[Code of Federal Regulations]
[Title 26 Volume 12, Parts 1 (1.1401 to end)]
[Revised as of April 1, 2000]
>From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]
[Page 63-220]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE,
TAX ON SELF-EMPLOYMENT INCOME--Table of Contents
Withholding of Tax on Nonresident Aliens and Foreign Corporations and Tax-Free Covenant Bonds
NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Sec. 1.1441-0 Outline of regulation provisions for section 1441.
This section lists captions contained in Secs. 1.1441-1 through
1.1441-9.
Sec. 1.1441-1 Requirement for the deduction and withholding of tax on
payments to foreign persons.
(a) Purpose and scope.
(b) General rules of withholding.
(1) Requirement to withhold on payments to foreign persons.
(2) Determination of payee and payee's status.
(i) In general.
(ii) Payments to a U.S. agent of a foreign person.
(iii) Payments to wholly-owned entities.
(A) Foreign-owned domestic entity.
(B) Foreign entity.
(iv) Payments to a U.S. branch of certain foreign banks or foreign
insurance companies.
(A) U.S. branch treated as a U.S. person in certain cases.
(B) Consequences to the withholding agent.
(C) Consequences to the U.S. branch.
(D) Definition of payment to a U.S. branch.
(E) Payments to other U.S. branches.
(v) Payments to a foreign intermediary.
(A) Payments treated as made to persons for whom the intermediary
collects the payment.
(B) Payments treated as made to foreign intermediary.
(vi) Other payees.
(vii) Rules for reliably associating a payment with documentation.
(3) Presumptions regarding payee's status in the absence of
documentation.
(i) General rules.
(ii) Presumptions of status as individual, corporation, partnership,
etc.
(iii) Presumption of U.S. or foreign status.
(A) Payments to exempt recipients.
(B) Scholarships and grants.
(C) Pensions, annuities, etc.
(D) Certain payments to offshore accounts.
(iv) Grace period in the case of indicia of a foreign payee.
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(v) Special rules applicable to payments to foreign intermediaries.
(A) Reliance on claim of status as foreign intermediary.
(B) Beneficial owner documentation is lacking or unreliable.
(C) Information regarding allocation of payment is lacking or
unreliable.
(D) Certification that the foreign intermediary has furnished
documentation for all of the persons to whom the intermediary
certificate relates is lacking or unreliable.
(vi) U.S. branches and foreign flow-through entities.
(vii) Joint payees.
(viii) Rebuttal of presumptions.
(ix) Effect of reliance on presumptions and of actual knowledge or
reason to know otherwise.
(A) General rule.
(B) Actual knowledge or reason to know that amount of withholding is
greater than is required under the presumptions or that
reporting of the payment is required.
(x) Examples.
(4) List of exemptions from, or reduced rates of, withholding under
chapter 3 of the Code.
(5) Establishing foreign status under applicable provisions of chapter
61 of the Code.
(6) Rules of withholding for payments by a foreign intermediary or
certain U.S. branches.
(7) Liability for failure to obtain documentation timely or to act in
accordance with applicable presumptions.
(i) General rule.
(ii) Proof that tax liability has been satisfied.
(iii) Liability for interest and penalties.
(iv) Special effective date.
(v) Examples.
(8) Adjustments, refunds, or credits of overwithheld amounts.
(9) Payments to joint owners.
(c) Definitions.
(1) Withholding.
(2) Foreign and U.S. person.
(3) Individual.
(i) Alien individual.
(ii) Nonresident alien individual.
(4) Certain foreign corporations.
(5) Financial institution and foreign financial institution.
(6) Beneficial owner.
(i) General rule.
(ii) Special rules for flow-through entities and arrangements.
(A) General rule.
(B) Trusts and estates.
(C) Definition of a flow-through entity or arrangement.
(7) Withholding agent.
(8) Person.
(9) Source of income.
(10) Chapter 3 of the Code.
(11) Reduced rate.
(d) Beneficial owner's or payee's claim of U.S. status.
(1) In general.
(2) Payments for which a Form W-9 is otherwise required.
(3) Payments for which a Form W-9 is not otherwise required.
(4) Other payments.
(e) Beneficial owner's claim of foreign status.
(1) Withholding agent's reliance.
(i) In general.
(ii) Payments that a withholding agent may treat as made to a foreign
person that is a beneficial owner.
(A) General rule.
(B) Additional requirements.
(2) Beneficial owner withholding certificate.
(i) In general.
(ii) Requirements for validity of certificate.
(3) Intermediary, flow-through, or U.S. branch withholding certificate.
(i) In general.
(ii) Intermediary withholding certificate from a qualified intermediary.
(iii) Intermediary withholding certificate from an intermediary that is
not a qualified intermediary.
(iv) Information to the withholding agent regarding assets owned by
beneficial owners, etc.
(A) General rule.
(B) Updating the information.
(C) Examples.
(v) Withholding certificate from certain U.S. branches.
(vi) Reportable amounts.
(4) Applicable rules.
(i) Who may sign the certificate.
(ii) Period of validity.
(A) Three-year period.
(B) Indefinite validity period.
(C) Withholding certificate for effectively connected income.
(D) Change in circumstances.
(iii) Retention of withholding certificate.
(iv) Electronic transmission of information.
(v) Electronic confirmation of taxpayer identifying number on
withholding certificate.
(vi) Acceptable substitute form.
(vii) Requirement of taxpayer identifying number.
(viii) Reliance rules.
(A) Classification.
(B) Status of payee as an intermediary or as a person acting for its own
account.
(ix) Certificates to be furnished for each account unless exception
applies.
(A) Coordinated account information system in effect.
(B) Family of mutual funds.
(C) Special rule for brokers.
(5) Qualified intermediaries.
(i) General rule.
(ii) Definition of qualified intermediary.
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(iii) Withholding agreement.
(A) In general.
(B) Terms of the withholding agreement.
(iv) Assignment of primary withholding responsibility.
(v) Information to withholding agent regarding applicable withholding
rates.
(A) General rule.
(B) Categories of assets.
(C) Updating the information.
(f) Effective date.
(1) In general.
(2) Transition rules.
(i) Special rules for existing documentation.
(ii) Lack of documentation for past years.
Sec. 1.1441-2 Amounts subject to withholding.
(a) In general.
(b) Fixed or determinable annual or periodical income.
(1) In general.
(i) Definition.
(ii) Manner of payment.
(iii) Determinability of amount.
(2) Exceptions.
(3) Original issue discount.
(i) General rule.
(ii) Amounts actually known to the withholding agent.
(iii) Amounts for which certain documentation is not furnished.
(iv) Exceptions to withholding.
(4) Securities lending transactions and equivalent transactions.
(c) Other income subject to withholding.
(d) Exceptions to withholding where no money or property is paid or lack
of knowledge.
(1) General rule.
(2) Cancellation of debt.
(3) Satisfaction of liability following underwithholding by withholding
agent.
(e) Payment.
(1) General rule.
(2) Income allocated under section 482.
(3) Blocked income.
(4) Special rules for dividends.
(5) Certain interest accrued by a foreign corporation.
(6) Payments other than in U.S. dollars.
(f) Effective date.
Sec. 1.1441-3 Determination of amounts to be withheld.
(a) Withholding on gross amount.
(b) Withholding on payments on certain obligations.
(1) Withholding at time of payment of interest.
(2) No withholding between interest payment dates.
(i) In general.
(ii) Anti-abuse rule.
(c) Corporate distributions.
(1) General rule.
(2) Exception to withholding on distributions.
(i) In general.
(ii) Reasonable estimate of accumulated and current earnings and profits
on the date of payment.
(A) General rule.
(B) Procedures in case of underwithholding.
(C) Reliance by intermediary on reasonable estimate.
(D) Example.
(3) Special rules in the case of distributions from a regulated
investment company.
(i) General rule
(ii) Reliance by intermediary on reasonable estimate.
(4) Coordination with withholding under section 1445.
(i) In general.
(A) Withholding under section 1441.
(B) Withholding under both sections 1441 and 1445.
(C) Coordination with REIT withholding.
(ii) Intermediary reliance rule.
(d) Withholding on payments that include an undetermined amount of
income.
(1) In general.
(2) Withholding on certain gains.
(e) Payments other than in U.S. dollars.
(1) In general.
(2) Payments in foreign currency.
(f) Tax liability of beneficial owner satisfied by withholding agent.
(1) General rule.
(2) Example.
(g) Conduit financing arrangements
(h) Effective date.
Sec. 1.1441-4 Exemptions from withholding for certain effectively
connected income and other amounts.
(a) Certain income connected with a U.S. trade or business.
(1) In general.
(2) Withholding agent's reliance on a claim of effectively connected
income.
(i) In general.
(ii) Special rules for U.S. branches of foreign persons.
(A) U.S. branches of certain foreign banks or foreign insurance
companies.
(B) Other U.S. branches.
(3) Income on notional principal contracts.
(i) General rule.
(ii) Exception for certain payments.
(b) Compensation for personal services of an individual.
(1) Exemption from withholding.
(2) Manner of obtaining withholding exemption under tax treaty.
(i) In general.
(ii) Withholding certificate claiming withholding exemption.
(iii) Review by withholding agent.
(iv) Acceptance by withholding agent.
(v) Copies of Form 8233.
(3) Withholding agreements.
(4) Final payments exemption.
(i) General rule.
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(ii) Final payment of compensation for personal services.
(iii) Manner of applying for final payment exemption.
(iv) Letter to withholding agent.
(5) Requirement of return.
(6) Personal exemption.
(i) In general.
(ii) Multiple exemptions.
(iii) Special rule where both certain scholarship and compensation
income are received.
(c) Special rules for scholarship and fellowship income.
(1) In general.
(2) Alternate withholding election.
(d) Annuities received under qualified plans.
(e) Per diem of certain alien trainees.
(f) Failure to receive withholding certificates timely or to act in
accordance with applicable presumptions.
(g) Effective date.
(1) General rule.
(2) Transition rules.
Sec. 1.1441-5 Withholding on payments to partnerships, trusts, and
estates.
(a) Rules of withholding applicable to payments to partnerships.
(b) Domestic partnerships.
(1) Exemption from withholding on payment to domestic partnerships.
(2) Withholding by a domestic partnership.
(i) In general.
(ii) Determination by the domestic partnership of partners' status.
(iii) Reliance on a partner's claim for reduced withholding.
(iv) Rules for reliably associating a payment with documentation.
(v) Coordination with chapter 61 of the Internal Revenue Code and
section 3406.
(c) Foreign partnerships.
(1) Determination of payee.
(i) Payments treated as made to partners.
(ii) Payments treated as made to the partnership.
(iii) Rules for reliably associating a payment with documentation.
(iv) Example.
(2) Withholding foreign partnerships.
(i) Reliance on claim of withholding foreign partnership status.
(ii) Withholding agreement.
(A) In general.
(B) Terms of withholding agreement.
(iii) Withholding responsibility.
(iv) Withholding certificate from a withholding foreign partnership.
(3) Other foreign partnerships.
(i) Reliance on claim of foreign partnership status.
(ii) Reliance on claim of reduced withholding by a partnership for its
partners.
(iii) Withholding certificate from a foreign partnership that is not a
withholding foreign partnership.
(iv) Information to withholding agent regarding each partner's
distributive share.
(v) Withholding by a foreign partnership.
(d) Presumptions regarding payee's status in the absence of
documentation.
(1) In general.
(2) Determination of partnership's status as domestic or foreign in the
absence of documentation.
(3) Determination of partners' status in the absence of certain
documentation.
(i) Documentation regarding the status of a partner is lacking or
unreliable.
(ii) Information regarding the allocation of payment is lacking or
unreliable.
(iii) Certification that the foreign partnership has furnished
documentation for all of the persons to whom the intermediary
certificate relates is lacking or unreliable.
(iv) Determination by a withholding foreign partnership of the status of
its partners.
(4) Examples.
(e) Trusts and estates. [Reserved]
(f) Failure to receive withholding certificate timely or to act in
accordance with applicable presumptions.
(g) Effective date.
(1) General rule.
(2) Transition rules.
Sec. 1.1441-6 Claim of reduced withholding under an income tax treaty.
(a) In general.
(b) Reliance on claim of reduced withholding under an income tax treaty.
(1) In general.
(2) Exemption from requirement to furnish a taxpayer identifying number
and special documentary evidence rules for certain income.
(i) General rule.
(ii) Income to which special rules apply.
(3) Competent authority agreements.
(4) Eligibility for reduced withholding under an income tax treaty in
the case of a payment to a person other than an individual.
(i) General rule.
(ii) Withholding certificates.
(A) In general.
(B) Certification by qualified intermediary.
(iii) Multiple claims of treaty benefits.
(iv) Examples.
(5) Claim of benefits under an income tax treaty by a U.S. person.
(c) Proof of tax residence in a treaty country and certification of
entitlement to treaty benefits. (1) In general.
(2) Certification of taxpayer identifying number.
(i) In general.
(ii) IRS-certified TIN.
(iii) Special rules for qualified intermediaries.
(3) Certificate of residence.
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(4) Documentary evidence establishing residence in the treaty country.
(i) Individuals.
(ii) Persons other than individuals.
(5) Certifications regarding entitlement to treaty benefits.
(i) Certification regarding conditions under a Limitation on Benefits
Article.
(ii) Certification regarding whether the taxpayer is deriving the
income.
(d) Joint owners.
(e) Related party dividends under U.S.-Denmark income tax treaty.
(f) Failure to receive withholding certificate timely.
(g) Effective date.
(1) General rule.
(2) Transition rules.
Sec. 1.1441-7 General provisions relating to withholding agents.
(a) Withholding agent defined.
(b) Standards of knowledge.
(1) In general.
(2) Reason to know.
(i) In general.
(ii) Limits on reason to know in certain cases.
(3) Coordinated account information systems.
(c) Authorized agent.
(1) In general.
(2) Authorized foreign agent.
(3) Notification.
(4) Liability of U.S. withholding agent.
(5) Filing of returns.
(d) United States obligations.
(e) Assumed obligations.
(f) Conduit financing arrangements.
(g) Effective date.
Sec. 1.1441-8 Exemption from withholding for payments to foreign
governments, international organizations, foreign central banks of
issue, and the Bank for International Settlements.
(a) Foreign governments.
(b) Reliance on claim of exemption by foreign government.
(c) Income of a foreign central bank of issue or the Bank for
International
Settlements.
(1) Certain interest income.
(2) Bankers' acceptances.
(d) Exemption for payments to international organizations.
(e) Failure to receive withholding certificate timely and other
applicable procedures.
(f) Effective date.
(1) In general.
(2) Transition rules.
Sec. 1.1441-9 Exemption from withholding on exempt income of a foreign
tax-exempt organization, including foreign private foundations.
(a) Exemption from withholding for exempt income.
(b) Reliance on foreign organization's claim of exemption from
withholding.
(1) General rule.
(2) Withholding certificate.
(3) Presumptions in the absence of documentation.
(4) Reason to know.
(c) Failure to receive withholding certificate timely and other
applicable procedures.
(d) Effective date.
(1) In general.
(2) Transition rules.
[T.D. 8734, 62 FR 53421, Oct. 14, 1997]
Effective Date Note: By T.D. 8734, 62 FR 53421, Oct. 14, 1997,
Sec. 1.1441-0 was added, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-0 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the
effective date of Sec. 1.1441-0 was delayed until Jan. 1, 2001.
Sec. 1.1441-1 Requirement for the deduction and withholding of tax on
payments to foreign persons.
(a) Purpose and scope. This section, Secs. 1.1441-2 through 1.1441-
9, and 1.1443-1 provide rules for withholding under sections 1441, 1442,
and 1443 when a payment is made to a foreign person. This section
provides definitions of terms used in chapter 3 of the Internal Revenue
Code (Code) and regulations thereunder. It prescribes procedures to
determine whether an amount must be withheld under chapter 3 of the Code
and documentation that a withholding agent may rely upon to determine
the status of a payee or a beneficial owner as a U.S. person or as a
foreign person and other relevant characteristics of the payee that may
affect a withholding agent's obligation to withhold under chapter 3 of
the Code and the regulations thereunder. Special procedures regarding
payments to foreign persons that act as intermediaries are also
provided. Section 1.1441-2 defines the income subject to withholding
under section 1441, 1442, and 1443 and the regulations under these
sections. Section 1.1441-3 provides rules regarding the amount subject
to withholding. Section 1.1441-4 provides exemptions from withholding
for, among other things, certain income effectively connected with the
conduct of a trade or business in the United States, including certain
compensation for the personal services of an individual. Section 1.1441-
5 provides rules for withholding
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on payments made to flow-through entities and other similar
arrangements. Section 1.1441-6 provides rules for claiming a reduced
rate of withholding under an income tax treaty. Section 1.1441-7 defines
the term withholding agent and provides due diligence rules governing a
withholding agent's obligation to withhold. Section 1.1441-8 provides
rules for relying on claims of exemption from withholding for payments
to a foreign government, an international organization, a foreign
central bank of issue, or the Bank for International Settlements.
Sections 1.1441-9 and 1.1443-1 provide rules for relying on claims of
exemption from withholding for payments to foreign tax exempt
organizations and foreign private foundations.
(b) General rules of withholding--(1) Requirement to withhold on
payments to foreign persons. A withholding agent must withhold 30-
percent of any payment of an amount subject to withholding made to a
payee that is a foreign person unless it can reliably associate the
payment with documentation upon which it can rely to treat the payment
as made to a beneficial owner 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. However, a withholding agent making a payment to a foreign
person need not withhold where the foreign person assumes responsibility
for withholding on the payment under chapter 3 of the Code and the
regulations thereunder as a qualified intermediary (see paragraph (e)(5)
of this section), as a U.S. branch of a foreign person (see paragraph
(b)(2)(iv) of this section), as a withholding foreign partnership (see
Sec. 1.1441-5(c)(2)(i)), or as an authorized foreign agent (see
Sec. 1.1441-7(c)(1)). This section (dealing with general rules of
withholding and claims of foreign or U.S. status by a payee or a
beneficial owner), and Secs. 1.1441-4, 1.1441-5, 1.1441-6, 1.1441-8,
1.1441-9, and 1.1443-1 provide rules for determining whether
documentation is required as a condition for reducing the rate of
withholding on a payment to a foreign beneficial owner or to a U.S.
payee and if so, the nature of the documentation upon which a
withholding agent may rely in order to reduce such rate. Paragraph
(b)(2) of this section prescribes the rules for determining who the
payee is, the extent to which a payment is treated as made to a foreign
payee, and reliable association of a payment with documentation.
Paragraph (b)(3) of this section describes the applicable presumptions
for determining the payee's status as U.S. or foreign and the payee's
other characteristics (i.e., as an owner or intermediary, as an
individual, partnership, corporation, etc.). Paragraph (b)(4) of this
section lists the types of payments for which the 30-percent withholding
rate may be reduced. Because the treatment of a payee as a U.S. or a
foreign person also has consequences for purposes of making an
information return under the provisions of chapter 61 of the Code and
for withholding under other provisions of the Code, such as sections
3402, 3405 or 3406, paragraph (b)(5) of this section lists applicable
provisions outside chapter 3 of the Code that require certain payees to
establish their foreign status (e.g., in order to be exempt from
information reporting). Paragraph (b)(6) of this section describes the
withholding obligations of a foreign person making a payment that it has
received in its capacity as an intermediary. Paragraph (b)(7) of this
section describes the liability of a withholding agent that fails to
withhold at the required 30-percent rate in the absence of
documentation. Paragraph (b)(8) of this section deals with adjustments
and refunds in the case of overwithholding. Paragraph (b)(9) of this
section deals with determining the status of the payee when the payment
is jointly owned. See paragraph (c)(6) of this section for a definition
of beneficial owner. See Sec. 1.1441-7(a) for a definition of
withholding agent. See Sec. 1.1441-2(a) for the determination of an
amount subject to withholding. See Sec. 1.1441-2(e) for the definition
of a payment and when it is considered made. Except as otherwise
provided, the provisions of this section apply only for purposes of
determining a withholding agent's obligation to withhold under chapter 3
of the Code and the regulations thereunder.
(2) Determination of payee and payee's status--(i) In general.
Except as otherwise provided in this paragraph (b)(2), a
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payee is the person to whom a payment is made, regardless of whether
such person is the beneficial owner of the amount (as defined in
paragraph (c)(6) of this section). A foreign payee is a payee who is a
foreign person. A U.S. payee is a payee who is a U.S. person. Generally,
the determination by a withholding agent of the U.S. or foreign status
of a payee and of its other relevant characteristics (e.g., as a
beneficial owner or intermediary, or as an individual, corporation, or
flow-through entity) is made on the basis of a withholding certificate
that is a Form W-8 or a Form 8233 (indicating foreign status of the
payee or beneficial owner) or a Form W-9 (indicating U.S. status of the
payee). The provisions of this paragraph (b)(2), paragraph (b)(3) of
this section, and Sec. 1.1441-5 (c), (d), and (e) dealing with
determinations of payee and applicable presumptions in the absence of
documentation, apply only to payments of amounts subject to withholding
under chapter 3 of the Code (within the meaning of Sec. 1.1441-2(a)).
Similar payee and presumption provisions are set forth under
Sec. 1.6049-5(d) for payments of amounts that are not subject to
withholding under chapter 3 of the Code (or the regulations thereunder)
but that may be reportable under provisions of chapter 61 of the Code
(and the regulations thereunder). See paragraph (d) of this section for
documentation upon which the withholding agent may rely in order to
treat the payee or beneficial owner as a U.S. person. See paragraph (e)
of this section for documentation upon which the withholding agent may
rely in order to treat the payee or beneficial owner as a foreign
person. For applicable presumptions of status in the absence of
documentation, see paragraph (b)(3) of this section and Sec. 1.1441-
5(d). For definitions of a foreign person and U.S. person, see paragraph
(c)(2) of this section.
