i)(A) ...........................................
1.1441–1(b)(7)(iii), first sentence ......................
1.14441–1(b)(9), second sentence ...................

to a beneficial owner that is a U.S. person .....
1.1441–6(b)(4) ..................................................
1.1441–6(b)(4) ..................................................
1.6049–5(c)(4) ..................................................
§ 1.6049–5(c)(4) ...............................................
§ 1.6049–5(c)(4) ...............................................
is required .........................................................
§ 1.1441–4(a)(2)(i) or (3) ..................................
§ 1.1441–4(a)(2)(i) or (3) ..................................
a withholding certificate ....................................

1.1441–1(b)(9), second sentence .....................
1.1441–1(e)(1)(ii)(A)(2) ......................................
1.1441–1(e)(2)(i), fifth sentence ........................
1.1441–1(e)(2)(ii), sixth sentence ......................
1.1441–1(e)(4)(viii), introductory text, second
sentence.
1.1441–1(e)(4)(viii), third sentence ...................

a U.S. beneficial owner ....................................
with respect to an offshore account .................
See § 1.1441–6(b)(4)(ii) ....................................
See § 1.1441–6(b)(4)(i) ....................................
§ 1.1441–6(b)(2)(ii) ...........................................

to a payee that is a U.S. person.
1.1441–6(b)(2).
1.1441–6(b)(2).
1.6049–5(c)(1).
§ 1.6049–5(c)(1).
§ 1.6049–5(c).
is not required.
§ 1.1441–4(a)(2)(ii) or (3)(i).
§ 1.1441–4(a)(2)(ii) or (3)(i).
an intermediary or flow-through withholding
certificate.
a U.S. payee.
to an offshore account.
See § 1.1441–6(b)(2).
See § 1.1441–6(b).
§ 1.1441–6(c)(2).

§ 1.1441–6(b)(4)(ii) ...........................................

§ 1.1441–6(b)(1).

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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 1042S 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:

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32212

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

Remove

1.1441–3(c)(2)(i), introductory text, second
sentence.
1.1441–4(a)(3)(ii) ...............................................

estimate of earnings and profits, ......................

estimates under this paragraph (c)(2).

payment to a foreign financial institution (within the meaning of § 1.165–12(c)(1)(iv)) shall.
counterparty ......................................................
is incorrect. .......................................................
contained in, or attached to, a withholding certificate.
are not correct and ...........................................
Form 1042X ......................................................
the end of the second calendar month following the close of the calendar year of
such reporting period.
meets the ..........................................................
the payee certifies ............................................

payment shall.

1.1441–4(a)(3)(ii) ...............................................
1.1441–7(b)(1), first sentence ...........................
1.1441–7(b)(1), third sentence ..........................
1.1441–7(b)(1), third sentence ..........................
1.1461–1(b)(2), first sentence ...........................
1.6045–1(j), first sentence .................................
1.6049–4(c)(1)(ii)(A), second sentence .............
31.3406(h)–3(a), introductory text, first sentence.

Add

payee.
is unreliable or incorrect.
contained in, or associated with, a withholding
certificate.
are incorrect or unreliable and.
Form 1042.
February 28 of the following calendar year.
meets one of the.
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

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File Typeapplication/pdf
File TitleDocument
SubjectExtracted Pages
AuthorU.S. Government Printing Office
File Modified2011-05-25
File Created2011-05-25

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