Revenue Procedure 2003-64

placed in service for purposes of §§ 167
and 168. Although a fiber optic cable
may contain more optic fibers than are
necessary to serve a single node, all optic
fibers in the unit of property are considered placed in service when the node is
ready and available as described above
and connected to at least one optic fiber in
the fiber optic cable.
.04 Consistent treatment. Taxpayers using the unit of property described in section 4.01 of this revenue procedure must
use it for all of a headend's nodes and fiber
optic cable. Except as provided in section
4.02 of this revenue procedure, taxpayers
are required to treat the unit of property
consistently for all purposes under §§ 167
and 168 and the regulations thereunder.
SECTION 5. CHANGE IN METHOD
OF ACCOUNTING AND AUDIT
PROTECTION
.01 Change in method of accounting. A
change in a taxpayer's depreciation treatment of cable television distribution systems (as described in section 4 of this revenue procedure) is a change in method of
accounting to which §§ 446(e) and 481 apply. If a taxpayer within the scope of this
revenue procedure wants to change to the
safe harbor method provided in this revenue procedure for cable television distribution systems (as described in section 4 of
this revenue procedure) that are owned by
the taxpayer at the beginning of the year of
change, the taxpayer must follow the automatic change in method of accounting
provisions in Rev. Proc. 2002–9, 2002–1
C.B. 327 (as modified and amplified by
Rev. Proc. 2002–19, 2002–1 C.B. 696,
amplified, clarified, and modified by Rev.
Proc. 2002–54, 2002–35 I.R.B. 432, and
modified and clarified by Announcement
2002–17, 2002–1 C.B. 561) or any successor, with the following modifications:
(1) The scope limitations in section 4.02
of Rev. Proc. 2002–9 do not apply to a taxpayer that wants to change to the safe harbor method for either its first or second taxable year ending after December 31, 2001;
and
(2) To assist the Service in processing
changes in method of accounting under
this section of the revenue procedure,
and to ensure proper handling, section

August 11, 2003

6.02(4)(a) of Rev. Proc. 2002–9 is modified to require that a Form 3115 filed
under this revenue procedure include the
statement: “Automatic Change Filed Under Rev. Proc. 2003–63.” This statement
should be legibly printed or typed on the
appropriate line on the Form 3115.
.02 Audit protection. If a taxpayer currently uses a method consistent with the
safe harbor method (as described in section
4 of this revenue procedure), the method
of accounting for depreciation of the taxpayer's property described in section 4.01
will not be raised as an issue by the Service in a taxable year that ends before August 11, 2003. Also, if a taxpayer currently uses a method consistent with the
safe harbor method (as described in section 4 of this revenue procedure) and its use
of that method is an issue under consideration (within the meaning of section 3.09
of Rev. Proc. 2002–9) for taxable years in
examination, before an appeals office, or
before the U.S. Tax Court in a taxable year
that ends before August 11, 2003, that issue will not be further pursued by the Service.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–9 is modified and amplified to include this change in method of
accounting in section 2 of the APPENDIX.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective on
August 11, 2003.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Paul Handleman of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries). For further information regarding this revenue procedure,
contact Mr. Handleman at (202) 622–3040
(not a toll-free call).

306

Application Procedures and
Final Agreement for Withholding
Foreign Partnerships and
Withholding Foreign Trusts;
Additional Guidance for Qualified
Intermediaries Regarding
Withholding on Small or Related
Foreign Partnerships and Trusts.
Rev. Proc. 2003–64
SECTION 1. PURPOSE AND SCOPE
.01 Guidance to Simplify Partnership
and Trust Withholding and Reporting
Obligations. The provisions of this revenue procedure are designed to simplify
withholding and reporting obligations
for payments of income made to foreign
partnerships and foreign simple or grantor
trusts. This revenue procedure contains
the final withholding foreign partnership
(WP) and withholding foreign trust (WT)
agreements, described in Treasury Regulation § 1.1441–5(c)(2)(ii) and (e)(5)(v),
and the application procedures for entering into such agreements. This revenue
procedure also amends the Qualified Intermediary (“QI”) withholding agreement
(“QI agreement”), contained in Rev. Proc.
2000–12, 2000–1 C.B. 387, to add new
section 4A. New Section 4A of the QI
agreement provides additional rules for
QIs regarding withholding and reporting
on certain small or related foreign partnerships and foreign simple or grantor trusts
that do not enter into WP or WT agreements. Similar rules are also incorporated
into the final WP and WT agreements. A
WP or WT agreement entered into during
a calendar year may be made effective as
of the first day of that calendar year. A QI
may apply the provisions of section 4A as
of the beginning of the 2003 calendar year.
.02 Extension of Transitional Relief in
Notice 2001–4. Pending development of
the WP agreement, the IRS and Treasury
provided transitional relief for foreign
partnerships for calendar year 2001. See
Section IV of Notice 2001–4, 2001–1
C.B. 267. The IRS and Treasury extended
the transitional relief through calendar
year 2002. See Notice 2002–66, 2002–42
I.R.B. 715. The guidance provided in this

2003-32 I.R.B.

revenue procedure makes further extensions of this transitional relief for foreign
partnerships unnecessary. Section III.C of
Notice 2001–4 provides documentation
and reporting relief for foreign simple and
grantor trusts. The rules of Section III.C.
of Notice 2001–4 will no longer apply
after 2003 because the more comprehensive guidance for trusts in this revenue
procedure make those rules unnecessary.
For the year 2003 a QI may apply the rules
of Section III.C. of Notice 2001–4 or the
rules of this revenue procedure.
SECTION 2. COMMENTS
ON PROPOSED WP AND WT
AGREEMENTS
.01 Proposed WP and WT Agreements.
The IRS and Treasury issued proposed WP
and WT agreements in Notice 2002–41,
2002–1 C.B. 1153. The proposed WP
and WT agreements provided streamlined
procedures designed to simplify documentation and reporting. Under the provisions of the proposed WP and WT agreements, a WP or WT would be permitted to provide the withholding agent with
a Form W–8IMY as a WP or WT without attached documentation from partners,
beneficiaries or owners. The WP or WT
would receive payments from the withholding agent in gross and would withhold and deposit tax, if any, based on the
Forms W–8 or W–9 that it receives from its
partners, beneficiaries or owners. The WP
or WT would report payments to, and tax
withheld from, its direct foreign partners,
beneficiaries or owners on Form 1042–S
on an individual basis or, by election, on
a pooled basis. Thus, a WP or WT would
be relieved of the requirement to disclose
to a withholding agent any documentation and payment information for partners,
beneficiaries or owners. A withholding
agent would be relieved of the responsibility for collecting documentation, withholding and reporting payment information for partners, beneficiaries or owners
of a WP or WT.
The financial community generally
responded favorably to the simplified procedures for documentation, reporting and
audit provided under the proposed WP and
WT agreements. The financial community
provided some comments about specific
provisions of the proposed agreements.

2003-32 I.R.B.

The financial community also raised concerns that the WP and WT agreements may
not be as appropriate for certain foreign
partnerships and trusts and provided suggestions for modification. In response, the
IRS and Treasury have amended several
provisions of the WP and WT agreements.
The IRS and Treasury have also developed
a new set of provisions for certain smaller
foreign partnerships and trusts and for
certain foreign partnerships and trusts that
are related to a QI, WP, or WT. Notwithstanding the new rules below for certain
small or related partnerships and trusts,
the IRS and Treasury intend that the WP
and WT agreements may be entered into
in all circumstances in which a foreign
entity acting on behalf of its partners,
beneficiaries or owners provides Form
W–8IMY as proper documentation. It is
anticipated that the majority of foreign
partnerships and trusts with substantial
reportable income will seek to enter into
WP or WT agreements.
.02 Specific Provisions of the WP and
WT Agreements. One category of comments from the financial community addressed specific provisions of the WP and
WT agreements. The financial community recommended the following: (1) the
term of the WP agreement should coincide
with the term of the partnership if a partnership with a limited term elects pooled
reporting; (2) the WP agreement should
not terminate following a termination of
the partnership under section 708(b)(1)(B)
(termination of partnership upon sale or
exchange of 50 percent or more of the total interest in partnership capital and profits); (3) ordering rules should be added to
the WP and WT agreements to clarify the
partnership's or trust's withholding obligations on distributions; and (4) the validity
period of Form W–8BEN should be extended beyond three years. In addition,
commentators suggested that, in certain
circumstances, one or more of the following provisions of the WP and WT agreements should be modified to more closely
parallel the QI agreement: (1) documentation limited to Forms W–8 and W–9, (2)
application only to direct partners, beneficiaries or owners, (3) frequency of audits
when pooled reporting is elected, and (4)
automatic termination.
The IRS and Treasury continue to
believe that, in general, the simplified
procedures contained in the WP and WT

307

agreements are appropriate given the
particular circumstances of partnerships
and trusts, and that these simplified procedures will reduce administrative and
audit costs as well as the risk of errors in
performing under the agreements. Therefore, the final WP and WT agreements
are substantially the same as originally
proposed. For example, the WP and WT
agreements continue to require partners,
beneficiaries or owners to be documented
solely with Forms W–8 and W–9 and
do not permit reliance on the presumption rules. The IRS and Treasury do not
believe it is appropriate to modify the documentation requirements to match those
applicable to QIs given the significant
differences between foreign partnerships
and trusts and QIs. Unlike QIs, foreign
partnerships and trusts generally are not
subject to know-your-customer (KYC)
rules. Therefore, the IRS is unable to
rely on regulators to ensure that a WP or
WT is properly documenting its partners,
beneficiaries or owners.
Where appropriate, however, certain
provisions of the WP and WT agreements
have been modified to be more similar to
provisions in the QI agreement. The WP
and WT agreements have been modified
as follows in response to comments by the
financial community.
Term of the Agreement. The WP or WT
agreement continues in force indefinitely
unless the WP or WT has elected to report
on Form 1042–S on a pooled basis. As
originally proposed, the term of the agreement of a WP or WT that elected pooled
reporting was six years and was renewable. The six year renewable term continues to be available. In addition, the WP or
WT may elect to use a longer non-renewable term of up to fifteen years. This optional longer term was added in response to
comments that investment partnerships or
trusts are often formed with limited terms,
usually ranging from ten to fifteen years
and that having the term of the WP or WT
agreement coincide with the term of the
trust or partnership would facilitate compliance. See Sections 9.01 and 9.02 of
the WP and WT agreements, Appendices
1 and 2.
Automatic Termination. If the WP or
WT fails to document any partner, beneficiary or owner with Form W–8 or W–9
by the time withholding is required under
the agreement, then, unless the WP or

August 11, 2003

WT cures its failure, the agreement will
automatically terminate effective December 31st of the year in which the failure
is discovered. In response to comments,
the final WP or WT agreements, first,
extend the date for curing documentation
failures from January 31 to March 15
and, second, add an alternative method
for curing. Thus, the final WP and WT
agreements allow reinstatement as of the
date the agreement is terminated not only
if the WP or WT is able to obtain documentation for undocumented partners,
beneficiaries or owners before March 15
of the year following the year in which
the agreement automatically terminated,
but, alternatively, if all undocumented
partners have ceased to be partners in WP
before March 15 of the year following
the year in which the agreement automatically terminated. No change was made
in response to the comment that the WP
agreement should not terminate following
a termination of the partnership under
section 708(b)(1)(B). Consistent with the
application of section 708(b)(1)(B) in
numerous other areas, the WP agreement
must terminate in this case because section
708(b)(1)(B) terminates the partnership
for tax purposes.
Withholding on Distributions. The WP
or WT receives payments from the withholding agent in gross and withholds and
deposits tax, if any, based on the Forms
W–8 or W–9 that it receives from its partners, beneficiaries or owners. The WP or
WT must withhold on the date it makes a
distribution to a direct foreign partner, beneficiary or owner that includes an amount
subject to withholding. Comments suggested that ordering rules should be added
to the WP and WT agreements to clarify the partnership's or trust's withholding
obligations on distributions. Rather than
developing a complex set of ordering rules,
a provision has been added to the final WP
and WT agreements that allows the WP or
WT to determine the amount of withholding on a distribution based on a reasonable estimate of the partner, beneficiary or
owner's distributive share of income subject to withholding for the year. See Section 3.03 of the WP and WT agreements,
Appendices 1 and 2.
Application to Direct Partners, Beneficiaries or Owners. As originally proposed,
the WP and WT agreements provided that

August 11, 2003

a partnership or trust could act as a WP or
WT only for its direct partners, beneficiaries or owners that were not intermediaries
or flow-through entities. The WP or WT
could elect to report on Forms 1042–S on
a pooled basis for its direct partners, beneficiaries or owners. For all its indirect partners, beneficiaries or owners, however, the
WP or WT was required to pass documentation up to the withholding agent. Thus
individual Form 1042–S reporting was required for each indirect partner, beneficiary, or owner. The IRS and Treasury believe it is appropriate to modify these rules
only in specific situations. Thus, the final
WP and WT agreements contain two new
provisions. As discussed in Section 3.03
of this revenue procedure, the first provision may be applied to indirect partners,
beneficiaries or owners that are small partnerships and trusts. This provision contains streamlined rules similar to the U.S.
rules for joint account holders. As discussed in Section 3.04 of this revenue procedure, the second provision may be applied to indirect partners, beneficiaries or
owners that are partnerships or trusts that
are related to the WP or WT. This provision contains rules similar to those for
private arrangement intermediaries (PAIs)
under the QI agreement. Under both provisions, the indirect account holders must be
documented with Forms W–8 (and not any
other documentation). See Section 10 of
the WP and WT agreements, Appendices
1 and 2.
Frequency of Audit. Unless the WP or
WT has elected to report on Form 1042–S
on a pooled basis, it will be subject to audit
only if selected for audit by the IRS. Under the proposed agreement if pooled reporting was elected, the external audit occurred every two years and examined the
two previous years. In response to comments that a WP's or WT's audit coverage should match that of a QI, the WP
and WT agreements have been amended
to conform the audit cycle for the six year
agreement to the audit cycle under the QI
agreement. Therefore, if the WP or WT
elects pooled reporting and a six year term,
it must agree to have the external auditor
conduct an audit of the second and fifth full
calendar year that the agreement is in effect. The two year audit cycle has been
retained, however, for a WP or WT that

308

elects pooled reporting and a non-renewable term of up to fifteen years. See Sections 8.03 and 8.04 of the WP and WT
agreements, Appendices 1 and 2.
Validity Period of Form W–8. This
revenue procedure does not include any
modifications to address comments from
the financial community regarding the
extension of the validity period of Form
W–8BEN. The IRS and Treasury will
continue to study these comments.
.03 Certain Smaller Partnerships and
Trusts. The financial community has
suggested that the proposed WP and WT
agreements are less suitable for smaller
partnerships and family trusts. Commentators provided information indicating
that a significant portion of foreign partnerships or trusts with accounts with QIs
are small partnerships or trusts that receive minimal U.S. source income and
may not have the resources to undertake
documentation, withholding and reporting responsibilities at their own level.
Commentators noted that the partners,
beneficiaries or owners of these partnerships and trusts generally are foreign
persons that are all from the same country
or otherwise subject to the same rate of
withholding on U.S. source income.
Commentators recommended that the
IRS establish a threshold, below which
a QI would be able to handle the documentation, reporting (including pooled
reporting) and withholding obligations under simplified rules, subject to verification
through additional documentation requirements. Commentators suggested that, to
the extent all partners, beneficiaries or
owners are not entitled to the same rate of
withholding, the QI, WP, or WT could be
required to withhold at the highest applicable rate without a withholding statement
(or to obtain a withholding statement and
apply the different rates), and to perform
pooled reporting on Form 1042–S. Commentators noted that the QI could then be
responsible for monitoring the account to
ensure that documentation is received and,
in the event the account holder received
reportable amounts above a certain threshold, waivers of confidentiality could be
obtained to allow the QI to report on Form
1042–S on an individual basis. Similar
comments were also submitted for situations in which these smaller partnerships
and trusts were partners, beneficiaries or

2003-32 I.R.B.

owners of larger foreign partnerships or
trusts that become WPs or WTs.
In response to these comments, the IRS
and Treasury have developed a new provision that may be applied to a small foreign partnership or simple or grantor trust
that is an account holder of a QI. This provision appears in new section 4A of the
QI agreement. See Appendix 3. Similar
rules, applicable to a foreign partnership
or simple or grantor trust that is a partner,
beneficiary or owner of a WP or WT, are
incorporated into the WP and WT agreements. See Section 10 of the WP and WT
agreements, Appendices 1 and 2. This provision is not available to partnerships or
trusts if any partner, beneficiary or owner
is a U.S. person or a passthrough partner,
beneficiary or owner. Below is a summary
of the relevant rules.
Income Threshold. The QI, WP, or WT
may apply this provision only to a foreign
partnership or trust that receives from it
less than $200,000 of reportable amounts
for a calendar year.
Written Agreement. The partnership or
trust must agree in writing that it will make
available to the QI's, WP's, or WT's auditor, if requested, records that establish that
documentation was provided for all of its
partners, beneficiaries or owners.
Documentation. A QI must obtain either Form W–8 or other documentation
provided in its QI agreement from each
partner, beneficiary or owner. A WP or
WT must obtain a Form W–8 from each
partner, beneficiary or owner. Additionally, the small partnership or trust must
provide a Form W–8IMY with the required
withholding statement. The withholding
statement, however, need not provide any
allocation information.
Withholding. Similar to the U.S. rules
for joint account holders, a QI, WP, or
WT must allocate payments to the partner, beneficiary or owner that is subject
to the highest rate of withholding. The
QI, WP, or WT may report the reportable
amounts received during the calendar year
by these small partnerships or trusts in its
Form 1042–S reporting pools for direct account holders. Under the regulations that
would otherwise apply, the partnership or
trust must provide the QI, WP, or WT a
withholding statement that, among other
things, allocates the payment to each of
the partners in the partnership. The withholding agent must withhold and report for

2003-32 I.R.B.

each partner, beneficiary, or owner, separately to the IRS. The new provision simplifies these procedures by relieving the
partnership or trust of the responsibility for
providing allocation information and by allowing the QI, WP, or WT to allocate payments to the partner, beneficiary or owner
that is subject to the highest rate of withholding.
Refunds. A QI, WP, or WT may not
include any payments made to such small
foreign partnership or trust in any collective refund claim pursuant to the general
provisions of QI, WP, or WT agreements.
Instead, if a partner, beneficiary, or owner
is subject to a lower withholding rate than
the other partners, beneficiaries or owners,
that partner, beneficiary or owner may
file a refund claim directly with the IRS
if the time period has elapsed for the QI,
WP, or WT to apply the reimbursement
or set-off procedures. To apply for such a
refund, the partner, beneficiary or owner
must have an individual Form 1042–S.
Upon request, a QI, WP, or WT may file
a separate Form 1042–S for any partner,
beneficiary or owner. A QI, WP, or WT
may do so only if the partnership or trust
has provided a withholding statement that
includes allocation information for the
requesting partner, beneficiary or owner
and the partnership or trust has agreed to
provide additional information requested
by the QI's, WP's, or WT's auditor to
substantiate the information.
Timing. A QI, WP, or WT may generally apply these special rules to a foreign
partnership or trust on a year-by-year basis.
Failure to Provide Records. A QI, WP,
or WT may not apply these rules to a partnership or trust if the partnership or trust
has failed to make available to the QI's,
WT's or WP's auditor requested records
within 90 days after the request. Upon
such failure, the QI, WP, or WT must
treat such partnership or trust under the
general rules, must correct its withholding
and must file corrected Forms 1042 and
1042–S for the individual partners, beneficiaries or owners.
.04 Certain Related Partnerships and
Trusts.
Additionally, commentators suggested
that the rules for indirect account holders should be modified for certain partnerships and trusts that are related to a QI,
WP, or WT. Commentators suggested that

309

these partnerships or trusts (such as sponsored funds) were able to determine allocations and withholding amounts in accordance with U.S. tax rules but that the QI,
WP, or WT should retain the withholding
and reporting responsibility.
In response to these comments, the IRS
and Treasury have developed new rules
that allow a foreign partnership or trust that
is related to a QI, WP, or WT to provide
the QI, WP, or WT the information necessary for the QI, WP, or WT to withhold and
report on reportable amounts. The partnership or trust, however, retains the documentation identifying its partners, beneficiaries or owners. Under these rules, the
partnership or trust acts as the QI's, WP's,
or WT's agent in applying the QI, WP or
WT agreement to its partners, beneficiaries or owners. The QI, WP or WT, however, must remain liable for the actions performed by the partnership or trust. These
provisions appear in new section 4A.02 of
the QI agreement (see Appendix 3) and in
Section 10.02 of the WP and WT agreements (see Appendices 1 and 2). Below is
a summary of these rules.
Related Partnership or Trust. To address compliance concerns, a QI, WP, or
WT may apply these procedures to a foreign partnership or trust only if the QI, or
an affiliate of the QI, or WP or WT is a general partner of the partnership or a trustee
of the trust.
Written Agreement. The QI, WP or WT
and the partnership or trust must agree, in
writing, that the partnership or trust will act
as agent of the QI, WP, or WT under the
QI, WP or WT agreement and will make
available, upon request, to the QI's, WP's,
or WT's auditor records that establish compliance with the relevant provisions of the
QI, WP, or WT agreement.
Documentation. The related foreign
partnership or trust must provide the QI,
WP, or WT with a Form W8–IMY together
with a withholding statement providing information necessary for the QI, WP, or
WT to fulfill its withholding, reporting
and filing obligations. The withholding
statement may include pooled information
for direct partners, beneficiaries or owners
that are not intermediaries or flow-through
entities. The partnership or trust need not
provide to the QI, WP or WT the underlying documentation for such partners, beneficiaries or owners. However the partnership or trust must provide to the QI, WP