(ii) Payments to a U.S. agent of a foreign person. A withholding
agent making a payment to a U.S. person (other than to a U.S. branch
that is treated as a U.S. person pursuant to paragraph (b)(2)(iv) of
this section) and who has actual knowledge that the U.S. person receives
the payment as an agent of a foreign person must treat the payment as
made to the foreign person. However, the withholding agent may treat the
payment as made to the U.S. person if the U.S. person is a financial
institution and the withholding agent has no reason to believe that the
financial institution will not comply with its obligation to withhold.
See paragraph (c)(5) of this section for the definition of a financial
institution.
(iii) Payments to wholly-owned entities--(A) Foreign-owned domestic
entity. A payment to a wholly-owned domestic entity that is disregarded
for federal tax purposes under Sec. 301.7701-2(c)(2) of this chapter as
an entity separate from its owner and whose single owner is a foreign
person shall be treated as a payment to the owner of the entity, subject
to the provisions of paragraph (b)(2)(iv) of this section. For purposes
of this paragraph (b)(2)(iii)(A), a domestic entity means a person that
would be treated as a U.S. person if it had an election in effect under
Sec. 301.7701-3(c)(1)(i) of this chapter to be treated as a corporation.
For example, a limited liability company, A, organized under the laws of
the State of Delaware, opens an account at a U.S. bank. Upon opening of
the account, the bank requests A to furnish a Form W-9 as required under
section 6049(a) and the regulations under that section. A does not have
an election in effect under Sec. 301.7701-3(c)(1)(i) of this chapter
and, therefore, is not treated as an organization taxable as a
corporation, including for purposes of the exempt recipient provisions
in Sec. 1.6049-4(c)(1). If A has a single owner and the owner is a
foreign person (as defined in paragraph (c)(2) of this section), then A
may not furnish a Form W-9 because it may not represent that it is a
U.S. person for purposes of the provisions of chapters 3 and 61 of the
Code, and section 3406. Therefore, A must furnish a Form W-8 with the
name, address, and taxpayer identifying number (TIN) (if required) of
the foreign person who is the single owner in the same manner as if the
account were opened directly by the foreign single owner. See
Secs. 1.894-1T(d) and 1.1441-6(b)(4) for special rules where the
entity's owner is claiming a reduced rate of withholding under an income
tax treaty.
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(B) Foreign entity. A payment to a wholly-owned foreign entity that
is disregarded under Sec. 301.7701-2(c)(2) of this chapter as an entity
separate from its owner shall be treated as a payment to the single
owner of the entity, subject to the provisions of paragraph (b)(2)(iv)
of this section if the foreign entity has a U.S. branch in the United
States. For purposes of this paragraph (b)(2)(iii)(B), a foreign entity
means a person that would be treated as a foreign person if it had an
election in effect under Sec. 301.7701-3(c)(1)(i) of this chapter to be
treated as a corporation. See Secs. 1.894-1T(d) and 1.1441-6(b)(4) for
special rules where the foreign entity or its owner is claiming a
reduced rate of withholding under an income tax treaty. Thus, for
example, if the foreign entity's single owner is a U.S. person, the
payment shall be treated as a payment to a U.S. person. Therefore, based
on the saving clause in U.S. income tax treaties, such an entity may not
claim benefits under an income tax treaty even if the entity is
organized in a country with which the United States has an income tax
treaty in effect and treats the entity as a non-fiscally transparent
entity. See Sec. 1.894-1T(d)(6), Example 10. Unless it has actual
knowledge or reason to know that the foreign entity to whom the payment
is made is disregarded under Sec. 301.7701-2(c)(2) of this chapter, a
withholding agent may treat a foreign entity as an entity separate from
its owner unless it can reliably associate the payment with a
withholding certificate from the entity's owner.
(iv) Payments to a U.S. branch of certain foreign banks or foreign
insurance companies--(A) U.S. branch treated as a U.S. person in certain
cases. A payment to the U.S. branch of a foreign person is a payment to
the foreign person. However, a U.S. branch described in this paragraph
(b)(2)(iv)(A) and a withholding agent (including another U.S. branch
described in this paragraph (b)(2)(iv)(A)) may agree to treat the branch
as a U.S. person for purposes of withholding on specified payments to
the U.S. branch. Such agreement must be evidenced by a U.S. branch
withholding certificate described in paragraph (e)(3)(v) of this section
furnished by the U.S. branch to the withholding agent. A U.S. branch
described in this paragraph (b)(2)(iv)(A) is any U.S. branch of a
foreign bank subject to regulatory supervision by the Federal Reserve
Board or a U.S. branch of a foreign insurance company required to file
an annual statement on a form approved by the National Association of
Insurance Commissioner with the Insurance Department of a State, a
Territory, or the District of Columbia. The Internal Revenue Service
(IRS) may approve a list of U.S. branches that may qualify for treatment
as a U.S. person under this paragraph (b)(2)(iv)(A) (see
Sec. 601.601(d)(2) of this chapter).
(B) Consequences to the withholding agent. Any person that is
otherwise a withholding agent regarding a payment to a U.S. branch
described in paragraph (b)(2)(iv)(A) of this section shall treat the
payment in one of the following ways--
(1) As a payment to a U.S. person, in which case the withholding
agent is not responsible for withholding on such payment to the extent
it can reliably associate the payment with a withholding certificate
described in paragraph (e)(3)(v) of this section that has been furnished
by the U.S. branch under its agreement with the withholding agent to be
treated as a U.S. person;
(2) As a payment directly to the persons whose names are on
withholding certificates or other appropriate documentation forwarded by
the U.S. branch to the withholding agent when no agreement is in effect
to treat the U.S. branch as a U.S. person for such payment, to the
extent the withholding agent can reliably associate the payment with
such certificates or documentation; or
(3) As a payment to a foreign person of income that is effectively
connected with the conduct by that foreign person of a trade or business
in the United States if the withholding agent cannot reliably associate
the payment with a certificate from the U.S. branch or any other
certificate or other appropriate documentation from another person.
(C) Consequences to the U.S. branch. A U.S. branch that is treated
as a U.S. person under paragraph (b)(2)(iv)(A) of this section shall be
treated as a person
[[Page 71]]
for purposes of section 1441(a) and all other provisions of chapter 3 of
the Code and the regulations thereunder for any payment that it receives
as such. Thus, the U.S. branch shall be responsible for withholding on
the payment in accordance with the provisions under chapter 3 of the
Code and the regulations thereunder and other applicable withholding
provisions of the Code. For this purpose, it shall obtain and retain
documentation from payees or beneficial owners of the payments that it
receives as a U.S. person in the same manner as if it were a separate
entity. For example, if a U.S. branch receives a payment on behalf of
its home office and the home office is a qualified intermediary, the
U.S. branch must obtain a withholding certificate described in paragraph
(e)(3)(ii) of this section from its home office. In addition, a U.S.
branch that has not provided documentation to the withholding agent for
a payment that is, in fact, not effectively connected income is a
withholding agent with respect to that payment. See paragraph (b)(6) of
this section.
(D) Definition of payment to a U.S. branch. A payment is treated as
a payment to a U.S. branch of a foreign bank or foreign insurance
company if the payment is credited to an account maintained in the
United States in the name of a U.S. branch of the foreign person, or the
payment is made to an address in the United States where the U.S. branch
is located and the name of the U.S. branch appears on documents (in
written or electronic form) associated with the payment (e.g., the check
mailed or a letter addressed to the branch).
(E) Payments to other U.S. branches. Similar withholding procedures
may apply to payments to U.S. branches that are not described in
paragraph (b)(2)(iv)(A) of this section to the extent permitted by the
district director or the Assistant Commissioner (International). Any
such branch must establish that its situation is analogous to that of a
U.S. branch described in paragraph (b)(2)(iv)(A) of this section
regarding its registration with, and regulation by, a U.S. governmental
institution, the type and amounts of assets it is required to, or
actually maintains in the United States, and the personnel who carry out
the activities of the branch in the United States. In the alternative,
the branch must establish that the withholding and reporting
requirements under chapter 3 of the Code and the regulations thereunder
impose an undue administrative burden and that the collection of the tax
imposed by section 871(a) or 881(a) on the foreign person (or its
members in the case of a foreign partnership) will not be jeopardized by
the exemption from withholding. Generally, an undue administrative
burden will be found to exist in a case where the person entitled to the
income, such as a foreign insurance company, receives from the
withholding agent income on securities issued by a single corporation,
some of which is, and some of which is not, effectively connected with
conduct of a trade or business within the United States and the criteria
for determining the effective connection are unduly difficult to apply
because of the circumstances under which such securities are held. No
exemption from withholding shall be granted under this paragraph
(b)(2)(iv)(E) unless the person entitled to the income complies with
such other requirements as may be imposed by the district director or
the Assistant Commissioner (International) and unless the district
director or the Assistant Commissioner (International) is satisfied that
the collection of the tax on the income involved will not be jeopardized
by the exemption from withholding. The IRS may prescribe such procedures
as are necessary to make these determinations (see Sec. 601.601(d)(2) of
this chapter).
(v) Payments to a foreign intermediary--(A) Payments treated as made
to persons for whom the intermediary collects the payment. Except as
otherwise provided in paragraph (b)(2)(v)(B) of this section, a payment
to a person that the withholding agent may treat as a foreign
intermediary in accordance with the provisions of paragraph (b)(3)(v)(A)
of this section is treated as a payment made directly to the person or
persons for whom the intermediary collects the payment. Thus, for
example, a payment that the withholding agent can reliably associate
with a
[[Page 72]]
withholding certificate from a qualified intermediary (defined in
paragraph (e)(5)(ii) of this section) and that is allocable to the
category of assets described in paragraph (e)(5)(v)(B)(3) of this
section (i.e., assets allocable to persons for whom the foreign
qualified intermediary does not hold documentation as specified under
its agreement with the IRS) is treated as a payment to the persons
holding assets in that category. See paragraph (b)(3)(v)(B) of this
section for applicable presumptions in such a case. For similar rules
for payments to flow-through entities, see Sec. 1.1441-5 (c)(1)(i) and
(e).
(B) Payments treated as made to foreign intermediary. A payment to a
person that the withholding agent can reliably associate with a
withholding certificate described in paragraph (e)(3)(ii) of this
section from a qualified intermediary that has elected to assume primary
withholding responsibility in accordance with paragraph (e)(5)(iv) of
this section is treated as a payment to the qualified intermediary,
except to the extent of the portion of the payment that the withholding
agent can reliably associate with Forms W-9. See paragraphs (b)(1) and
(e)(5)(iv) of this section for consequences to the withholding agent.
(vi) Other payees. A payment to a person described in Sec. 1.6049-
4(c)(1)(ii) that the withholding agent would treat as a payment to a
foreign person without obtaining documentation for purposes of
information reporting under section 6049 (if the payment were interest)
is treated as a payment to a foreign payee for purposes of chapter 3 of
the Code and the regulations thereunder (or to a foreign beneficial
owner to the extent provided in paragraph (e)(1)(ii)(A) (6) or (7) of
this section). Further, payments that the withholding agent can reliably
associate with documentary evidence described in Sec. 1.6049-5(c)(4)
relating to the payee is treated as a payment to a foreign payee. A
payment that the withholding agent may treat as a payment to an
authorized foreign agent (as defined in Sec. 1.1441-7(c)(2)) is treated
as a payment to the agent and not to the persons for whom the agent
collects the payment. See Sec. 1.1441-5 (b)(1) and (c)(1) for payee
determinations for payments to partnerships. See Sec. 1.1441-5(e) for
payee determinations for payments to foreign trusts or foreign estates.
(vii) Rules for reliably associating a payment with documentation.
Generally, a withholding agent can reliably associate a payment with
documentation if, for that payment, it holds valid documentation to
which the payment relates, it can reliably determine how much of the
payment relates to the valid documentation (e.g., based on information
furnished in accordance with paragraph (e)(3)(iv) or (5)(v) of this
section in the case of a payment to a foreign intermediary or in
accordance with Sec. 1.1441-5(c)(3)(iv) in the case of a payment to a
foreign partnership), and it has no actual knowledge or reason to know
that any of the information or certifications stated in the
documentation are incorrect. The documentation referred to in this
paragraph (b)(2)(vii) is documentation described in paragraph (d) or (e)
of this section upon which a withholding agent may rely in order to
treat the payment as a payment made to a payee or beneficial owner that
is a U.S. or a foreign person, and to ascertain the characteristics of
the payee or beneficial owner, as may be relevant to withholding or
reporting under chapter 3 of the Code and the regulations thereunder
(e.g., beneficial owner or intermediary, corporation or partnership).
For purposes of this paragraph (b)(2)(vii), documentation also includes
a withholding certificate described in paragraph (e)(3)(ii) of this
section from a person representing to be a qualified intermediary that
has assumed primary withholding responsibility, a withholding
certificate described in paragraph (e)(3)(v) of this section from a
person representing to be a U.S. branch described in paragraph
(b)(2)(iv)(A) of this section, a withholding certificate described in
Sec. 1.1441-5(c)(2)(iv) from a person representing to be a withholding
foreign partnership, and the agreement that the withholding agent has in
effect with an authorized foreign agent in accordance with Sec. 1.1441-
7(c)(2)(i). A withholding agent that is not required to obtain
documentation with respect to a payment is considered to lack
documentation for purposes of this paragraph (b)(2)(vii). For
[[Page 73]]
example, a withholding agent paying U.S. source interest to a person
that is an exempt recipient, as defined in Sec. 1.6049-4(c)(1)(ii), is
not required to obtain documentation from that person in order to
determine whether an amount paid to that person is reportable under an
applicable information reporting provision under chapter 61 of the Code.
Therefore, the withholding agent may rely on the provisions of paragraph
(b)(3)(iii)(A) of this section to determine whether the person is
presumed to be a U.S. person (in which case, no withholding is required
under this section), or whether the person is presumed to be a foreign
person (in which case 30-percent withholding is required under this
section). See paragraph (b)(3)(v)(A) of this section for special
reliance rules in the case of a payment to a foreign intermediary and
Sec. 1.1441-5(d)(3) for special reliance rules in the case of a payment
to a foreign partnership.
(3) Presumptions regarding payee's status in the absence of
documentation--(i) General rules. A withholding agent that cannot
reliably associate a payment with documentation may rely on the
presumptions of this paragraph (b)(3) in order to determine the status
of the payee as a U.S. or a foreign person and the payee's other
relevant characteristics (e.g., as an owner or intermediary, as an
individual, trust, partnership, or corporation). The determination of
withholding and reporting requirements applicable to payments to a
person presumed to be a foreign person is governed only by the
provisions of chapter 3 of the Code and the regulations thereunder. For
the determination of withholding and reporting requirements applicable
to payments to a person presumed to be a U.S. person, see chapter 61 of
the Code, section 3402, 3405, or 3406, and the regulations under these
provisions. A presumption that a payee is a foreign payee is not a
presumption that the payee is a foreign beneficial owner. Therefore, the
provisions of this paragraph (b)(3) have no effect for purposes of
reducing the withholding rate if associating the payment with
documentation of foreign beneficial ownership is required as a condition
for such rate reduction. See paragraph (b)(3)(ix) of this section for
consequences to a withholding agent that fails to withhold in accordance
with the presumptions set forth in this paragraph (b)(3) or if the
withholding agent has actual knowledge or reason to know of facts that
are contrary to the presumptions set forth in this paragraph (b)(3). See
paragraph (b)(2)(vii) of this section for rules regarding the extent
which a withholding agent can reliably associate a payment with
documentation.
(ii) Presumptions of status as individual, corporation, partnership,
etc. A withholding agent that cannot reliably associate a payment with
documentation must presume that the payee is an individual, a trust, or
an estate, if the payee appears to be such person (i.e., based on the
payee's name or other indications). In the absence of reliable
indications that the payee is an individual, estate, or trust, the
withholding agent must presume that the payee is a corporation or one of
the persons enumerated under Sec. 1.6049-4(c)(1)(ii) (B) through (Q) if
it can be so treated under Sec. 1.6049-4(c)(1)(ii)(A)(1) or any one of
the paragraphs under Sec. 1.6049-4(c)(1)(ii) (B) through (Q) without the
need to furnish documentation. If the withholding agent cannot treat a
payee as a person described in Sec. 1.6049-4(c)(1)(ii) (A)(1) through
(Q), then the payee shall be presumed to be a partnership. The fact that
a payee is presumed to have a certain status under the provisions of
this paragraph (b)(3)(ii) does not mean that it is excused from
furnishing documentation, if documentation is otherwise required in
order to obtain a reduced rate of withholding under this section. For
example, if, for purposes of this paragraph (b)(3)(ii), a payee is
presumed to be a tax-exempt organization based on Sec. 1.6049-
4(c)(1)(ii)(B), the withholding agent cannot rely on this presumption to
reduce the rate of withholding on payments to such person (if such
person is also presumed to be a foreign person under paragraph
(b)(3)(iii)(A) of this section) because a reduction in the rate of
withholding for payments to a foreign tax-exempt organization generally
requires that a valid Form W-8 described in Sec. 1.1441-9(b)(2) be
furnished to the withholding agent.
[[Page 74]]
(iii) Presumption of U.S. or foreign status. A payment that the
withholding agent cannot reliably associate with documentation is
presumed to be made to a U.S. person, except as otherwise provided in
this paragraph (b)(3)(iii), in paragraphs (b)(3) (iv) and (v) of this
section, or in Sec. 1.1441-5 (d) or (e).
(A) Payments to exempt recipients. If a withholding agent cannot
reliably associate a payment with documentation from the payee and the
payee is an exempt recipient (as determined under the provisions of
Sec. 1.6049-4(c)(1)(ii) in the case of interest, or under similar
provisions under chapter 61 of the Code applicable to the type of
payment involved, but not including a payee that the withholding agent
may treat as a foreign intermediary in accordance with paragraph
(b)(3)(v) of this section), the payee is presumed to be a foreign person
and not a U.S. person--
(1) If the withholding agent has actual knowledge of the payee's
employer identification number and that number begins with the two
digits ``98'';
(2) If the withholding agent's communications with the payee are
mailed to an address in a foreign country;
(3) If the name of the payee indicates that the entity is the type
of entity that is on the per se list of foreign corporations contained
in Sec. 301.7701-2(b)(8)(i) of this chapter; or
(4) If the payment is made outside the United States (as defined in
Sec. 1.6049-5(e)).
(B) Scholarships and grants. A payment representing taxable
scholarship or fellowship grant income that does not represent
compensation for services (but is not excluded from tax under section
117) and that a withholding agent cannot reliably associate with
documentation is presumed to be made to a foreign person if the
withholding agent has a record that the payee has a U.S. visa that is
not an immigrant visa. See section 871(c) and Sec. 1.1441-4(c) for
applicable tax rate and withholding rules.
(C) Pensions, annuities, etc. A payment from a trust described in
section 401(a), an annuity plan described in section 401(a), an annuity
plan described in section 403(a), or a payment with respect to any
annuity, custodial account, or retirement income account described in
section 403(b) that a withholding agent cannot reliably associate with
documentation is presumed to be made to a U.S. person only if the
withholding agent has a record of a Social Security number for the payee
and relies on a mailing address described in the following sentence. A
mailing address is an address used for purposes of information reporting
or otherwise communicating with the payee that is an address in the
United States or in a foreign country with which the United States has
an income tax treaty in effect that provides that the payee, if an
individual resident in that country, would be entitled to an exemption
from U.S. tax on amounts described in this paragraph (b)(3)(iii)(C). Any
payment described in this paragraph (b)(3)(iii)(C) that is not presumed
made to a U.S. person is presumed to be made to a foreign person. A
withholding agent making a payment to a person presumed to be a foreign
person may not reduce the 30-percent amount of withholding required on
such payment unless it receives a withholding certificate described in
paragraph (e)(2)(i) of this section furnished by the beneficial owner.
For basis of reduction in the 30-percent rate, see Sec. 1.1441-4(d) or
Sec. 1.1441-6(b).
(D) Certain payments to offshore accounts. A payment that would be
subject to withholding under section 1441, 1442, or 1443 if made to a
foreign person and is exempt from backup withholding under section 3406
by reason of Sec. 31.3406(g)-1(e) of this chapter (relating to exemption
from backup withholding under section 3406 for certain payments to
offshore accounts) is presumed to be made to a foreign payee.
(iv) Grace period in the case of indicia of a foreign payee. A
withholding agent may choose, in its discretion, to apply the provisions
of Sec. 1.6049-5(d)(2)(ii) regarding a 90-day grace period for purposes
of this paragraph (b)(3) (by substituting the term withholding agent for
the term payor) to amounts described in Sec. 1.1441-6(b)(2)(ii) and to
amounts covered by a Form 8233 described in Sec. 1.1441-4(b)(2)(ii).
Thus, for these amounts, a withholding agent may, in its discretion,
choose to treat an account holder as a foreign person and withhold under
chapter 3 of the Code
[[Page 75]]
(and the regulations thereunder) while awaiting documentation. For
purposes of determining the rate of withholding under this section, the
withholding agent must withhold at the unreduced 30-percent rate at the
time that the amounts are credited to the account. However, a
withholding agent who can reliably associate the payment with a
withholding certificate that is otherwise valid within the meaning of
the applicable provisions except for the fact that it is transmitted by
facsimile may rely on that facsimile form for purposes of withholding at
the claimed reduced rate. For reporting of amounts credited both before
and after the grace period, see Sec. 1.1461-1(c)(7). The following
adjustments shall be made at the expiration of the grace period:
(A) If, at the end of the grace period, the documentation is not
furnished in the manner required under this section and the account
holder is presumed to be a U.S. person who is not an exempt recipient,
then backup withholding applies to amounts credited to the account after
the expiration of the grace period only. Amounts credited to the account
during the grace period shall be treated as owned by a foreign payee and
adjustments must be made to correct any underwithholding on such amounts
in the manner described in Sec. 1.1461-2.
(B) If, at the end of the grace period, the documentation is not
furnished in the manner required under this section and the account
holder is presumed to be a foreign person, or if documentation is
furnished that does not support the claimed rate reduction, then
adjustments must be made to correct the underwithholding on amounts
credited to the account during the grace period, based on adjustment
procedures described in Sec. 1.1461-2.
(v) Special rules applicable to payments to foreign intermediaries--
(A) Reliance on claim of status as foreign intermediary. A withholding
agent that can reliably associate a payment with a withholding
certificate described in paragraph (e)(3) (ii) or (iii) of this section
may treat the payment as made to a foreign intermediary, as represented
in the certificate. For this purpose, a U.S. person's foreign branch
that is a qualified intermediary defined in paragraph (e)(5)(ii) of this
section shall be treated as a foreign intermediary. For purposes of this
section, a payment that the withholding agent can reliably associate
with a withholding certificate described in paragraph (e)(3) (ii) or
(iii) of this section that would be valid except for the fact that some
or all of the withholding certificates or other appropriate
documentation required to be attached are lacking or are unreliable or
that information for allocating the payment among the various persons
for whom the intermediary is acting is lacking or is unreliable shall
nevertheless be treated as a payment to a foreign intermediary and the
rules of this paragraph (b)(3)(v) shall apply accordingly. A payee that
the withholding agent may not reliably treat as a foreign intermediary
under this paragraph (b)(3)(v)(A) is presumed to be an owner whose
status as an individual, trust, estate, etc., must be determined in
accordance with paragraph (b)(3)(ii) of this section, to the extent
relevant. In addition, such payee is presumed to be a U.S. or a foreign
payee based upon the presumptions described in paragraph (b)(3)(iii) of
this section. The provisions of paragraphs (b)(3)(v) (B), (C), and (D)
of this section are not relevant to a withholding agent that can
reliably associate a payment with a withholding certificate from a
person representing to be a qualified intermediary that has assumed
primary withholding responsibility in accordance with paragraph
(e)(5)(iv) of this section.
(B) Beneficial owner documentation is lacking or unreliable. Any
portion of a payment that the withholding agent may treat as made to a
foreign intermediary in accordance with paragraph (b)(3)(v)(A) of this
section but cannot reliably associate with a beneficial owner due to the
lack of a withholding certificate or other appropriate documentation for
that beneficial owner is presumed to be made to a foreign payee for whom
the foreign intermediary collects the payment (see paragraph (b)(2)(v)
of this section). For purposes of this paragraph (b)(2)(v)(B), any
payment that a foreign qualified intermediary represents to be allocable
to the category of assets described in paragraph (e)(5)(v)(B)(3) of this
section
[[Page 76]]
(i.e., assets allocable to persons for whom the qualified intermediary
does not hold documentation as specified under its agreement with the
IRS) is treated as a payment that the withholding agent cannot reliably
associate with beneficial owners. As a result, any payment allocable to
such category of assets is presumed to be made to an unidentified
foreign payee. Under paragraph (b)(1) of this section, a payment to a
foreign payee is subject to withholding at a 30-percent rate.
(C) Information regarding allocation of payment is lacking or
unreliable. If a withholding agent can reliably associate a payment with
a group of beneficial owners or payees but lacks reliable information to
determine how much of the payment is allocable to one or more of the
beneficial owners or payees in the group (because, for example, the
statement described in paragraph (e)(3)(iv) of this section has not been
furnished), the payment, to the extent it cannot reliably be allocated,
is presumed to be allocable entirely to the beneficial owner or payee in
the group with the highest applicable withholding rate or, if the rates
are equal, to the beneficial owner or payee in the group with the
highest U.S. tax liability, as the withholding agent shall estimate,
based on its knowledge and available information. If a withholding
certificate attached to an intermediary certificate is another
intermediary certificate or a certificate from a foreign partnership
described in Sec. 1.1441-5(c)(3)(iii), the rules of this paragraph
(b)(3)(v)(C) apply by treating the share of the payment allocable to the
other intermediary or to the foreign partnership as if the payment were
made directly to the other intermediary or to the foreign partnership.
(D) Certification that the foreign intermediary has furnished
documentation for all of the persons to whom the intermediary
certificate relates is lacking or unreliable. If the certification
required under paragraph (e)(3)(iii)(D) of this section (that the
attached withholding certificates and other appropriate documentation
represent all of the persons to whom the intermediary withholding
certificate relates) is lacking or is unreliable and, as a result, the
withholding agent cannot reliably determine how much of the payment is
allocable to each of the persons or group of persons for which the
withholding agent holds a withholding certificate or other appropriate
documentation, then none of the payment can reliably be associated with
any one person and the entire payment is presumed to be made to an
unidentified foreign payee for whom the intermediary collects the
payment and from which a 30-percent amount must be withheld in
accordance with paragraph (b)(1) of this section.
(vi) U.S. branches and foreign flow-through entities. The rules of
paragraphs (b)(3)(v) (B), (C), and (D) of this section shall apply to
payments to a U.S. branch described in paragraph (b)(2)(iv)(A) of this
section that has agreed to assume withholding responsibility in the same
manner that they apply to payments to a foreign intermediary. See
Sec. 1.1441-5(d) for similar rules in the case of payments to foreign
partnerships. See Sec. 1.1441-5(e) for similar rules in the case of
payments to foreign trusts or foreign estates.
(vii) Joint payees. A payment made to joint payees for whom the
withholding agent cannot reliably associate documentation for all joint
payees or can reliably associate the payment with a Form W-9 furnished
in accordance with the procedures described in Secs. 31.3406(d)-1
through 31.3406(d)-5 of this chapter from one of the joint payees is
presumed to be made to U.S. persons. For purposes of applying this
paragraph (b)(3), the grace period rules in paragraph (b)(3)(iv) of this
section shall apply only if each payee qualifies for the conditions
described in paragraph (b)(3)(iv) of this section. However, as provided
in paragraph (b)(3)(iii)(D) of this section, a payment of an amount that
would be subject to withholding under section 1441, 1442, or 1443 if
paid to a foreign person and is exempt from the application of the
provisions of section 3406 by reason of Sec. 31.3406(g)-1(e) of this
chapter (relating to exemption from backup withholding under section
3406 of the Code for certain payments made with respect to offshore
accounts), is presumed to be made to foreign persons.
(viii) Rebuttal of presumptions. A payee or beneficial owner may
rebut
[[Page 77]]
the presumptions described in this paragraph (b)(3) by providing
reliable documentation to the withholding agent or, if applicable, to
the IRS.
(ix) Effect of reliance on presumptions and of actual knowledge or
reason to know otherwise--(A) General rule. Except as otherwise provided
in paragraph (b)(3)(ix)(B) of this section, a withholding agent that
withholds on a payment under section 3402, 3405 or 3406 in accordance
with the presumptions set forth in this paragraph (b)(3) shall not be
liable for withholding under this section even it is later established
that the beneficial owner of the payment is, in fact, a foreign person.
Similarly, a withholding agent that withholds on a payment under this
section in accordance with the presumptions set forth in this paragraph
(b)(3) shall not be liable for withholding under section 3402 or 3405 or
for backup withholding under section 3406 even if it is later
established that the payee or beneficial owner is, in fact, a U.S.
person. A withholding agent that, instead of relying on the presumptions
described in this paragraph (b)(3), relies on its own actual knowledge
to withhold a lesser amount, not withhold, or not report a payment, even
though reporting of the payment or withholding a greater amount would be
required if the withholding agent relied on the presumptions described
in this paragraph (b)(3) shall be liable for tax, interest, and
penalties to the extent provided under section 1461 and the regulations
under that section. See paragraph (b)(7) of this section for provisions
regarding such liability if the withholding agent fails to withhold in
accordance with the presumptions described in this paragraph (b)(3).
(B) Actual knowledge or reason to know that amount of withholding is
greater than is required under the presumptions or that reporting of the
payment is required. Notwithstanding the provisions of paragraph
(b)(3)(ix)(A) of this section, a withholding agent may not rely on the
presumptions described in this paragraph (b)(3) to the extent it has
actual knowledge or reason to know that the status or characteristics of
the payee or of the beneficial owner are other than what is presumed
under this paragraph (b)(3) and, if based on such knowledge or reason to
know, it should withhold (under this section or another withholding
provision of the Code) an amount greater than would be the case if it
relied on the presumptions described in this paragraph (b)(3) or it
should report (under this section or under another provision of the
Code) an amount that would not otherwise be reportable if it relied on
the presumptions described in this paragraph (b)(3). In such a case, the
withholding agent must rely on its actual knowledge or reason to know
rather than on the presumptions set forth in this paragraph (b)(3).
Failure to do so and, as a result, failure to withhold the higher amount
or to report the payment, shall result in liability for tax, interest,
and penalties to the extent provided under sections 1461 and 1463 and
the regulations under those sections.
(x) Examples. The provisions of this paragraph (b)(3) are
illustrated by the following examples:
Example 1. A withholding agent, W, makes a payment of U.S. source
dividends to person X, Inc. at an address outside the United States. W
cannot reliably associate the payment to X with documentation. Under
Secs. 1.6042-3(b)(1)(vii) and 1.6049-4(c)(1)(ii)(A)(1), W may treat X as
a corporation. Thus, under the presumptions described in paragraph
(b)(3)(iii) of this section, W must presume that X is a foreign person
(because the payment is made outside the United States). However, W
knows that X is a U.S. person who is an exempt recipient. W may not rely
on its actual knowledge to not withhold under this section. If W's
knowledge is, in fact, incorrect, W would be liable for tax, interest,
and, if applicable, penalties, under section 1461. W would be permitted
to reduce or eliminate its liability for the tax by establishing, in
accordance with paragraph (b)(7) of this section, that the tax is not
due or has been satisfied. If W's actual knowledge is, in fact, correct,
W may nevertheless be liable for tax, interest, or penalties under
section 1461 for the amount that W should have withheld based upon the
presumptions. W would be permitted to reduce or eliminate its liability
for the tax by establishing, in accordance with paragraph (b)(7) of this
section, that its actual knowledge was, in fact, correct and that no tax
or a lesser amount of tax was due.
Example 2. A withholding agent, W, makes a payment of U.S. source
dividends to Y who does not qualify as an exempt recipient under
Secs. 1.6042-3(b)(1)(vii) and 1.6049-4(c)(1)(ii). W cannot reliably
associate the payment to Y with documentation. Under
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the presumptions described in paragraph (b)(3)(iii) of this section, W
must presume that Y is a U.S. person who is not an exempt recipient for
purposes of section 6042. However, W knows that Y is a foreign person. W
may not rely on its actual knowledge to withhold under this section
rather than backup withhold under section 3406. If W's knowledge is, in
fact, incorrect, W would be liable for tax, interest, and, if
applicable, penalties, under section 3403. If W's actual knowledge is,
in fact, correct, W may nevertheless be liable for tax, interest, or
penalties under section 3403 for the amount that W should have withheld
based upon the presumptions. Paragraph (b)(7) of this section does not
apply to provide relief from liability under section 3403.
Example 3. A withholding agent, W, makes a payment of U.S. source
dividends to X, Inc. W cannot reliably associate the payment to X, Inc.
with documentation. X, Inc. presents none of the indicia of foreign
status described in paragraph (b)(3)(iii)(A) of this section, but W has
actual knowledge that X, Inc. is a foreign corporation. W may treat X,
Inc. as an exempt recipient under Sec. 1.6042-3(b)(1)(vii). Because
there are no indicia of foreign status, W would, absent actual knowledge
or reason to know otherwise, be permitted to treat X, Inc. as a domestic
corporation in accordance with the presumptions of paragraph (b)(3)(iii)
of this section. However, under paragraph (b)(3)(ix)(B) of this section,
W may not rely on the presumption of U.S. status since reliance on its
actual knowledge requires that it withhold an amount greater than would
be the case under the presumptions.
Example 4. A withholding agent, W, is a plan administrator who makes
pension payments to person X with a mailing address in a foreign country
with which the United States has an income tax treaty in effect. Under
that treaty, the type of pension income paid to X is taxable solely in
the country of residence. The plan administrator has a record of X's
U.S. social security number. W has no actual knowledge or reason to know
that X is a foreign person. W may rely on the presumption of paragraph
(b)(3)(iii)(C) of this section in order to treat X as a U.S. person.
Therefore, any withholding and reporting requirements for the payment
are governed by the provisions of section 3405 and the regulations under
that section.
(4) List of exemptions from, or reduced rates of, withholding under
chapter 3 of the Code. A withholding agent that has determined that the
payee is a foreign person for purposes of paragraph (b)(1) of this
section must determine whether the payee is entitled to a reduced rate
of withholding under section 1441, 1442, or 1443. This paragraph (b)(4)
identifies items for which a reduction in the rate of withholding may
apply and whether the rate reduction is conditioned upon documentation
being furnished to the withholding agent. Documentation required under
this paragraph (b)(4) is documentation that a withholding agent must be
able to associate with a payment upon which it can rely to treat the
payment as made to a foreign person that is the beneficial owner of the
payment in accordance with paragraph (e)(1)(ii) of this section. This
paragraph (b)(4) also cross-references other sections of the Code and
applicable regulations in which some of these exceptions, exemptions, or
reductions are further explained. See, for example, paragraph
(b)(4)(viii) of this section, dealing with effectively connected income,
that cross-references Sec. 1.1441-4(a); see paragraph (b)(4)(xv) of this
section, dealing with exemptions from, or reductions of, withholding
under an income tax treaty, that cross-references Sec. 1.1441-6. This
paragraph (b)(4) is not an exclusive list of items to which a reduction
of the rate of withholding may apply and, thus, does not preclude an
exemption from, or reduction in, the rate of withholding that may
otherwise be allowed under the regulations under the provisions of
chapter 3 of the Code for a particular item of income identified in this
paragraph (b)(4).
(i) Portfolio interest described in section 871(h) or 881(c) and
substitute interest payments described in Sec. 1.871-7(b)(2) or 1.881-
2(b)(2) are exempt from withholding under section 1441(a). See
Sec. 1.871-14 for regulations regarding portfolio interest and section
1441(c)(9) for exemption from withholding. Documentation establishing
foreign status is required for interest on an obligation in registered
form to qualify as portfolio interest. See section 871(h)(2)(B)(ii) and
Sec. 1.871-14(c)(1)(ii)(C). For special documentation rules regarding
foreign-targeted registered obligations described in Sec. 1.871-
14(e)(2), see Sec. 1.871-14(e) (3) and (4) and, in particular,
Sec. 1.871-14(e)(4)(i)(A) and (ii)(A) regarding the time when the
withholding agent must receive the documentation. The documentation
furnished for purposes of qualifying interest as portfolio interest
serves as the basis for the withholding exemption for
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purposes of this section and for purposes of establishing foreign status
for purposes of section 6049. See Sec. 1.6049-5(b)(8). Documentation
establishing foreign status is not required for qualifying interest on
an obligation in bearer form described in Sec. 1.871-14(b)(1) as
portfolio interest. However, in certain cases, documentation for
portfolio interest on a bearer obligation may have to be furnished in
order to establish foreign status for purposes of the information
reporting provisions of section 6049 and backup withholding under
section 3406. See Sec. 1.6049-5(b)(7).
(ii) Bank deposit interest and similar types of deposit interest
(including original issue discount) described in section 871(i)(2)(A) or
881(d) that are from sources within the United States are exempt from
withholding under section 1441(a). See section 1441(c)(10).
Documentation establishing foreign status is not required for purposes
of this withholding exemption but may have to be furnished for purposes
of the information reporting provisions of section 6049 and backup
withholding under section 3406. See Sec. 1.6049-5(d)(3)(iii) for
exceptions to the foreign payee and exempt recipient rules regarding
this type of income. See also Sec. 1.6049-5(b)(11) for applicable
documentation exemptions for certain bank deposit interest paid on
obligations in bearer form.
(iii) Bank deposit interest (including original issue discount)
described in section 861(a)(1)(B) is exempt from withholding under
sections 1441(a) as income that is not from U.S. sources. Documentation
establishing foreign status is not required for purposes of this
withholding exemption but may have to be furnished for purposes of the
information reporting provisions of section 6049 and backup withholding
under section 3406. Reporting requirements for payments of such interest
are governed by section 6049 and the regulations under that section. See
Sec. 1.6049-5(b)(12) and alternative documentation rules under
Sec. 1.6049-5(c)(4).
(iv) Interest or original issue discount from sources within the
United States on certain short-term obligations described in section
871(g)(1)(B) or 881(a)(3) is exempt from withholding under sections
1441(a). Documentation establishing foreign status is not required for
purposes of this withholding exemption but may have to be furnished for
purposes of the information reporting provisions of section 6049 and
backup withholding under section 3406. See Sec. 1.6049-5(b)(12) for
applicable documentation for establishing foreign status and
Sec. 1.6049-5(d)(3)(iii) for exceptions to the foreign payee and exempt
recipient rules regarding this type of income. See also Sec. 1.6049-
5(b)(10) for applicable documentation exemptions for certain obligations
in bearer form.
(v) Income from sources without the United States is exempt from
withholding under sections 1441(a). Documentation establishing foreign
status is not required for purposes of this withholding exemption but
may have to be furnished for purposes of the information reporting
provisions of section 6049 or other applicable provisions of chapter 61
of the Code and backup withholding under section 3406. See, for example,
Sec. 1.6049-5(b) (6) and (12) and alternative documentation rules under
Sec. 1.6049-5(c)(4). See also paragraph (b)(5) of this section for cross
references to other applicable provisions of the regulations under
chapter 61 of the Code.
(vi) Distributions from certain domestic corporations described in
section 871(i)(2)(B) or 881(d) are exempt from withholding under section
1441(a). See section 1441(c)(10). Documentation establishing foreign
status is not required for purposes of this withholding exemption but
may have to be furnished for purposes of the information reporting
provisions of section 6042 and backup withholding under section 3406.
See Sec. 1.6042-3(b)(1) (iii) through (vi).
(vii) Dividends paid by certain foreign corporations that are
treated as income from sources within the United States by reason of
section 861(a)(2)(B) are exempt from withholding under section 884(e)(3)
to the extent that the distributions are paid out of earnings and
profits in any taxable year that the corporation was subject to branch
profits tax for that year. Documentation establishing foreign status is
not required for purposes of this withholding exemption but may have to
be furnished for purposes of the information reporting provisions of
section
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6042 and backup withholding under section 3406. See Sec. 1.6042-3(b)(1)
(iii) through (vii).
(viii) Certain income that is effectively connected with the conduct
of a U.S. trade or business is exempt from withholding under section
1441(a). See section 1441(c)(1). Documentation establishing foreign
status and status of the income as effectively connected must be
furnished for purposes of this withholding exemption to the extent
required under the provisions of Sec. 1.1441-4(a). Documentation
furnished for this purpose also serves as documentation establishing
foreign status for purposes of applicable information reporting
provisions under chapter 61 of the Code and for backup withholding under
section 3406. See, for example, Sec. 1.6041-4(a)(1).
(ix) Certain income with respect to compensation for personal
services of an individual that are performed in the United States is
exempt from withholding under section 1441(a). See section 1441(c)(4)
and Sec. 1.1441-4(b). However, such income may be subject to withholding
as wages under section 3402. Documentation establishing foreign status
must be furnished for purposes of any withholding exemption or reduction
to the extent required under Sec. 1.1441-4(b) or 31.3401(a)(6)-1 (e) and
(f) of this chapter. Documentation furnished for this purpose also
serves as documentation establishing foreign status for purposes of
information reporting under section 6041. See Sec. 1.6041-4(a)(1).
(x) Amounts described in section 871(f) that are received as
annuities from certain qualified plans are exempt from withholding under
section 1441(a). See section 1441(c)(7). Documentation establishing
foreign status must be furnished for purposes of the withholding
exemption as required under Sec. 1.1441-4(d). Documentation furnished
for this purpose also serves as documentation establishing foreign
status for purposes of information reporting under section 6041. See
Sec. 1.6041-4(a)(1).
(xi) Payments to a foreign government (including a foreign central
bank of issue) that are excludable from gross income under section
892(a) are exempt from withholding under section 1442. See Sec. 1.1441-
8(b). Documentation establishing status as a foreign government is
required for purposes of this withholding exemption. Payments to a
foreign government are exempt from information reporting under chapter
61 of the Code (see Sec. 1.6049-4(c)(1)(ii)(F)).
(xii) Payments of certain interest income to a foreign central bank
of issue or the Bank for International Settlements that are exempt from
tax under section 895 are exempt from withholding under section 1442.
Documentation establishing eligibility for such exemption is required to
the extent provided in Sec. 1.1441-8(c)(1). Payments to a foreign
central bank of issue or to the Bank for International Settlements are
exempt from information reporting under chapter 61 of the Code (see
Sec. 1.6049-4(c)(1)(ii) (H) and (M)).
(xiii) Amounts derived by a foreign central bank of issue from
bankers' acceptances described in section 871(i)(2)(C) or 881(d) are
exempt from tax and, therefore, from withholding. See section
1441(c)(10). Documentation establishing foreign status is not required
for purposes of this withholding exemption if the name of the payee and
other facts surrounding the payment reasonably indicate that the
beneficial owner of the payment is a foreign central bank of issue as
defined in Sec. 1.861-2(b)(4). See Sec. 1.1441-8(c)(2) for withholding
procedures. See also Secs. 1.6049-4(c)(1)(ii)(H) and 1.6041-3(q)(8) for
a similar exemption from information reporting.
(xiv) Payments to an international organization from investments in
the United States of stocks, bonds, or other domestic securities or from
interest on deposits in banks in the United States of funds belonging to
such international organization are exempt from tax under section 892(b)
and, thus, from withholding. Documentation establishing status as an
international organization is not required if the name of the payee and
other facts surrounding the payment reasonably indicate that the
beneficial owner of the payment is an international organization within
the meaning of section 7701(a)(18). See Sec. 1.1441-8(d). Payments to an
international organization are exempt from information reporting under
chapter 61 of the Code (see Sec. 1.6049-4(c)(1)(ii)(G)).
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(xv) Amounts may be exempt from, or subject to a reduced rate of,
withholding under an income tax treaty. Documentation establishing
eligibility for benefits under an income tax treaty is required for this
purpose as provided under Secs. 1.1441-6. Documentation furnished for
this purpose also serves as documentation establishing foreign status
for purposes of applicable information reporting provisions under
chapter 61 of the Code and for backup withholding under section 3406.