August 11, 2003

or WT the underlying documentation for
indirect partners, beneficiaries or owners
of such partnerships or trusts, or for direct partners, beneficiaries or owners that
are intermediaries, flow-through entities or
U.S. nonexempt recipients.
Liability. By entering into the agreement with the related foreign partnership
or trust, the QI, WP, or WT agrees that it
is not assigning liability for performance
of any of its obligations under its QI, WP,
or WT agreement. Similar to the rules that
apply to a PAI under a QI agreement, the
QI, WP, or WT and the related foreign partnership or trust are jointly and severally liable for any tax, penalties, and interest for
the partnership's or trust's failure to meet
any obligations that arise out of its agreement with the QI, WP, or WT.
Withholding and Reporting. The related foreign partnership or trust must
not assume withholding or reporting responsibility. Withholding and reporting
responsibility remains with the QI, WP,
or WT. The QI, WP, or WT must file
separate Forms 1042–S for each related
foreign partnership or trust to which it
is applying these rules reflecting pooled
basis information. The QI, WP, or WT
must apply the specific payee reporting
provisions of the regulations to indirect
partners, beneficiaries or owners, and to
direct partners, beneficiaries or owners
that are U.S. non-exempt recipients. See
Treas. Reg. § 1.1441–1 and 1.1441–5.
Timing. A QI, WP, or WT may generally apply these special rules to a related
foreign partnership or trust on a year-byyear basis.
Failure to Provide Records. A QI, WP,
or WT may not apply these rules to a partnership or trust if the partnership or trust
has failed to make available to the QI's,
WT's or WP's auditor requested records
within 90 days after the request. Upon
such failure, the QI, WP, or WT must
treat such partnership or trust under the
general rules, must correct its withholding
and must file corrected Forms 1042 and
1042–S for the individual partners, beneficiaries or owners.
.04 Modifications. The IRS will consider modifications of the QI agreement
and the WP or WT agreements only in rare
and unusual circumstances. The IRS will
not accept, however, any changes that it
determines would provide a QI, partnership or trust with a competitive advantage

August 11, 2003

over other similarly situated QI's, partnerships or trusts. In its sole discretion, the
IRS may agree, or refuse, to adopt the suggested modifications for a particular case.
SECTION 3. APPLICATION
PROCEDURES FOR FINAL WP
OR WT AGREEMENTS
.01 Contents of the Application Package. A prospective WP or WT must submit an application to become a WP or WT.
The application package must include the
information specified in this Section 3.01
and any additional information and documentation requested by the IRS:
(1) A statement identifying what type
of entity the applicant is (i.e., a foreign
partnership or a foreign simple or grantor
trust) and that it requests to enter into a WP
or WT agreement with the IRS.
(2) The applicant's name, address, and
employer identification number(s) (EIN),
if any.
(3) The country in which the applicant
was created or organized and a description
of the applicant's business.
(4) A list of the titles of those persons
who will be the responsible parties for performance under the WP or WT agreement
and the names, addresses, and telephone
numbers of those persons as of the date the
application is submitted.
(5) A list describing, as of the date the
application is submitted, the type of partners, beneficiaries or owners (e.g., U.S.,
foreign, treaty benefit claimant, or intermediary or flow-through entity), the number of partners, beneficiaries or owners
within each type, and the estimated value
of U.S. investments that the WP or WT
agreement will cover.
(6) A completed Form SS–4 (Application for Employer Identification Number)
to apply for a withholding foreign partnership or trust Employer Identification
Number (WP-EIN, WT-EIN) to be used
solely for WP or WT reporting and filing purposes. An applicant must apply for
a WP-EIN or WT-EIN even if it already
has another EIN. The WP-EIN or WT-EIN
will be in addition to any EIN the WP or
WT already has, which should be retained.
(7) Two copies of the completed WP or
WT agreements, as set forth in Appendix
1 or 2 of this revenue procedure, executed
as provided in Section 3.03.

310

.02 Requesting Modifications. A partnership or trust that seeks modifications to
the WP or WT agreement must complete
and execute an application in accordance
with the instructions in Sections 3.01 and
3.03. In addition to the information required under Section 3.01, the application must include (1) information describing the partnership's or trust's unique facts
and circumstances, (2) suggested modifications to the agreement based on those
unique facts and circumstances, and (3) an
analysis of the feasibility of any such suggested modifications. In its sole discretion,
the IRS may agree, or refuse, to modify the
WP or WT agreement.
.03 Executing the WP or WP Agreement. To apply for WP or WT status, a
foreign partnership or trust must submit
a completed application package, as provided in Section 3.01 (and Section 3.02 if
applicable), including the Form SS–4 and
the two signed copies of the WP or WT
agreement, to:
Internal Revenue Service
LMSB:FS:QI
290 Broadway
New York, NY 10007–1867
USA
Upon acceptance, the IRS will return one
executed copy of the WP or WT agreement
to the partnership or trust. The IRS may
develop procedures to expedite processing
of these applications.
SECTION 4. AMENDMENT TO QI
AGREEMENT
This revenue procedure amends the
QI agreement, contained in Rev. Proc.
2000–12, to add new section 4A, contained in Appendix 3 of this revenue
procedure. Pursuant to Section 12.02 of
the QI agreement, this amendment applies
not only to QI agreements entered into on
or after the effective date of this revenue
procedure but also to all existing QI agreements. A QI may apply the provisions of
section 4A as of the beginning of the 2003
calendar year.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Section III.C. of Notice 2001–4 is superseded for calendar year 2004 and subsequent calendar years. Rev. Proc. 2000–12

2003-32 I.R.B.

is modified to add to the QI Agreement a
new section 4A, as set forth in Appendix 3
of this revenue procedure.

SECTION 7. FURTHER
INFORMATION
For further information regarding this
Notice, contact Carl Cooper and Valerie

SECTION 6. EFFECTIVE DATE
This revenue procedure is effective July
10, 2003.

Mark Lippe of the Office of the Associate Chief Counsel (International), Internal Revenue Service, 1111 Constitution
Avenue, NW, Washington, D.C. 20224.
Mr. Cooper or Ms. Mark Lippe may be
contacted by telephone at 202–622–3840
(not a toll-free call).

Appendices
Appendix 1.

Withholding Foreign Partnership Agreement

Appendix 2.

Withholding Foreign Trust Agreement

Appendix 3.

Amendment to Qualified Intermediary Withholding Agreement

APPENDIX 1
Withholding Foreign Partnership
Agreement
SECTION 1. PURPOSE AND SCOPE
Sec. 1.01. General Obligations
Sec. 1.02. Parties to the Agreement
SECTION 2. DEFINITIONS
Sec. 2.01. Agreement
Sec. 2.02. Amounts Subject to NRA
Withholding
Sec. 2.03. Chapter 3 of the Code
Sec. 2.04. Chapter 61 of the Code
Sec. 2.05. External Auditor
Sec. 2.06. Flow-Through Entity
Sec. 2.07. Foreign Person
Sec. 2.08. Form W–8
Sec. 2.09. Form W–9
Sec. 2.10. Form 1042
Sec. 2.11. Form 1042–S
Sec. 2.12. Form 1065
Sec. 2.13. Intermediary
Sec. 2.14. Nonwithholding Foreign
Partnership
Sec. 2.15. NRA Withholding
Sec. 2.16. Overwithholding
Sec. 2.17. Partnership and Partner;
Direct Partner; Indirect Partner; Passthrough Partner
Sec. 2.18. Payment
Sec. 2.19. Pooled Reporting (PR)
Election
Sec. 2.20. Reduced Rate of Withholding
Sec. 2.21. Reportable Amount
Sec. 2.22. Reporting Pool

2003-32 I.R.B.

Sec. 2.23. Schedule K–1
Sec. 2.24. TIN
Sec. 2.25. Underwithholding
Sec. 2.26. U.S. Person
Sec. 2.27. Withholding Agent
Sec. 2.28. Withholding Foreign Partnership (or WP)
Sec. 2.29. Withholding Foreign Partnership (or WP) EIN
Sec. 2.30. Withholding Statement
Sec. 2.31. Other Terms
SECTION 3. WITHHOLDING
RESPONSIBILITY
Sec. 3.01.
sibility
Sec. 3.02.
Sec. 3.03.
tions
Sec. 3.04.

Sec. 4.09. Documentation for U.S.
Non-Exempt Recipients
Sec. 4.10. Documentation Validity
Sec. 4.11. Documentation Validity
Period
Sec. 4.12. Maintenance and Retention
of Documentation
SECTION 5. WITHHOLDING
FOREIGN PARTNERSHIP
WITHHOLDING CERTIFICATE
Sec. 5.01. WP Withholding Certificate
Sec. 5.02. Withholding Statement
Sec. 5.03. Withholding Rate Pools

NRA Withholding ResponTiming of Withholding
Withholding on DistribuDeposit Requirements

SECTION 4. DOCUMENTATION
REQUIREMENTS
Sec. 4.01. Documentation Requirements
Sec. 4.02. Documentation For Foreign
Partners
Sec. 4.03. Treaty Claims
Sec. 4.04. Documentation for International Organizations
Sec. 4.05. Documentation for Foreign Governments and Foreign Central
Banks of Issue
Sec. 4.06. Documentation for Foreign
Tax-Exempt Organizations
Sec. 4.07. Documentation from Passthrough Partners
Sec. 4.08. Documentation for U.S.
Exempt Recipients

311

SECTION 6. TAX RETURN
OBLIGATIONS
Sec. 6.01. Form 1042 Filing Requirement
Sec. 6.02. Form 1042–S Reporting:
General Rule
Sec. 6.03. Form 1042–S Reporting:
Special Rule for PR Election
Sec. 6.04. Form 1065 Filing Requirement
Sec. 6.05. Retention of Returns
SECTION 7. ADJUSTMENTS
FOR OVER- AND UNDERWITHHOLDING; REFUNDS
Sec. 7.01. Adjustments for NRA
Overwithholding by WP
Sec. 7.02. Collective Credit or Refund
Procedures for NRA Overwithholding
Sec. 7.03. Adjustments for NRA Underwithholding
Sec. 7.04. NRA Underwithholding
after Form 1042 Filed

August 11, 2003

Sec. 7.05. Special Rule Regarding
Failure to Deposit Penalties
SECTION 8. EXTERNAL AUDIT
PROCEDURES
Sec. 8.01. In General
Sec. 8.02. Designation of External
Auditor
Sec. 8.03. Timing of External Audits:
General Rule
Sec. 8.04. Timing of External Audits:
Special Rule for PR Election
Sec. 8.05. Scope of External Audit
Sec. 8.06. External Auditor's Report
Sec. 8.07. Expanding Scope and Timing of External Audit
SECTION 9. EXPIRATION,
TERMINATION AND DEFAULT
Sec. 9.01. Term of Agreement: General Rule
Sec. 9.02. Term of Agreement: Special Rule for PR Election
Sec. 9.03. Termination of Agreement
Sec. 9.04. Automatic Termination of
Agreement
Sec. 9.05. Significant Change in Circumstances
Sec. 9.06. Events of Default
Sec. 9.07. Notice and Cure
Sec. 9.08. Renewal
SECTION 10. CERTAIN
PARTNERSHIPS AND TRUSTS
Sec. 10.01. Certain Smaller Partnerships and Trusts
Sec. 10.02. Certain Related Partnerships and Trusts
SECTION 11. MISCELLANEOUS
PROVISIONS
THIS AGREEMENT is made in duplicate under and in pursuance of section
1441 of the Internal Revenue Code of
1986, as amended, (the “Code”) and Treasury Regulation § 1.1441–5(c)(2) by and
between
, (referred to as “WP”), and the INTERNAL
REVENUE SERVICE (the “IRS”):
WHEREAS, WP has submitted an
application in accordance with Revenue
Procedure 2003–64 to be a withholding
foreign partnership for purposes of Treas.
Reg. § 1.1441–5(c)(2);

August 11, 2003

WHEREAS, WP and the IRS desire to
enter into an agreement to establish WP's
rights and obligations regarding documentation, withholding, information reporting,
tax return filing, deposits, and adjustment
procedures under sections 1441, 1442,
1443, 1461, 6031, 6302, 6402, and 6414
of the Code with respect to certain types
of payments;
NOW, THEREFORE, in consideration
of the following terms, representations,
and conditions, the parties agree as follows:
SECTION 1. PURPOSE AND SCOPE
Sec. 1.01. General Obligations.
Except as otherwise provided in this
Agreement, WP's obligations with respect
to income distributed to, or included in
the distributive shares of, its partners are
governed by the Code and the regulations
thereunder. Except as provided in Section 10 of this Agreement, WP may act
in its capacity as a withholding foreign
partnership pursuant to this Agreement
only for payments of amounts subject to
NRA withholding that are distributed to,
or included in the distributive shares of,
its direct partners. WP is required to act
as a withholding foreign partnership for
all such amounts paid to WP, or included
in WP's distributive share, by any withholding agent to which WP has provided a
Form W–8IMY that represents that WP is
acting as a withholding foreign partnership
with respect to such amounts. WP must
act as a withholding foreign partnership
for any such amounts paid with respect to
such a Form W–8IMY that are distributed
to, or included in the distributive shares of,
its direct foreign partners. WP may also
act as a withholding foreign partnership
for such amounts that are distributed to, or
included in the distributive shares of, its
direct partners that are U.S. persons. WP
may not act as a withholding foreign partnership, but must act as a nonwithholding
foreign partnership, for amounts subject to
NRA withholding that are distributed to,
or included in the distributive shares of,
passthrough partners or indirect partners,
except as provided under Section 10 of
this Agreement.
Sec. 1.02. Parties to the Agreement.
This Agreement applies to WP and the
IRS.

312

SECTION 2. DEFINITIONS
For purposes of this Agreement, the
terms listed below are defined as follows:
Sec. 2.01. Agreement. “Agreement”
means this Agreement between WP and
the IRS. All appendices to this Agreement
and WP's application to become a withholding foreign partnership are incorporated into this Agreement by reference.
Sec. 2.02. Amounts Subject to NRA
Withholding. An “amount subject to
NRA withholding” is an amount described
in Treas. Reg. § 1.1441–2(a). An amount
subject to NRA withholding shall not include interest paid as part of the purchase
price of an obligation sold between interest
payment dates or original issue discount
paid as part of the purchase price of an
obligation sold in a transaction other than
the redemption of such obligation, unless
the sale is part of a plan the principal
purpose of which is to avoid tax and WP
has actual knowledge or reason to know
of such plan.
Sec. 2.03. Chapter 3 of the Code.
Any reference to “chapter 3 of the Code”
means sections 1441, 1442, 1443, 1461,
1463, and 1464 of the Code.
Sec. 2.04. Chapter 61 of the Code.
Any reference to “chapter 61 of the Code”
means sections 6031, 6041, 6042, 6045,
6049, and 6050N of the Code.
Sec. 2.05. External Auditor. An
“external auditor” is any approved auditor listed in Appendix A of this Agreement
that WP engages to perform the audits required by Section 8 of this Agreement.
Sec. 2.06. Flow-Through Entity. A
flow-through entity is a foreign partnership
described in Treas. Reg. § 301.7701–2 or
3 (other than a withholding foreign partnership), a foreign trust that is described
in section 651(a) of the Code (other than
a withholding foreign trust), or a foreign
trust all or a portion of which is treated as
owned by the grantor or other person under sections 671 through 679 of the Code
(other than a withholding foreign trust).
For an item of income for which a treaty
benefit is claimed, an entity is also a flowthrough entity to the extent it is treated as
fiscally transparent under section 894 and
the regulations thereunder.
Sec. 2.07. Foreign Person. A “foreign
person” is any person that is not a “United
States person” and includes a “nonresident

2003-32 I.R.B.

alien individual,” a “foreign corporation,”
a “foreign partnership,” a “foreign trust,”
and a “foreign estate,” as those terms are
defined in section 7701 of the Code.
Sec. 2.08. Form W–8. “Form W–8”
means a valid IRS Form W–8BEN, Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding;
IRS Form W–8ECI, Certificate of Foreign
Person's Claim for Exemption From Withholding on Income Effectively Connected
With the Conduct of a Trade or Business
in the United States; IRS Form W–8EXP,
Certificate of Foreign Governments and
Other Foreign Organizations for United
States Tax Withholding; and IRS Form
W–8IMY, Certificate of Foreign Intermediary, Foreign Partnership, and Certain
U.S. Branches for United States Tax Withholding, as appropriate. It also includes
any acceptable substitute form.
Sec. 2.09. Form W–9. “Form W–9”
means a valid IRS Form W–9, Request for
Taxpayer Identification Number and Certification, or any acceptable substitute.
Sec. 2.10. Form 1042. “Form 1042”
means an IRS Form 1042, Annual Withholding Tax Return for U.S. Source Income
of Foreign Persons.
Sec. 2.11. Form 1042–S. “Form
1042–S” means an IRS Form 1042–S,
Foreign Person's U.S. Source Income Subject to Withholding.
Sec. 2.12. Form 1065. “Form 1065”
means an IRS Form 1065, U.S. Return
of Partnership Income, and the Schedules
K–1 associated with that form.
Sec. 2.13. Intermediary. An “intermediary” means any person that acts on behalf of another person, such as a custodian,
broker, nominee, or other agent.
Sec. 2.14. Nonwithholding Foreign
Partnership. A “nonwithholding foreign
partnership” is any foreign partnership that
is not acting as a withholding foreign partnership.
Sec. 2.15. NRA Withholding. For
purposes of this Agreement, “nonresident
alien (NRA) withholding” is any withholding required under chapter 3 of the
Code (other than sections 1445 or 1446),
whether the payment subject to withholding is made to an individual or to an entity.
Sec. 2.16. Overwithholding. The term
“overwithholding” means the excess of the
amount actually withheld over the amount

2003-32 I.R.B.

required to be withheld under chapter 3 of
the Code.
Sec. 2.17. Partnership and Partner; Direct Partner; Indirect Partner;
Passthrough Partner. The terms “partnership” and “partner” are defined in section 7701(a)(2) of the Code and the regulations thereunder. A direct partner is
a partner, other than an intermediary or
flow-through entity that is not itself a withholding foreign partnership or withholding foreign trust, for which WP acts as a
withholding foreign partnership. An indirect partner is a person that owns a partnership interest in WP through one or more
passthrough partners. A passthrough partner is a direct or indirect partner in WP
that is an intermediary or flow-through entity. As provided in Section 2.06 of this
Agreement, a withholding foreign partnership or withholding foreign trust is not
a flow-through entity and thus is not a
passthrough partner.
Sec. 2.18. Payment. A “payment” is
considered made to a person if that person realizes income whether or not such
income results from an actual transfer of
cash or other property. See Treas. Reg.
§ 1.1441–2(e).
Sec. 2.19. Pooled Reporting (PR)
Election. A “pooled reporting (PR) election” is defined in Section 6.03.
Sec. 2.20. Reduced Rate of Withholding. A “reduced rate of withholding”
means a rate of withholding that is less
than 30 percent, either as a result of a reduction in withholding under the Code or
as a result of a reduction in withholding under an income tax treaty.
Sec. 2.21. Reportable Amount. A
“reportable amount” means an amount
subject to NRA withholding (as defined
in Section 2.02 of this Agreement); U.S.
source deposit interest; and U.S. source
interest or original issue discount paid on
the redemption of short-term obligations.
The term does not include payments on
deposits with banks and other financial
institutions that remain on deposit for two
weeks or less. It also does not include
amounts of original issue discount arising
from a sale and repurchase transaction
completed within a period of two weeks or
less, or amounts described in Treas. Reg.
§ 1.6049–5(b)(7), (10), or (11) (relating

313

to certain foreign targeted registered obligations and certain obligations issued in
bearer form).
Sec. 2.22. Reporting Pool. A reporting pool is defined in Section 6.03 of this
Agreement.
Sec. 2.23. Schedule K–1. “Schedule
K–1” or “K–1” is the schedule associated
with the Form 1065 that itemizes an individual Partner's Share of Income, Credits,
Deductions, etc.
Sec. 2.24. TIN. A “TIN” is a U.S.
taxpayer identification number.
Sec. 2.25. Underwithholding. “Underwithholding” means the excess of the
amount required to be withheld under
chapter 3 of the Code over the amount
actually withheld.
Sec. 2.26. U.S. Person. A “United
States (or U.S.) person” is a person described in section 7701(a)(30) of the Code,
the U.S. government (including an agency
or instrumentality thereof), a State of the
United States (including an agency or instrumentality thereof), or the District of
Columbia (including an agency or instrumentality thereof).
Sec. 2.27. Withholding Agent. A
“withholding agent” has the same meaning
as set forth in Treas. Reg. § 1.1441–7(a)
and includes a payor. As used in this
Agreement, the term generally refers to the
person making a payment to a withholding
foreign partnership.
Sec. 2.28. Withholding Foreign
Partnership (or WP). A “withholding
foreign partnership” is a person, described
in Treas. Reg. § 1.1441–5(c)(2), that has
entered into a withholding agreement with
the IRS to be treated as a withholding
foreign partnership and is acting in its
capacity as a withholding foreign partnership.
Sec. 2.29. Withholding Foreign Partnership (or WP) EIN. A “withholding
foreign partnership EIN” or “WP-EIN”
means the employer identification number
assigned by the IRS to a withholding foreign partnership. WP's WP-EIN is only to
be used when WP is acting as a withholding foreign partnership. For example, WP
must give a withholding agent its non-WP
EIN, if any, rather than its WP-EIN, if
it is not acting as a withholding foreign
partnership and a taxpayer identification
number is required.