See, for example, Sec. 1.6041-4(a)(1).
(xvi) Amounts of scholarships and grants paid to certain exchange or
training program participants that do not represent compensation for
services but are not excluded from tax under section 117 are subject to
a reduced rate of withholding of 14-percent under section 1441(b).
Documentation establishing foreign status is required for purposes of
this reduction in rate as provided under Sec. 1.1441-4(c). This income
is not subject to information reporting under chapter 61 of the Code nor
to backup withholding under section 3406. The compensatory portion of a
scholarship or grant is reportable as wage income. See Sec. 1.6041-3(o).
(xvii) Amounts paid to a foreign organization described in section
501(c) are exempt from withholding under section 1441 to the extent that
the amounts are not income includible under section 512 in computing the
organization's unrelated business taxable income and are not subject to
the tax imposed by section 4948(a). Documentation establishing status as
a tax-exempt organization is required for purposes of this exemption to
the extent provided in Sec. 1.1441-9. Amounts includible under section
512 in computing the organization's unrelated business taxable income
are subject to withholding to the extent provided in section 1443(a) and
Sec. 1.1443-1(a). Gross investment income (as defined in section
4940(c)(2)) of a private foundation is subject to withholding at a 4-
percent rate to the extent provided in section 1443(b) and Sec. 1.1443-
1(b). Payments to a tax-exempt organization are exempt from information
reporting under chapter 61 of the Code and the regulations thereunder
(see Sec. 1.6049-4(c)(1)(ii)(B)(1)).
(xviii) Per diem amounts for subsistence paid by the U.S. government
to a nonresident alien individual who is engaged in any program of
training in the United States under the Mutual Security Act of 1954 are
exempt from withholding under section 1441(a). See section 1441(c)(6).
Documentation of foreign status is required under Sec. 1.1441-4(e) for
purposes of establishing eligibility for this exemption. See
Sec. 1.6041-3(p).
(xix) Interest with respect to tax-free covenant bonds issued prior
to 1934 is subject to special withholding procedures set forth in
Sec. 1.1461-1 in effect prior to January 1, 2001 (see Sec. 1.1461-1 as
contained in 26 CFR part 1, revised April 1, 1999).
(xx) Income from certain gambling winnings of a nonresident alien
individual is exempt from tax under section 871(j) and from withholding
under section 1441(a). See section 1441(c)(11). Documentation
establishing foreign status is not required for purposes of this
exemption but may have to be furnished for purposes of the information
reporting provisions of section 6041 and backup withholding under
section 3406. See Secs. 1.6041-1 and 1.6041-4(a)(1).
(xxi) Any payments not otherwise mentioned in this paragraph (b)(4)
shall be subject to withholding at the rate of 30-percent if it is an
amount subject to withholding (as defined in Sec. 1.1441-2(a)) unless
and to the extent the IRS may otherwise prescribe in published guidance
(see Sec. 601.601(d)(2) of this chapter) or unless otherwise provided in
regulations under chapter 3 of the Code.
(5) Establishing foreign status under applicable provisions of
chapter 61 of the Code. This paragraph (b)(5) identifies relevant
provisions of the regulations under chapter 61 of the Code that exempt
payments from information reporting, and therefore, from backup
withholding under section 3406, based on the payee's status as a foreign
person. Many of these exemptions require that the payee's foreign status
be established in order for the exemption to apply. The regulations
under applicable provisions of chapter 61 of the Code generally provide
that the documentation described in this section may be relied upon for
purposes of determining foreign status.
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(i) Payments to a foreign person that are governed by section 6041
(dealing with certain trade or business income) are exempt from
information reporting under Sec. 1.6041-4(a).
(ii) Payments to a foreign person that are governed by section 6041A
(dealing with remuneration for services and certain sales) are exempt
from information reporting under Sec. 1.6041A-1(d)(3).
(iii) Payments to a foreign person that are governed by section 6042
(dealing with dividends) are exempt from information reporting under
Sec. 1.6042-3(b)(1) (iii) through (vi).
(iv) Payments to a foreign person that are governed by section 6044
(dealing with patronage dividends) are exempt from information reporting
under Sec. 1.6044-3(c)(1).
(v) Payments to a foreign person that are governed by section 6045
(dealing with broker proceeds) are exempt from information reporting
under Sec. 1.6045-1(g).
(vi) Payments to a foreign person that are governed by section 6049
(dealing with interest) to a foreign person are exempt from information
reporting under Sec. 1.6049-5(b) (6) through (15).
(vii) Payments to a foreign person that are governed by section
6050N (dealing with royalties) are exempt from information reporting
under Sec. 1.6050N-1(c).
(viii) Payments to a foreign person that are governed by section
6050P (dealing with income from cancellation of debt) are exempt from
information reporting under section 6050P or the regulations under that
section except to the extent provided in Notice 96-61 (1996-2 C.B. 227);
see also Sec. 601.601(b)(2) of this chapter.
(6) Rules of withholding for payments by a foreign intermediary or
certain U.S. branches. A foreign intermediary described in paragraph
(e)(3)(i) of this section or a U.S. branch described in paragraph
(b)(2)(iv) of this section that receives an amount subject to
withholding (as defined in Sec. 1.1441-2(a)) shall be deemed to have
satisfied any obligation it has under chapter 3 of the Code and the
regulations thereunder to withhold and report the amount when it, in
turn, pays such amount to another person (whether or not the beneficial
owner) to the extent that the payment is associated with a valid
withholding certificate described in paragraph (e)(3) (ii), (iii), or
(v) of this section that it has furnished to another withholding agent
and the intermediary does not know and has no reason to know that the
correct amount has not been withheld under chapter 3 of the Code and the
regulations thereunder. See Sec. 1.1441-5(c)(3)(v) for a similar rule
for payments by certain foreign partnerships.
(7) Liability for failure to obtain documentation timely or to act
in accordance with applicable presumptions--(i) General rule. A
withholding agent that cannot reliably associate a payment with
documentation on the date of payment and that does not withhold under
this section, or withholds at less than the 30-percent rate prescribed
under section 1441(a) and paragraph (b)(1) of this section, is liable
under section 1461 for the tax required to be withheld under chapter 3
of the Code and the regulations thereunder, without the benefit of a
reduced rate unless--
(A) The withholding agent has appropriately relied on the
presumptions described in paragraph (b)(3) of this section (including
the grace period described in paragraph (b)(3)(iv) of this section) in
order to treat the payee as a U.S. person or, if applicable, on the
presumptions described in Sec. 1.1441-4(a) (2)(i) or (3) to treat the
payment as effectively connected income; or
(B) The withholding agent can demonstrate to the satisfaction of the
district director or the Assistant Commissioner (International) that the
proper amount of tax, if any, was in fact paid to the IRS; or
(C) No documentation is required under section 1441 or this section
in order for a reduced rate of withholding to apply.
(ii) Proof that tax liability has been satisfied. Proof of payment
of tax may be established for purposes of paragraph (b)(7)(i)(B) of this
section on the basis of a Form 4669 (or such other form as the IRS may
prescribe in published guidance (see Sec. 601.601(d)(2) of this
chapter)), establishing the amount of tax, if any, actually paid by or
for the beneficial owner on the income. Proof that a reduced rate of
withholding was, in
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fact, appropriate under the provisions of chapter 3 of the Code and the
regulations thereunder may also be established after the date of payment
by the withholding agent on the basis of a valid withholding certificate
or other appropriate documentation furnished after that date. However,
in the case of a withholding certificate or other appropriate
documentation received after the date of payment (or after the grace
period specified in paragraph (b)(3)(iv) of this section), the district
director or the Assistant Commissioner (International) may require
additional proof if it is determined that the delays in obtaining the
withholding certificate affect its reliability.
(iii) Liability for interest and penalties. A withholding agent that
has failed to withhold other than based on appropriate reliance on the
presumptions described in paragraph (b)(3) of this section or in
Sec. 1.1441-4(a) (2)(i) or (3) is not relieved from liability for
interest under section 6601. Such liability exists even if there is no
underlying tax liability due. The interest on the amount that should
have been withheld shall be imposed as prescribed under section 6601
beginning on the last date for paying the tax due under section 1461
(which, under section 6601, is the due date for filing the withholding
agent's return of tax). The interest shall stop accruing on the earlier
of the date that the required withholding certificate or other
documentation is provided to the withholding agent and to the extent of
the amount of tax that is determined not to be due based on
documentation provided, or the date, and to the extent, that the unpaid
tax liability under section 871, 881 or under section 1461 is satisfied.
Further, in the event that a tax liability is assessed against the
beneficial owner under section 871, 881, or 882 and interest under
section 6601(a) is assessed against, and collected from, the beneficial
owner, the interest charge imposed on the withholding agent shall be
abated to that extent so as to avoid the imposition of a double interest
charge. However, the withholding agent is not relieved of any applicable
penalties. See section 1464.
(iv) Special effective date. See paragraph (f)(2)(ii) of this
section for the special effective date applicable to this paragraph
(b)(7).
(v) Examples. The provisions of paragraph (b)(7) of this section are
illustrated by the following examples:
Example 1. On June 15, 2001, a withholding agent pays U.S. source
interest on an obligation in registered form (issued after July 18,
1984) to a foreign corporation that it cannot reliably associate with a
Form W-8 or other appropriate documentation upon which to rely to treat
the beneficial owner as a foreign person. The withholding agent does not
withhold from the payment. On September 30, 2003, the withholding agent
receives from the foreign corporation a valid Form W-8 described in
paragraph (e)(2)(ii) of this section. Thus, the interest qualifies as
portfolio interest retroactively to June 15, 2001 (the date of payment).
See Sec. 1.871-14(c)(3). The foreign corporation does not file a U.S.
federal income tax return and does not pay the tax owed. The withholding
agent is not liable under section 1461 for the 30-percent tax on the
interest income because the receipt of the Form W-8 exempts the interest
from tax for purposes of sections 881(a) and 1461. The withholding
agent, however, is liable for interest on the amount of withholding that
should have been deducted from the payment on June 15, 2001 and
deposited. Under paragraph (b)(7)(iii) of this section, the period
during which interest may be assessed against the withholding agent runs
from March 15, 2002 (the due date for the Form 1042 relating to the
payment) until September 30, 2003 (i.e., the date that appropriate
documentation is furnished to the withholding agent).
Example 2. On June 15, 2001, a withholding agent pays U.S. source
dividends to a foreign corporation that it cannot reliably associate
with a Form W-8 or other appropriate documentation upon which to rely to
treat the beneficial owner as a foreign person. The withholding agent
does not withhold from the payment. On September 30, 2003, the
withholding agent receives from the foreign corporation a valid Form W-8
described in paragraph (e)(2)(ii) of this section claiming a reduced 15-
percent rate of withholding under a U.S. income tax treaty. The dividend
qualifies for the reduced treaty rate retroactively to June 15, 2001
(the date of payment). The foreign corporation does not file a U.S.
federal income tax return and does not pay the tax owed. Under section
1461, the withholding agent is liable only for a 15-percent tax on the
dividend income because the receipt of the Form W-8 allows the tax rate
to be reduced for purposes of sections 881(a) and 1461 from 30 percent
to 15 percent. The withholding agent, however, is liable for interest on
the full 30-percent amount that should have been deducted and withheld
from the
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payment on June 15, 2001, and deposited, over a period running from
March 15, 2002 (the due date for the Form 1042 relating to the payment)
until September 30, 2003 (the date that the appropriate documentation is
furnished to the withholding agent supporting a reduction in rate under
a tax treaty). Additional interest may be assessed relating to the
outstanding 15-percent tax liability (i.e., the portion of the 30-
percent total tax liability that is not reduced under the treaty). Such
additional interest runs from March 15, 2002, until such date as that
15-percent tax liability is satisfied by the withholding agent or the
taxpayer (subject to abatement in order to avoid a double interest
charge).
(8) Adjustments, refunds, or credits of overwithheld amounts. If the
amount withheld under section 1441, 1442, or 1443 is greater than the
tax due by the withholding agent or the taxpayer, adjustments may be
made in accordance with the procedures described in Sec. 1.1461-2(a).
Alternatively, refunds or credits may be claimed in accordance with the
procedures described in Sec. 1.1464-1, relating to refunds or credits
claimed by the beneficial owner, or Sec. 1.6414-1, relating to refunds
or credits claimed by the withholding agent. If an amount was withheld
under section 3406 or is subsequently determined to have been paid to a
foreign person, see paragraph (b)(3)(vii) of this section and
Sec. 31.6413(a)-3(a)(1) of this chapter.
(9) Payments to joint owners. A payment to joint owners that
requires documentation in order to reduce the rate of withholding under
chapter 3 of the Code and the regulations thereunder does not qualify
for such reduced rate unless the withholding agent can reliably
associate the payment with documentation from each owner.
Notwithstanding the preceding sentence, a payment to joint owners
qualifies as a payment exempt from withholding under this section if any
one of the owners provides a certificate of U.S. status on a Form W-9 in
accordance with paragraph (d) (2) or (3) of this section or the
withholding agent can associate the payment with a withholding
certificate upon which it can rely to treat the payment as made to a
U.S. beneficial owner under paragraph (d)(4) of this section. See
Sec. 31.3406(h)-2(a)(3)(i)(B) of this chapter.
(c) Definitions--(1) Withholding. The term withholding means the
deduction and withholding of tax at the applicable rate from the
payment.
(2) Foreign and U.S. person. The term foreign person means a
nonresident alien individual, a foreign corporation, a foreign
partnership, a foreign trust, a foreign estate, and any other person
that is not a U.S. person described in the next sentence. For purposes
of the regulations under chapter 3 of the Code, the term foreign person
also means, with respect to a payment by a withholding agent, a foreign
branch of a U.S. person that furnishes an intermediary withholding
certificate described in paragraph (e)(3)(ii) of this section. A U.S.
person is a person described in section 7701(a)(30), the U.S. government
(including an agency or instrumentality thereof), a State (including an
agency or instrumentality thereof), or the District of Columbia
(including an agency or instrumentality thereof).
(3) Individual--(i) Alien individual. The term alien individual
means an individual who is not a citizen or a national of the United
States. See Sec. 1.1-1(c).
(ii) Nonresident alien individual. The term nonresident alien
individual means a person described in section 7701(b)(1)(B), an alien
individual who is a resident of a foreign country under the residence
article of an income tax treaty and Sec. 301.7701(b)-7(a)(1) of this
chapter, or an alien individual who is a resident of Puerto Rico, Guam,
the Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands,
or American Samoa as determined under Sec. 301.7701(b)-1(d) of this
chapter. An alien individual who has made an election under section 6013
(g) or (h) to be treated as a resident of the United States is
nevertheless treated as a nonresident alien individual for purposes of
withholding under chapter 3 of the Code and the regulations thereunder.
(4) Certain foreign corporations. For purposes of this section, a
corporation created or organized in Guam, the Commonwealth of Northern
Mariana Islands, the U.S. Virgin Islands, and American Samoa, is not
treated as a foreign corporation if the requirements of sections
881(b)(1) (A), (B), and (C) are met for such corporation. Further, a
payment made to a foreign government
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or an international organization shall be treated as a payment made to a
foreign corporation for purposes of withholding under chapter 3 of the
Code and the regulations thereunder.
(5) Financial institution and foreign financial institution. For
purposes of the regulations under chapter 3 of the Code, the term
financial institution means a person described in Sec. 1.165-
12(c)(1)(iv) (not including a person providing pension or other similar
benefits or a regulated investment company or other mutual fund, unless
otherwise indicated) and the term foreign financial institution means a
financial institution that is a foreign person, as defined in paragraph
(c)(2) of this section.
(6) Beneficial owner--(i) General rule. In the case of a payment of
income, the term beneficial owner means the person who is the owner of
the income for tax purposes and who beneficially owns that income. A
person shall be treated as the owner of the income to the extent that it
is required under U.S. tax principles to include the amount paid in
gross income under section 61 (determined without regard to an exclusion
or exemption from gross income under the Code). Beneficial ownership of
income is determined under the provisions of section 7701(l) and the
regulations under that section and any other applicable general U.S. tax
principles, including principles governing the determination of whether
a transaction is a conduit transaction. Thus, a person receiving income
in a capacity as a nominee, agent, custodian for another person is not
the beneficial owner of the income. In the case of a scholarship, the
student receiving the scholarship is the beneficial owner of that
scholarship. In the case of a payment of an amount that is not income,
the beneficial owner determination shall be made under this paragraph
(c)(6) as if the amount was income.
(ii) Special rules for flow-through entities and arrangements--(A)
General rule. The beneficial owners of income paid to a partnership or
other flow-through arrangements described in paragraph (c)(6)(ii)(C) of
this section are those persons who, under U.S. tax principles, are the
owners of the income for tax purposes in their separate or individual
capacities and who beneficially own that income. For example, a
partnership (first tier) that is a partner in another partnership
(second tier) is not the beneficial owner of income paid to the second
tier partnership since the first tier partnership is not the owner of
the income under U.S. tax principles. Rather, the partners of the first
tier partnership are the beneficial owners (to the extent they are not
themselves partnerships and are not conduits within the meaning of
section 7701(l) and the regulations under that section). See
Sec. 1.1441-5(b) for applicable withholding procedures for payments to a
domestic partnership. See also Sec. 1.1441-5(c)(3)(ii) for applicable
withholding procedures for payments to a foreign partnership where one
of the partners (at any level in the chain of tiers) is a domestic
partnership. See Sec. 1.1441-6(b)(4) for rules governing the eligibility
of a payment to an entity or other arrangement for a reduced rate of
withholding under an income tax treaty.
(B) Trusts and estates. The provisions of paragraphs (c)(6)(i) and
(ii)(A) of this section shall not apply to a trust or an estate, whether
domestic or foreign. The beneficial owner of income paid to a trust or
to an estate shall be determined under the provisions of Sec. 1.1441-
3(f) and (g) in effect prior to January 1, 2001 (see Sec. 1.1441-3(f)
and (g) as contained in 26 CFR part 1, revised April 1, 1999).
(C) Definition of a flow-through entity or arrangement. For purposes
of this paragraph (c)(6)(ii), a flow-through entity means a partnership,
estate, or trust. A flow-though arrangement is a contractual arrangement
that does not involve an entity and is treated as a partnership for U.S.
tax purposes or is a wholly-owned entity that is disregarded for federal
tax purposes under Sec. 301.7701-2(c)(2) of this chapter as an entity
separate from its owner. The term partnership means any entity or
arrangement (as defined in Sec. 301.7701-2(c)(1) of this chapter) whose
tax regime is governed by subchapter K of chapter 1 of the Code.
(7) Withholding agent. For a definition of the term withholding
agent and applicable rules, see Sec. 1.1441-7.
(8) Person. For purposes of the regulations under chapter 3 of the
Code, the
[[Page 86]]
term person shall mean a person described in section 7701(a)(1) and the
regulations under that section and a U.S. branch to the extent treated
as a U.S. person under paragraph (b)(2)(iv) of this section. For
purposes of the regulations under chapter 3 of the Code, the term person
does not include a wholly-owned entity that is disregarded for federal
tax purposes under Sec. 301.7701-2(c)(2) of this chapter as an entity
separate from its owner. See paragraph (b)(2)(iii) of this section for
procedures applicable to payments to such entities.
(9) Source of income. The source of income is determined under the
provisions of part I (section 861 and following) , subchapter N, chapter
1 of the Code and the regulations under those provisions.
(10) Chapter 3 of the Code. For purposes of the regulations under
sections 1441, 1442, and 1443, any reference to chapter 3 of the Code
shall not include references to sections 1445 and 1446, unless the
context indicates otherwise.
(11) Reduced rate. For purposes of regulations under chapter 3 of
the Code, and other withholding provisions of the Code, the term reduced
rate, when used in regulations under chapter 3 of the Code, shall
include an exemption from tax.
(d) Beneficial owner's or payee's claim of U.S. status--(1) In
general. Under paragraph (b)(1) of this section, a withholding agent is
not required to withhold under chapter 3 of the Code on payments to a
U.S. payee, to a person presumed to be a U.S. payee in accordance with
the provisions of paragraph (b)(3) of this section, or to a person that
the withholding agent may treat as a U.S. beneficial owner of the
payment. Absent actual knowledge or reason to know otherwise, a
withholding agent may rely on the provisions of this paragraph (d) in
order to determine whether to treat a payee or beneficial owner as a
U.S. person.
(2) Payments for which a Form W-9 is otherwise required. A
withholding agent may treat as a U.S. person a payee who is required to
furnish a Form W-9 and who furnishes it in accordance with the
procedures described in Secs. 31.3406(d)-1 through 31.3406(d)-5 of this
chapter (including the requirement that the payee furnish its taxpayer
identifying number (TIN)) if the withholding agent meets all the
requirements described in Sec. 31.3406(h)-3(e) of this chapter regarding
reliance by a payor on a Form W-9.
(3) Payments for which a Form W-9 is not otherwise required. In the
case of a payee who is not required to furnish a Form W-9 under section
3406, the withholding agent may rely on a certificate of U.S. status
described in this paragraph (d)(3). A certificate of U.S. status is a
certificate described in Sec. 31.3406(h)-3(c)(2) of this chapter
(relating to forms for exempt recipients) or a Form W-9 (or a substitute
form or such other form as the IRS may prescribe) that is signed under
penalties of perjury by the payee and contains the name, permanent
residence address, and TIN of the payee. The procedures described in
Sec. 31.3406(h)-2(a) of this chapter shall apply to payments to joint
payees. A withholding agent that receives a Form W-9 in order to satisfy
this paragraph (d)(3) must retain the form in accordance with the
provisions of Sec. 31.3406(h)-3(g) of this chapter, if applicable, or of
paragraph (e)(4)(iii) of this section (relating to the retention of
withholding certificates) if Sec. 31.3406(h)-3(g) of this chapter does
not apply. The rules of this paragraph (d)(3) are only intended to
provide a method by which a withholding agent may determine that a payee
is not a foreign person and do not otherwise impose a requirement that
documentation be furnished by a person who is otherwise treated as an
exempt recipient for purposes of the applicable information reporting
provisions under chapter 61 of the Code (e.g., Sec. 1.6049-4(c)(1)(ii)
for payments of interest).
(4) Other payments. This paragraph (d)(4) describes the
documentation upon which a withholding agent may rely in order to treat
a payment as made to a U.S. person that is a beneficial owner for
purposes of paragraph (b)(1) of this section. The withholding agent may
treat the payment as made to a U.S. beneficial owner only if it can
reliably associate the payment with documentation prior to the payment,
if
[[Page 87]]
it complies with the electronic confirmation procedures described in
paragraph (e)(4)(v) of this section, if required, and if it has not been
notified by the IRS that any of the information on the withholding
certificate or other documentation is incorrect or unreliable. In the
case of a Form W-9 that is required to be furnished for a reportable
payment that may be subject to backup withholding, the payor may be
notified in accordance with section 3406(a)(1)(B) and the regulations
under that section. See applicable procedures under that section and the
regulations under that section for payors who have been notified with
regard to such a Form W-9. Payors who have been notified in relation to
other Forms W-9, including under section 6724(b) pursuant to section
6721, may rely on the withholding certificate or other documentation
only to the extent provided under procedures as prescribed by the IRS
(see Sec. 601.601(d)(2) of this chapter). A withholding agent may treat
a payment as made to a U.S. beneficial owner--
(i) To the extent the withholding agent can reliably associate the
payment with a Form W-9 described in paragraph (d) (2) or (3) of this
section attached to a valid intermediary, flow-through, or U.S. branch
withholding certificate described in paragraph (e)(3)(i) of this
section;
(ii) To the extent the withholding agent can reliably associate a
payment to a qualified intermediary with the category of assets
described in paragraph (e)(5)(v)(B)(2) of this section that the
qualified intermediary has represented, in accordance with paragraphs
(e) (3)(ii)(E) and (5)(v) of this section as being allocable to U.S.
persons based on the Forms W-9 that they have furnished; or
(iii) To the extent the withholding agent can reliably associate the
payment with a Form W-8 from a U.S. branch described in paragraph
(e)(3)(v) of this section that evidences an agreement between the U.S.
branch and the withholding agent to treat the U.S. branch as U.S.
person.
(e) Beneficial owner's claim of foreign status--(1) Withholding
agent's reliance--(i) In general. Absent actual knowledge or reason to
know otherwise, a withholding agent may treat a payment as made to a
foreign beneficial owner in accordance with the provisions of paragraph
(e)(1)(ii) of this section. See paragraph (e)(4)(viii) of this section
for applicable reliance rules. See paragraph (b)(4) of this section for
a description of payments for which a claim of foreign status is
relevant for purposes of claiming a reduced rate of withholding for
purposes of section 1441, 1442, or 1443. See paragraph (b)(5) of this
section for a list of payments for which a claim of foreign status is
relevant for other purposes, such as claiming an exemption from
information reporting under chapter 61 of the Code.
(ii) Payments that a withholding agent may treat as made to a
foreign person that is a beneficial owner--(A) General rule. The
withholding agent may treat a payment as made to a foreign person that
is a beneficial owner if it complies with the requirements described in
paragraph (e)(1)(ii)(B) of this section and, then, only to the extent--
(1) That the withholding agent can reliably associate the payment
with a beneficial owner withholding certificate described in paragraph
(e)(2) of this section furnished by the person whose name is on the
certificate or attached to a valid foreign intermediary, flow-through
entity, or U.S. branch withholding certificate described in paragraph
(e)(3)(v) of this section;
(2) That the payment is made outside the United States (within the
meaning of Sec. 1.6049-5(e)) with respect to an offshore account (within
the meaning of Sec. 1.6049-5(c)(1)) and the withholding agent can
reliably associate the payment with documentary evidence described in
Secs. 1.1441-6(c)(3) or (4), or 1.6049-5(c)(1) relating to the
beneficial owner;
(3) That the withholding agent can reliably associate the payment
with the category of assets described in paragraph (e)(5)(v)(B)(1) of
this section that the qualified intermediary has represented, in
accordance with paragraphs (e) (3)(ii)(E) and (5)(v) of this section as
being allocable to foreign persons for whom the qualified intermediary
is holding valid documentation;
[[Page 88]]
(4) That the withholding agent can reliably associate the payment
with a withholding certificate described in Sec. 1.1441-5(c)(3)(iii)
from a foreign partnership claiming that the payment is effectively
connected income;
(5) That the withholding agent identifies the payee as a U.S. branch
described in paragraph (b)(2)(iv) of this section, the payment to which
it treats as effectively connected income in accordance with
Sec. 1.1441-4(a) (2)(ii) or (3);
(6) That the withholding agent identifies the payee as an
international organization (or any wholly-owned agency or
instrumentality thereof) as defined in section 7701(a)(18) that has been
designated as such by executive order (pursuant to 22 U.S.C. 288 through
288(f)); or
(7) That the withholding agent pays interest from bankers'
acceptances and identifies the payee as a foreign central bank of issue
(as defined in Sec. 1.861-2(b)(4)).
(B) Additional requirements. In order for a payment described in
paragraph (e)(1)(ii)(A) of this section to be treated as made to a
foreign beneficial owner, the withholding agent must hold the
documentation (if required) prior to the payment, comply with the
electronic confirmation procedures described in paragraph (e)(4)(v) of
this section (if required), and must not have been notified by the IRS
that any of the information on the withholding certificate or other
documentation is incorrect or unreliable. If the withholding agent has
been so notified, it may rely on the withholding certificate or other
documentation only to the extent provided under procedures prescribed by
the IRS (see Sec. 601.601(d)(2) of this chapter). See paragraph
(b)(2)(vii) of this section for rules regarding reliable association of
a payment with a withholding certificate or other appropriate
documentation.
(2) Beneficial owner withholding certificate--(i) In general. A
beneficial owner withholding certificate is a statement by which the
beneficial owner of the payment represents that it is a foreign person
and, if applicable, claims a reduced rate of withholding under section
1441. A separate withholding certificate must be submitted to each
withholding agent. If the beneficial owner receives more than one type
of payment from a single withholding agent, the beneficial owner may
have to submit more than one withholding certificate to the single
withholding agent for the different types of payments as may be required
by the applicable forms and instructions, or as the withholding agent
may require (such as to facilitate the withholding agent's compliance
with its obligations to determine withholding under this section or the
reporting of the amounts under Sec. 1.1461-1 (b) and (c)). For example,
if a beneficial owner claims that some but not all of the income it
receives is effectively connected with the conduct of a trade or
business in the United States, it may be required to submit two separate
withholding certificates, one for income that is not effectively
connected and one for income that is so connected. See Sec. 1.1441-
6(b)(4)(ii) for special rules for determining who must furnish a
beneficial owner withholding certificate when a benefit is claimed under
an income tax treaty. See paragraph (e)(4)(ix) of this section for
reliance rules in the case of certificates held by another person or at
a different branch location of the same person.
(ii) Requirements for validity of certificate. A beneficial owner
withholding certificate is valid only if it is provided on a Form W-8,
or a Form 8233 in the case of personal services income described in
Sec. 1.1441-4(b) or certain scholarship or grant amounts described in
Sec. 1.1441-4(c) (or a substitute form described in paragraph (e)(4)(vi)
of this section, or such other form as the IRS may prescribe). A Form W-
8 is valid only if its validity period has not expired, it is signed
under penalties of perjury by the beneficial owner, and it contains all
of the information required on the form. The required information is the
beneficial owner's name, permanent residence address, and TIN (if
required), the country under the laws of which the beneficial owner is
created, incorporated, or governed (if a person other than an
individual), the classification of the entity, and such other
information as may be required by the regulations under section 1441 or
by the form or accompanying instructions in addition to, or in lieu of,
the
[[Page 89]]
information described in this paragraph (e)(2)(ii). A person's permanent
residence address is an address in the country where the person claims
to be a resident for purposes of that country's income tax. In the case
of a certificate furnished in order to claim a reduced rate of
withholding under an income tax treaty, the residence must be determined
in the manner prescribed under the applicable treaty. See Sec. 1.1441-
6(b)(4)(i). The address of a financial institution with which the
beneficial owner maintains an account, a post office box, or an address
used solely for mailing purposes is not a residence address for this
purpose. If the beneficial owner is an individual who does not have a
tax residence in any country, the permanent residence address is the
place at which the beneficial owner normally resides. If the beneficial
owner is not an individual and does not have a tax residence in any
country, then the permanent residence address is the place at which the
person maintains its principal office. See paragraph (e)(4)(vii) of this
section for circumstances in which a TIN is required on a beneficial
owner withholding certificate. See paragraph (f)(2)(i) of this section
for continued validity of certificates during a transition period.
(3) Intermediary, flow-through, or U.S. branch withholding
certificate--(i) In general. An intermediary withholding certificate is
a Form W-8 by which a payee represents that it is a foreign person and
that it is an intermediary with respect to a payment and not the
beneficial owner. A flow-through withholding certificate is a Form W-8
furnished by a flow-through entity under Sec. 1.1441-5(c)(2) or (3) for
a partnership or under Sec. 1.1441-5(e) for a foreign estate or trust.
See paragraph (c)(6)(ii)(C) of this section for a definition of a flow-
through entity. A U.S. branch certificate is a Form W-8 by which the
payee represents that it is a U.S. branch described in paragraph
(b)(2)(iv) (A) or (E) of this section and that the payment is not
effectively connected with the conduct of its trade or business in the
United States. An intermediary withholding certificate is used by an
intermediary either to make representations regarding the status of
beneficial owners of the amount paid or to transmit appropriate
documentation to the withholding agent. A flow-through certificate is
used by a flow-through entity to establish its status as a foreign
person or the status of its partners or beneficiaries, if required, and,
if applicable, to claim a reduced rate of withholding. An intermediary
means, with respect to a payment that it receives, a person that, for
that payment, acts as a custodian, broker, nominee, or otherwise as an
agent for another person, regardless of whether such other person is the
beneficial owner of the amount paid, a flow-through entity, or another
intermediary. See paragraph (e)(4)(viii) of this section for applicable
reliance rules.
(ii) Intermediary withholding certificate from a qualified
intermediary. An intermediary withholding certificate from a person
representing to be a qualified intermediary (described in paragraph
(e)(5)(ii) of this section) is valid only if it is furnished on a Form
W-8 (or an acceptable substitute form or such other form as the IRS may
prescribe), it is signed under penalties of perjury by an officer of the
qualified intermediary with authority to sign for the intermediary, its
validity has not expired, and it contains the following information,
statement, and certifications:
(A) The name, permanent residence address (as described in paragraph
(e)(2)(ii) of this section), and the employer identification number of
the intermediary, and the country under the laws of which the
intermediary is created, incorporated, or governed.
(B) A certification that the person whose name is on the Form W-8 is
not acting for its own account and is acting as a qualified intermediary
within the meaning of paragraph (e)(5)(ii) of this section.
(C) A certification that the intermediary has obtained the
appropriate certificates (such as Forms W-8 or W-9) or other appropriate
documentation in the manner required in its withholding agreement with
the IRS for those account holders that are covered by the certificate
and whose assets are identified as being allocable to the categories
described in paragraph (e)(5)(v)(B) (1) or (2) (in accordance with
paragraph (e)(5)(v) of this section or otherwise).
[[Page 90]]
(D) A certification whether the qualified intermediary is assuming
primary withholding responsibility for the amounts to which the
certificate relates.
(E) A statement attached to the certificate that provides such
information as may be required by the form and accompanying
instructions, including sufficient information for the withholding agent
to determine the amount required to be withheld from amounts paid to the
intermediary and reported to the IRS. See paragraph (e)(5)(v) of this
section for requirement of a statement and rules applicable thereto.
(F) Any other information or certification as may be required by the
form or accompanying instructions in addition to, or in lieu of, the
information and certifications described in this paragraph (e)(3)(ii).
(iii) Intermediary withholding certificate from an intermediary that
is not a qualified intermediary. An intermediary withholding certificate
from a person that does not represent to be a qualified intermediary
within the meaning of paragraph (e)(5)(ii) of this section is valid only
if it is furnished on a Form W-8 (or an acceptable substitute form, or
such other form as the IRS may prescribe), it is signed under penalties
of perjury by a person authorized to sign for the intermediary, it
contains the information, statement, and certifications described in
this paragraph (e)(3)(iii), its validity has not expired, and the
withholding certificates and other appropriate documentation for all the
persons to whom the certificate relates are attached to the certificate.
Appropriate documentation consists of beneficial owner withholding
certificates described in paragraph (e)(2)(i) of this section,
intermediary withholding certificates described in paragraph (e)(3)(i)
of this section, flow-through certificates described in Sec. 1.1441-
5(c)(2)(iv), (3)(iii), and (e), documentary evidence described in
Sec. 1.1441-6(b)(2)(i) or in Sec. 1.6049-5(c)(1) related to the
beneficial owner (or documentary evidence described in Sec. 1.6049-
5(c)(4) for purposes of information reporting under chapter 61 of the
Code), and other documentation or certificate applicable under other
provisions of the Code or regulations that certify or establish the
status of the payee or beneficial owner as a U.S. or a foreign person.
If the intermediary is acting on behalf of another intermediary that is
not a qualified intermediary or on behalf of a partnership that is not a
withholding foreign partnership described in Sec. 1.1441-5(c)(2)(i),
then the intermediary must attach to its own withholding certificate the
intermediary withholding certificate or the partnership withholding
certificate to which all the withholding certificates and other
appropriate documentation required to be attached under this paragraph
(e)(3)(iii) or in Sec. 1.1441-5(c)(3)(iii) or (e) are also attached.
Nothing in this paragraph (e)(3)(iii) shall require an intermediary to
furnish original documentation. Copies of certificates or documentary
evidence may be passed up to the U.S. withholding agent, in which case
the intermediary must retain the original documentation for the same
time period that the copy is required to be retained by the withholding
agent under paragraph (e)(4)(iii) of this section and must provide it to
the withholding agent upon request. For purposes of this paragraph
(e)(3)(iii), a valid intermediary withholding certificate also includes
a statement described in Sec. 1.871-14(c)(2)(v) furnished in order for
interest to qualify as portfolio interest for purposes of sections
871(h) and 881(c) or in order for amounts described in Sec. 1.1441-
6(b)(2)(ii) to qualify as amounts paid to a foreign person. The
information and certification required on a Form W-8 described in this
paragraph (e)(3)(iii) (or on an acceptable substitute form or such other
form as the IRS may prescribe) are as follows:
(A) The name and permanent resident address (as described in
paragraph (e)(2)(ii) of this section) of the intermediary, and the
country under the laws of which the intermediary is created,
incorporated, or governed.
(B) A certification that the person whose name is on the Form W-8 is
not acting for its own account and is using the certificate as a form to
transmit withholding certificates and other appropriate documentation
for the payment to which the form relates.
[[Page 91]]
(C) If furnishing an intermediary certificate to transmit
withholding certificates or other appropriate documentation for more
than one person, a statement attached to the Form W-8 that provides such
information as may be required by the form and accompanying
instructions, including sufficient information for the withholding agent
to determine the amount required to be withheld from amounts paid to the
intermediary. See paragraph (e)(3)(iv) of this section for rules
applicable to such a statement.
(D) A certification either that the attached withholding
certificates and other appropriate documentation represent all of the
persons to whom the intermediary withholding certificate relates or that
the amounts allocable to persons covered by the intermediary withholding
certificate and for whom withholding certificates or other appropriate
documentation are lacking or unreliable are separately identified.
(E) Any other information or certification as may be required by the
form or accompanying instructions in addition to, or in lieu of, the
information and certification described in this paragraph (e)(3)(iii).
(iv) Information to the withholding agent regarding assets owned by
beneficial owners, etc.--(A) General rule. An intermediary that has not
represented that it is acting as a qualified intermediary within the
meaning of paragraph (e)(5)(ii) of this section must provide information
sufficient for the withholding agent to determine the proportion of each
payment of reportable amounts (as described in paragraph (e)(3)(vi) of
this section) that is allocable to each person to whom the intermediary
withholding certificate relates, including persons for whom the
intermediary has not attached a withholding certificate or other
appropriate documentation. The withholding agent may rely on such
information in order to determine the amount of withholding on the
payment and how to report this payment under chapter 3 or 61 of the Code
and the regulations thereunder. The sum of all the proportions indicated
by the intermediary, expressed as a percentage, must equal, but not
exceed, one hundred percent of the payment. The information for persons
for whom a withholding certificate or other appropriate documentation is
lacking or unreliable may be provided in the aggregate and need not be
provided separately for each such person. The foreign intermediary is
not required to disclose the names of the persons for whom it collects
the payment, unless it has actual knowledge that any such person is a
U.S. person that is not an exempt recipient. In such a case, the
intermediary must state separately the information for such U.S. person
even though such person has not provided a Form W-9 to the intermediary
in the manner described in paragraph (d)(2) of this section. The
information may be furnished in any manner that the parties choose. For
example, if the withholding agent maintains separate accounts for
different types of income or withholding rates, the intermediary must
provide sufficient information so that the withholding agent may
allocate assets appropriately among the relevant accounts. If the
withholding agent does not maintain separate accounts, it may require
the intermediary to attach a statement to the intermediary withholding
certificate under paragraphs (e)(3)(iii)(C) and (D) of this section
providing the information described in this paragraph (e)(3)(iv).
(B) Updating the information. The intermediary must update the
information furnished to the withholding agent in accordance with
paragraph (e)(3)(iv)(A) of this section as often as is necessary in
order to enable the withholding agent to withhold at the appropriate
rate on each payment and to report such income for purposes of chapter 3
or 61 of the Code and sections 3402, 3405 and 3406 (and the regulations
under those provisions). Any update of the information as required under
this paragraph (e)(3)(iv)(B) shall be treated as an integral part of the
intermediary withholding certificate with which it is associated. See
paragraph (e)(4)(ii)(D) of this section regarding how changes in the
information described in this paragraph (e)(3)(iv) may affect the
validity of withholding certificates. See paragraph (b)(3)(v)(C) of this
section for consequences if the information is not updated as required.
[[Page 92]]
(C) Examples. The rules of paragraph (e)(3)(iii) of this section and
of this paragraph (e)(3)(iv) are illustrated by the following examples:
Example 1. A U.S. withholding agent, W, pays U.S. source dividends
to foreign intermediary X who, in turn, pays to foreign intermediary Y,
who collects on behalf of foreign beneficial owners, A and B. A and B
have each furnished a beneficial owner Form W-8 to Y. Y must furnish to
X an intermediary Form W-8 described in paragraph (e)(3)(iii) of this
section, to which it must attach the original or copies of A's and B's
Forms W-8. X, in turn, must furnish to W its own intermediary Form W-8
described in paragraph (e)(3)(iii) of this section, to which it must
attach the original or copies of the intermediary Form W-8 received from
Y and A's and B's Forms W-8.
Example 2. A foreign bank, X, acts as an intermediary for five
different persons, A, B, C, D, and E, who each own securities from which
they receive U.S. source dividends. The distributions are paid by a U.S.
financial institution, W, as custodian of the securities for X. A's,
B's, C's, D's, and E's respective claimed ownership interest in the
securities is 20-percent each. X has furnished to W an intermediary Form
W-8 described in paragraph (e)(3)(iii) of this section, to which it has
attached a statement described in this paragraph (e)(3)(iv) stating each
of A', B's, and C's interest in the securities with respect to which
distributions are made periodically. The respective ownership interests
of D and E are not stated separately because X has not received a valid
withholding certificate or other appropriate documentation from D or E.
Therefore, on the statement, D's and E's interest in the securities is
stated in the aggregate (i.e., 40-percent attributable to undocumented
owners). X has attached a Form W-8 for A and documentary evidence for B
(who each claim a reduced rate of withholding under an income tax
treaty), and a Form W-9 for C. In determining the amount to be withheld
from the amount paid to X, W may rely on X's intermediary Form W-8, the
allocation statement attached to the Form W-8, and the attached Form W-
8, documentary evidence, and Form W-9 for each of A, B, and C. Based on
paragraphs (b)(1), (b)(2)(v), (b)(2)(vii), (d)(4)(i), and
(e)(1)(ii)(A)(1) of this section, W may withhold as follows on the
payment to X: no withholding on 20-percent of the payment on the basis
of C's Form W-9, withholding at the reduced treaty rate on 40-percent of
the payment on the basis of A's Form W-8 and B's documentary evidence,
and 30-percent on 40-percent of the payment to the undocumented owners
group formed by D and E in accordance with the presumptions described in
paragraph (b)(3)(v)(B) of this section (i.e., due to the lack of
documentation for D and E). Under paragraph (e)(3)(iii) of this section,
X is not required to identify D or E to W. For purposes of making a
return under Sec. 1.1461-1(c), W would prepare a single Form 1042-S for
the group of undocumented owners, D and E (if the names are undisclosed,
the Form 1042-S should be made in the name of X and state that the
return is made for unknown owners (see Sec. 1.1461-1(c)(4)(iv)). Because
X has not furnished required documentation for D and E, X does not
qualify under paragraph (b)(6) of this section for relief from an
obligation to make a report on a Form 1042-S (to the extent D and E are
presumed to be foreign persons under paragraph (b)(3)(iii) of this
section) when X makes the payment to D and E (however, because a full
30-percent amount was withheld under this section, X does not have to
withhold an additional amount under the facts of this example). In
contrast, under paragraph (b)(6) of this section, X is not required to
make a report on Form 1042-S for its payments to A or B. Under
Sec. 1.6042-3(b)(1)(vi), X is not required to report C's share of the
payment on Form 1099 (unless X has actual knowledge that W has not
reported the portion of payment allocable to C in accordance with
Sec. 1.6042-2).