August 11, 2003

Sec. 2.30. Withholding Statement.
The term “withholding statement” is defined in Section 5.02 of this Agreement.
Sec. 2.31. Other Terms. Any term
not defined in this section has the same
meaning that it has under the Code, the
income tax regulations under the Code, or
any applicable income tax treaty.
SECTION 3. WITHHOLDING
RESPONSIBILITY
Sec. 3.01. NRA Withholding Responsibility. WP is subject to the withholding and reporting provisions applicable to withholding agents under chapter
3 of the Code. Under chapter 3, a withholding agent must withhold 30 percent
of any payment of an amount subject to
NRA withholding made to a partner that
is a foreign person unless the withholding agent can reliably associate the payment with documentation upon which it
can rely to treat the payment as made to
a payee that is a U.S. person or as made to
a beneficial owner that is a foreign person
entitled to a reduced rate of withholding.
When it is acting as a withholding foreign
partnership, WP must assume NRA withholding responsibility for amounts subject
to NRA withholding that are distributed
to, or included in the distributive share of,
any direct partner, and WP must withhold
the amount required to be withheld under
chapter 3 of the Code. WP must provide a
Form W–8IMY that certifies to a withholding agent that makes a payment of such
amounts that WP is acting as a withholding foreign partnership, and WP must identify such amounts on the withholding statement associated with that Form W–8IMY.
WP is not required to withhold when it
pays such amounts to another withholding foreign partnership or withholding foreign trust that has certified to WP on Form
W–8IMY that it is acting as a withholding foreign partnership or withholding foreign trust with respect to such identified
amounts. WP is not required to act as
a withholding foreign partnership for all
amounts that it receives from a withholding agent. Except as provided in Section 10 of this Agreement, WP may not
act as a withholding foreign partnership
for amounts distributed to, or included in
the distributive share of, passthrough partners or indirect partners. WP must act as

August 11, 2003

a nonwithholding foreign partnership for
such amounts. When WP is not acting
as a withholding foreign partnership, WP
must: 1) provide to the withholding agent
a Form W–8IMY with Part VI completed;
2) identify such amounts on the withholding statement associated with that Form
W–8IMY; and 3) provide the documentation and information required by Treas.
Reg. § 1.1441–5(c)(3)(iii) and (iv).
Sec. 3.02. Timing of Withholding.
WP must withhold on the date it makes a
distribution to a direct foreign partner that
includes an amount subject to NRA withholding. To the extent a direct foreign partner's distributive share of income subject
to withholding has not actually been distributed to the direct foreign partner, WP
must withhold on the direct foreign partner's distributive share on the earlier of the
date that the statement required under section 6031(b) of the Code (schedule K–1) is
mailed or otherwise provided to the partner
or the due date for furnishing the statement
(whether or not WP is required to prepare
and furnish the statement).
Sec. 3.03. Withholding on Distributions. WP may determine the amount of
withholding on a distribution based on a
reasonable estimate of the partner’s distributive share of income subject to withholding for the year. WP must correct the
estimated withholding to reflect the partner’s actual distributive share on the earlier
of the date that the statement required under section 6031(b) of the Code (schedule
K–1) is mailed or otherwise provided to the
partner or the due date for furnishing the
statement (whether or not WP is required
to furnish the statement). If that date is after the due date for the WP’s Forms 1042
and 1042–S (including extensions) for the
calendar year, WP may withhold and report any adjustments required by the corrected information in the following calendar year.
Sec. 3.04. Deposit Requirements.
WP must deposit amounts withheld under
chapter 3 of the Code with a Federal Reserve bank or authorized financial institution at the time and in the manner provided
under section 6302 of the Code (see Treas.
Reg. § 1.6302–2(a) or § 31.6302–1(h)).

314

SECTION 4. DOCUMENTATION
REQUIREMENTS
Sec. 4.01. Documentation Requirements. WP agrees to obtain, review, and
maintain Forms W–8 and W–9 in accordance with this Section 4. WP must obtain a Form W–8 or W–9 from every direct
partner prior to the time that withholding
is required. WP agrees to make documentation (together with any associated withholding statements and other documents
or information) available upon request for
inspection by WP's external auditor. WP
represents that none of the laws to which it
is subject prohibits disclosure of the identity of any partner or corresponding partner
information to WP's external auditor. WP
may rely on the Forms W–8 and W–9 it obtains under this Section 4 as the basis for
determining its withholding and reporting
obligations.
Sec. 4.02. Documentation for Foreign Partners. WP may treat a direct partner as a foreign beneficial owner if the direct partner provides a Form W–8 that supports such status. WP may treat a direct
partner that has provided a Form W–8 as
entitled to a reduced rate of NRA withholding if all the requirements for a reduced rate are met and the Form W–8 provided by the direct partner supports entitlement to a reduced rate. Sections 4.03
through 4.06 of this Agreement describe
the specific documentation requirements
necessary for obtaining a reduced rate of
withholding in certain circumstances.
Sec. 4.03. Treaty Claims. WP may not
reduce the rate of withholding based on a
direct partner's claim of treaty benefits unless WP obtains from the partner a Form
W–8BEN with Part II of the form properly
completed, including the appropriate limitation on benefits and section 894 certifications.
Sec. 4.04. Documentation for International Organizations. WP may not
treat a direct partner as an international
organization entitled to an exemption
from withholding under section 892 of the
Code unless WP obtains a Form W–8EXP
from the international organization and
the name provided on the Form W–8EXP
is the name of an entity designated as an
international organization by executive
order pursuant to 22 United States Code

2003-32 I.R.B.

288 through 288(f). If an international organization is not claiming benefits under
section 892 of the Code but under another
Code exception, the provisions of Section
4.02 of this Agreement apply rather than
the provisions of this Section 4.04.
Sec. 4.05. Documentation for
Foreign Governments and Foreign
Central Banks of Issue.

direct partner as a foreign organization described under section 501(c) of the Code,
and therefore exempt from withholding
(or, if the direct partner is a foreign private foundation, subject to withholding
at a 4-percent rate under section 1443(b)
of the Code) unless WP obtains a valid
Form W–8EXP with Part III of the form
properly completed.

(A) Documentation For a Foreign
Government or Foreign Central Bank
of Issue Claiming an Exemption From
Withholding Under Section 892 or Section 895. WP may not treat a direct partner
as a foreign government or foreign central
bank of issue exempt from withholding
under section 892 or 895 of the Code
unless—
(1) WP receives from the direct partner a
Form W–8EXP establishing that the direct
partner is a foreign government or foreign
central bank of issue;
(2) The income distributed to, or included
in the distributive share of, the direct partner is the type of income that qualifies for
an exemption from withholding under section 892 or 895; and
(3) WP does not know, or have reason to
know, that the direct partner is a controlled
commercial entity, that the income owned
by the foreign government or foreign central bank of issue is being received from
a controlled commercial entity, or that the
income is from the disposition of an interest in a controlled commercial entity.

(B) Treaty Exemption. WP may not
treat a direct partner as a foreign organization that is tax exempt or entitled to a
reduced rate of withholding under an income tax treaty unless WP obtains a Form
W–8BEN that, under Section 4.03 of this
Agreement, is sufficient to obtain a reduced rate of withholding under a treaty.

(B) Treaty Exemption. WP may not
treat a direct partner as a foreign government or foreign central bank of issue entitled to a reduced rate of withholding under an income tax treaty unless it obtains
a Form W–8BEN that, under Section 4.03
of this Agreement, is sufficient to obtain a
reduced rate of withholding under a treaty.
(C) Other Code Exception. If a foreign government or foreign central bank of
issue is not claiming benefits under section
892 or section 895 of the Code but under
another Code exception (e.g., the portfolio
interest exception under sections 871(h) or
881(c) of the Code), the provisions of Section 4.02 of this Agreement apply rather
than the provisions of this Section 4.05.
Sec. 4.06. Documentation for
Foreign Tax-Exempt Organizations.
(A) Reduced Rate of Withholding
Under Section 501. WP may not treat a

2003-32 I.R.B.

(C) Other Exceptions. If a tax-exempt entity is not claiming a reduced rate
of withholding because it is an organization described under section 501(c) of the
Code or under an income tax treaty, but is
claiming a reduced rate of withholding under another Code exception, the provisions
of Section 4.02 of this Agreement apply
rather than the provisions of this Section
4.06.
Sec.
4.07.
Documentation for
Passthrough Partners. Except as provided in Section 10 of this Agreement,
WP shall not act as a withholding foreign
partnership with respect to an amount
subject to withholding distributed to, or
included in the distributive share of, a
passthrough partner, as defined in Section
2.17 of this Agreement. WP must forward
that passthrough partner's documentation
(and associated withholding statement and
documentation of indirect partners) to the
withholding agent from whom WP receives the amount subject to withholding.
WP may act as a withholding foreign partnership with respect to amounts subject to
withholding distributed to, or included in
the distributive share of, partners that are
themselves withholding foreign partnerships or withholding foreign trusts.
Sec. 4.08. Documentation for U.S.
Exempt Recipients. WP shall not treat a
partner as a U.S. exempt recipient unless
WP obtains a Form W–9 from the partner
on which the partner writes “Exempt” in
Part II of the form.
Sec. 4.09. Documentation for U.S.
Non-Exempt Recipients. WP shall not

315

treat a partner as a U.S. non-exempt recipient unless WP obtains a Form W–9 from
the partner.
Sec. 4.10. Documentation Validity.
WP may not rely on Forms W–8 or W–9
if WP has actual knowledge or reason to
know that the information or statements
contained in the forms are unreliable or incorrect. Once WP knows, or has reason to
know, that a Form W–8 or W–9 provided
by a direct partner is unreliable or incorrect, WP must obtain a new Form W–8 or
W–9 prior to the time withholding is required.
Sec. 4.11. Documentation Validity
Period.
(A) Form W–8. WP may rely on
a properly completed Form W–8 until
its validity expires under Treas. Reg.
§ 1.1441–1(e)(4)(ii).
(B) Form W–9. WP may rely on a
properly completed Form W–9 as long as
it has not been informed by the IRS or
another withholding agent that the form is
unreliable.
Sec. 4.12. Maintenance and
Retention of Documentation.
(A) Maintaining Documentation. WP
shall maintain Forms W–8 and W–9 by retaining the original documentation, a certified copy, a photocopy or a microfiche, or
by electronic storage or similar means of
record retention.
(B) Retention Period. WP shall retain
a direct partner's Form W–8 or W–9 obtained under this Section 4 for as long as
it may be relevant to the determination of
WP's tax liability under this Agreement.
SECTION 5. WITHHOLDING
FOREIGN PARTNERSHIP
WITHHOLDING CERTIFICATE
Sec. 5.01. WP Withholding Certificate. WP agrees to furnish a withholding foreign partnership withholding certificate to each withholding agent from which
it receives amounts subject to NRA withholding as a withholding foreign partnership. The withholding foreign partnership
withholding certificate is a Form W–8IMY
(or acceptable substitute form) that certifies that WP is acting as a withholding foreign partnership, contains WP's WP-EIN,
and provides all other information required
by the form. WP is not required to disclose, as part of that Form W–8IMY or its

August 11, 2003

withholding statement, any information regarding the identity of a direct partner.
Sec. 5.02. Withholding Statement.
WP agrees to provide to each withholding
agent from which WP receives amounts
subject to NRA withholding as a withholding foreign partnership a written statement
(the “withholding statement”) identifying
the amounts for which WP acts as a withholding foreign partnership. The statement forms an integral part of the Form
W–8IMY. The withholding statement may
be provided in any manner, and in any
form, to which WP and the withholding
agent mutually agree.
Sec. 5.03. Withholding Rate Pools.
When it is acting as a withholding foreign
partnership, WP must assume withholding
responsibility for amounts subject to withholding that are distributed to, or included
in the distributive shares of, its direct partners. Accordingly, withholding rate pool
information is not required as part of WP's
withholding statement.
SECTION 6. TAX RETURN
OBLIGATIONS
Sec. 6.01. Form 1042 Filing
Requirement.
(A) In General. WP shall file a return
on Form 1042, whether or not WP withheld any amounts under chapter 3 of the
Code, on or before March 15 of the year
following any calendar year in which WP
acts as a withholding foreign partnership.
In addition to the information specifically
requested on Form 1042 and the accompanying instructions, WP shall attach a statement setting forth the amounts of any overwithholding or underwithholding adjustments made under Treas. Reg. § 1.1461–2
and Sections 7.01 and 7.03 of this Agreement, and an explanation of the circumstances that resulted in the over- or under-withholding.
(B) Extensions for Filing Returns.
WP may request an extension of the time
for filing Form 1042, or any of the information required to be attached to the form,
by submitting Form 2758, Application for
Extension of Time to File Certain Excise,
Income, Information, and Other Returns,
on or before the due date of the return. The
application shall be in writing, properly
signed by a duly authorized agent of WP,
and shall clearly set forth the following:

August 11, 2003

(1) The calendar year for which the extension is requested; and
(2) A full explanation of the reason(s)
for requesting the extension, to assist the
IRS in determining the period of extension,
if any, that will be granted.
Sec. 6.02. Form 1042–S Reporting:
General Rule. Unless WP has made a
pooled reporting (PR) election pursuant
to Section 6.03 of this Agreement, WP
is required to file separate Forms 1042–S
for each direct partner to whom WP distributes, or in whose distributive share is
included, an amount subject to NRA withholding. WP must file separate Forms
1042–S by income code, exemption code,
recipient code, and withholding rate. WP
must file its Forms 1042–S in the manner
required by the regulations under chapter
3 of the Code and the instructions to the
form, including any requirement to file the
forms magnetically or electronically. Any
Form 1042–S required by this section 6
shall be filed on or before March 15 following the calendar year in which withholding, if any, was required under Section 3.02 of this Agreement. WP may request an extension of time to file Forms
1042–S by submitting Form 8809, Request
for Extension of Time to File Information
Returns, by the due date of Forms 1042–S
in the manner required by Form 8809.
Sec. 6.03. Form 1042–S Reporting:
Special Rule for PR Election. If WP
has made the PR election pursuant to this
Section 6.03, WP is not required to file
Forms 1042–S for amounts distributed
to, or included in the distributive share
of, each separate direct partner for whom
such reporting would otherwise be required. Instead, WP shall file a separate
Form 1042–S for each reporting pool. A
reporting pool consists of income that
falls within a particular withholding rate
and within a particular income code,
exemption code, and recipient code as
determined on Form 1042–S. WP may use
a single recipient code for all reporting
pools except for amounts paid to foreign
tax-exempt recipients, for which a separate recipient code must be used. For this
purpose, a foreign tax-exempt recipient includes any organization that is not subject
to NRA withholding and is not liable to tax
in its country of residence because it is a
charitable organization, a pension fund, or
a foreign government. WP must make the

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PR election at the time this Agreement is
executed by signing the election statement
on the signature page of this Agreement.
Once made, the PR election remains in
effect for the entire term of this Agreement
beginning on the date the Agreement becomes effective and ending on the date of
its expiration or termination under Section
9 of the Agreement. WP must make a
new election for each renewal term of this
Agreement. If WP makes the PR election,
WP cannot revoke it prior to the end of the
term for which WP has made the PR election. If WP did not make the PR election
at the time this Agreement was executed,
then WP may make a PR election only by
terminating this Agreement pursuant to
Section 9.03 and requesting to enter into
a new withholding foreign partnership
agreement.
Sec. 6.04. Form 1065 Filing Requirement. If WP is required to file Form 1065
and Schedules K–1 under Treas. Reg.
§ 1.6031(a)–1, then WP shall file Form
1065 and Schedules K–1 in accordance
with the regulations and the instructions
for the form.
Sec. 6.05. Retention of Returns. WP
shall retain Forms 1065 and 1042 for the
period of the applicable statute of limitations on assessments and collection under
the Code.
SECTION 7. ADJUSTMENTS
FOR OVER- AND UNDERWITHHOLDING; REFUNDS
Sec. 7.01. Adjustments for NRA
Overwithholding by WP. WP may make
an adjustment for amounts paid to its direct partners that it has overwithheld under
chapter 3 of the Code by applying either
the reimbursement or set-off procedures
described in this section within the time
period prescribed for those procedures.
(A) Reimbursement Procedure. WP
may repay its partners for an amount overwithheld and reimburse itself by reducing, by the amount of tax actually repaid
to the partners, the amount of any subsequent deposit of tax required to be made by
WP under Section 3.04 of this Agreement.
For purposes of this Section 7.01(A), an
amount that is overwithheld shall be applied in order of time to each of WP's subsequent deposit periods in the same calendar year to the extent that the withholding

2003-32 I.R.B.

taxes required to be deposited for a subsequent deposit period exceed the amount
actually deposited. An amount overwithheld in a calendar year may be applied to
deposit periods in the calendar year following the calendar year of overwithholding
only if—
(1) WP states on a Form 1042–S filed
by March 15 of the calendar year following
the calendar year of overwithholding, the
amount of tax withheld and the amount of
any actual repayments; and
(2) WP states on a Form 1042, filed by
March 15 of the calendar year following
the calendar year of overwithholding, that
the filing of the Form 1042 constitutes a
claim for credit in accordance with Treas.
Reg. § 1.6414–1.
(B) Set-Off Procedure. WP may repay
its partners by applying the amount overwithheld against any amount which otherwise would be required under chapter 3 of
the Code to be withheld by WP before the
earlier of March 15 of the calendar year
following the calendar year of overwithholding or the date that the Form 1042–S is
actually filed with the IRS. For purposes of
making a return on Form 1042 or 1042–S
for the calendar year of overwithholding,
and for purposes of making a deposit of
the amount withheld, the reduced amount
shall be considered the amount required to
be withheld from such income under chapter 3 of the Code.
Sec. 7.02. Collective Credit or
Refund Procedures for NRA Overwithholding. If WP has made a PR election
and it has overwithheld under chapter 3
of the Code on amounts subject to NRA
withholding paid to WP's direct partners
during a calendar year and the amount has
not been recovered under the reimbursement or set-off procedures under Sections
7.01 of this Agreement, WP may request
a credit or refund of the total amount
overwithheld by following the procedures
of this Section 7.02. WP shall follow the
procedures set forth under sections 6402
and 6414 of the Code, and the regulations
thereunder, to claim the credit or refund.
No credit or refund will be allowed after
the expiration of the statutory period of
limitation for refunds under section 6511
of the Code. WP may use the collective
refund procedures under this Section 7.02
only if the following conditions are met:

2003-32 I.R.B.

(A) WP must not have issued Forms
1042–S to the direct partners who were
subject to overwithholding;
(B) WP must submit, together with its
amended return on which it claims a credit
or refund, a statement of the reason for the
overwithholding;
(C) WP must submit, together with its
amended return on which it claims a credit
or refund, a statement that it has repaid
the amount of overwithholding to the appropriate direct partners prior to filing the
claim for credit or refund; and
(D) WP must retain a record showing
that it repaid the direct partners the amount
of the overwithholding.
Sec. 7.03. Adjustments for NRA Underwithholding. If WP knows that an
amount should have been withheld under
chapter 3 of the Code from a previous payment to a direct partner but was not withheld, WP may either withhold from future
payments made to the same direct partner
or satisfy the tax from the direct partner's
proportionate share of assets over which
it has control. The additional withholding
or satisfaction of the tax owed may only
be made before the due date of the Form
1042 (not including extensions) for the calendar year in which the underwithholding
occurred.
Sec. 7.04. NRA Underwithholding
after Form 1042 Filed. If, after a Form
1042 has been filed for a calendar year,
WP, WP's external auditor, or the IRS determines that, due to WP's failure to carry
out its obligations under this Agreement,
WP has underwithheld tax for such year,
WP shall file an amended Form 1042 to report and pay the underwithheld tax. WP
shall pay the underwithheld tax, the interest due on the underwithheld tax, and
any applicable penalties, at the time of filing the amended Form 1042. If WP fails
to file an amended return, the IRS shall
make such return under section 6020 of the
Code.
Sec. 7.05. Special Rule Regarding
Failure to Deposit Penalties. Solely for
purposes of applying section 6656 of the
Code (failure to make deposit of taxes),
WP will not be considered to have made an
underpayment of a deposit of NRA withholding taxes if the conditions of this paragraph are met. The conditions of this paragraph are that—

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(A) WP makes its deposits within the
time (deposit period) required by section
6302 of the Code;
(B) The deposit is not less than 90 percent of the aggregate amount of the tax required to be withheld under chapter 3 of
the Code during the deposit period applicable to WP; and
(C) WP determines the difference between the total amount required to be deposited and the amount actually deposited
as of the end of the 3rd, 6th, 9th, and 12th
months of the calendar year and the difference is deposited no later than the 15th
day of the second following month (i.e.,
May 15, August 15, November 15, and
February 15, respectively). In determining
whether there has been an underpayment,
reimbursements and set-offs shall be taken
into account.
SECTION 8. EXTERNAL AUDIT
PROCEDURES
Sec. 8.01. In General. Unless WP
requests an IRS audit in lieu of an external audit, the IRS agrees not to conduct an
on-site audit of WP with respect to withholding and reporting obligations covered
by this Agreement provided that an external auditor designated in Appendix A of
this Agreement conducts an audit of WP
in accordance with this Section 8. WP
shall permit the external auditor to have
access to all relevant records of WP for
purposes of performing the external audit, including information regarding specific partners. WP shall permit the IRS
to communicate directly with the external
auditor and to review the audit procedures
followed by the external auditor. WP represents that there are no legal prohibitions
that prevent the external auditor from examining any information relevant to the external audit to be performed under this Section 8 and that there are no legal prohibitions that prevent the IRS from communicating directly with the auditor. WP shall
permit the IRS to examine the external auditor's work papers and reports.
Sec. 8.02. Designation of External
Auditor. WP's external auditor must be
one of the auditors listed in Appendix A
of this Agreement, unless WP and the IRS

August 11, 2003

agree, prior to the audit, to substitute another auditor. WP shall not propose an external auditor unless it has a reasonable belief that the auditor is subject to laws, regulations, or rules that impose sanctions for
failure to exercise its independence and to
perform the audit competently. The IRS
has the right to reject a proposed external
auditor, or to revoke its acceptance of an
external auditor, if the IRS, in its sole discretion, reasonably believes that the auditor is not independent or cannot perform an
effective audit under this Agreement.
Sec. 8.03. Timing of External Audits:
General Rule. Unless WP has made a
PR election, WP shall have the external
auditor conduct an external audit only at
such time and only for such calendar years
as the IRS directs.
Sec. 8.04. Timing of External Audits:
Special Rule for PR Election.
(A) If WP has made a PR election and
the term of this Agreement is determined
under Section 9.02(A), WP shall have the
external auditor conduct an audit of the
second full calendar year and the fifth full
calendar year that this Agreement is in effect.
(B) If WP has made a PR election and
the term of this Agreement is determined
under Section 9.02(B), WP shall have the
external auditor conduct an audit after the
close of every other calendar year that this
Agreement is in effect. The auditor shall
examine the two previous calendar years.
For example, the first audit will occur in
the third calendar year that the Agreement
is in effect and the external auditor will
examine calendar years one and two.
Sec. 8.05. Scope of External Audit. The external auditor shall verify
whether WP is in compliance with this
Agreement by conducting an audit that
meets the requirements of this Section
8.05. The report, described in Section
8.06 of this Agreement, must disclose that
the external auditor has, at a minimum,
performed the following checks listed
in this Section 8.05, and set forth how
each of those checks was performed and
the results of the checks. WP's external
auditor is encouraged to contact the IRS
at the address set forth in Section 11.06 of
this Agreement and submit an audit plan
(which includes, if relevant, the extent to
which the external auditor proposes to rely
on WP's internal audit procedures) prior

August 11, 2003

to performing the audit so that the audit
may be conducted in the most efficient
and least costly manner possible.
(A) Documentation. The external auditor must review information contained in
partner files to determine whether the documentation requirements of Section 4 of
this Agreement are being met.
(B) Withholding Responsibilities.
The external auditor must—
(1) Perform test checks of direct partners, to verify that WP is withholding the
proper amounts.
(2) Verify that amounts withheld were
timely deposited in accordance with Section 3.04 of this Agreement.
(C) Return Filing and Information
Reporting. The external auditor must—
(1) Obtain copies of original and
amended Forms 1042, and any schedules,
statements, or attachments required to
be filed with those forms, and determine
whether the amounts of income, taxes, and
other information reported on those forms
are accurate by—
(i) Reviewing work papers;
(ii) Reviewing Forms W–8IMY, together with the associated withholding
statements, that WP has provided to withholding agents;
(iii) Reviewing copies of Forms 1042–S
received from withholding agents;
(iv) Reviewing account statements from
withholding agents;
(v) Reviewing correspondence between
WP and withholding agents; and
(vi) Interviewing personnel responsible
for preparing the Form 1042 and the work
papers used to prepare those forms.
(2) Obtain copies of original and
amended Forms 1042–S and Schedules
K–1 together with the work papers used
to prepare those forms and determine
whether the amounts reported on those
forms are accurate by—
(i) Reviewing the Forms 1042–S received from withholding agents;
(ii) Reviewing the Form 1065, if required;
(iii) Reviewing a valid sample of earnings statements issued by WP to direct
partners, if any.
(3) Thoroughly review the statements
attached to amended Forms 1042 filed to
claim a refund, ascertain their veracity, and

318

determine the causes of any overwithholding reported and ensure WP did not issue Forms 1042–S to persons whom it included as part of its collective credit or refund.
(4) Determine, in the case of collective
credits or refunds, that WP repaid the appropriate partners prior to requesting a collective credit or refund.
(E) Change in Circumstances. The
external auditor must verify that in the
course of the audit it has not discovered
any significant change in circumstances, as
described in Section 9.05 (A) or (D) of this
Agreement.
Sec. 8.06. External Auditor's Report.
Upon completion of the audit of WP, the
external auditor shall issue a report, or reports, of audit findings directly to the IRS
by sending the original report to the IRS
at the address set forth in Section 11.06 of
this Agreement. This report is due by December 31 following the calendar year being audited, or if that date falls on a Saturday or Sunday, the next U.S. business day.
The IRS may, however, upon request by
the external auditor, extend the due date
of the audit report upon good cause. The
report must be in writing, in English, and
currency amounts must be stated in U.S.
dollars. The report must fully describe the
scope of the audit, the methodologies (including sampling techniques) used to determine whether WP is in compliance with
the provisions of this Agreement, and the
result of each such determination. The report must also specifically address each of
the items in Section 8.05 of this Agreement.
Sec. 8.07. Expanding Scope and
Timing of External Audit. Upon review
of the external auditor's report, the IRS
may request, and WP must permit, the external auditor to perform additional audit
procedures.
SECTION 9. EXPIRATION,
TERMINATION AND DEFAULT
Sec. 9.01. Term of Agreement: General Rule. If WP has not made a PR election, this Agreement shall be in effect on
and shall continue in force until
the earlier of the date WP terminates under its partnership agreement or the date
WP is terminated under 9.03 or 9.04 of this
Agreement.

2003-32 I.R.B.

Sec. 9.02. Term of Agreement:
Special Rule for PR Election.
(A) If WP has made a PR election, unless WP elects the special term pursuant to
Section 9.02(B), this Agreement shall be
in effect on
and shall expire upon
the earlier of the date WP terminates under
its partnership agreement or December 31
of the fifth full calendar year after the year
in which this Agreement first takes effect.
This Agreement may be renewed for additional terms as provided in Section 9.08 of
this Agreement.
(B) If WP has made a PR election, and
WP elects the special term pursuant to this
Section 9.02(B), this Agreement shall be in
effect on
and shall expire upon
the earlier of the date WP terminates under its partnership agreement or December
31 of the fourteenth full calendar year after the year in which this Agreement first
takes effect. If WP elects the special term,
this Agreement is not renewable. WP must
make the special term election under this
Section 9.02(B) at the time this Agreement
is executed by signing the election statement on the signature page of this Agreement.
Sec. 9.03. Termination of Agreement. This Agreement may be terminated by either the IRS or WP prior to
the end of its term by delivery of a notice
of termination to the other party in accordance with Section 11.06 of this Agreement. The IRS, however, shall not terminate the Agreement unless there has been a
significant change in circumstances, as defined in Section 9.05 of this Agreement, or
an event of default has occurred, as defined
in Section 9.06 of this Agreement, and the
IRS determines, in its sole discretion, that
the significant change in circumstances or
the event of default warrants termination of
this Agreement. In addition, the IRS shall
not terminate this Agreement in the event
of default if WP can establish to the satisfaction of the IRS that all events of default for which it has received notice have
been cured within the time period agreed
upon. The IRS shall notify WP, in accordance with Section 9.07 of this Agreement, that an event of default has occurred
and that the IRS intends to terminate the
Agreement unless WP cures the default. A
notice of termination sent by either party
shall take effect on the date specified in the
notice.

2003-32 I.R.B.

Sec 9.04. Automatic Termination of
Agreement.
(A) Automatic Termination. Notwithstanding Section 9.03 of this Agreement,
this Agreement will terminate automatically in the event that the external auditor
or the IRS on audit discovers that WP was
not in possession of Forms W–8 or W–9,
as applicable, for any direct partner at any
time that withholding or reporting was required under Section 3.02 of this Agreement. The automatic termination will be
effective as of December 31 of the year
in which the external auditor or the IRS
makes that discovery. The automatic termination rules of this Section 9.04(A) shall
not apply in the case of indirect partners
that are treated as direct partners of WP under Section 10 of this Agreement.
(B) Cure and Reinstatement. This
Agreement will be reinstated, effective the
same date it automatically terminated under Section 9.04(A) of this Agreement,
if—
(1) WP obtains appropriate Forms W–8
or W–9 (that relate to the time withholding
or reporting was required) for each such
undocumented partner before March 15 of
the year following the year in which the
Agreement automatically terminated, or
(2) All such undocumented partners
have ceased to be partners in WP before
March 15 of the year following the year
in which the Agreement automatically
terminated.
(C) Payment of Underwithholding
and Reporting upon Termination. In
the event of automatic termination of
this Agreement under this Section 9.04,
WP must pay any underwithholding of
tax, interest, and penalties that the IRS
determines is attributable to each undocumented direct partner for the period during
which the partner was undocumented, and,
if WP has made a PR election, WP must
file Forms 1099, or partner specific Forms
1042–S reporting the names and addresses
and other required information, as appropriate, for every undocumented direct
partner from the earliest time the Form
W–8 or W–9 was required for that undocumented direct partner through the date of
termination. WP may, however, continue
to report on a pooled basis for documented
foreign direct partners through this period.
(D) Reinstatement after Termination.
After the date of automatic termination of

319

this Agreement, WP may not act as a withholding foreign partnership, and must so
notify any persons to which WP has furnished a withholding foreign partnership
certificate. After the date of automatic termination of this Agreement, the IRS may
reinstate this Agreement (or the IRS may
require WP to enter into a new withholding foreign partnership agreement) on such
terms and conditions and with such modifications as the IRS may determine.
Sec. 9.05. Significant Change in
Circumstances. For purposes of this
Agreement, a significant change in circumstances includes, but is not limited
to—
(A) any merger, consolidation or division of WP or any change in circumstances
that would result in a termination of WP
under section 708 of the Code;
(B) A change in U.S. federal law or policy, or applicable foreign law or policy, that
affects the validity of any provision of this
Agreement, materially affects the procedures contained in this Agreement, or affects WP's ability to perform its obligations under this Agreement;
(C) A ruling of any court that affects
the validity of any provision of this Agreement; or
(D) A significant change in WP's business practices that affects WP's ability to
meet its obligations under this Agreement.
Sec. 9.06. Events of Default. For
purposes of this Agreement, an event of
default occurs if WP fails to perform any
material duty or obligation required under
this Agreement, and includes, but is not
limited to, the occurrence of any of the
following:
(A) WP fails to implement adequate
procedures, accounting systems, and internal controls to ensure compliance with this
Agreement;
(B) WP underwithholds an amount that
WP is required to withhold under chapter
3 of the Code and fails to correct the underwithholding or to file an amended Form
1042 reporting, and paying, the appropriate tax;
(C) WP makes excessive refund claims;
(D) WP fails to file Forms 1042,
1042–S, 1065 (if required), or Schedules
K–1 (if required) by the due date specified on such forms or files forms that are
materially incorrect or fraudulent;

August 11, 2003

(E) WP fails to have an external audit
performed when required, WP's external
auditor fails to provide its report directly
to the IRS on a timely basis, WP fails to
cooperate with the external auditor, or WP
or its external auditor fails to cooperate
with the IRS;
(F) WP fails to inform the IRS within 90
days of any significant change in its business practices to the extent that change affects WP's obligations under this Agreement;
(G) WP fails to cure a default identified
by the IRS or by an external auditor;
(H) WP makes any fraudulent statement or a misrepresentation of material
fact with regard to this Agreement to the
IRS, a withholding agent, or WP's external
auditor;
(I) The IRS determines that WP's external auditor is not sufficiently independent
to adequately perform its audit function or
the external auditor fails to provide an audit report that complies with Section 8 of
this Agreement;
(J) WP is prohibited by any law from
disclosing the identity of a partner or partner information to WP's external auditor;
(K) WP fails to make deposits in the
time and manner required by Section 3.04
of this Agreement or fails to make adequate deposits, taking into account the procedures of 7.05 of this Agreement; or
(L) WP fails to permit the external auditor to perform additional audit procedures
under the provisions of Section 8.07 of this
Agreement.
Sec. 9.07. Notice and Cure. Upon
the occurrence of an event of default, the
IRS may deliver to WP a notice of default specifying the event of default that
has occurred. WP shall respond to the notice of default within 60 days (60-day response) from the date of the notice of default. The 60-day response shall contain
an offer to cure the event of default and the
time period in which the cure will be accomplished or shall state the reasons why
WP does not agree that an event of default has occurred. If WP does not provide
a 60-day response, the IRS may deliver a
notice of termination as provided in Section 9.03 of this Agreement. If WP provides a 60-day response, the IRS shall either accept or reject WP's statement that
no default has occurred or accept or reject
WP's proposal to cure an event of default.

August 11, 2003

If the IRS rejects WP's contention that no
default has occurred or rejects WP's proposal to cure a default, the IRS will offer
a counter-proposal to cure the event of default. Within 30 days of receiving the IRS's
counter-proposal, WP shall notify the IRS
(30-day response) whether it continues to
maintain that no default has occurred or
whether it rejects the IRS's counter-proposal to cure an event of default. If WP's
30-day response states that no default has
occurred or it rejects the IRS's counter-proposal to cure, the parties shall seek to resolve their disagreement within 30 days of
the IRS's receipt of WP's 30-day response.
If a satisfactory resolution has not been
achieved at the end of this latter 30-day period, or if WP fails to provide a 30-day response, the IRS may terminate this Agreement by providing a notice of termination
in accordance with Section 9.03 of this
Agreement. If WP receives a notice of termination from the IRS, it may appeal the
determination within 30 days of the date of
the notice of termination by sending a written notice to the address specified in Section 11.06 of this Agreement. If WP appeals the notice of termination, this Agreement shall not terminate until the appeal
has been decided. If an event of default
is discovered in the course of an external
audit, the WP may cure the default, without following the procedures of this Section 9.07, if the external auditor's report describes the default and the actions that WP
took to cure the default and the IRS determines that the cure procedures followed by
WP were sufficient. If the IRS determines
that WP's actions to cure the default were
not sufficient, the IRS shall issue a notice
of default and the procedures described in
this Section 9.07 shall be followed.
Sec. 9.08. Renewal. If WP has made
the PR election under Section 6.03 of
this Agreement and intends to renew this
Agreement for an additional term, it shall
submit an application for renewal to the
IRS no earlier than one year and no later
than six months prior to the expiration
of this Agreement. Any such application
for renewal must contain an update of the
information provided by WP to the IRS in
connection with the application to enter
into this Agreement, and any other information the IRS may request in connection
with the renewal process. This Agreement
shall be renewed only upon the signatures

320

of both WP and the IRS. Either the IRS or
WP may seek to negotiate a new withholding foreign partnership agreement rather
than renew this Agreement.
SECTION 10. CERTAIN
PARTNERSHIPS AND TRUSTS
Sec. 10.01. Certain Smaller Partnerships and Trusts. WP cannot apply
the rules of this Section 10.01 unless it
has made a PR election under Section 6.03
of this Agreement. WP may apply the
rules of this Section 10.01 only to a partnership or trust that meets the following
conditions: (i) the partnership or trust is
a foreign partnership or foreign simple or
grantor trust, (ii) the partnership or trust
is a direct partner of WP, (iii) none of
the partners, beneficiaries or owners of the
partnership or trust is a U.S. person or a
passthrough partner, beneficiary or owner,
and (iv) the total reportable amounts distributed to, and included in the distributive share of, the partnership or trust for
the calendar year do not exceed $200,000.
In applying this Section 10.01, WP must
treat the partners of such a partnership or
the beneficiaries or owners of such a trust
as direct partners of WP under this Agreement. To apply this Section 10.01, WP and
the partnership or trust must comply with
all of the rules listed below.
(1) WP and the partnership or trust must
agree in writing that the partnership or trust
will make available to WP’s auditor for
purposes of WP’s audit under Section 8 of
this Agreement records that establish that
the partnership or trust has provided WP
with documentation for all of its partners,
beneficiaries or owners.
(2) The partnership or trust must provide to WP a Form W–8IMY, together with
Forms W–8 from each partner, beneficiary
or owner, and a withholding statement,
under Treas. Reg. § 1.1441–5(c)(3)(iv)
or (e)(5)(iv), that provides information for
all partners, beneficiaries or owners. The
withholding statement, however, need not
provide any allocation information.
(3) WP must treat amounts distributed
to, or included in the distributive share of,
the partnership or trust as allocated solely
to any partner, beneficiary or owner that is
subject to the highest rate of withholding
and must withhold at that rate.
(4) WP may include amounts distributed to, or included in the distributive

2003-32 I.R.B.

share of, a partnership or trust under Section 10.01(3) in its Form 1042–S reporting
pools for direct account holders under
Section 6.03 of this Agreement.
(5) After WP has withheld in accordance with Section 10.01(3) above, it may
file a separate Form 1042–S for any partner, beneficiary or owner who requests
that it do so. WP may do so only if the
partnership or trust provides a withholding statement that includes allocation information for the requesting partner, beneficiary or owner and only if the partnership
or trust has agreed in writing under Section
10.01(1) to make available to WP’s external auditor records that substantiate the allocation information included in its withholding statement.
(6) WP may not include any amounts
distributed to, or included in the distributive share of, a partnership or trust to which
WP is applying the rules of this Section
10.01 in any collective refund claim made
under Section 7.02 of this Agreement.
(7) WP and a partnership or trust that
apply this Section 10.01 to any calendar
year are not required to apply this Section
10.01 to subsequent calendar years. WP
and a partnership or trust that apply this
Section 10.01 to any calendar year must
apply these rules to the calendar year in its
entirety.
(8) WP and the partnership or trust may
not apply this Section 10.01 to any calendar year for which the partnership or
trust has failed to make available to WP’s
auditor the records described in Section
10.01(1) within 90 days after these records
are requested. If the partnership or trust
has failed to make these records available
within the 90-day period, or if WP and the
partnership or trust fail to comply with any
other requirement of this Section 10.01,
WP must apply Treas. Reg. § 1.1441–1
and 1.1441–5 to the partnership or trust,
correct its withholding, and must file corrected Forms 1042 and 1042–S.
Sec. 10.02. Certain Related Partnerships and Trusts. WP may not apply the rules of this Section 10.02 unless
it has made a PR election under Section
6.03 of this Agreement. WP may apply the
rules of this Section 10.02 only to a partnership or trust that meets the following
conditions: (1) the partnership or trust is
a foreign partnership or foreign simple or
grantor trust; (2) the partnership or trust is
either (i) a direct partner of WP or (ii) the

2003-32 I.R.B.