Example 3. The facts are the same as in Example 2, except that D's
name is D Insurance Company whom X knows is a U.S. person. Because of
D's name, X may treat D as an exempt recipient on an eyeball test basis
under Secs. 1.6042-3(b)(1)(vii) and 1.6049-4(c)(1)(ii)(A)(1). However,
even if those facts are disclosed to W, W must withhold 30-percent of
the portion of the payment allocable to D because W is making a payment
to a foreign person (X). Under paragraph (b)(1) of this section, W may
reduce the rate of withholding only if it can associate the payment with
documentation upon which it can rely to treat the beneficial owner as a
U.S. person or as a foreign person entitled to a reduced rate of
withholding. Because X has not furnished documentation for D, W does not
have the proper documentation with which it can associate the payment
allocable to D. Thus, insofar as W is concerned, the portion of the
payment allocable to D is treated as a payment to an undocumented owner
that W must presume to be a foreign person under paragraph (b)(3)(v)(B)
of this section. Accordingly, under this paragraph (e)(3)(iv), W need
not identify the information for D separately and can aggregate the
portion of the payment allocable to D and E. W's reporting requirements
for the portion of the payment allocable to D and E are the same as
under Example 2. When X makes the payment to D, X does not benefit from
the relief from reporting under Sec. 1.6042-3(b)(1)(vi). However, X is
not required to report the payment to D on Form 1099 under section 6042
because, under Sec. 1.6042-3(b)(1)(vii), X can treat D as an exempt
recipient.
[[Page 93]]
(v) Withholding certificate from certain U.S. branches. A U.S.
branch certificate is a representation by the U.S. branch whose name is
on the certificate that the payment it receives is not effectively
connected with the conduct of a trade or business in the United States
and that it is using the certificate either to transmit the appropriate
documentation for the persons for whom the branch receives the payment
(i.e., as an intermediary) or as evidence of its agreement with the
withholding agent to be treated as a U.S. person with respect to any
payment associated with the certificate. A U.S. branch withholding
certificate is valid only if it is furnished on a Form W-8 (or an
acceptable substitute form, or such other form as the IRS may
prescribe), it is signed under penalties of perjury by a person
authorized to sign for the branch, its validity has not expired, and it
contains the information, statement, and certifications described in
this paragraph (e)(3)(v). If the certificate is furnished to transmit
withholding certificates and other documentation, it must contain the
information and certifications described in paragraphs (e)(3)(v) (A)
through (C) of this section and in paragraphs (e)(3)(iii) (C) and (D) of
this section. If the certificate is furnished pursuant to an agreement
to treat the U.S. branch as a U.S. person, the information and
certification required on the Form W-8 (or an acceptable substitute form
or such other form as the IRS may prescribe) are limited to the
following--
(A) The name of the person of which the branch is a part and the
address of the branch in the United States;
(B) A certification that the payments associated with the
certificate are not effectively connected with the conduct of its trade
or business in the United States; and
(C) Any other information or certification as may be required by the
form or accompanying instructions in addition to, or in lieu of, the
information and certification described in this paragraph (e)(3)(v).
(vi) Reportable amounts. For purposes of this section, the term
reportable amount means an amount subject to withholding within the
meaning of Sec. 1.1441-2(a), bank deposit interest (including original
issue discount) and similar types of deposit interest described in
section 871(i)(2)(A) or 881(d) that are from sources within the United
States, and any amount of interest or original issue discount from
sources within the United States on certain short-term obligations
described in section 871(g)(1)(B) or 881(a)(3). For purposes of this
paragraph (e)(3)(vi), however, reportable amounts do not include
payments with respect to deposits with banks and other financial
institutions that remain on deposit for a period of two weeks or less,
to amounts of original issue discount arising from a sale and repurchase
transaction that is completed within a period of two weeks or less, or
to amounts described in Sec. 1.6049-5(b) (7), (10) or (11) (relating to
certain obligations issued in bearer form). While short-term OID and
bank deposit interest are not subject to withholding under chapter 3 of
the Code, such amounts may be subject to information reporting under
section 6049 if paid to a U.S. person who is not an exempt recipient
described in Sec. 1.6049-4(c)(1)(ii) and to backup withholding under
section 3406 in the absence of documentation. See Sec. 1.6049-
5(d)(3)(iii) for applicable procedures when such amounts are paid to a
foreign intermediary.
(4) Applicable rules. The provisions in this paragraph (e)(4)
describe procedures applicable to withholding certificates on Form W-8
or Form 8233 (or a substitute form) or documentary evidence furnished to
establish foreign status. These provisions do not apply to Forms W-9 (or
their substitutes). For corresponding provisions regrading Form W-9 (or
a substitute form), see section 3406 and the regulations under that
section.
(i) Who may sign the certificate. A withholding certificate (or
other acceptable substitute) may be signed by any person authorized to
sign a declaration under penalties of perjury on behalf of the person
whose name is on the certificate as provided in section 6061 and the
regulations under that section (relating to who may sign generally for
an individual, estate, or trust, which includes certain agents
[[Page 94]]
who may sign returns and other documents), section 6062 and the
regulations under that section (relating to who may sign corporate
returns), and section 6063 and the regulations under that section
(relating to who may sign partnership returns).
(ii) Period of validity--(A) Three-year period. A withholding
certificate described in paragraph (e)(2)(i) of this section, a
certificate described in Sec. 1.871-14(c)(2)(v) (furnished to qualify
interest as portfolio interest for purposes of sections 871(h) and
881(c) or to qualify amounts paid on certain securities described in
Sec. 1.1441-6(b)(2)(ii) as paid to a foreign person), or documentary
evidence described in Sec. 1.1441-6(b)(2)(i) or in Sec. 1.6049-5(c)(1)
shall remain valid until the earlier of the last day of the third
calendar year following the year in which the certificate is signed or
the documentary evidence is created or the day that a change of
circumstances occurs that makes any information on the certificate or
documentary evidence incorrect. For example, a certificate signed on
September 30, 2001, remains valid through December 31, 2004, unless
circumstances change that make the information on the form no longer
correct.
(B) Indefinite validity period. Notwithstanding paragraph
(e)(4)(ii)(A) of this section, the following certificates or parts of
certificates shall remain valid until the status of the person whose
name is on the certificate is changed in a way relevant to the
certificate or circumstances change that make the information on the
certificate no longer correct:
(1) A beneficial owner withholding certificate described in
paragraph (e)(2)(ii) of this section that is furnished with a TIN if the
income for which such certificate is furnished is required to be
reported under Sec. 1.1461-1(c)(2)(i) or the TIN furnished on the
certificate is reported to the IRS under the procedures described in
Sec. 1.1461-1(d).
(2) A certificate described in paragraph (e)(3)(ii) of this section
(dealing with a certificate from a person representing to be a qualified
intermediary).
(3) A certificate described in paragraph (e)(3)(iii) of this section
(dealing with a certificate from a person representing to be a non-
qualified intermediary), but not including the withholding certificates
or documentary evidence required to be attached to the certificate.
(4) A certificate described in paragraph (e)(3)(v) of this section
(dealing with a certificate from a person representing to be a U.S.
branch), but not the withholding certificates or documentary evidence
required to be attached to the certificate.
(5) A certificate described in Sec. 1.1441-5(c)(2)(iv) (dealing with
a certificate from a person representing to be a withholding foreign
partnership).
(6) A certificate described in Sec. 1.1441-5(c)(3)(iii) (dealing
with a certificate from a person representing to be a foreign
partnership that is not a withholding foreign partnership), but not
including the withholding certificates or documentary evidence required
to be attached to the certificate.
(7) A certificate furnished by a person representing to be an
integral part of a foreign government (within the meaning of Sec. 1.892-
2T(a)(2)) in accordance with Sec. 1.1441-8(b), or by a person
representing to be a foreign central bank of issue (within the meaning
of Sec. 1.861-2(b)(4)) or the Bank for International Settlements in
accordance with Sec. 1.1441-8(c)(1).
(C) Withholding certificate for effectively connected income.
Notwithstanding paragraph (e)(4)(ii)(B)(1) of this section, the period
of validity of a withholding certificate furnished to a withholding
agent to claim a reduced rate of withholding for income that is
effectively connected with the conduct of a trade or business within the
United States shall be limited to the three-year period described in
paragraph (e)(4)(ii)(A) of this section.
(D) Change in circumstances. If a change in circumstances makes any
information on a certificate or other documentation incorrect, then the
person whose name is on the certificate or other documentation must
inform the withholding agent within 30 days of the change and furnish a
new certificate or new documentation. A certificate or documentation
becomes invalid from the date that the withholding agent
[[Page 95]]
holding the certificate or documentation knows or has reason to know
that circumstances affecting the correctness of the certificate or
documentation have changed. However, a withholding agent may choose to
apply the provisions of paragraph (b)(3)(iv) of this section regarding
the 90-day grace period as of that date while awaiting a new certificate
or documentation or while seeking information regarding changes, or
suspected changes, in the person's circumstances. If an intermediary
(including a U.S. branch described in paragraph (b)(2)(iv)(A) of this
section that passes through certificates to a withholding agent) or a
flow-through entity becomes aware that a certificate or other
appropriate documentation it has furnished to the person from whom it
collects the payment is no longer valid because of a change in the
circumstances of the person who issued the certificate or furnished the
other appropriate documentation, then the intermediary or flow-through
entity must notify the person from whom it collects the payment of the
change of circumstances. It must also obtain a new withholding
certificate or new appropriate documentation to replace the existing
certificate or documentation whose validity has expired due to the
change in circumstances. If a beneficial owner withholding certificate
is used to claim foreign status only (and not, also, residence in a
particular foreign country for purposes of an income tax treaty), a
change of address is a change in circumstances for purposes of this
paragraph (e)(4)(ii)(D) only if it changes to an address in the United
States. Further, a change of address within the same foreign country is
not a change in circumstances for purposes of this paragraph
(e)(4)(ii)(D). A change in the circumstances affecting the withholding
information provided to the withholding agent in accordance with the
provisions in paragraph (e) (3)(iv) or (5)(v) of this section or in
Sec. 1.1441-5(c)(3)(iv) shall terminate the validity of the withholding
certificate with respect to the information that is no longer reliable
unless the information is updated. A withholding agent may rely on a
certificate without having to inquire into possible changes of
circumstances that may affect the validity of the statement, unless it
knows or has reason to know that circumstances have changed. A
withholding agent may require a new certificate at any time prior to a
payment, even though the withholding agent has no actual knowledge or
reason to know that any information stated on the certificate has
changed.
(iii) Retention of withholding certificate. A withholding agent must
retain each withholding certificate and other documentation for as long
as it may be relevant to the determination of the withholding agent's
tax liability under section 1461 and Sec. 1.1461-1.
(iv) Electronic transmission of information. Under procedures issued
by the IRS (see Sec. 601.601(d)(2) of this chapter), a withholding agent
may be permitted to receive in electronic form the information required
to be included on a withholding certificate.
(v) Electronic confirmation of taxpayer identifying number on
withholding certificate. The Commissioner may prescribe procedures in a
revenue procedure (see Sec. 601.601(d)(2) of this chapter) or other
appropriate guidance to require a withholding agent to confirm
electronically with the IRS information concerning any TIN stated on a
withholding certificate.
(vi) Acceptable substitute form. A withholding agent may substitute
its own form instead of an official Form W-8 or 8233 (or such other
official form as the IRS may prescribe). Such a substitute for an
official form will be acceptable if it contains provisions that are
substantially similar to those of the official form, it contains the
same certifications relevant to the transactions as are contained on the
official form and these certifications are clearly set forth, and the
substitute form includes a signature-under-penalties-of-perjury
statement identical to the one stated on the official form. The
substitute form is acceptable even if it does not contain all of the
provisions contained on the official form, so long as it contains those
provisions that are relevant to the transaction for which it is
furnished. For example, a withholding agent that pays no income for
which
[[Page 96]]
treaty benefits are claimed may develop a substitute form that is
identical to the official form, except that it does not include
information regarding claim of benefits under an income tax treaty. A
withholding agent who uses a substitute form must furnish instructions
relevant to the substitute form only to the extent and in the manner
specified in the instructions to the official form. A withholding agent
may refuse to accept a certificate from a payee or beneficial owner
(including the official Form W-8 or 8233) if the certificate is not
provided on the acceptable substitute form provided by the withholding
agent. However, a withholding agent may refuse to accept a certificate
provided by a payee or beneficial owner only if the withholding agent
furnishes the payee or beneficial owner with an acceptable substitute
form immediately upon receipt of an unacceptable form or within 5
business days of receipt of an unacceptable form from the payee or
beneficial owner. In that case, the substitute form is acceptable only
if it contains a notice that the withholding agent has refused to accept
the form submitted by the payee or beneficial owner and that the payee
or beneficial owner must submit the acceptable form provided by the
withholding agent in order for the payee or beneficial owner to be
treated as having furnished the required withholding certificate.
(vii) Requirement of taxpayer identifying number. A TIN must be
stated on a withholding certificate when required by this paragraph
(e)(4)(vii). A TIN is required to be stated on a beneficial owner
certificate if the beneficial owner is claiming the benefit of a reduced
rate under an income tax treaty (other than for amounts described in
Sec. 1.1441-6(b)(2)(ii)), an exemption from withholding because income
is effectively connected with a U.S. trade or business, an exemption
under section 871(f) for certain annuities received under qualified
plans, or an exemption solely based on a foreign organization's claim of
tax exempt status under section 501(c) or private foundation status.
Thus, a TIN is not required from a foreign private foundation that is
subject to the 4-percent tax under section 4948(a) on income if that
income is otherwise exempt under the Code. In addition, a TIN is
required to be stated on the withholding certificate from a person
representing to be a qualified intermediary described in paragraph
(e)(5)(ii) of this section, on the withholding certificate from a person
representing to be a withholding foreign partnership described in
Sec. 1.1441-5(c)(2)(i)), on the withholding certificate from a person
representing to be a foreign trust or foreign estate, or from a
fiduciary thereof, and on the withholding certificate from a person
representing to be a U.S. branch described in paragraph (e)(3)(v) of
this section. A TIN is an IRS individual taxpayer identification number,
an employer identification number, or a social security number as
described in section 6109 and Sec. 301.6109-1 of this chapter, or any
other identifier that the Commissioner may designate.
(viii) Reliance rules. A withholding agent may rely on the
information and certifications stated on withholding certificates or
other documentation without having to inquire into the truthfulness of
this information or certification, unless it has actual knowledge or
reason to know that the same is untrue. In the case of amounts described
in Sec. 1.1441-6(b)(2)(ii), a withholding agent described in
Sec. 1.1441-7(b)(2)(ii) has reason to know that the information or
certifications on a certificate are untrue only to the extent provided
in Sec. 1.1441-7(b)(2)(ii). See Sec. 1.1441-6(b)(4)(ii) for reliance on
representations regarding eligibility for a reduced rate under an income
tax treaty. Paragraphs (e)(4)(viii) (A) and (B) of this section provide
examples of such reliance.
(A) Classification. A withholding agent may rely on the claim of
entity classification indicated on the withholding certificate that it
receives from or for the beneficial owner, unless it has actual
knowledge or reason to know that the classification claimed is
incorrect. A withholding agent may not rely on a person's claim of
classification other than as a corporation if the name of the
corporation indicates that the person is a per se corporation described
in Sec. 301.7701-2(b)(8)(i) of this chapter unless the certificate
contains
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a statement that the person is a grandfathered per se corporation
described in Sec. 301.7701-2(b)(8) of this chapter and that its
grandfathered status has not been terminated. In the absence of reliable
representation or information regarding the classification of the payee
or beneficial owner, see Sec. 1.1441-1(b)(3)(ii) for applicable
presumptions.
(B) Status of payee as an intermediary or as a person acting for its
own account. A withholding agent may rely on the type of certificate
furnished as indicative of the payee's status as an intermediary or as
an owner, unless the withholding agent has actual knowledge or reason to
know otherwise. For example, a withholding agent that receives a
beneficial owner withholding certificate from a foreign financial
institution may treat the institution as the beneficial owner, unless it
has information in its records that would indicate otherwise or the
certificate contains information that is not consistent with beneficial
owner status (e.g., sub-account numbers or names). If the financial
institution also acts as an intermediary, the withholding agent may
request that the institution furnish two certificates, i.e., a
beneficial owner certificate described in paragraph (e)(2)(i) of this
section for the amounts that it receives as a beneficial owner, and an
intermediary withholding certificate described in paragraph (e)(3)(i) of
this section for the amounts that it receives as an intermediary. In the
absence of reliable representation or information regarding the status
of the payee as an owner or as an intermediary, see paragraph
(b)(3)(v)(A) for applicable presumptions.
(ix) Certificates to be furnished for each account unless exception
applies. Unless otherwise provided in this paragraph (e)(4)(ix), a
withholding agent that is a financial institution with which a customer
may open an account shall obtain withholding certificates or other
appropriate documentation on an account-by-account basis.
(A) Coordinated account information system in effect. A withholding
agent may rely on the withholding certificate or other appropriate
documentation furnished by a customer for a pre-existing account under
any one or more of the circumstances described in this paragraph
(e)(4)(ix)(A).
(1) A withholding agent may rely on documentation furnished by a
customer for another account if all such accounts are held at the same
branch location.
(2) A withholding agent may rely on documentation furnished by a
customer for an account held at another branch location of the same
withholding agent or at a branch location of a person related to the
withholding agent if the withholding agent and the related person are
part of a universal account system that uses a customer identifier that
can be used to retrieve systematically all other accounts of the
customer. See Sec. 31.3406(c)(3)(ii) and (iii)(C) of this chapter for an
identical procedure for purposes of backup withholding. For purposes of
this paragraph (e)(4)(ix)(A), a withholding agent is related to another
person if it is related within the meaning of section 267(b) or 707(b).
(3) A withholding agent may rely on documentation furnished by a
customer for an account held at another branch location of the same
withholding agent or at a branch location of a person related to the
withholding agent if the withholding agent and the related person are
part of an information system other than a universal account system and
the information system is described in this paragraph (e)(4)(ix)(A)(3).
The system must allow the withholding agent to easily access data
regarding the nature of the documentation, the information contained in
the documentation, and its validity status, and must allow the
withholding agent to easily transmit data into the system regarding any
facts of which it becomes aware that may affect the reliability of the
documentation. The withholding agent must be able to establish how and
when it has accessed the data regarding the documentation and, if
applicable, how and when it has transmitted data regarding any facts of
which it became aware that may affect the reliability of the
documentation. In addition, the withholding agent or the related party
must be able to establish that any data it has transmitted to the
information system has been processed and appropriate due diligence has
been
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exercised regarding the validity of the documentation.
(B) Family of mutual funds. An interest in a mutual fund that has a
common investment advisor or common principal underwriter with other
mutual funds (within the same family of funds) may, in the discretion of
the mutual fund, be represented by one single withholding certificate
where shares are acquired or owned in any of the funds. See
Sec. 31.3406(h)-3(a)(2) of this chapter for an identical procedures for
purposes of backup withholding.
(C) Special rule for brokers. A withholding agent may rely on the
certification of a broker acting as the agent of a beneficial owner that
the broker holds a valid beneficial owner withholding certificate
described in paragraph (e)(2)(i) of this section or other documentation
for that beneficial owner. The certification must contain the date of
expiration of the certificate or documentation and be in writing or in
electronic form. For purposes of this paragraph (e)(4)(ix)(C), the term
broker shall have the same meaning as in Sec. 31.3406(h)-3(d) of this
chapter.
(5) Qualified intermediaries--(i) General rule. A qualified
intermediary, as defined in paragraph (e)(5)(ii) of this section, may
furnish an intermediary withholding certificate to a withholding agent.
Such a certificate certifies on behalf of other persons (such as
beneficial owners, intermediaries, flow-through entities described in
Sec. 1.1441-5, or U.S. payees) for the purpose of claiming and verifying
reduced rates of withholding under section 1441 or 1442 and for the
purpose of reporting and withholding under other provisions of the Code,
such as the provisions under chapter 61 of the Code and section 3406
(and the regulations under those provisions). Furnishing such a
certificate is in lieu of transmitting to a withholding agent
withholding certificates or other appropriate documentation for the
persons for whom the qualified intermediary receives the payment or for
its shareholders (in the case of claims of benefits under an income tax
treaty by a reverse hybrid entity). Although the qualified intermediary
is required to obtain withholding certificates or other appropriate
documentation from beneficial owners, payees, or shareholders pursuant
to its agreement with the IRS, it is not required to attach such
documentation to the intermediary withholding certificate. However, the
qualified intermediary must disclose the names of those U.S. persons for
whom the qualified intermediary receives reportable amounts (within the
meaning of paragraph (e)(3)(vi) of this section) and who are not exempt
recipients (as defined in Sec. 1.6049-4(c)(1)(ii) or an applicable
provision under section 6041, 6042, 6045, or 6050N), irrespective of
local secrecy laws. A person may claim qualified intermediary status
before an agreement is executed with the IRS if it has applied for such
status and the IRS authorizes such status on an interim basis under such
procedures as the IRS may prescribe.
(ii) Definition of qualified intermediary. With respect to a payment
to a foreign person, the term qualified intermediary means a person that
is a party to a withholding agreement with the IRS and such person is--
(A) A foreign financial institution or a foreign clearing
organization (as defined in Sec. 1.163-5(c)(2)(i)(D)(8), without regard
to the requirement that the organization hold obligations for members),
other than a U.S. branch or U.S. office of such institution or
organization;
(B) A foreign branch or office of a U.S. financial institution or a
foreign branch or office of a U.S. clearing organization (as defined in
Sec. 1.163-5(c)(2)(i)(D)(8), without regard to the requirement that the
organization hold obligations for members);
(C) A foreign corporation for purposes of presenting claims of
benefits under an income tax treaty on behalf of its shareholders; or
(D) Any other person acceptable to the IRS.
(iii) Withholding agreement--(A) In general. The IRS may, upon
request, enter into a withholding agreement with a foreign person
described in paragraph (e)(5)(ii) of this section pursuant to such
procedures as the IRS may prescribe in published guidance (see
Sec. 1A601.601(d)(2) of this chapter). Under such withholding agreement,
a qualified intermediary shall be generally subject to the applicable
withholding
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and reporting provisions applicable to withholding agents and payors
under chapters 3 and 61 of the Code, and section 3406, and the
regulations under those provisions, and other withholding provisions of
the Code, except to the extent provided under the agreement. A
withholding agreement may apply to the entity as a whole or to certain
specified branches of the institution. The determination of the scope of
the agreement shall be made on a branch-by-branch basis.