partnership or trust is an indirect partner of
WP that is a partner, beneficiary or owner
of a partnership or trust to which WP has
also applied this Section 10.02; and (3) the
WP is a general partner of the partnership
or a trustee of the trust. WP may not apply
this Section 10.02 to indirect partners, beneficiaries or owners of such partnerships or
trusts, or to direct partners, beneficiaries or
owners of such partnerships or trusts that
are intermediaries, flow-through entities or
U.S. nonexempt recipients. See 10.02(5)
of this Agreement. To apply this Section 10.02, WP and the partnership or trust
must comply with all of the rules listed below.
(1) WP and the partnership or trust must
enter into a written agreement under which
the partnership or trust agrees:
(a) To act as an agent of WP with respect to its partners, beneficiaries or owners, and, as WP’s agent, to apply the provisions of the WP Agreement to its partners,
beneficiaries or owners,
(b) To treat its direct partners, beneficiaries or owners as direct partners of WP
under the WP Agreement and to treat its
indirect partners, beneficiaries or owners
as indirect partners of WP under the WP
Agreement, and
(c) To make available, upon request, to
WP’s auditor for purposes of WP’s audit under Section 8 of the WP Agreement,
records that establish its compliance with
all of the rules listed under this Section
10.02.
(2) By entering into an agreement with
a partnership or trust under paragraph (1)
of this section, WP is not assigning its liability for the performance of any of its obligations under this Agreement. WP and the
partnership or trust to which WP applies
the rules of this Section 10.02, are jointly
and severally liable for any tax, penalties
and interest that may result from the failure
of the partnership or trust to meet any of the
obligations imposed by its agreement with
WP.
(3) The partnership or trust must
provide to WP a Form W–8IMY together
with a withholding statement, under Treas.
Reg. § 1.1441–5(c)(3)(iv) or (e)(5)(iv),
that includes all information necessary for
WP to fulfill its withholding, reporting and
filing obligations under this Agreement.
The withholding statement may include
pooled basis information regarding direct
partners, beneficiaries or owners that are

321

not intermediaries, flow-through entities
or U.S. non-exempt recipients. The partnership or trust need not provide to WP
documentation for partners, beneficiaries
or owners, except as provided under section 10.02(1)(c).
(4) WP must withhold on the date an
amount is distributed to or included in the
distributive share of a foreign partnership
or trust based on the withholding statement provided by the partnership or trust.
The amount allocated to each partner,
beneficiary or owner in the withholding
statement may be based on a reasonable
estimate of the partner’s, beneficiary’s
or owner’s distributive share of income
subject to withholding for the year. The
partnership or trust must correct the estimated allocations to reflect the partner’s,
beneficiary’s or owner’s actual distributive share and must provide this corrected
information to WP, on the earlier of the
date that the statement required under section 6031(b) of the Code (schedule K–1)
is mailed or otherwise provided to the
partner or the due date for furnishing the
statement (whether or not the partnership
or trust is required to prepare and furnish
the statement). If that date is after the due
date for WP’s Forms 1042 and 1042–S
(without regard to extensions) for the calendar year, WP may withhold and report
any adjustments required by the corrected
information in the following calendar year.
(5) WP must file separate Forms
1042–S reflecting pooled basis information for each partnership or trust that has
provided pooled basis information in its
withholding statement. WP shall apply
the provisions of Treas. Reg. § 1.1441–1
and 1.1441–5 to partners, beneficiaries or
owners of such partnerships or trusts that
are indirect partners, beneficiaries or owners, and to direct partners, beneficiaries or
owners of such partnerships or trusts that
are intermediaries, flow-through entities
or U.S. nonexempt recipients.
(6) A partnership or trust to which WP
applies this Section 10.02 may not assume
primary NRA withholding responsibility, or primary Form 1099 reporting and
backup withholding responsibility.
(7) WP and a partnership or trust that
apply this Section 10.02 to any calendar
year must apply these rules to the calendar
year in its entirety. Generally, WP and a
partnership or trust that apply this Section
10.02 to any calendar year are not required

August 11, 2003

to apply this Section 10.02 to subsequent
calendar years. If, however, WP withholds and reports any adjustments required
by corrected information in a subsequent
calendar year under Section 10.02(4), WP
must apply this Section 10.02 to that calendar year in its entirety.
(8) WP and a partnership or trust may
not apply this Section 10.02 to any calendar year for which the partnership or
trust has failed to make available to WP’s
auditor the records described in Section
10.02(1)(c) within 90 days after these
records are requested. If, for any calendar
year, the partnership or trust has failed
to make these records available within
the 90-day period, or if WP and the partnership or trust fail to comply with any
other requirement of this Section 10.02,
WP must apply Treas. Reg. § 1.1441–1
and 1.1441–5 to the partnership or trust,
must correct its withholding, and must file
corrected Forms 1042 and 1042–S for the
calendar year.

United States. For this purpose, WP agrees
to submit to the jurisdiction of such U.S.
court.
Sec. 11.05. WP's rights and responsibilities under this Agreement cannot be assigned to another person.
Sec. 11.06. Notices provided under this
Agreement shall be mailed registered, first
class airmail. Notice shall be directed as
follows:

August 11, 2003

(name and title of person
signing for WP)

To the IRS
Internal Revenue Service
LMSB:FS:QI
290 Broadway
New York, NY 10007–1867
USA
All notices sent to the IRS must include
the WP’s WP–EIN

PR Election Statement – Fifteen Year
Term

By signing hereunder, WP makes
the PR election with a term of 15 years
or until WP terminates, whichever is
earlier, under Sections 6.03 and 9.02
(B) of this Agreement.

To WP:

SECTION 11. MISCELLANEOUS
PROVISIONS
Sec. 11.01. WP's application to become a withholding foreign partnership
and the Appendix to this Agreement
are hereby incorporated into and made
an integral part of this Agreement.This
Agreement, WP's application, and the
Appendix to this Agreement constitute the
complete agreement between the parties.
Sec. 11.02. This Agreement may be
amended by the IRS if the IRS determines
that such amendment is needed for the
sound administration of the internal revenue laws or internal revenue regulations.
The Agreement may also be modified by
either WP or the IRS upon mutual agreement. Such amendments or modifications
shall be in writing.
Sec. 11.03. Any waiver of a provision
of this Agreement by the IRS is a waiver
solely of that provision. The waiver does
not obligate the IRS to waive other provisions of this Agreement or the same provision at a later date.
Sec. 11.04. This Agreement shall be
governed by the laws of the United States.
Any legal action brought under this Agreement shall be brought only in a U.S. court
with jurisdiction to hear and resolve matters under the internal revenue laws of the

By signing hereunder, WP makes
the PR election with a term of
six years or until WP terminates,
whichever is earlier, under Sections
6.03 and 9.02 (A) of this Agreement.

(name and title of person
signing for WP)

Appendix A
Sec. 11.07. WP, acting in its capacity
as a withholding foreign partnership or in
any other capacity, does not act as an agent
of the IRS, nor does it have the authority to
hold itself out as an agent of the IRS.
IN WITNESS WHEREOF, the
above parties have subscribed their
names to these presents, in duplicate.

WP and the IRS agree that any of the
following auditors may be used by WP
to perform the external audits required by
Section 8 of this Agreement.
[Names, addresses, telephone and fax
numbers of external auditors.]

APPENDIX 2
Withholding Foreign Trust Agreement

Signed this

day of

,

(name and title of person
signing for WP)

(name and title of person signing for
IRS)

PR Election Statement – Six Year
Term

322

SECTION 1. PURPOSE AND SCOPE
Sec. 1.01. General Obligations
Sec. 1.02. Parties to the Agreement
SECTION 2. DEFINITIONS
Sec. 2.01. Agreement
Sec. 2.02. Amounts Subject to NRA
Withholding
Sec. 2.03. Chapter 3 of the Code
Sec. 2.04. Chapter 61 of the Code
Sec. 2.05. Distributive Share
Sec. 2.06. External Auditor
Sec. 2.07. Flow -Through Entity
Sec. 2.08. Foreign Person
Sec. 2.09. Form W–8

2003-32 I.R.B.

Sec. 2.10. Form W–9
Sec. 2.11. Form 1042
Sec. 2.12. Form 1042–S
Sec. 2.13. Form 3520
Sec. 2.14. Form 3520–A
Sec. 2.15. Intermediary
Sec. 2.16. Nonwithholding Foreign
Trust
Sec. 2.17. NRA Withholding
Sec. 2.18. Overwithholding
Sec. 2.19. Payment
Sec. 2.20. Pooled Reporting (PR)
Election
Sec. 2.21. Reduced Rate of Withholding
Sec. 2.22. Reportable Amount
Sec. 2.23. Reporting Pool
Sec. 2.24. TIN
Sec. 2.25. Trust and Beneficiary or
Owner; Direct, Indirect or Passthrough
Beneficiary or Owner
Sec. 2.26. Underwithholding
Sec. 2.27. U.S. Person
Sec. 2.28. Withholding Agent
Sec. 2.29. Withholding Foreign Trust
(or WT)
Sec. 2.30. Withholding Foreign Trust
(or WT) EIN
Sec. 2.31. Withholding Statement
Sec. 2.32. Other Terms
SECTION 3. WITHHOLDING
RESPONSIBILITY
Sec. 3.01.
sibility
Sec. 3.02.
Sec. 3.03.
tions
Sec. 3.04.

NRA Withholding ResponTiming of Withholding
Withholding on DistribuDeposit Requirements

SECTION 4. DOCUMENTATION
REQUIREMENTS
Sec. 4.01. Documentation Requirements
Sec. 4.02. Documentation for Foreign
Beneficiaries or Owners
Sec. 4.03. Treaty Claims
Sec. 4.04. Documentation for International Organizations
Sec. 4.05. Documentation for Foreign Governments and Foreign Central
Banks of Issue
Sec. 4.06. Documentation for Foreign
Tax-Exempt Organizations
Sec. 4.07. Documentation From
Passthrough Beneficiaries or Owners

2003-32 I.R.B.

Sec. 4.08. Documentation for U.S.
Exempt Recipients
Sec. 4.09. Documentation for U.S.
Non-Exempt Recipients
Sec. 4.10. Documentation Validity
Sec. 4.11. Documentation Validity
Period
Sec. 4.12. Maintenance and Retention
of Documentation
SECTION 5. WITHHOLDING
FOREIGN TRUST WITHHOLDING
CERTIFICATE
Sec. 5.01. WT Withholding Certificate
Sec. 5.02. Withholding Statement
Sec. 5.03. Withholding Rate Pools
SECTION 6. TAX RETURN
OBLIGATIONS
Sec. 6.01. Form 1042 Filing Requirement
Sec. 6.02. Form 1042–S Reporting:
General Rule
Sec. 6.03. Form 1042–S Reporting:
Special Rule for PR Election
Sec. 6.04. Form 3520–A Filing Requirement
Sec. 6.05. Retention of Returns
SECTION 7. ADJUSTMENTS
FOR OVER- AND UNDERWITHHOLDING; REFUNDS
Sec. 7.01. Adjustments for NRA
Overwithholding by WT
Sec. 7.02. Collective Credit or Refund
Procedures for NRA Overwithholding
Sec. 7.03. Adjustments for NRA Underwithholding
Sec. 7.04. NRA Underwithholding
after Form 1042 Filed
Sec. 7.05. Special Rule Regarding
Failure to Deposit Penalties
SECTION 8. EXTERNAL AUDIT
PROCEDURES
Sec. 8.01. In General
Sec. 8.02. Designation of External
Auditor
Sec. 8.03. Timing of External Audits:
General Rule
Sec. 8.04. Timing of External Audits:
Special Rule for PR Election
Sec. 8.05. Scope of External Audit

323

Sec. 8.06. External Auditor’s Report
Sec. 8.07. Expanding Scope and Timing of External Audit
SECTION 9. EXPIRATION,
TERMINATION AND DEFAULT
Sec. 9.01. Term of Agreement: General Rule
Sec. 9.02. Term of Agreement: Special Rule for PR Election
Sec. 9.03. Termination of Agreement
Sec. 9.04. Automatic Termination of
Agreement
Sec. 9.05. Significant Change in Circumstances
Sec. 9.06. Events of Default
Sec. 9.07. Notice and Cure
Sec. 9.08. Renewal
SECTION 10. CERTAIN
PARTNERSHIPS AND TRUSTS
Sec. 10.01. Certain Smaller Partnerships and Trusts
Sec. 10.02. Certain Related Partnerships and Trusts
SECTION 11. MISCELLANEOUS
PROVISIONS
THIS AGREEMENT is made in duplicate under and in pursuance of section
1441 of the Internal Revenue Code of
1986, as amended, (the “Code”) and Treasury Regulation § 1.1441–5(e)(5)(v) by
and between
, (referred to as “WT”), and the INTERNAL
REVENUE SERVICE (the “IRS”):
WHEREAS, WT has submitted an application in accordance with Revenue Procedure 2003–64 to be a withholding foreign trust for purposes of Treas. Reg.
§ 1.1441–5(e)(5)(v);
WHEREAS, WT and the IRS desire to
enter into an agreement to establish WT's
rights and obligations regarding documentation, withholding, information reporting,
tax return filing, deposits, and adjustment
procedures under sections 1441, 1442,
1443, 1461, 6048, 6302, 6402, and 6414
of the Code with respect to certain types
of payments;
NOW, THEREFORE, in consideration of the following terms, representations, and conditions, the parties agree as
follows:

August 11, 2003

SECTION 1. PURPOSE AND SCOPE
Sec. 1.01. General Obligations. Except as otherwise provided in this Agreement, WT's obligations with respect to income distributed to, or included in the distributive shares of, its beneficiaries or owners are governed by the Code and the regulations thereunder. Except as provided
in Section 10 of this Agreement, WT may
act in its capacity as a withholding foreign trust pursuant to this Agreement only
for payments of amounts subject to NRA
withholding that are distributed to, or included in the distributive shares of, its direct beneficiaries or owners. WT is required to act as a withholding foreign trust
for all such amounts paid to WT, or included in WT's distributive share, by any
withholding agent to which WT has provided a Form W–8IMY that represents that
WT is acting as a withholding foreign trust
with respect to such amounts. WT must
act as a withholding foreign trust for any
such amounts paid with respect to such a
Form W–8IMY that are distributed to, or
included in the distributive shares of, its direct foreign beneficiaries or owners. WT
may act as a withholding foreign trust for
such amounts that are distributed to, or included in the distributive shares of, its direct beneficiaries or owners that are U.S.
persons. WT may also act as a withholding foreign trust and may treat itself as
a direct foreign beneficiary if (i) WT is
a trust the terms of which are described
in section 651(a)(1) and (2) of the Code
and (ii) in any taxable year, WT distributes
amounts other than amounts of income described in section 651(a)(1). WT may not
act as a withholding foreign trust, but must
act as a nonwithholding foreign trust, for
amounts subject to NRA withholding that
are distributed to, or included in the distributive shares of, passthrough beneficiaries or owners or indirect beneficiaries or
owners, except as provided under Section
10 of this Agreement.
Sec. 1.02. Parties to the Agreement.
This Agreement applies to WT and the
IRS.
SECTION 2. DEFINITIONS
For purposes of this Agreement, the
terms listed below are defined as follows:
Sec. 2.01. Agreement. “Agreement”
means this Agreement between WT and

August 11, 2003

the IRS. All appendices to this Agreement
and WT's application to become a withholding foreign trust are incorporated into
this Agreement by reference.
Sec. 2.02. Amounts Subject to NRA
Withholding. An “amount subject to
NRA withholding” is an amount described
in Treas. Reg. § 1.1441–2(a). An amount
subject to NRA withholding shall not
include interest paid as part of the purchase price of an obligation sold between
interest payment dates or original issue
discount paid as part of the purchase price
of an obligation sold in a transaction other
than the redemption of such obligation,
unless the sale is part of a plan the principal purpose of which is to avoid tax and
WT has actual knowledge or reason to
know of such plan.
Sec. 2.03. Chapter 3 of the Code.
Any reference to “chapter 3 of the Code”
means sections 1441, 1442, 1443, 1461,
1463, and 1464 of the Code.
Sec. 2.04. Chapter 61 of the Code.
Any reference to “chapter 61 of the Code”
means sections 6041, 6042, 6045, 6048,
6049, and 6050N of the Code.
Sec. 2.05. Distributive share. “Distributive share” means an amount subject
to withholding that is required to be distributed to the beneficiaries of a simple
trust and an amount subject to withholding that is includible in the income of the
owners of a grantor trust.
Sec. 2.06. External Auditor. An
“external auditor” is any approved auditor listed in Appendix A of this Agreement
that WT engages to perform the audits required by Section 8 of this Agreement.
Sec. 2.07. Flow-Through Entity. A
flow-through entity is a foreign partnership
described in Treas. Reg. § 301.7701–2 or
3 (other than a withholding foreign partnership), a foreign trust that is described
in section 651(a) of the Code (other than
a withholding foreign trust), or a foreign
trust all or a portion of which is treated as
owned by the grantor or other person under sections 671 through 679 of the Code
(other than a withholding foreign trust).
For an item of income for which a treaty
benefit is claimed, an entity is also a flowthrough entity to the extent it is treated as
fiscally transparent under section 894 and
the regulations thereunder.
Sec. 2.08. Foreign Person. A “foreign
person” is any person that is not a “United

324

States person” and includes a “nonresident
alien individual,” a “foreign corporation,”
a “foreign partnership,” a “foreign trust,”
and a “foreign estate,” as those terms are
defined in section 7701 of the Code.
Sec. 2.09. Form W–8. “Form W–8”
means a valid IRS Form W–8BEN, Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding;
IRS Form W–8ECI, Certificate of Foreign
Person's Claim for Exemption From Withholding on Income Effectively Connected
With the Conduct of a Trade or Business
in the United States; IRS Form W–8EXP,
Certificate of Foreign Governments and
Other Foreign Organizations for United
States Tax Withholding; and IRS Form
W–8IMY, Certificate of Foreign Intermediary, Foreign Partnership, and Certain
U.S. Branches for United States Tax Withholding, as appropriate. It also includes
any acceptable substitute form.
Sec. 2.10. Form W–9. “Form W–9”
means a valid IRS Form W–9, Request for
Taxpayer Identification Number and Certification, or any acceptable substitute.
Sec. 2.11. Form 1042. “Form 1042”
means an IRS Form 1042, Annual Withholding Tax Return for U.S. Source Income
of Foreign Persons.
Sec. 2.12. Form 1042–S. “Form
1042–S” means an IRS Form 1042–S,
Foreign Person's U.S. Source Income Subject to Withholding.
Sec. 2.13. Form 3520. “Form 3520”
means an IRS Form 3520, Annual Return
to Report Transaction with Foreign Trust
and Receipt of Certain Foreign Gifts.
Sec. 2.14. Form 3520–A. “Form
3520–A” means an IRS Form 3520–A,
Annual Information Return of Foreign
Trust with a U.S. Owner.
Sec. 2.15. Intermediary. An “intermediary” means any person that acts on behalf of another person, such as a custodian,
broker, nominee, or other agent.
Sec. 2.16. Nonwithholding Foreign
Trust. A “nonwithholding foreign trust”
is any foreign trust that is not acting as a
withholding foreign trust.
Sec. 2.17. NRA Withholding. For
purposes of this Agreement, “nonresident
alien (NRA) withholding” is any withholding required under chapter 3 of the
Code (other than sections 1445 or 1446),

2003-32 I.R.B.

whether the payment subject to withholding is made to an individual or to an entity.
Sec. 2.18. Overwithholding. The term
“overwithholding” means the excess of the
amount actually withheld over the amount
required to be withheld under chapter 3 of
the Code.
Sec. 2.19. Payment. A “payment” is
considered made to a person if that person realizes income whether or not such
income results from an actual transfer of
cash or other property. See Treas. Reg.
§ 1.1441–2(e).
Sec. 2.20. Pooled Reporting (PR)
Election. A “pooled reporting (PR) election” is defined in Section 6.03. of this
Agreement.
Sec. 2.21. Reduced Rate of Withholding. A “reduced rate of withholding”
means a rate of withholding that is less
than 30 percent, either as a result of a reduction in withholding under the Code or
as a result of a reduction in withholding under an income tax treaty.
Sec. 2.22. Reportable Amount. A
“reportable amount” means an amount
subject to NRA withholding (as defined
in Section 2.02 of this Agreement); U.S.
source deposit interest; and U.S. source
interest or original issue discount paid on
the redemption of short-term obligations.
The term does not include payments on
deposits with banks and other financial
institutions that remain on deposit for two
weeks or less. It also does not include
amounts of original issue discount arising
from a sale and repurchase transaction
completed within a period of two weeks or
less, or amounts described in Treas. Reg.
§ 1.6049–5(b)(7), (10), or (11) (relating
to certain foreign targeted registered obligations and certain obligations issued in
bearer form).
Sec. 2.23. Reporting Pool. A reporting pool is defined in Section 6.03 of this
Agreement.
Sec. 2.24. TIN. A “TIN” is a U.S.
taxpayer identification number.
Sec. 2.25. Trust, Beneficiary and
Owner; Direct, Indirect or Passthrough
Beneficiary or Owner. The term “trust”
is defined in Treas. Reg. § 301.7701–4.
The term “beneficiary” is defined in section 643(c) of the Code and the regulations
thereunder. An “owner” is a person treated
as a grantor or owner under Subpart C of

2003-32 I.R.B.

Subchapter J of the Code. A direct beneficiary or owner is a beneficiary or owner,
other than an intermediary or flow-through
entity that is not itself a withholding foreign trust or withholding foreign partnership, for which WT acts as a withholding
foreign trust. An indirect beneficiary or
owner is a person that owns a trust interest
in WT through one or more passthrough
beneficiaries or owners. A passthrough
beneficiary or owner is a direct or indirect
beneficiary or owner in WT that is an intermediary or flow-through entity. As provided in Section 2.07 of this Agreement,
a withholding foreign partnership or withholding foreign trust is not a flow-through
entity and thus is not a passthrough beneficiary or owner.
Sec. 2.26. Underwithholding. “Underwithholding” means the excess of the
amount required to be withheld under
chapter 3 of the Code over the amount
actually withheld.
Sec. 2.27. U.S. Person. A “United
States (or U.S.) person” is a person described in section 7701(a)(30) of the Code,
the U.S. government (including an agency
or instrumentality thereof), a State of the
United States (including an agency or instrumentality thereof), or the District of
Columbia (including an agency or instrumentality thereof).
Sec. 2.28. Withholding Agent. A
“withholding agent” has the same meaning
as set forth in Treas. Reg. § 1.1441–7(a)
and includes a payor. As used in this
Agreement, the term generally refers to the
person making a payment to a withholding
foreign trust.
Sec. 2.29. Withholding Foreign
Trust (or WT). A “withholding foreign
trust” is a person, described in Treas. Reg.
§ 1.1441–5(e)(v), that has entered into a
withholding agreement with the IRS to be
treated as a withholding foreign trust and
is acting in its capacity as a withholding
foreign trust.
Sec. 2.30. Withholding Foreign
Trust (or WT) EIN. A “withholding foreign trust EIN” or “WT-EIN” means the
employer identification number assigned
by the IRS to a withholding foreign trust.
WT’s WT-EIN is only to be used when
WT is acting as a withholding foreign
trust. For example, WT must give a withholding agent its non-WT EIN, if any,
rather than its WT-EIN, if it is not acting

325

as a withholding foreign trust and a taxpayer identification number is required.
Sec. 2.31. Withholding Statement.
The term “withholding statement” is defined in Section 5.02 of this Agreement.
Sec. 2.32. Other Terms. Any term
not defined in this section has the same
meaning that it has under the Code, the
income tax regulations under the Code, or
any applicable income tax treaty.
SECTION 3. WITHHOLDING
RESPONSIBILITY
Sec. 3.01. NRA Withholding Responsibility. WT is subject to the withholding and reporting provisions applicable to withholding agents under chapter
3 of the Code. Under chapter 3, a withholding agent must withhold 30 percent
of any payment of an amount subject to
NRA withholding made to a beneficiary
or owner that is a foreign person unless the
withholding agent can reliably associate
the payment with documentation upon
which it can rely to treat the payment as
made to a payee that is a U.S. person or as
made to a beneficial owner that is a foreign
person entitled to a reduced rate of withholding. When it is acting as a withholding
foreign trust, WT must assume NRA withholding responsibility for amounts subject
to NRA withholding that are distributed
to, or included in the distributive share
of, any direct beneficiary or owner, and
WT must withhold the amount required to
be withheld under chapter 3 of the Code.
WT must provide a Form W–8IMY that
certifies to a withholding agent that makes
a payment of such amounts that WT is
acting as a withholding foreign trust, and
WT must identify such amounts on the
withholding statement associated with
that Form W–8IMY. WT is not required
to withhold when it pays such amounts
to another withholding foreign trust or
withholding foreign partnership that has
certified to WT on Form W–8IMY that
it is acting as a withholding foreign trust
or withholding foreign partnership with
respect to such identified amounts. WT is
not required to act as a withholding foreign
trust for all amounts that it receives from
a withholding agent. Except as provided
in Section 10 of this Agreement, WT may
not act as a withholding foreign trust for
amounts distributed to, or included in the

August 11, 2003

distributive share of, passthrough beneficiaries or owners or indirect beneficiaries
or owners. WT must act as a nonwithholding foreign trust for such amounts. When
WT is not acting as a withholding foreign
trust, WT must: 1) provide to the withholding agent a Form W–8IMY with Part
VI completed; 2) identify such amounts on
the withholding statement associated with
that Form W–8IMY; and 3) provide the
documentation and information required
by Treas. Reg. § 1.1441–5(e)(5)(iii) and
(iv).
Sec. 3.02. Timing of Withholding.
WT must withhold on the date it makes a
distribution to a direct foreign beneficiary
or owner that includes an amount subject
to NRA withholding. To the extent a direct
foreign beneficiary’s or owner's distributive share of income subject to withholding has not actually been distributed to the
direct foreign beneficiary or owner, WT
must withhold on the direct beneficiary’s
or owner’s distributive share on the earlier
of the date the statement required under
section 6048 is mailed or otherwise provided to the beneficiary or owner or the due
date for furnishing the statement (whether
or not WT is required to prepare and furnish the statement).
Sec. 3.03. Withholding on Distributions. WT may determine the amount of
withholding on a distribution based on a
reasonable estimate of the beneficiary’s or
owner’s distributive share of income subject to withholding for the year. WT must
correct the estimated withholding to reflect the beneficiary’s or owner’s actual
distributive share on the earlier of the date
that the statement required under section
6048 is mailed or otherwise provided to the
beneficiary or owner or the due date for
furnishing the statement (whether or not
WT is required to prepare and furnish the
statement). If that date is after the due date
for the WT’s Forms 1042 and 1042–S (including extensions) for the calendar year,
WT may withhold and report any adjustments required by the corrected information in the following calendar year.
Sec. 3.04. Deposit Requirements.
WT must deposit amounts withheld under
chapter 3 of the Code with a Federal Reserve bank or authorized financial institution at the time and in the manner provided
under section 6302 of the Code (see Treas.
Reg. § 1.6302–2(a) or § 31.6302–1(h)).

August 11, 2003

SECTION 4. DOCUMENTATION
REQUIREMENTS
Sec. 4.01. Documentation Requirements. WT agrees to obtain, review, and
maintain Forms W–8 and W–9 in accordance with this Section 4. WT must obtain
a Form W–8 or W–9 from every direct
beneficiary or owner prior to the time that
withholding is required. WT agrees to
make documentation (together with any
associated withholding statements and
other documents or information) available
upon request for inspection by WT’s external auditor. WT represents that none of
the laws to which it is subject prohibits disclosure of the identity of any beneficiary
or owner or corresponding beneficiary
or owner information to WT’s external
auditor. WT may rely on the Forms W–8
and W–9 it obtains under this Section 4 as
the basis for determining its withholding
and reporting obligations.
Sec. 4.02. Documentation for Foreign Beneficiaries or Owners. WT may
treat a direct beneficiary or owner as a foreign beneficial owner if the direct beneficiary or owner provides a Form W–8 that
supports such status. WT may treat a direct beneficiary or owner that has provided
a Form W–8 as entitled to a reduced rate of
NRA withholding if all the requirements
for a reduced rate are met and the Form
W–8 provided by the direct beneficiary or
owner supports entitlement to a reduced
rate. Sections 4.03 through 4.06 of this
Agreement describe the specific documentation requirements necessary for obtaining a reduced rate of withholding in certain
circumstances.
Sec. 4.03. Treaty Claims. WT may
not reduce the rate of withholding based
on a direct beneficiary’s or owner’s claim
of treaty benefits unless WT obtains from
the beneficiary or owner a Form W–8BEN
with Part II of the form properly completed, including the appropriate limitation
on benefits and section 894 certifications.
Sec. 4.04. Documentation for International Organizations. WT may not
treat a direct beneficiary or owner as an
international organization entitled to an
exemption from withholding under section 892 of the Code unless WT obtains
a Form W–8EXP from the international
organization and the name provided on the
Form W–8EXP is the name of an entity

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designated as an international organization
by executive order pursuant to 22 United
States Code 288 through 288(f). If an
international organization is not claiming
benefits under section 892 of the Code but
under another Code exception, the provisions of Section 4.02 of this Agreement
apply rather than the provisions of this
Section 4.04.
Sec. 4.05. Documentation for
Foreign Governments and Foreign
Central Banks of Issue.
(A) Documentation For a Foreign
Government or Foreign Central Bank
of Issue Claiming an Exemption From
Withholding Under Section 892 or
Section 895. WT may not treat a direct
beneficiary or owner as a foreign government or foreign central bank of issue
exempt from withholding under section
892 or 895 of the Code unless—
(1) WT receives from the direct beneficiary or owner a Form W-8EXP establishing that the direct beneficiary or owner is a
foreign government or foreign central bank
of issue;
(2) The income distributed to, or included in the distributive share of, the direct beneficiary or owner is the type of income that qualifies for an exemption from
withholding under section 892 or 895; and
(3) WT does not know, or have reason to
know, that the direct beneficiary or owner
is a controlled commercial entity, that the
income owned by the foreign government
or foreign central bank of issue is being received from a controlled commercial entity, or that the income is from the disposition of an interest in a controlled commercial entity.
(B) Treaty Exemption. WT may not
treat a direct beneficiary or owner as a foreign government or foreign central bank of
issue entitled to a reduced rate of withholding under an income tax treaty unless it obtains a Form W–8BEN that, under Section
4.03 of this Agreement, is sufficient to obtain a reduced rate of withholding under a
treaty.
(C) Other Code Exception. If a foreign government or foreign central bank
of issue is not claiming benefits under section 892 or 895 of the Code but under another Code exception (e.g., the portfolio
interest exception under sections 871(h) or

2003-32 I.R.B.

881(c) of the Code), the provisions of Section 4.02 of this Agreement apply rather
than the provisions of this Section 4.05.
Sec. 4.06. Documentation for
Foreign Tax-Exempt Organizations.
(A) Reduced Rate of Withholding
Under Section 501. WT may not treat a
direct beneficiary or owner as a foreign organization described under section 501(c)
of the Code, and therefore exempt from
withholding (or, if the direct beneficiary
or owner is a foreign private foundation,
subject to withholding at a 4-percent rate
under section 1443(b) of the Code) unless
WT obtains a valid Form W–8EXP with
Part III of the form properly completed.
(B) Treaty Exemption. WT may not
treat a direct beneficiary or owner as a foreign organization that is tax exempt, or entitled to a reduced rate of withholding under an income tax treaty unless WT obtains a Form W-8BEN from the beneficiary or owner that, under Section 4.03 of
this Agreement, is sufficient to obtain a reduced rate of withholding under a treaty.
(C) Other Exceptions. If a tax-exempt entity is not claiming a reduced rate
of withholding because it is an organization described under section 501(c) of the
Code or under an income tax treaty, but is
claiming a reduced rate of withholding under another Code exception, the provisions
of Section 4.02 of this Agreement apply
rather than the provisions of this Section
4.06.
Sec.
4.07.
Documentation for
Passthrough Beneficiaries or Owners.
Except as provided in Section 10 of this
Agreement, WT shall not act as a withholding foreign trust with respect to an
amount subject to withholding distributed
to, or included in the distributive share
of, a passthrough beneficiary or owner,
as defined in Section 2.25 of this Agreement. WT must forward that passthrough
beneficiary’s or owner’s documentation
(and associated withholding statement and
documentation of indirect beneficiaries
or owners) to the withholding agent from
whom WT receives the amount subject to
withholding. WT may act as a withholding foreign trust with respect to amounts
subject to withholding distributed to, or
included in the distributive share of, beneficiaries or owners that are themselves

2003-32 I.R.B.

withholding foreign trusts or withholding
foreign partnerships.
Sec. 4.08. Documentation for U.S.
Exempt Recipients. WT shall not treat a
beneficiary or owner as a U.S. exempt recipient unless WT obtains from the beneficiary or owner a Form W–9 on which
the beneficiary or owner writes “Exempt”
in Part II of the form.
Sec. 4.09. Documentation for U.S.
Non-Exempt Recipients. WT shall not
treat a beneficiary or owner as a U.S.
non-exempt recipient unless WT obtains a
Form W–9 from the beneficiary or owner.
Sec. 4.10. Documentation Validity.
WT may not rely on Forms W–8 or W–9
if WT has actual knowledge or reason to
know that the information or statements
contained in the forms are unreliable or incorrect. Once WT knows, or has reason to
know, that a Form W–8 or W–9 provided
by a direct beneficiary or owner is unreliable or incorrect, WT must obtain a new
Form W–8 or W–9 prior to the time withholding is required
(A) Form W–8. WT may rely on
a properly completed Form W–8 until
its validity expires under Treas. Reg.
§ 1.1441–1(e)(4)(ii).
(B) Form W–9. WT may rely on a
properly completed Form W–9 as long as
it has not been informed by the IRS or
another withholding agent that the form is
unreliable.
Sec. 4.12. Maintenance and
Retention of Documentation.
(A) Maintaining Documentation. WT
shall maintain Forms W–8 and W–9 by retaining the original documentation, a certified copy, a photocopy or a microfiche, or
by electronic storage or similar means of
record retention.
(B) Retention Period. WT shall retain
a direct beneficiary's or owner's Form W–8
or W–9 obtained under this Section 4 for as
long as it may be relevant to the determination of WT's tax liability under this Agreement.
SECTION 5. WITHHOLDING
FOREIGN TRUST WITHHOLDING
CERTIFICATE
Sec. 5.01. WT Withholding Certificate. WT agrees to furnish a withholding foreign trust withholding certificate to

327

each withholding agent from which it receives amounts subject to NRA withholding as a withholding foreign trust. The
withholding foreign trust withholding certificate is a Form W–8IMY (or acceptable
substitute form) that certifies that WT is
acting as a withholding foreign trust, contains WT's WT-EIN, and provides all other
information required by the form. WT is
not required to disclose, as part of that
Form W–8IMY or its withholding statement, any information regarding the identity of a direct beneficiary or owner.
Sec. 5.02. Withholding Statement.
WT agrees to provide to each withholding
agent from which WT receives amounts
subject to NRA withholding as a withholding foreign trust a written statement (the
“withholding statement”) identifying the
amounts for which WT acts as a withholding foreign trust. The statement forms an
integral part of the Form W–8IMY. The
withholding statement may be provided in
any manner, and in any form, to which WT
and the withholding agent mutually agree.
Sec. 5.03. Withholding Rate Pools.
When it is acting as a withholding foreign trust, WT must assume withholding
responsibility for amounts subject to withholding that are distributed to, or included
in the distributive shares of, its direct beneficiaries or owners. Accordingly, withholding rate pool information is not required as part of WT's withholding statement.
SECTION 6. TAX RETURN
OBLIGATIONS
Sec. 6.01. Form 1042 Filing
Requirement.
(A) In General. WT shall file a return
on Form 1042, whether or not WT withheld any amounts under chapter 3 of the
Code, on or before March 15 of the year
following any calendar year in which WT
acts as a withholding foreign trust. In addition to the information specifically requested on Form 1042 and the accompanying instructions, WT shall attach a statement setting forth the amounts of any overwithholding or underwithholding adjustments made under Treas. Reg. § 1.1461–2
and Sections 7.01 and 7.03 of this Agreement, and an explanation of the circumstances that resulted in the over- or underwithholding.

August 11, 2003

(B) Extensions for Filing Returns.
WT may request an extension of the time
for filing Form 1042, or any of the information required to be attached to the form,
by submitting Form 2758, Application for
Extension of Time to File Certain Excise,
Income, Information, and Other Returns,
on or before the due date of the return. The
application shall be in writing, properly
signed by a duly authorized agent of WT,
and shall clearly set forth the following:
(1) The calendar year for which the extension is requested; and
(2) A full explanation of the reason(s)
for requesting the extension, to assist the
IRS in determining the period of extension,
if any, that will be granted.
Sec. 6.02. Form 1042–S Reporting:
General Rule. Unless WT has made a
pooled reporting (PR) election pursuant to
Section 6.03 of this Agreement, WT is required to file separate Forms 1042–S for
each direct beneficiary or owner to whom
WT distributes, or in whose distributive
share is included, an amount subject to
NRA withholding. WT must file separate
Forms 1042–S by income code, exemption
code, recipient code, and withholding rate.
WT must file its Forms 1042–S in the manner required by the regulations under chapter 3 of the Code and the instructions to the
form, including any requirement to file the
forms magnetically or electronically. Any
Form 1042–S required by this Section 6
shall be filed on or before March 15 following the calendar year in which withholding, if any, was required under Section 3.02 of this Agreement. WT may request an extension of time to file Forms
1042–S by submitting Form 8809, Request
for Extension of Time to File Information
Returns, by the due date of Forms 1042–S
in the manner required by Form 8809.
Sec. 6.03. Form 1042–S Reporting:
Special Rule for PR Election. If WT has
made the PR election pursuant to this Section 6.03, WT is not required to file Forms
1042–S for amounts distributed to, or included in the distributive share of, each
separate direct beneficiary or owner for
whom such reporting would otherwise be
required. Instead, WT shall file a separate Form 1042–S for each reporting pool.
A reporting pool consists of income that
falls within a particular withholding rate

August 11, 2003

and within a particular income code, exemption code, and recipient code as determined on Form 1042–S. WT may use a single recipient code for all reporting pools
except for amounts paid to foreign tax-exempt recipients, for which a separate recipient code must be used. For this purpose, a
foreign tax-exempt recipient includes any
organization that is not subject to NRA
withholding and is not liable to tax in its
country of residence because it is a charitable organization, a pension fund, or a
foreign government. WT must make the
PR election at the time this Agreement is
executed by signing the election statement
on the signature page of this Agreement.
Once made, the PR election remains in effect for the entire term of this Agreement
beginning on the date the Agreement becomes effective and ending on the date of
its expiration or termination under Section
9 of this Agreement. WT must make a
new election for each renewal term of this
Agreement. If WT makes the PR election,
WT cannot revoke it prior to the end of the
term for which WT has made the PR election. If WT did not make the PR election
at the time this Agreement was executed,
then WT may make a PR election only
by terminating this Agreement pursuant to
Section 9.03 and requesting to enter into a
new withholding foreign trust agreement.
Sec. 6.04. Form 3520–A Filing Requirements. If WT is required to file Form
3520–A under section 6048 of the Code,
then WT shall file Form 3520–A and furnish any required statements to U.S. beneficiaries or owners in accordance with the
instructions for the form.
Sec. 6.05. Retention of Returns. WT
shall retain 1042 and Form 3520–A, if required, for the period of the applicable
statute of limitations on assessments and
collection under the Code.
SECTION 7. ADJUSTMENTS
FOR OVER- AND
UNDER-WITHHOLDING; REFUNDS
Sec. 7.01. Adjustments for NRA
Overwithholding by WT. WT may make
an adjustment for amounts paid to its
direct beneficiaries or owners that it has
overwithheld under chapter 3 of the Code
by applying either the reimbursement or
set-off procedures described in this section

328

within the time period prescribed for those
procedures.
(A) Reimbursement Procedure. WT
may repay its beneficiaries or owners for
an amount overwithheld and reimburse itself by reducing, by the amount of tax actually repaid to the beneficiaries or owners,
the amount of any subsequent deposit of
tax required to be made by WT under Section 3.04 of this Agreement. For purposes
of this Section 7.01(A), an amount that is
overwithheld shall be applied in order of
time to each of WT's subsequent deposit
periods in the same calendar year to the extent that the withholding taxes required to
be deposited for a subsequent deposit period exceed the amount actually deposited.
An amount overwithheld in a calendar year
may be applied to deposit periods in the
calendar year following the calendar year
of overwithholding only if—
(1) WT states on a Form 1042–S, filed
by March 15 of the calendar year following
the calendar year of overwithholding, the
amount of tax withheld and the amount of
any actual repayments; and
(2) WT states on a Form 1042, filed by
March 15 of the calendar year following
the calendar year of overwithholding, that
the filing of the Form 1042 constitutes a
claim for credit in accordance with Treas.
Reg. § 1.6414–1.
(B) Set-Off Procedure. WT may repay
its beneficiaries or owners by applying the
amount overwithheld against any amount
which otherwise would be required under chapter 3 of the Code to be withheld
by WT before the earlier of March 15 of
the calendar year following the calendar
year of overwithholding or the date that
the Form 1042–S is actually filed with the
IRS. For purposes of making a return on
Form 1042 or 1042–S for the calendar year
of overwithholding, and for purposes of
making a deposit of the amount withheld,
the reduced amount shall be considered the
amount required to be withheld from such
income under chapter 3 of the Code.
Sec. 7.02. Collective Credit or
Refund Procedures for NRA Overwithholding. If WT has made a PR election
and it has overwithheld under chapter 3
of the Code on amounts subject to NRA
withholding paid to WT's direct beneficiaries or owners during a calendar year and
the amount has not been recovered under
the reimbursement or set-off procedures

2003-32 I.R.B.