(B) Terms of the withholding agreement. Generally, the agreement
shall specify the type of certification and documentation upon which the
qualified intermediary may rely to ascertain the nationality and
residence of beneficial owners and U.S. payees who receive payments
collected by the qualified intermediary and, if necessary, entitlement
to the benefits of a reduced rate under an income tax treaty. It shall
specify if the qualified intermediary may assume primary withholding
responsibility in accordance with paragraph (e)(5)(iv) of this section.
It shall specify the extent to which applicable return filing and
information reporting requirements are modified so that, in appropriate
cases, the qualified intermediary may report payments to the IRS on an
aggregated basis, without having to disclose the identity of individual
customers. However, the qualified intermediary may be required to
provide to the IRS the name and address of those foreign customers who
benefit from a reduced rate under an income tax treaty pursuant to the
qualified intermediary arrangement for purposes of verifying entitlement
to such benefits, particularly under an applicable Limitation on
Benefits provision. Under the agreement, a qualified intermediary may
agree to act as an acceptance agent to perform the duties described in
Sec. 301.6109-1(d)(3)(iv)(A) of this chapter. The agreement may specify
the manner in which applicable procedures for adjustments for
underwithholding and overwithholding, including refund procedures apply
in the context of a qualified intermediary arrangement and the extent to
which applicable procedures may be modified. In particular, a
withholding agreement may allow a qualified intermediary to claim
refunds of overwithheld amounts on behalf of its customers. If relevant,
the agreement shall specify the manner in which the qualified
intermediary may deal with payments to other intermediaries. In
addition, the agreement must specify the manner in which the IRS will
verify compliance with the agreement. In appropriate cases, the IRS may
agree to rely on audits performed by an intermediary's approved auditor.
In such a case, the IRS' audit may be limited to the audit of the
auditor's records (including work papers of the auditor and reports
prepared by the auditor indicating the methodology employed to verify
the entity's compliance with the agreement). For this purpose, the
agreement shall specify which auditor or class of auditors is approved.
Generally, an auditor will be approved if it is subject to regulatory
supervision under the laws of the country in which a significant part of
the intermediary activities under the agreement are expected to occur,
its internal procedures require it to verify that the intermediary
complies with the terms of the withholding agreement and to report non-
compliance findings under the agreement in the same manner as it is
required to report other findings of non-compliance with applicable
local laws and regulatory requirements, and its relevant records (i.e.,
work papers and reports) are available to the IRS. The agreement must
include provisions for the assessment and collection of tax in the event
that failure to comply with the terms of the agreement results in the
failure by the withholding agent or the qualified intermediary to
withhold and deposit the required amount of tax. Further, the agreement
shall specify the procedures by which deposits of amounts withheld are
to be deposited, if different from normally applicable deposit
procedures under the Code and applicable regulations. The agreement
shall also specify the assets that the qualified intermediary has in the
United States or alternative means of collection, if necessary. To
determine the terms of any particular withholding agreement, the IRS
will consider appropriate factors including whether or not the foreign
person
[[Page 100]]
agrees to assume primary responsibility as a withholding agent, the type
of local know-your-customer laws and practices to which it is subject,
the extent and nature of supervisory and regulatory control exercised
under the laws of the foreign country over the foreign person, the
volume of investments in U.S. securities (determined in dollar amounts
and number of account holders), and financial condition of the foreign
person.
(iv) Assignment of primary withholding responsibility. A withholding
agent making a payment to a qualified intermediary must presume that the
withholding agent has full withholding responsibility for that payment,
except as otherwise specified in this paragraph (e)(5)(iv). For this
purpose, withholding responsibility means the obligation to withhold as
required under the provisions of section 1441, 1442, or 1443, and the
regulations under those sections, and the related reporting obligations
under Sec. 1.1461-1(b)(2)(ii) and (c)(4)(ii) for payments identified or
treated as made to foreign persons. Withholding responsibility also
means obligations imposed on payors under chapter 61 of the Code (and
the regulations under those provisions) and, if applicable, under
section 3405 or 3406 (and the regulations under those sections). A
qualified intermediary that assumes primary withholding responsibility
vis-a-vis a withholding agent must assume such responsibility for all
payments made to any one account. Any qualified intermediary may agree
with the withholding agent to assume primary withholding responsibility,
but only if expressly permitted to do so under its agreement with the
IRS. Generally, reporting or withholding liability arising from a
payment to a U.S. person (or treated as or presumed to be made to a U.S.
person) under any provision of the Code or applicable regulations
thereunder may not be assigned to a qualified intermediary except where
the qualified intermediary is a foreign branch of a U.S. financial
institution or except to the extent that the qualified intermediary has
a branch in the United States and establishes to the satisfaction of the
IRS that its U.S. branch can adequately fulfill the qualified
intermediary's obligations on behalf of the qualified intermediary
regarding information reporting under chapter 61 of the Code and the
regulations under the applicable provisions of that chapter and, if
necessary, backup withholding under section 3406 and the regulations
under that section (even though the U.S. branch is not a qualified
intermediary).
(v) Information to withholding agent regarding applicable
withholding rates--(A) General rule. The qualified intermediary must
separate the assets that generate payments of reportable amounts (as
described in paragraph (e)(3)(vi) of this section) that are associated
with its withholding certificate furnished to the withholding agent into
the categories described in paragraph (e)(5)(v)(B) of this section, and
provide that information to the withholding agent so that the
withholding agent may determine the applicable withholding rate
applicable to each category. The information may be furnished in any
manner that the parties choose. For example, if the withholding agent
maintains separate accounts for each category of assets described in
paragraph (e)(5)(v)(B) of this section, the qualified intermediary must
provide information sufficient for the withholding agent to allocate
assets appropriately among the various accounts. If the withholding
agent does not maintain separate accounts, it may require the qualified
intermediary to attach a statement to the intermediary withholding
certificate under paragraph (e)(3)(ii)(E) of this section providing the
information described in this paragraph (e)(5)(v).
(B) Categories of assets. A payment of a reportable amount (as
defined in paragraph (e)(3)(vi) of this section) must be associated with
one of the three categories of assets set forth in paragraphs
(e)(5)(v)(B) (1) through (3) of this section and may be associated with
only one of these three categories. Additional or different categories
of assets may be specified, however, under procedures prescribed by the
IRS (see Sec. 602.602-1(d) of this chapter) or in the qualified
intermediary agreement. No information is required regarding assets that
do not generate a reportable amount described in paragraph
[[Page 101]]
(e)(3)(vi) of this section. The information provided to the withholding
agent, and any update thereof, shall be considered an integral part of
the intermediary withholding certificate. The three categories of assets
required to be identified to the withholding agent are as follows:
(1) The first category of assets consists of assets that are
associated with non-U.S. payees to which the intermediary certificate
relates, and the applicable withholding rate. If different withholding
rates apply, the qualified intermediary must indicate the applicable
rate for each class of non-U.S. payees to which different withholding
rates apply and the assets associated with each class. In the case of a
qualified intermediary that has assumed primary withholding
responsibility, the intermediary must simply certify the amount of
assets for which it assumes primary withholding responsibility because
they are assets for which it holds the appropriate documentation and are
not described in the other two categories.
(2) The second category of assets consists of assets that are
associated with all U.S. payees to which the certificate relates. The
qualified intermediary must furnish a Form W-9 (or an acceptable
substitute form) for each U.S. payee described in paragraph (d)(2) of
this section or, in the absence of a Form W-9, the name and address of
the U.S. payee or such information it has available regarding the payee.
The identity of U.S. payees described in paragraph (d)(3) of this
section need not be disclosed to the withholding agent.
(3) The third category of assets consists of assets that are
associated with payees for whom the qualified intermediary holds no
documentation, or holds documentation that it knows or has reason to
know is unreliable and for which it has no actual knowledge that the
payees are U.S. persons. A qualified intermediary that has assumed
primary withholding responsibility need not furnish information
regarding this category of assets.
(C) Updating the information. The qualified intermediary must update
the information furnished to the withholding agent in accordance with
this paragraph (e)(5)(v) as often as is necessary in order to enable the
withholding agent to withhold at the appropriate rate on each payment
and to report such income for purposes of chapter 3 or 61 of the Code
and sections 3402, 3405 and 3406 (and the regulations under those
provisions). See paragraph (e)(4)(ii)(D) of this section regarding how
changes in the information affect the validity of a withholding
certificate. See Sec. 1.1441-1(b)(3)(v)(C) for consequences if the
information is not updated as required.
(f) Effective date--(1) In general. This section applies to payments
made after December 31, 2000.
(2) Transition rules--(i) Special rules for existing documentation.
For purposes of paragraphs (d)(3) and (e)(2)(i) of this section, the
validity of a withholding certificate (namely, Form W-8, 8233, 1001,
4224, or 1078 , or a statement described in Sec. 1.1441-5 in effect
prior to January 1, 2001 (see Sec. 1.1441-5 as contained in 26 CFR part
1, revised April 1, 1999)) that was valid on January 1, 1998 under the
regulations in effect prior to January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) and expired, or will expire, at any time
during 1998, is extended until December 31, 1998. The validity of a
withholding certificate that is valid on or after January 1, 1999,
remains valid until its validity expires under the regulations in effect
prior to January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1,
1999) but in no event will such withholding certificate remain valid
after December 31, 2000. The rule in this paragraph (f)(2)(i), however,
does not apply to extend the validity period of a withholding
certificate that expires solely by reason of changes in the
circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences of this paragraph (f)(2)(i), a
withholding agent may choose to not take advantage of the transition
rule in this paragraph (f)(2)(i) with respect to one or more withholding
certificates valid under the regulations in effect prior to January 1,
2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and, therefore,
to require withholding certificates conforming to the requirements
described
[[Page 102]]
in this section (new withholding certificates). For purposes of this
section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999).
Further, a new withholding certificate remains valid for the period
specified in paragraph (e)(4)(ii) of this section, regardless of when
the certificate is obtained.
(ii) Lack of documentation for past years. A taxpayer may elect to
apply the provisions of paragraphs (b)(7)(i)(B), (ii), and (iii) of this
section, dealing with liability for failure to obtain documentation
timely, to all of its open tax years, including tax years that are
currently under examination by the IRS. The election is made by simply
taking action under those provisions in the same manner as the taxpayer
would take action for payments made after December 31, 2000.
[T.D. 8734, 62 FR 53424, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72184, 72187, Dec. 31, 1998; T.D. 8856, 64 FR 73409, 73412, Dec. 30,
1999]
Effective Date Note 1: By T.D. 8734, 62 FR 53424, Oct. 14, 1997,
Sec. 1.1441-1 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-1 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, 73409, Dec. 30, 1999, the
effective date of Sec. 1.1441-1 was delayed until Jan. 1, 2001 and
paragraph (f) was revised, effective Jan. 1, 2001. At 65 FR 16320, Mar.
28, 2000, paragraph (f)(2)(i) was corrected by removing ``2001'' and
adding ``2000'' in its place, effective Jan. 1, 2001. For the
convenience of the user, the superseded text is set forth as follows:
Sec. 1.1441-1 Requirement for withholding of tax on nonresident aliens,
foreign partnerships, and foreign corporations.
Except as otherwise provided in Secs. 1.1441-3, 1.1441-4, and
1.1441-6, to the extent that the items specified in Sec. 1.1441-2
constitute gross income from sources within the United States,
withholding of a tax of 30 percent is required in the case of items of
income specified in paragraphs (a) and (b) of Sec. 1.1441-2 when such
income is paid to a nonresident alien individual, a foreign partnership,
or a foreign corporation, except that with respect to payments made
after March 4, 1964, withholding of a tax of 14 percent is required in
the case of items of income specified in paragraph (c) of Sec. 1.1441-2.
The rate of 30 percent or 14 percent shall be reduced as may be provided
by a treaty with any country. See Secs. 1.894-1 and 1.1441-6 relating to
income affected by treaty. For purposes of this section, the term
``nonresident alien individual'' includes an alien resident of Puerto
Rico. In the case of payments occurring after October 31, 1972, the term
``foreign corporation'' does not include a corporation created or
organized in Guam or under the law of Guam. The rules of chapter 3 of
the Code and Secs. 1.1441-1 through 1.1441-6 and Secs. 1.1461-1 through
1.1464-1 apply to a nonresident alien individual even though the
individual has an election in effect under section 6013 (g) or (h) of
the Code.
[T.D. 7385, 40 FR 50263, Oct. 29, 1975, as amended by T.D. 7670, 45 FR
6932, Jan. 31, 1980]
Effective Date Note 2: By T.D. 8856, 64 FR 73412, Dec. 30, 1999,
Sec. 1.1441-1 was amended in paragraphs (b)(4)(xix), (b)(7)(v),
(c)(6)(ii)(B), and (e)(4)(ii)(A), by revising certain dates, effective
Jan. 1, 2001. See Federal Register for superseded dates.
Sec. 1.1441-2 Amounts subject to withholding.
(a) In general. For purposes of the regulations under chapter 3 of
the Internal Revenue Code (Code), the term amounts subject to
withholding means amounts from sources within the United States that
constitute either fixed or determinable annual or periodical income
described in paragraph (b) of this section or other amounts subject to
withholding described in paragraph (c) of this section. For purposes of
this paragraph (a), an amount shall not be treated as not being from
sources within the United States merely because the source of the amount
cannot be determined at the time of payment. See Sec. 1.1441-3(d)(1) for
determining the amount to be withheld from a payment in the absence of
information at the time of payment regarding the source of the amount.
Amounts subject to withholding include amounts that are not fixed or
determinable annual or periodical income and upon which withholding is
specifically required under a provision of this section or another
section of the regulations under chapter 3 of the Code (such as
corporate distributions that do not constitute dividend income upon
which withholding is required under Sec. 1.1441-3(c)(1)). Amounts
subject to withholding do not include amounts
[[Page 103]]
described in Sec. 1.1441-1(b)(4)(i) to the extent they involve interest
on obligations in bearer form or on foreign-targeted registered
obligations (but, in the case of a foreign-targeted registered
obligation, only to the extent of those amounts paid to a registered
owner that is a financial institution within the meaning of section
871(h)(5)(B) or a member of a clearing organization which member is the
beneficial owner of the obligation), amounts described in Sec. 1.1441-
1(b)(4)(ii) (dealing with bank deposit interest and similar types of
interest (including original issue discount) described in section
871(i)(2)(A) or 881(d)), amounts described in Sec. 1.1441-1(b)(4)(iv)
(dealing with interest or original issue discount on certain short-term
obligations described in section 871(g)(1)(B) or 881(a)(3)), and amounts
described in Sec. 1.1441-1(b)(4)(xx) (dealing with income from certain
gambling winnings exempt from tax under section 871(j)).
(b) Fixed or determinable annual or periodical income--(1) In
general--(i) Definition. For purposes of chapter 3 of the Code and the
regulations thereunder, fixed or determinable annual or periodical
income is all income included in gross income under section 61
(including original issue discount), except for the items specified in
paragraph (b)(2) of this section. Therefore, items of U.S. source income
that are excluded from gross income under any provision of law without
regard to the identity of the holder, such as interest excluded from
gross income under section 103(a), are not fixed or determinable annual
or periodical income. See Sec. 1.306-3(h) for treating income from the
disposition of section 306 stock as fixed or determinable annual or
periodical income.
(ii) Manner of payment. The term fixed or determinable annual or
periodical is merely descriptive of the character of a class of income.
If an item of income falls within the class of income contemplated in
the statute and described in paragraph (a) of this section, it is
immaterial whether payment of that item is made in a series of payments
or in a single lump sum. Further, the income need not be paid annually
if it is paid periodically; that is to say, from time to time, whether
or not at regular intervals. The fact that a payment is not made
annually or periodically does not, however, prevent it from being fixed
or determinable annual or periodical income (e.g., a lump sum payment).
In addition, the fact that the length of time during which the payments
are to be made may be increased or diminished in accordance with
someone's will or with the happening of an event does not disqualify the
payment as determinable or periodical. For this purpose, the share of
the fixed or determinable annual or periodical income of an estate or
trust from sources within the United States which is required to be
distributed currently, or which has been paid or credited during the
taxable year, to a nonresident alien beneficiary of such estate or trust
constitutes fixed or determinable annual or periodical income.
(iii) Determinability of amount. An item of income is fixed when it
is to be paid in amounts definitely pre-determined. An item of income is
determinable if the amount to be paid is not known but there is a basis
of calculation by which the amount may be ascertained at a later time.
For example, interest is determinable even if it is contingent in that
its amount cannot be determined at the time of payment of an amount with
respect to a loan because the calculation of the interest portion of the
payment is contingent upon factors that are not fixed at the time of the
payment. For purposes of this section, an amount of income does not have
to be determined at the time that the payment is made in order to be
determinable. An amount of income described in paragraph (a) of this
section which the withholding agent knows is part of a payment it makes
but which it cannot calculate exactly at the time of payment, is
nevertheless determinable if the determination of the exact amount
depends upon events expected to occur at a future date. In contrast, a
payment which may be income in the future based upon events that are not
anticipated at the time the payment is made is not determinable. For
example, loan proceeds may become income to the borrower when and to the
extent the loan is canceled without repayment. While the cancellation of
the debt is income to the borrower when it occurs,
[[Page 104]]
it is not determinable at the time the loan proceeds are disbursed to
the borrower if the lack of repayment leading to the cancellation of
part or all of the debt was not anticipated at the time of disbursement.
The fact that the source of an item of income cannot be determined at
the time that the payment is made does not render a payment not
determinable. See Sec. 1.1441-3(d)(1) for determining the amount to be
withheld from a payment in the absence of information at the time of
payment regarding the source of the amount.
(2) Exceptions. For purposes of chapter 3 of the Code and the
regulations thereunder, the items of income described in this paragraph
(b)(2) are not fixed or determinable annual or periodical income--
(i) Gains derived from the sale of property (including market
discount and option premiums), except for gains described in paragraph
(b)(3) or (c) of this section;
(ii) Insurance premiums within the meaning of section 4372 paid to a
foreign insurer or reinsurer; and
(iii) Any other income that the Internal Revenue Service (IRS) may
determine, in published guidance (see Sec. 601.601(d)(2) of this
chapter), is not fixed or determinable annual or periodical income.
(3) Original issue discount--(i) General rule. An amount
representing original issue discount is fixed or determinable annual or
periodical income that is subject to withholding to the extent provided
in this paragraph (b)(3) if not otherwise excluded under paragraph (a)
of this section. Under sections 871(a)(1)(C) and 881(a)(3), an amount of
original issue discount is subject to tax to a foreign beneficial owner
of an obligation carrying original issue discount upon a taxable sale or
exchange of the obligation or when a payment is made on such obligation.
The amount taxable is the amount of original issue discount that accrued
while the foreign person held the obligation up to the time that the
obligation is sold or exchanged or that a payment is made on the
obligation, reduced by any amount of original issue discount that was
taken into account prior to that time (due to a payment made on the
obligation). In the case of a taxable event due to a payment made on the
obligation, the tax due on the amount of taxable original issue discount
may not exceed the payment less the tax imposed thereon. A person who is
a withholding agent with respect to a payment that, under section
871(a)(1)(C) or 881(a)(3), is taxable to a foreign person holding or
disposing of an original issue discount obligation must withhold to the
extent provided in this paragraph (b)(3).
(ii) Amounts actually known to the withholding agent. A withholding
agent must withhold on the taxable amount of original issue discount to
the extent that it has actual knowledge of the proportion of the payment
that is taxable to the beneficial owner under section 871(a)(1)(C) or
881(a)(3)(A). A withholding agent has actual knowledge if it knows how
long the beneficial owner has held the obligation, the terms of the
obligation, and the extent to which the beneficial owner purchased the
obligation at a premium. A withholding agent is treated as having
knowledge if the information is reasonably available. The information is
not considered reasonably available if the withholding agent does not
have a direct customer relationship with the foreign beneficial owner or
such other person who has actual knowledge of the facts relevant to the
determination of the amount taxable to the foreign beneficial owner, and
has no access to such information in the ordinary course of its business
due to the manner in which the obligation is held (e.g., in street name
or through intermediaries). In the case of a withholding agent
maintaining a direct account relationship with the beneficial owner,
knowledge regarding the beneficial owner's holding period and
acquisition premium is considered to be reasonably available to the
withholding agent. A withholding agent may rely on the most recently
published List of Original Issue Discount Instruments (IRS Publication
1212 (available from the IRS Forms Distribution Centers) or similar
list) published by the IRS in order to determine the amount of taxable
OID in any particular transaction.
(iii) Amounts for which certain documentation is not furnished.
Notwithstanding lack of knowledge (within the meaning of paragraph
(b)(3)(ii) of this
[[Page 105]]
section), withholding is required on the entire amount of stated
interest, if any, and original issue discount on the obligation as
determined as of the date of original issue if the withholding agent,
pursuant to the provisions in Sec. 1.1441-1(b)(3), treats the payment as
made to a foreign payee because it cannot reliably associate the payment
with documentation and the amount would qualify as portfolio interest if
the withholding agent held documentation described in Sec. 1.871-
14(c)(2). A withholding agent may rely on the most recently published
List of Original Issue Discount Instruments (IRS Publication 1212
(available from the IRS Forms Distribution Centers) or similar list)
published by the IRS in order to determine the amount of taxable OID in
any particular transaction. See Sec. 1.1441-1(b)(8) for adjustments to
any amount that has been overwithheld.
(iv) Exceptions to withholding. The obligation to withhold under
this paragraph (b)(3) shall apply only to obligations issued after
December 31, 2000, and payable more than 183 days from the date of
original issue. Any exemption from withholding pursuant to this
paragraph (b)(3) applies without a requirement that documentation be
furnished to the withholding agent. However, documentation may have to
be furnished for purposes of the information reporting provisions under
section 6049 and backup withholding under section 3406. See Sec. 1.6049-
5(b) (7) through (15).