under Section 7.01 of this Agreement,
WT may request a credit or refund of the
total amount overwithheld by following
the procedures of this Section 7.02. WT
shall follow the procedures set forth under sections 6402 and 6414 of the Code,
and the regulations thereunder, to claim
the credit or refund. No credit or refund
will be allowed after the expiration of the
statutory period of limitation for refunds
under section 6511 of the Code. WT may
use the collective refund procedures under
this Section 7.02 only if the following
conditions are met:
(A) WT must not have issued Forms
1042–S to the direct beneficiaries or owners who were subject to overwithholding;
(B) WT must submit, together with its
amended return on which it claims a credit
or refund, a statement of the reason for the
overwithholding;
(C) WT must submit, together with its
amended return on which it claims a credit
or refund, a statement that it has repaid the
amount of overwithholding to the appropriate direct beneficiaries or owners prior
to filing the claim for credit or refund; and
(D) WT must retain a record showing
that it repaid the direct beneficiaries or
owners the amount of the overwithholding.
Sec. 7.03. Adjustments for NRA Underwithholding. If WT knows that an
amount should have been withheld under
chapter 3 of the Code from a previous payment to a direct beneficiary or owner but
was not withheld, WT may either withhold
from future payments made to the same
direct beneficiary or owner or satisfy the
tax from the direct beneficiary's or owner's
proportionate share of assets over which
it has control. The additional withholding
or satisfaction of the tax owed may only
be made before the due date of the Form
1042 (not including extensions) for the calendar year in which the underwithholding
occurred.
Sec. 7.04. NRA Underwithholding
after Form 1042 Filed. If, after a Form
1042 has been filed for a calendar year,
WT, WT's external auditor, or the IRS determines that, due to WT's failure to carry
out its obligations under this Agreement,
WT has underwithheld tax for such year,
WT shall file an amended Form 1042 to report and pay the underwithheld tax. WT
shall pay the underwithheld tax, the interest due on the underwithheld tax, and

2003-32 I.R.B.

any applicable penalties, at the time of filing the amended Form 1042. If WT fails
to file an amended return, the IRS shall
make such return under section 6020 of the
Code.
Sec. 7.05. Special Rule Regarding
Failure to Deposit Penalties. Solely for
purposes of applying section 6656 of the
Code (failure to make deposit of taxes),
WT will not be considered to have made an
underpayment of a deposit of NRA withholding taxes if the conditions of this paragraph are met. The conditions of this paragraph are that—
(A) WT makes its deposits within the
time (deposit period) required by section
6302 of the Code;
(B) The deposit is not less than 90 percent of the aggregate amount of the tax required to be withheld under chapter 3 of
the Code during the deposit period applicable to WT; and
(C) WT determines the difference between the total amount required to be deposited and the amount actually deposited
as of the end of the 3rd, 6th, 9th, and
12th months of the calendar year and the
difference is deposited no later than the
15th day of the second following month
(i.e., May 15, August 15, November 15 and
February 15, respectively). In determining
whether there has been an underpayment,
reimbursements and set-offs shall be taken
into account.
SECTION 8. EXTERNAL AUDIT
PROCEDURES
Sec. 8.01. In General. Unless WT
requests an IRS audit in lieu of an external audit, the IRS agrees not to conduct an
on-site audit of WT with respect to withholding and reporting obligations covered
by this Agreement provided that an external auditor designated in Appendix A of
this Agreement conducts an audit of WT in
accordance with this Section 8. WT shall
permit the external auditor to have access
to all relevant records of WT for purposes
of performing the external audit, including information regarding specific beneficiaries or owners. WT shall permit the IRS
to communicate directly with the external
auditor and to review the audit procedures
followed by the external auditor. WT represents that there are no legal prohibitions

329

that prevent the external auditor from examining any information relevant to the external audit to be performed under this Section 8 and that there are no legal prohibitions that prevent the IRS from communicating directly with the auditor. WT shall
permit the IRS to examine the external auditor’s work papers and reports.
Sec. 8.02. Designation of External
Auditor. WT's external auditor must be
one of the auditors listed in Appendix A
of this Agreement, unless WT and the IRS
agree, prior to the audit, to substitute another auditor. WT shall not propose an external auditor unless it has a reasonable belief that the auditor is subject to laws, regulations, or rules that impose sanctions for
failure to exercise its independence and to
perform the audit competently. The IRS
has the right to reject a proposed external
auditor, or to revoke its acceptance of an
external auditor, if the IRS, in its sole discretion, reasonably believes that the auditor is not independent or cannot perform an
effective audit under this Agreement.
Sec. 8.03. Timing of External Audits:
General Rule. Unless WT has made a
PR election, WT shall have the external
auditor conduct an external audit only at
such time and only for such calendar years
as the IRS directs.
Sec. 8.04. Timing of External Audits:
Special Rule for PR Election.
(A) If WT has made a PR election and
the term of this Agreement is determined
under Section 9.02(A), WT shall have the
external auditor conduct an audit of the
second full calendar year and the fifth full
calendar year that this Agreement is in effect.
(B) If WT has made a PR election and
the term of this Agreement is determined
under Section 9.02(B), WT shall have the
external auditor conduct an audit after the
close of every other calendar year that this
Agreement is in effect. The auditor shall
examine the two previous calendar years.
For example, the first audit will occur in
the third calendar year that the Agreement
is in effect and the external auditor will
examine calendar years one and two.
Sec. 8.05. Scope of External Audit. The external auditor shall verify
whether WT is in compliance with this
Agreement by conducting an audit that
meets the requirements of this Section
8.05. The report, described in Section

August 11, 2003

8.06 of this Agreement, must disclose that
the external auditor has, at a minimum,
performed the following checks listed
in this Section 8.05, and set forth how
each of those checks was performed and
the results of the checks. WT's external
auditor is encouraged to contact the IRS
at the address set forth in Section 11.06 of
this Agreement and submit an audit plan
(which includes, if relevant, the extent to
which the external auditor proposes to rely
on WT's internal audit procedures) prior
to performing the audit so that the audit
may be conducted in the most efficient
and least costly manner possible.
(A) Documentation. The external auditor must review information contained
in beneficiary or owner files to determine
whether the documentation requirements
of Section 4 of this Agreement are being
met.
(B) Withholding Responsibilities.
The external auditor must—
(1) Perform test checks of direct beneficiaries or owners, to verify that WT is
withholding the proper amounts.
(2) Verify that amounts withheld were
timely deposited in accordance with Section 3.04 of this Agreement.
(C) Return Filing and Information
Reporting. The external auditor must—
(1) Obtain copies of original and
amended Forms 1042, and any schedules,
statements, or attachments required to
be filed with those forms, and determine
whether the amounts of income, taxes, and
other information reported on those forms
are accurate by—
(i) Reviewing work papers;
(ii) Reviewing Forms W–8IMY, together with the associated withholding
statements, that WT has provided to withholding agents;
(iii) Reviewing copies of Forms 1042–S
received from withholding agents;
(iv) Reviewing account statements from
withholding agents;
(v) Reviewing correspondence between
WT and withholding agents; and
(vi) Interviewing personnel responsible
for preparing the Form 1042 and the work
papers used to prepare those forms.
(2) Obtain copies of original and
amended Forms 1042–S and Forms
3520–A together with the work papers
used to prepare those forms and determine

August 11, 2003

whether the amounts reported on those
forms are accurate by—
(i) Reviewing the Forms 1042–S received from withholding agents;
(ii) Reviewing a valid sample of earnings statements issued by WT to direct
beneficiaries or owners, if any.
(3) Thoroughly review the statements
attached to amended Forms 1042 filed to
claim a refund, ascertain their veracity, and
determine the causes of any overwithholding reported and ensure WT did not issue Forms 1042–S to persons whom it included as part of its collective credit or refund.
(4) Determine, in the case of collective
credits or refunds, that WT repaid the appropriate beneficiaries or owners prior to
requesting a collective credit or refund.
(E) Change in Circumstances. The
external auditor must verify that in the
course of the audit it has not discovered
any significant change in circumstances, as
described in Section 9.05 (A) or (D) of this
Agreement.
Sec. 8.06. External Auditor's Report.
Upon completion of the audit of WT, the
external auditor shall issue a report, or reports, of audit findings directly to the IRS
by sending the original report to the IRS
at the address set forth in Section 11.06 of
this Agreement. This report is due by December 31 following the calendar year being audited, or if that date falls on a Saturday or Sunday, the next U.S. business day.
The IRS may, however, upon request by
the external auditor, extend the due date
of the audit report upon good cause. The
report must be in writing, in English, and
currency amounts must be stated in U.S.
dollars. The report must fully describe the
scope of the audit, the methodologies (including sampling techniques) used to determine whether WT is in compliance with
the provisions of this Agreement, and the
result of each such determination. The report must also specifically address each of
the items in Section 8.05 of this Agreement.
Sec. 8.07. Expanding Scope and
Timing of External Audit. Upon review
of the external auditor's report, the IRS
may request, and WT must permit, the external auditor to perform additional audit
procedures.

330

SECTION 9. EXPIRATION,
TERMINATION AND DEFAULT
Sec. 9.01. Term of Agreement: General Rule. If WT has not made a PR election, this Agreement shall be in effect on
and shall continue in force until
the earlier of the date WT terminates under
the trust instrument or the date WT is terminated under 9.03 or 9.04 of this Agreement.
Sec. 9.02. Term of Agreement:
Special Rule for PR Election.
(A) If WT has made a PR election, unless WT elects the special term pursuant to
Section 9.02(B), this Agreement shall be
in effect on
and shall expire on
the earlier of the date WT terminates under the trust instrument or December 31 of
the fifth full calendar year after the year
in which this Agreement first takes effect.
This Agreement may be renewed for additional terms as provided in Section 9.08 of
this Agreement.
(B) If WT has made a PR election, and
WT elects the special term pursuant to this
Section 9.02(B), this Agreement shall be
in effect on
and shall expire on
the earlier of the date WT terminates under
the trust instrument or December 31 of the
fourteenth full calendar year after the year
in which this Agreement first takes effect.
If WT elects the special term, this Agreement is not renewable. WT must make
the special term election under this Section
9.02(B) at the time this Agreement is executed by signing the election statement on
the signature page of this Agreement.
Sec. 9.03. Termination of Agreement. This Agreement may be terminated by either the IRS or WT prior to
the end of its term by delivery of a notice
of termination to the other party in accordance with Section 11.06 of this Agreement. The IRS, however, shall not terminate the Agreement unless there has been a
significant change in circumstances, as defined in Section 9.05 of this Agreement, or
an event of default has occurred, as defined
in Section 9.06 of this Agreement, and the
IRS determines, in its sole discretion, that
the significant change in circumstances or
the event of default warrants termination of
this Agreement. In addition, the IRS shall
not terminate this Agreement in the event

2003-32 I.R.B.

of default if WT can establish to the satisfaction of the IRS that all events of default for which it has received notice have
been cured within the time period agreed
upon. The IRS shall notify WT, in accordance with Section 9.07 of this Agreement, that an event of default has occurred
and that the IRS intends to terminate the
Agreement unless WT cures the default. A
notice of termination sent by either party
shall take effect on the date specified in the
notice.
(A) Automatic Termination. Notwithstanding Section 9.03 of this Agreement,
this Agreement will terminate automatically in the event that the external auditor
or the IRS on audit discovers that WT was
not in possession of Forms W–8 or W–9,
as applicable, for any direct beneficiary or
owner at any time that withholding or reporting was required under Section 3.02 of
this Agreement. The automatic termination will be effective as of December 31 of
the year in which the external auditor or the
IRS makes that discovery. The automatic
termination rules of this Section 9.04(A)
shall not apply in the case of indirect beneficiaries or owners that are treated as direct
beneficiaries or owners of WT under Section 10 of this Agreement.
(B) Cure and Reinstatement. This
Agreement will be reinstated, effective the
same date it automatically terminated under Section 9.04(A) of this Agreement,
if—
(1) WT obtains appropriate Forms W–8
or W–9 (that relate to the time withholding or reporting was required) for each
such undocumented beneficiary or owner
before March 15 of the year following the
year in which the Agreement automatically terminated, or
(2) All such undocumented beneficiaries or owners have ceased to be beneficiaries or owners in WT before March 15
of the year following the year in which the
Agreement automatically terminated.
(C) Payment of Underwithholding
and Reporting upon Termination. In
the event of automatic termination of
this Agreement under this Section 9.04,
WT must pay any underwithholding of
tax, interest, and penalties that the IRS
determines is attributable to each undocumented direct beneficiary or owner for
the period during which the beneficiary or
owner was undocumented, and, if WT has

2003-32 I.R.B.

made a PR election, WT must file Forms
1099, or beneficiary or owner specific
Forms 1042–S reporting the names and
addresses and other required information,
as appropriate, for every undocumented
direct beneficiary or owner from the earliest time the Form W–8 or W–9 was
required for that undocumented direct
beneficiary or owner through the date of
termination. WT may, however, continue
to report on a pooled basis for documented
foreign direct beneficiaries or owners
through this period.
(D) Reinstatement after Termination.
After the date of automatic termination of
this Agreement, WT may not act as a withholding foreign trust, and must so notify
any persons to which WT has furnished a
withholding foreign trust certificate. After the date of automatic termination of
this Agreement, the IRS may reinstate this
Agreement (or the IRS may require WT to
enter into a new withholding foreign trust
agreement) on such terms and conditions
and with such modifications as the IRS
may determine.
Sec. 9.05. Significant Change in
Circumstances. For purposes of this
Agreement, a significant change in circumstances includes, but is not limited
to—
(A) A change in U.S. federal law or policy, or applicable foreign law or policy, that
affects the validity of any provision of this
Agreement, materially affects the procedures contained in this Agreement, or affects WT's ability to perform its obligations under this Agreement;
(B) A ruling of any court that affects
the validity of any provision of this Agreement; or
(C) A significant change in WT's business practices that affects WT's ability to
meet its obligations under this Agreement.
Sec. 9.06. Events of Default. For
purposes of this Agreement, an event of
default occurs if WT fails to perform any
material duty or obligation required under
this Agreement, and includes, but is not
limited to, the occurrence of any of the
following:
(A) WT fails to implement adequate
procedures, accounting systems, and internal controls to ensure compliance with this
Agreement;
(B) WT underwithholds an amount that
WT is required to withhold under chapter

331

3 of the Code and fails to correct the underwithholding or to file an amended Form
1042 reporting, and paying, the appropriate tax;
(C) WT makes excessive refund claims;
(D) WT fails to file Forms 1042,
1042–S, 3530–A (if required), 1041 (if
required), and Schedules K–1 (if required)
by the due date specified on such forms or
files forms that are materially incorrect or
fraudulent;
(E) WT fails to have an external audit
performed when required, WT's external
auditor fails to provide its report directly
to the IRS on a timely basis, WT fails to
cooperate with the external auditor, or WT
or its external auditor fails to cooperate
with the IRS;
(F) WT fails to inform the IRS within
90 days of any significant change in its
business practices to the extent that change
affects WT's obligations under this Agreement;
(G) WT fails to cure a default identified
by the IRS or by an external auditor;
(H) WT makes any fraudulent statement or a misrepresentation of material
fact with regard to this Agreement to the
IRS, a withholding agent, or WT's external auditor;
(I) The IRS determines that WT's external auditor is not sufficiently independent
to adequately perform its audit function or
the external auditor fails to provide an audit report that complies with Section 8 of
this Agreement;
(J) WT is prohibited by any law from
disclosing the identity of a beneficiary or
owner or beneficiary or owner information
to WT's external auditor;
(K) WT fails to make deposits in the
time and manner required by Section 3.04
of this Agreement or fails to make adequate deposits, taking into account the procedures of 7.05 of this Agreement; or
(L) WT fails to permit the external auditor to perform additional audit procedures
under the provisions of Section 8.07 of this
Agreement.
Sec. 9.07. Notice and Cure. Upon
the occurrence of an event of default, the
IRS may deliver to WT a notice of default specifying the event of default that
has occurred. WT shall respond to the notice of default within 60 days (60-day response) from the date of the notice of default. The 60-day response shall contain

August 11, 2003

an offer to cure the event of default and the
time period in which the cure will be accomplished or shall state the reasons why
WT does not agree that an event of default has occurred. If WT does not provide
a 60-day response, the IRS may deliver a
notice of termination as provided in Section 9.03 of this Agreement. If WT provides a 60-day response, the IRS shall either accept or reject WT's statement that
no default has occurred or accept or reject
WT's proposal to cure an event of default.
If the IRS rejects WT's contention that no
default has occurred or rejects WT's proposal to cure a default, the IRS will offer
a counter-proposal to cure the event of default. Within 30 days of receiving the IRS's
counter-proposal, WT shall notify the IRS
(30-day response) whether it continues to
maintain that no default has occurred or
whether it rejects the IRS's counter-proposal to cure an event of default. If WT's
30-day response states that no default has
occurred or it rejects the IRS's counter-proposal to cure, the parties shall seek to resolve their disagreement within 30 days of
the IRS's receipt of WT's 30-day response.
If a satisfactory resolution has not been
achieved at the end of this latter 30-day period, or if WT fails to provide a 30-day response, the IRS may terminate this Agreement by providing a notice of termination
in accordance with Section 9.03 of this
Agreement. If WT receives a notice of termination from the IRS, it may appeal the
determination within 30 days of the date of
the notice of termination by sending a written notice to the address specified in Section 11.06 of this Agreement. If WT appeals the notice of termination, this Agreement shall not terminate until the appeal
has been decided. If an event of default
is discovered in the course of an external
audit, the WT may cure the default, without following the procedures of this Section 9.07, if the external auditor's report describes the default and the actions that WT
took to cure the default and the IRS determines that the cure procedures followed by
WT were sufficient. If the IRS determines
that WT's actions to cure the default were
not sufficient, the IRS shall issue a notice
of default and the procedures described in
this Section 9.07 shall be followed.
Sec. 9.08. Renewal. If WT has made
the PR election under Section 6.03 of
this Agreement and intends to renew this

August 11, 2003

Agreement for an additional term, it shall
submit an application for renewal to the
IRS no earlier than one year and no later
than six months prior to the expiration
of this Agreement. Any such application
for renewal must contain an update of
the information provided by WT to the
IRS in connection with the application to
enter into this Agreement, and any other
information the IRS may request in connection with the renewal process. This
Agreement shall be renewed only upon the
signatures of both WT and the IRS. Either
the IRS or WT may seek to negotiate a
new withholding foreign trust agreement
rather than renew this Agreement.
SECTION 10. CERTAIN
PARTNERSHIPS AND TRUSTS
Sec. 10.01. Certain Smaller Partnerships and Trusts. WT may not apply the rules of this Section 10.01 unless
it has made a PR election under Section
6.03 of this Agreement. WT may apply
the rules of this Section 10.01 only to a
partnership or trust that meets the following conditions: (i) the partnership or trust
is a foreign partnership or foreign simple
or grantor trust, (ii) the partnership or trust
is a direct partner, beneficiary or owner of
WT, (iii) none of the partners, beneficiaries or owners of the partnership or trust
is a U.S. person or a passthrough partner,
beneficiary or owner, and (iv) the total reportable amounts distributed to, and included in the distributive share of, the partnership or trust for the calendar year do not
exceed $200,000. In applying this Section
10.01, WT must treat the partners of such
a partnership or the beneficiaries or owners of such a trust as direct beneficiaries or
owners of WT under this Agreement. To
apply this Section 10.01, WT and the partnership or trust must comply with all of the
rules listed below.
(1) WT and the partnership or trust must
agree in writing that the partnership or trust
will make available to WT’s auditor for
purposes of WT’s audit under Section 8 of
this Agreement records that establish that
the partnership or trust has provided WT
with documentation for all of its partners,
beneficiaries or owners.

332

(2) The partnership or trust must
provide to WT a Form W–8IMY, together with Forms W–8 from each partner, beneficiary or owner, and a withholding statement, under Treas. Reg.
§ 1.1441–5(c)(3)(iv) or (e)(5)(iv), that
provides information for all partners, beneficiaries or owners. The withholding
statement, however, need not provide any
allocation information.
(3) WT must treat amounts distributed
to, or included in the distributive share of,
the partnership or trust as allocated solely
to any partner, beneficiary or owner that is
subject to the highest rate of withholding
and must withhold at that rate.
(4) WT may include amounts distributed to, or included in the distributive
share of, a partnership or trust under Section 10.01(3) in its Form 1042–S reporting
pools for direct account holders under
Section 6.03 of this Agreement.
(5) After WT has withheld in accordance with Section 10.01(3) above, it may
file a separate Form 1042–S for any partner, beneficiary or owner who requests
that it do so. WT may do so only if the
partnership or trust provides a withholding statement that includes allocation information for the requesting partner, beneficiary or owner and only if the partnership
or trust has agreed in writing under Section
10.01(1) to make available to WT’s external auditor records that substantiate the allocation information included in its withholding statement.
(6) WT may not include any amounts
distributed to, or included in the distributive share of, a partnership or trust to which
the WT is applying the rules of this Section
10.01 in any collective refund claim made
under Section 7.02 of this Agreement.
(7) WT and a partnership or trust that
apply this Section 10.01 to any calendar
year are not required to apply this Section
10.01 to subsequent calendar years. WT
and a partnership or trust that apply this
Section 10.01 to any calendar year must
apply these rules to the calendar year in its
entirety.
(8) WT and the partnership or trust may
not apply this Section 10.01 to any calendar year for which the partnership or
trust has failed to make available to WT’s
auditor the records described in Section
10.01(1) within 90 days after these records
are requested. If the partnership or trust
has failed to make these records available

2003-32 I.R.B.

within the 90-day period, or if WT and the
partnership or trust fail to comply with any
other requirement of this Section 10.01,
WT must apply Treas. Reg. § 1.1441–1
and 1.1441–5 to the partnership or trust,
must correct its withholding, and must file
corrected Forms 1042 and 1042–S.
Sec. 10.02. Certain Related Partnerships and Trusts. WT may not apply the rules of this Section 10.02 unless
it has made a PR election under Section
6.03 of this Agreement. WT may apply
the rules of this Section 10.02 only to a
partnership or trust that meets the following conditions: (1) the partnership or trust
is a foreign partnership or foreign simple
or grantor trust; (2) the partnership or trust
is either (i) a direct beneficiary or owner
of WT or (ii) an indirect beneficiary or
owner of WT that is a partner, beneficiary
or owner of a partnership or trust to which
WT has also applied this Section 10.02;
and (3) the WT is a general partner of
the partnership or a trustee of the trust.
WT may not apply this Section 10.02 to
indirect partners, beneficiaries or owners
of such partnerships or trusts, or to direct
partners, beneficiaries or owners of such
partnerships or trusts that are intermediaries, flow-through entities or U.S. nonexempt recipients. See Section 10.02(5) of
this Agreement. To apply this Section
10.02, WT and the partnership or trust
must comply with all of the rules listed below.
(1) WT and the partnership or trust must
enter into a written agreement under which
the partnership or trust agrees:
(a) To act as an agent of WT with respect to its partners, beneficiaries or owners, and, as WT’s agent, to apply the provisions of the WT Agreement to its partners,
beneficiaries or owners,
(b) To treat its direct partners, beneficiaries or owners as direct beneficiaries or
owners of WT under the WT Agreement
and to treat its indirect partners, beneficiaries or owners as indirect partners of WT
under the WT Agreement, and
(c) To make available, upon request, to
WT’s auditor, for purposes of WT’s audit under Section 8 of the WT Agreement,
records that establish its compliance with
all of the rules listed under this Section
10.02.
(2) By entering into an agreement with
a partnership or trust under paragraph (1)

2003-32 I.R.B.

of this Section 10.02, WT is not assigning its liability for the performance of any
of its obligations under this Agreement.
WT and the partnership or trust to which
WT applies the rules of this Section 10.02,
are jointly and severally liable for any tax,
penalties and interest that may result from
the failure of the partnership or trust to
meet any of the obligations imposed by its
agreement with WT.
(3) The partnership or trust must provide to WT a Form W–8IMY together
with a withholding statement, under Treas.
Reg. § 1.1441–5(c)(3)(iv) or (e)(5)(iv),
that includes all information necessary for
WT to fulfill its withholding, reporting and
filing obligations under this Agreement.
The withholding statement may include
pooled basis information regarding direct
partners, beneficiaries or owners that are
not intermediaries, flow-through entities
or U.S. non-exempt recipients. The partnership or trust need not provide to WT
documentation for partners, beneficiaries
or owners, except as provided under Section 10.02(1)(c).
(4) WT must withhold on the date an
amount is distributed to or included in the
distributive share of a foreign partnership
or trust based on the withholding statement provided by the partnership or trust.
The amount allocated to each partner,
beneficiary or owner in the withholding
statement may be based on a reasonable
estimate of the partner’s, beneficiary’s
or owner’s distributive share of income
subject to withholding for the year. The
partnership or trust must correct the estimated allocations to reflect the partner’s,
beneficiary’s or owner’s actual distributive share and must provide this corrected
information to WT on the earlier of the
date that the statement required under section 6031(b) of the Code (schedule K–1)
is mailed or otherwise provided to the
partner or the due date for furnishing the
statement (whether or not the partnership
or trust is required to prepare and furnish
the statement). If that date is after the due
date for WT’s Forms 1042 and 1042–S
(without regard to extensions) for the calendar year, WT may withhold and report
any adjustments required by the corrected
information in the following calendar year.
(5) WT must file separate Forms
1042–S reflecting pooled basis information for each partnership or trust that has
provided pooled basis information in its

333

withholding statement. WT must apply
the provisions of Treas. Reg. § 1.1441–1
and 1.1441–5 to partners, beneficiaries or
owners of such partnerships or trusts that
are indirect partners, beneficiaries or owners, and to direct partners, beneficiaries or
owners of such partnerships or trusts that
are intermediaries, flow-through entities
or U.S. nonexempt recipients.
(6) A partnership or trust to which WT
applies this Section 10.02 may not assume
primary NRA withholding responsibility, or primary Form 1099 reporting and
backup withholding responsibility.
(7) WT and a partnership or trust that
apply this Section 10.02 to any calendar
year must apply these rules to the calendar
year in its entirety. Generally, WT and a
partnership or trust that apply this Section
10.02 to any calendar year are not required
to apply this Section 10.02 to subsequent
calendar years. If, however, WT withholds and reports any adjustments required
by corrected information in a subsequent
calendar year under Section 10.02(4), WT
must apply this Section 10.02 to that calendar year in its entirety.
(8) WT and a partnership or trust may
not apply this Section 10.02 to any calendar year for which the partnership or
trust has failed to make available to WT’s
auditor the records described in Section
10.02(1)(c) within 90 days after these
records are requested. If, for any calendar
year, the partnership or trust has failed
to make these records available within
the 90-day period, or if WT and the partnership or trust fail to comply with any
other requirement of this Section 10.02,
WT must apply Treas. Reg. § 1.1441–1
and 1.1441–5 to the partnership or trust,
must correct its withholding, and must file
corrected Forms 1042 and 1042–S for the
calendar year.
SECTION 11. MISCELLANEOUS
PROVISIONS
Sec. 11.01. WT's application to become a withholding foreign trust and the
Appendix to this Agreement are hereby
incorporated into and made an integral
part of this Agreement. This Agreement,
WT's application, and the Appendix to
this Agreement constitute the complete
agreement between the parties.
Sec. 11.02. This Agreement may be
amended by the IRS if the IRS determines

August 11, 2003

that such amendment is needed for the
sound administration of the internal revenue laws or internal revenue regulations.
The Agreement may also be modified by
either WT or the IRS upon mutual agreement. Such amendments or modifications
shall be in writing.
Sec. 11.03. Any waiver of a provision
of this Agreement is a waiver solely of that
provision. The waiver does not obligate
the IRS to waive other provisions of this
Agreement or the same provision at a later
date.
Sec. 11.04. This Agreement shall be
governed by the laws of the United States.
Any legal action brought under this Agreement shall be brought only in a U.S. court
with jurisdiction to hear and resolve matters under the internal revenue laws of the
United States. For this purpose, WT agrees
to submit to the jurisdiction of such U.S.
court.
Sec. 11.05. WT's rights and responsibilities under this Agreement cannot be assigned to another person.
Sec. 11.06. Notices provided under this
Agreement shall be mailed registered, first
class airmail. Notice shall be directed as
follows:
To the IRS
Internal Revenue Service
LMSB:FS:QI
290 Broadway
New York, NY 10007–1867
USA
All notices sent to the IRS must include
the WT’s WT-EIN.
To WT:

APPENDIX 3
IN WITNESS WHEREOF, the
above parties have subscribed their
names to these presents, in duplicate.

Signed this

day of

,

(name and title of person
signing for WT)

(name and title of person
signing for IRS)
PR Election Statement – Six Year
Term

By signing hereunder, WT makes
the PR election with a term of
six years or until WT terminates,
whichever is earlier, under Sections
6.03 and 9.02 (A) of this Agreement.

(name and title of person
signing for WT)

PR Election Statement – Fifteen Year
Term

By signing hereunder, WT makes
the PR election with a term of 15 years
or until WT terminates, whichever is
earlier, under Sections 6.03 and 9.02
(B) of this Agreement.

(name and title of person
signing for WT)
Sec. 11.07. WT, acting in its capacity
as a withholding foreign trust or in any
other capacity, does not act as an agent of
the IRS, nor does it have the authority to
hold itself out as an agent of the IRS.

August 11, 2003

Appendix A
WT and the IRS agree that any of the
following auditors may be used by WT
to perform the external audits required by
Section 8 of this Agreement.
[Names, addresses, telephone and fax
numbers of external auditors.]

334

Amendment to Qualified Intermediary
Withholding Agreement
SECTION 4A. CERTAIN
PARTNERSHIPS AND TRUSTS
Sec. 4A.01. Certain Smaller Partnerships and Trusts. QI may apply the rules
of this Section 4A.01 to a partnership or
trust only if (i) it is a foreign partnership
or foreign simple or grantor trust, (ii) it
is a direct account holder of QI, (iii) none
of its partners, beneficiaries or owners is a
U.S. person or a passthrough partner, beneficiary or owner, as defined in Section 2.17
of the WP agreement and Section 2.25 of
the WT agreement, provided in Revenue
Procedure 2003–64, and (iv) the total reportable amounts that QI has paid to accounts of the partnership or trust that are
covered by the QI Agreement do not exceed $200,000 for the calendar year. To
apply this Section 4A.01, QI and the partnership or trust must comply with all of the
rules listed below.
(1) QI and the partnership or trust must
agree in writing that the partnership or
trust, upon request, will make available to
QI’s auditor for purposes of QI’s second
and fifth year audits under Section 10 of
the QI Agreement records that establish
that the partnership or trust has provided
QI with documentation all of its partners,
beneficiaries or owners.
(2) The partnership or trust must provide to QI a Form W–8IMY, together with
Forms W–8 or documentary evidence
listed in the know-your-customer (KYC)
attachment to the QI Agreement from
each partner, beneficiary or owner, and
a withholding statement, under Treas.
Reg. § 1.1441–5(c)(3)(iv) or (e)(5)(iv),
that provides information for all partners,
beneficiaries or owners. The withholding
statement, however, need not provide any
allocation information.
(3) QI must treat payments to the partnership or trust as allocated solely to any
partner, beneficiary or owner that is subject to the highest rate of withholding and
must withhold at that rate.
(4) QI may include payments made to a
partnership or trust under section 4A.01(3)
in its Form 1042–S reporting pools for direct account holders under Section 8.03 of
the QI Agreement.

2003-32 I.R.B.

(5) After QI has withheld in accordance
with Section 4A.01(3) above, it may file
a separate Form 1042–S for any partner,
beneficiary or owner who requests that it
do so. QI may do so only if the partnership
or trust provides a withholding statement
that includes allocation information for the
requesting partner beneficiary or owner
and only if the partnership or trust has
agreed in writing under Section 4A.01(1)
to make available to QI’s external auditor
records that substantiate that the allocation
information included in its withholding
statement.
(6) QI may not include any payments
made to a partnership or trust to which QI
is applying the rules of this Section 4A.01
in any collective refund claim made under
section 9.04 of the QI Agreement.
(7) QI and a partnership or trust that
apply this Section 4A.01 to any calendar
year are not required to apply this Section
4A.01 to subsequent calendar years. QI
and a partnership or trust that apply this
Section 4A.01 to any calendar year must
apply these rules to the calendar year in its
entirety.
(8) QI and the partnership or trust may
not apply this Section 4A.01 to any calendar year for which the partnership or
trust has failed to make available to QI’s
auditor the records described in Section
4A.01(1) within 90 days after these records
are requested. If the partnership or trust
has failed to make these records available
within the 90-day period, or if QI and the
partnership or trust fail to comply with any
other requirements of this Section 4A.01,
QI must apply the provisions of Treas.
Reg. § 1.1441–1 and 1.1441–5 to the partnership or trust, must correct its withholding, and must file corrected Forms 1042
and 1042–S.
Sec. 4A.02. Certain Related Partnerships and Trusts. QI may apply the rules
of this Section 4A.02 only to a partnership
or trust that is (1) a foreign partnership or
foreign simple or grantor trust; (2) either
(i) a direct account holder of QI or (ii) an
indirect account holder of QI that is a direct partner, beneficiary or owner of a partnership or trust to which QI has also applied this Section 4A.02; and (3) the QI,
or an affiliate of the QI, is a general partner of the partnership or a trustee of the
trust. QI may not apply the rules of this
Section 4A.02 to indirect partners, beneficiaries or owners of such a partnership

2003-32 I.R.B.

or trust, or to direct partners, beneficiaries or owners of such partnerships or trusts
that are intermediaries, flow-through entities or U.S. nonexempt recipients. See
Section 4A.02(5) of this Agreement. To
apply this Section 4A.02, QI and the partnership or trust must comply with all of the
rules listed below.
(1) QI and the partnership or trust must
enter into a written agreement under which
the partnership or trust agrees:
(a) To act as an agent of QI with respect to its partners, beneficiaries or owners, and, as QI’s agent, to apply the provisions of the QI Agreement to the partners,
beneficiaries or owners,
(b) To treat its direct partners, beneficiaries or owners as direct account holders
of QI under the QI Agreement and to treat
its indirect partners, beneficiaries or owners as indirect account holders of QI under
the QI Agreement,
(c) To make available, upon request,
to QI’s auditor, for purposes of QI’s audit under Section 10 of the QI Agreement,
records that establish its compliance with
all of the rules listed under this Section
4A.02.
(2) By entering into an agreement with a
partnership or trust under paragraph (1) of
this section, QI is not assigning its liability
for the performance of any of its obligations under the QI Agreement. QI and the
partnership or trust to which QI applies the
rules of this Section 4A.02, are jointly and
severally liable for any tax, penalties and
interest that may result from the failure of
the partnership or trust to meet any of the
obligations imposed by its agreement with
QI.
(3) The partnership or trust must provide to QI a Form W-8IMY together with a
withholding statement, under Treas. Reg.
§ 1.1441–5(c)(3)(iv) or (e)(5)(iv), that includes all information necessary for QI to
fulfill its withholding, reporting and filing obligations under the QI Agreement.
The withholding statement may include
pooled basis information regarding direct
partners, beneficiaries or owners that are
not intermediaries, flow-through entities
or U.S. non-exempt recipients. The partnership or trust need not provide to QI
documentation for partners, beneficiaries
or owners, except as provided under paragraph (1)(c) of this section.
(4) QI must withhold on the date it
makes a payment to a foreign partnership

335

or trust based on the withholding statement
provided by the partnership or trust. The
amount allocated to each partner, beneficiary or owner in the withholding statement may be based on a reasonable estimate of the partner’s, beneficiary’s or
owner’s distributive share of income subject to withholding for the year. The partnership or trust must correct the estimated
allocations to reflect the partners’, beneficiaries’ or owners’ actual distributive
share, and must provide this corrected information to QI, on the earlier of the date
that the statement required under section
6031(b) (schedule K–1) is mailed or otherwise provided to the partner or the due
date for furnishing the statement (whether
or not the partnership or trust is required to
prepare and furnish the statement). If that
date is after the due date for QI’s Forms
1042 and 1042–S (without regard to extensions) for the calendar year, QI may withhold and report any adjustments required
by the corrected information in the following calendar year.
(5) QI must file separate Forms 1042–S
reflecting pooled basis information for
each partnership or trust that has provided
pooled basis information in its withholding statement. QI must file Forms 1042–S
and 1099, as provided in the QI Agreement, for partners, beneficiaries or owners
of such partnerships or trusts that are indirect partners, beneficiaries or owners,
and for direct partners, beneficiaries or
owners of such partnerships or trusts that
are intermediaries, flow-through entities
or U.S. nonexempt recipients.
(6) The partnership or trust may not assume primary NRA withholding responsibility, or primary Form 1099 reporting and
backup withholding responsibility.
(7) QI and a partnership or trust that apply this Section 4A.02 to any calendar year
must apply these rules to the calendar year
in its entirety. Generally, QI and a partnership or trust that apply this Section 4A.02
to any calendar year are not required to apply this Section 4A.02 to subsequent calendar years. If, however, QI withholds and
reports any adjustments required by corrected information in a subsequent calendar year under Section 4A.02(4), QI must
apply this Section 4A.02 to that calendar
year in its entirety.
(8) QI and a partnership or trust may
not apply this Section 4A.02 to any calendar year for which the partnership or trust

August 11, 2003

has failed to make available to QI’s auditor the records described in paragraph
(1)(c) of this section within 90 days after these records are requested. If, for
any calendar year, the partnership or trust
has failed to make these records available
within the 90-day period, or if QI and the
partnership or trust fail to comply with any
other requirement of this Section 4A.02,
QI must apply Treas. Reg. § 1.1441–1 and
1.1441–5 to the partnership or trust, must
correct its withholding, and must file corrected Forms 1042 and 1042–S for the calendar year.

26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 856; 1.856–3, 1.856–5, and
301.7701–3.)

Rev. Proc. 2003–65
SECTION 1. PURPOSE
This revenue procedure sets forth a safe
harbor under which a loan from a real estate investment trust (REIT) secured by
an interest in a partnership or by the sole
membership interest in a disregarded entity
will be treated as a real estate asset for purposes of §§ 856(c)(4)(A) and 856(c)(5)(B)
of the Internal Revenue Code and the interest on the loan will be treated as interest
on an obligation secured by a mortgage on
real property or on an interest in real property for purposes of § 856(c)(3)(B).
SECTION 2. BACKGROUND
.01 Many REITs invest in real estate
by making loans that are secured by real
property. In certain cases because of financing arrangements and restrictive loan
covenants, REITs make loans to the owners of entities that hold real property instead of making loans that are secured directly by real property. These loans are secured by a pledge of the borrowers' ownership interests in the property-owning entities.
.02 Section 856(a) provides that an entity shall not be considered a REIT for any
taxable year unless certain requirements
are satisfied. One requirement is a test contained in § 856(c)(4)(A) that provides that
at the close of each quarter of its taxable
year, at least 75 percent of the value of a
REIT's total assets must be represented by

August 11, 2003

real estate assets, cash and cash items (including receivables), and government securities.
.03 Section 856(c)(5)(B) provides
that the term “real estate assets” means
real property (including interests in real
property and interests in mortgages on
real property) and shares (or transferable certificates of beneficial interest) in
other REITs that meet the requirements of
§§ 856 through 859. Section 1.856–3(d)
of the Income Tax Regulations provides
that the term “real property” means land
or improvements thereon, such as buildings and that the term “real property”
includes interests in real property. Section
1.856–3(d) further provides that local law
definitions will not be controlling for purposes of determining the meaning of the
term “real property” as used in § 856 and
the regulations thereunder.
.04 Section 856(c)(3)(B) provides that
at least 75 percent of a REIT's gross income must be derived from certain items,
including interest on obligations secured
by mortgages on real property or on interests in real property.
.05 Section 1.856–5(c)(1) provides that
if a mortgage covers both real property
and other property, an apportionment of
the interest income must be made for
purposes of the 75-percent requirement
of § 856(c)(3). Section 1.856–5(c)(1)(i)
provides that if the loan value of the real
property is equal to or exceeds the amount
of the loan, the entire interest income shall
be apportioned to the real property. Section 1.856–5(c)(2) provides that the loan
value of the real property is the fair market
value of the property, determined on the
date the commitment by the trust to make
the loan becomes binding on the trust.
.06 Under § 301.7701–3(b)(1)(ii) of
the Procedure and Administration Regulations, certain entities (including limited
liability companies) with a single member
that do not elect to be treated as corporations will be disregarded as entities
separate from their owners for federal tax
purposes.
.07 Section 1.856–3(g) provides that in
the case of a REIT that is a partner in a partnership, the REIT will be deemed to own
its proportionate share of each of the assets of the partnership and will be deemed
to be entitled to the income of the partnership attributable to such share. For purposes of § 856, the interest of a partner in

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the partnership's assets will be determined
in accordance with the partner's capital interest in the partnership. The character
of the various assets in the hands of the
partnership and items of gross income of
the partnership retain the same character
in the hands of the partners for all purposes of § 856. Thus, for example, if the
REIT owns a 30-percent capital interest in
a partnership that owns a shopping mall,
the REIT will be treated as owning 30 percent of such property and as earning 30
percent of the rent derived from the property by the partnership.
.08 In Rev. Rul. 77–459, 1977–2 C.B.
239, a REIT makes a construction loan to a
partnership, and as security for the loan the
partnership assigns its interest in an Illinois
land trust to the REIT. The partnership is
the sole beneficiary of the land trust, and
the sole asset of the land trust is real property. Although the beneficial interest in an
Illinois land trust is personal property under Illinois law, so long as the real property remains the sole asset of the land trust,
the beneficial interest has no value apart
from the underlying real property. Accordingly, Rev. Rul. 77–459 concludes that the
loan is a real estate asset for purposes of
§ 856(c) and that interest on the loan is interest on an obligation secured by a mortgage on real property or on an interest in
real property for purposes of § 856(c)(3).
SECTION 3. SCOPE
This revenue procedure applies to a
loan made by an entity that makes an election to be taxed as a REIT under § 856(c)
if the loan meets the requirements of this
section.
.01 The borrower is either a partner in a
partnership or the sole member of an eligible entity that has not elected to be treated
as a corporation for federal tax purposes
and is therefore disregarded as an entity
separate from its owner under §§ 7701 and
301.7701–3(b)(1).
.02 The loan is nonrecourse, secured
only by the partner's interest in the partnership, or the member's interest in the disregarded entity; thus, in the event of default,
the sole recourse is against the pledged
ownership interest.
.03 The lender is granted a first priority
security interest in the pledged ownership
interest. This security interest will place
the lender's claim as lender ahead of the

2003-32 I.R.B.