(4) Securities lending transactions and equivalent transactions. See
Secs. 1.871-7(b)(2) and 1.881-2(b)(2) regarding the character of
substitute payments as fixed and determinable annual or periodical
income. Such amounts constitute income subject to withholding to the
extent they are from sources within the United States, as determined
under section Secs. 1.861-2(a)(7) and 1.861-3(a)(6). See Secs. 1.6042-
3(a)(2) and 1.6049-5(a)(5) for reporting requirements applicable to
substitute dividend and interest payments, respectively.
(c) Other income subject to withholding. Withholding is also
required on the following items of income--
(1) Gains described in sections 631 (b) or (c), relating to
treatment of gain on disposal of timber, coal, or domestic iron ore with
a retained economic interest; and
(2) Gains subject to the 30-percent tax under section 871(a)(1)(D)
or 881(a)(4), relating to contingent payments received from the sale or
exchange of patents, copyrights, and similar intangible property.
(d) Exceptions to withholding where no money or property is paid or
lack of knowledge--(1) General rule. A withholding agent who is not
related to the recipient or beneficial owner has an obligation to
withhold under section 1441 only to the extent that, at any time between
the date that the obligation to withhold would arise (but for the
provisions of this paragraph (d)) and the due date for the filing of
return on Form 1042 (including extensions) for the year in which the
payment occurs, it has control over, or custody of money or property
owned by the recipient or beneficial owner from which to withhold an
amount and has knowledge of the facts that give rise to the payment. The
exemption from the obligation to withhold under this paragraph (d) shall
not apply, however, to distributions with respect to stock or if the
lack of control or custody of money or property from which to withhold
is part of a pre-arranged plan known to the withholding agent to avoid
withholding under section 1441, 1442, or 1443. For purposes of this
paragraph (d), a withholding agent is related to the recipient or
beneficial owner if it is related within the meaning of section 482. Any
exemption from withholding pursuant to this paragraph (d) applies
without a requirement that documentation be furnished to the withholding
agent. However, documentation may have to be furnished for purposes of
the information reporting provisions under chapter 61 of the Code and
backup withholding under section 3406. The exemption from withholding
under this paragraph (d) is not a determination that the amounts are not
fixed or determinable annual or periodical income, nor does it
constitute an exemption from reporting the amount under Sec. 1.1461-1
(b) and (c).
(2) Cancellation of debt. A lender of funds who forgives any portion
of the loan is deemed to have made a payment of income to the borrower
under
[[Page 106]]
Sec. 1.61-12 at the time the event of forgiveness occurs. However, based
on the rules of paragraph (d)(1) of this section, the lender shall have
no obligation to withhold on such amount to the extent that it does not
have custody or control over money or property of the borrower at any
time between the time that the loan is forgiven and the due date
(including extensions) of the Form 1042 for the year in which the
payment is deemed to occur. A payment received by the lender from the
borrower in partial settlement of the debt obligation does not, for this
purpose, constitute an amount of money or property belonging to the
borrower from which the withholding tax liability can be satisfied.
(3) Satisfaction of liability following underwithholding by
withholding agent. A withholding agent who, after failing to withhold
the proper amount from a payment, satisfies the underwithheld amount out
of its own funds may cause the beneficial owner to realize income to the
extent of such satisfaction or may be considered to have advanced funds
to the beneficial owner. Such determination depends upon the contractual
arrangements governing the satisfaction of such tax liability (e.g.,
arrangements in which the withholding agent agrees to pay the amount due
under section 1441 for the beneficial owner) or applicable laws
governing the transaction. If the satisfaction of the tax liability is
considered to constitute an advance of funds by the withholding agent to
the beneficial owner and the withholding agent fails to collect the
amount from the beneficial owner, a cancellation of indebtedness may
result, giving rise to income to the beneficial owner under Sec. 1.61-
12. While such income is annual or periodical fixed or determinable, the
withholding agent shall have no liability to withhold on such income to
the extent the conditions set forth in paragraphs (d) (1) and (2) of
this section are satisfied with respect to this income. Contrast the
rules of this paragraph (d)(3) with the rules in Sec. 1.1441-3(f)(1)
dealing with a situation in which the satisfaction of the beneficial
owner's tax liability itself constitutes additional income to the
beneficial owner. See, also, Sec. 1.1441-3(c)(2)(ii)(B) for a special
rule regarding underwithholding on corporate distributions due to
underestimating an amount of earnings and profits.
(e) Payment--(1) General rule. 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. For example,
realization of income from cancellation of debt results in a deemed
payment. A payment is considered made when the amount would be
includible in the income of the beneficial owner under the U.S. tax
principles governing the cash basis method of accounting. A payment is
considered made whether it is made directly to the beneficial owner or
to another person for the benefit of the beneficial owner (e.g., to the
agent of the beneficial owner). Thus, a payment of income is considered
made to a beneficial owner if it is paid in complete or partial
satisfaction of the beneficial owner's debt to a creditor. In the event
of a conflict between the rules of this paragraph (e)(1) governing
whether a payment has occurred and its timing and the rules of
Sec. 31.3406(a)-4 of this chapter, the rules in Sec. 31.3406(a)-4 of
this chapter shall apply to the extent that the application of section
3406 is relevant to the transaction at issue.
(2) Income allocated under section 482. A payment is considered made
to the extent income subject to withholding is allocated under section
482. Further, income arising as a result of a secondary adjustment made
in conjunction with a reallocation of income under section 482 from a
foreign person to a related U.S. person is considered paid to a foreign
person unless the taxpayer to whom the income is reallocated has entered
into a repatriation agreement with the IRS and the agreement eliminates
the liability for withholding under this section. For purposes of
determining the liability for withholding, the payment of income is
deemed to have occurred on the last day of the taxable year in which the
transactions that give rise to the allocation of income and the
secondary adjustments, if any, took place.
[[Page 107]]
(3) Blocked income. Income is not considered paid if it is blocked
under executive authority, such as the President's exercise of emergency
power under the Trading with the Enemy Act (50 U.S.C. App. 5), or the
International Emergency Economic Powers Act (50 U.S.C. 1701 et seq).
However, on the date that the blocking restrictions are removed, the
income that was blocked is considered constructively received by the
beneficial owner (and therefore paid for purposes of this section) and
subject to withholding under Sec. 1.1441-1. Any exemption from
withholding pursuant to this paragraph (e)(3) applies without a
requirement that documentation be furnished to the withholding agent.
However, documentation may have to be furnished for purposes of the
information reporting provisions under chapter 61 of the Code and backup
withholding under section 3406. The exemption from withholding granted
by this paragraph (e)(3) is not a determination that the amounts are not
fixed or determinable annual or periodical income.
(4) Special rules for dividends. For purposes of sections 1441 and
6042, in the case of stock for which the record date is earlier than the
payment date, dividends are considered paid on the payment date. In the
case of a corporate reorganization, if a beneficial owner is required to
exchange stock held in a former corporation for stock in a new
corporation before dividends that are to be paid with respect to the
stock in the new corporation will be paid on such stock, the dividend is
considered paid on the date that the payee or beneficial owner actually
exchanges the stock and receives the dividend. See Sec. 31.3406(a)-
4(a)(2) of this chapter.
(5) Certain interest accrued by a foreign corporation. For purposes
of sections 1441 and 6049, a foreign corporation shall be treated as
having made a payment of interest as of the last day of the taxable year
if it has made an election under Sec. 1.884-4(c)(1) to treat accrued
interest as if it were paid in that taxable year.
(6) Payments other than in U.S. dollars. For purposes of section
1441, a payment includes amounts paid in a medium other than U.S.
dollars. See Sec. 1.1441-3(e) for rules regarding the amount subject to
withholding in the case of such payments.
(f) Effective date. This section applies to payments made after
December 31, 2000.
[T.D. 8734, 62 FR 53444, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72187, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999]
Effective Date Note 1: By T.D. 8734, 62 FR 53444, Oct. 14, 1997,
Sec. 1.1441-2 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-2 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the
effective date was further delayed until Jan. 1, 2001. For the
convenience of the user, the superseded text is set forth as follows:
Sec. 1.1441-2 Income subject to withholding.
(a) Fixed or determinable annual or periodical income. (1) The gross
amount of fixed or determinable annual or periodical income is subject
to withholding. Section 1441(b) specifically includes in such income
interest, dividends, rent, salaries, wages, premiums, annuities,
compensations, remunerations, and emoluments; but other kinds of income
are included, as, for instance, royalties. For purposes of the preceding
sentence, the term ``interest'' includes interest on certain deferred
payments, as provided in section 483 and the regulations thereunder. The
term ``fixed or determinable annual or periodical'' income is merely
descriptive of the character of a class of income. If an item of income
falls within the class of income contemplated by the statute, it is
immaterial whether payment of that item is made in a series of repeated
payments or in a single lump sum. Thus, $5,000 in royalty income would
come within the meaning of the term, whether paid in 10 payments of $500
each or in one payment of $5,000.
(2) Income is fixed when it is to be paid in amounts definitely
predetermined. Income is determinable whenever there is a basis of
calculation by which the amount to be paid may be ascertained. The
income need not be paid annually if it is paid periodically; that is to
say, from time to time, whether or not at regular intervals. The fact
that a payment is not made annually or periodically does not, however,
necessarily prevent its being fixed or determinable annual or periodical
income. That the length of time during which the payments are to be made
may be increased or diminished in accordance with someone's will or with
the happening of an event does not make the payments any the less
determinable or periodical. A salesman working by the month for a
commission on sales which is paid or credited monthly receives
determinable periodical income. The share of the fixed or determinable
annual or periodical income of an estate or trust from
[[Page 108]]
sources within the United States which is required to be distributed
currently, or which has been paid or credited during the taxable year,
to a nonresident alien beneficiary of such estate or trust constitutes
fixed or determinable annual or periodical income. Such items as taxes,
interest on mortgages, or premiums on insurance paid to or for the
account of a nonresident alien landlord by a tenant, pursuant to the
terms of the lease, constitute fixed or determinable annual or
periodical income.
(3) Income derived from the sale in the United States of property,
whether real or personal, is not fixed or determinable annual or
periodical income.
(b) Other income subject to withholding--(1) Payments in taxable
years of recipients beginning before January 1, 1967. For payments made
in taxable years of recipients beginning before January 1, 1967,
withholding at 30 percent is also required on the gross amount of the
items described in section 402(a)(2), relating to treatment of total
distributions from certain employees' trusts; in sections 631 (b) and
(c), relating to treatment of gain on disposal of timber, coal, or
domestic iron ore with a retained economic interest; in section 1235,
relating to treatment of gain on sale or exchange of patents; and, after
September 2, 1958, in section 403(a)(2), relating to treatment of
payments under certain employee annuities, each of which items is
considered to be gain from the sale or exchange of a capital asset.
(2) Payments in taxable years of recipients beginning after December
31, 1966. For payments made in taxable years of recipients beginning
after December 31, 1966, withholding at 30 percent is also required on
the gross amount of the following items:
(i) Gains described in section 402(a)(2), relating to the treatment
of total distributions from certain employees' trusts; section
403(a)(2), relating to treatment of payments under certain employee
annuities; and section 631 (b) or (c), relating to treatment of gain on
disposal of timber, coal, or domestic iron ore with a retained economic
interest;
(ii) [Reserved]
(iii) Gains subject to the 30-percent tax under section 871(a)(1)(D)
or section 881(a)(4), relating to contingent payments received from the
sale or exchange after October 4, 1966, of patents, copyrights, and
similar intangible property; and
(iv) Gains on transfers described in section 1235, relating to
treatment of gain on sale or exchange of patents, if the transfers are
made on or before October 4, 1966.
(c) Amounts received by participants in certain exchange or training
programs--(1) Scholarship or fellowship grants. Withholding of tax shall
be at the rate of 14 percent (rather than 30 percent) on that portion of
a scholarship or fellowship grant paid after March 4, 1964, to a
nonresident alien individual who is temporarily present in the United
States as a nonimmigrant under subparagraph (F) or (J) of section
101(a)(15) of the Immigration and Nationality Act, as amended (8 U.S.C.
1101(a)(15)(F) or (J)), which is not excludible from such nonresident
alien's gross income under section 117(a)(1) and paragraph (a) of
Sec. 1.117-1 because it exceeds the limitations set forth in section
117(b)(2)(B) and paragraph (b)(2) of Sec. 1.117-2. Thus, if a
nonresident alien scientist who was admitted to the United States under
subparagraph (J) of section 101(a)(15) of the Immigration and
Nationality Act, as amended, to engage in post-doctoral scientific
studies received a fellowship grant from a grantor specified in section
117(b)(2)(A) which exceeded the $300-per-month-for-36- months limitation
determined under paragraph (b) (2) and (3) of Sec. 1.117-2, a tax at the
rate of 14 percent rather than 30 percent must be withheld from the
amount of the grant includible in the scientist's gross income.
(2) Expenses for travel, research, etc. Withholding shall also be at
the rate of 14 percent on amounts paid after March 4, 1964, to
nonresident alien individuals described in subparagraph (1) of this
paragraph to cover expenses for travel, research, clerical help, or
equipment which are incident to a scholarship or fellowship grant to
which section 117(a)(1) applies, but only to the extent that such
amounts are not excludible from gross income under paragraph (b)(1) of
Sec. 1.117-1 because they pertain to a portion of a scholarship or
fellowship grant which is not excludible, or because the amount received
is not specifically designated to cover such expenses under paragraph
(b)(2)(i) of Sec. 1.117-1.
(3) Exchange visitors. A nonresident alien individual who is
temporarily present in the United States as a nonimmigrant under
subparagraph (J) of section 101(a)(15) of the Immigration and
Nationality Act, as amended, includes a nonresident alien individual
admitted to the United States as an ``exchange visitor'' under section
201 of the U.S. Information and Educational Exchange Act of 1948, as
amended (22 U.S.C. 1446), which section was repealed by section 111 of
the Mutual Educational and Cultural Exchange Act of 1961 (Pub. L. 87-
256, 75 Stat. 538).
(Approved by the Office of Management and Budget under control number
1545-0795)
(Sec. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C.
7805) of the Internal Revenue Code of 1954)
[T.D. 6500, 25 FR 12073, Nov. 26, 1960, as amended by T.D. 6908, 31 FR
16770, Dec. 31, 1966; T.D. 7977, 49 FR 36831, Sept. 20, 1984]
Effective Date Note 2: By T.D. 8856, Sec. 1.1441-2 was amended in
paragraphs (b)(3)(iv) and (f) by removing ``December 31,
[[Page 109]]
1999'', and adding in its place ``December 31, 2000'', effective Jan. 1,
2001.
Sec. 1.1441-3 Determination of amounts to be withheld.
(a) Withholding on gross amount. Except as otherwise provided in
regulations under section 1441, the amount subject to withholding under
Sec. 1.1441-1 is the gross amount of income subject to withholding that
is paid to a foreign person. The gross amount of income subject to
withholding may not be reduced by any deductions, except to the extent
that one or more personal exemptions are allowed as provided under
Sec. 1.1441-4(b)(6).
(b) Withholding on payments on certain obligations--(1) Withholding
at time of payment of interest. When making a payment on an interest-
bearing obligation, a withholding agent must withhold under Sec. 1.1441-
1 upon the gross amount of stated interest payable on the interest
payment date, regardless of whether the payment constitutes a return of
capital or the payment of income within the meaning of section 61. To
the extent an amount was withheld on an amount of capital rather than
interest, see the rules for adjustments, refunds, or credits under
Sec. 1.1441-1(b)(8).
(2) No withholding between interest payment dates--(i) In general. A
withholding agent is not required to withhold under Sec. 1.1441-1 upon
interest accrued on the date of a sale of debt obligations when that
sale occurs between two interest payment dates (even though the amount
is treated as interest under Sec. 1.61-7 (c) or (d) and is subject to
tax under section 871 or 881). See Sec. 1.6045-1(c) for reporting
requirements by brokers with respect to sale proceeds. See Sec. 1.61-
7(c) regarding the character of payments received by the acquirer of an
obligation subsequent to such acquisition (that is, as a return of
capital or interest accrued after the acquisition). Any exemption from
withholding pursuant to this paragraph (b)(2)(i) applies without a
requirement that documentation be furnished to the withholding agent.
However, documentation may have to be furnished for purposes of the
information reporting provisions under section 6045 or 6049 and backup
withholding under section 3406. The exemption from withholding granted
by this paragraph (b)(2) is not a determination that the accrued
interest is not fixed or determinable annual or periodical income under
section 871(a) or 881(a) nor does it constitute an exemption from
reporting under Sec. 1.1461-1 (b) and (c) the amount of accrued interest
paid.
(ii) Anti-abuse rule. The exemption in paragraph (b)(2)(i) of this
section does not apply if the sale of securities is part of a plan the
principal purpose of which is to avoid tax by selling and repurchasing
securities and the withholding agent has actual knowledge or reason to
know of such plan.
(c) Corporate distributions--(1) General rule. A corporation making
a distribution with respect to its stock or any intermediary (described
in Sec. 1.1441-1(e)(3)(i)) making a payment of such a distribution is
required to withhold under section 1441, 1442, or 1443 on the entire
amount of the distribution, unless it elects to reduce the amount of
withholding under the provisions of paragraph (c)(2) of this section.
The exemption from withholding provided by this paragraph (c) applies
without any requirement to furnish documentation to the withholding
agent. However, documentation may have to be furnished for purposes of
the information reporting provisions under section 6042 or 6045 and
backup withholding under section 3406. The exemption from withholding
granted by this paragraph (c) does not constitute a determination that
the exempted amounts are not fixed or determinable annual or periodical
income under sections 871(a) or 881(a) nor does it constitute an
exemption from reporting under Sec. 1.1461-1 (b) and (c) the amount of
the distribution.
(2) Exception to withholding on distributions--(i) In general. An
election described in paragraph (c)(1) of this section is made by
actually reducing the amount of withholding at the time that the payment
is made. An intermediary that makes a payment of a distribution is not
required to reduce the withholding based on the distributing
corporation's estimate of earnings and profits, even if the distributing
corporation itself elects to reduce the withholding on payments of
distributions that it itself makes to
[[Page 110]]
foreign persons. Conversely, an intermediary may elect to reduce the
amount of withholding with respect to the payment of a distribution even
if the distributing corporation does not so elect for the payments of
distributions that it itself makes of distributions to foreign persons.
The amounts with respect to which a distributing corporation or
intermediary may elect to reduce the withholding are as follows:
(A) A distributing corporation or intermediary may elect to not
withhold on a distribution to the extent it represents a nontaxable
distribution payable in stock or stock rights.
(B) A distributing corporation or intermediary may elect to not
withhold on a distribution to the extent it represents a distribution in
part or full payment in exchange for stock.
(C) A distributing corporation or intermediary may elect to not
withhold on a distribution (actual or deemed) to the extent it is not
paid out of accumulated earnings and profits or current earnings and
profits, based on a reasonable estimate determined under paragraph
(c)(2)(ii) of this section.
(D) A regulated investment company or intermediary may elect to not
withhold on a distribution representing a capital gain dividend (as
defined in section 852(b)(3)(C)) or an exempt interest dividend (as
defined in section 852(b)(5)(A)) based on the applicable procedures
described under paragraph (c)(3) of this section.
(E) A U.S. Real Property Holding Corporation (defined in section
897(c)(2)) or a real estate investment trust (defined in section 856) or
intermediary may elect to not withhold on a distribution to the extent
it is subject to withholding under section 1445 and the regulations
under that section. See paragraph (c)(4) of this section for applicable
procedures.
(ii) Reasonable estimate of accumulated and current earnings and
profits on the date of payment--(A) General rule. A reasonable estimate
for purposes of paragraph (c)(2)(i)(C) of this section is a
determination made by the distributing corporation at a time reasonably
close to the date of payment of the extent to which the distribution
will constitute a dividend, as defined in section 316. The determination
is based upon the anticipated amount of accumulated earnings and profits
and current earnings and profits for the taxable year in which the
distribution is made, the distributions made prior to the distribution
for which the estimate is made and all other relevant facts and
circumstances. A reasonable estimate may be made based on the procedures
described in Sec. 31.3406(b)(2)-4(c)(2) of this chapter.
(B) Procedures in case of underwithholding. A distributing
corporation or intermediary that is a withholding agent with respect to
a distribution and that determines at the end of the taxable year in
which the distribution is made that it underwithheld under section 1441
on the distribution shall be liable for the amount underwithheld as a
withholding agent under section 1461. However, for purposes of this
section and Sec. 1.1461-1, any amount underwithheld paid by a
distributing corporation, its paying agent, or an intermediary shall not
be treated as income subject to additional withholding even if that
amount is treated as additional income to the shareholders unless the
additional amount is income to the shareholder as a result of a
contractual arrangement between the parties regarding the satisfaction
of the shareholder's tax liabilities. In addition, no penalties shall be
imposed for failure to withhold and deposit the tax if--
(1) The distributing corporation made a reasonable estimate as
provided in paragraph (c)(2)(ii)(A) of this section; and
(2) Either--
(i) The corporation or intermediary pays over the underwithheld
amount on or before the due date for filing a Form 1042 for the calendar
year in which the distribution is made, pursuant to Sec. 1.1461-2(b); or
(ii) The corporation or intermediary is not a calendar year taxpayer
and it files an amended return on Form 1042X (or such other form as the
Commissioner may prescribe) for the calendar year in which the
distribution is made and pays the underwithheld amount and interest
within 60 days after the close of the taxable year in which the
distribution is made.
[[Page 111]]
(C) Reliance by intermediary on reasonable estimate. For purposes of
determining whether the payment of a corporate distribution is a
dividend, a withholding agent that is not the distributing corporation
may, absent actual knowledge or reason to know otherwise, rely on
representations made by the distributing corporation regarding the
reasonable estimate of the anticipated accumulated and current earnings
and profits made in accordance with paragraph (c)(2)(ii)(A) of this
section. Failure by the withholding agent to withhold the required
amount due to a failure by the distributing corporation to reasonably
estimate the portion of the distribution treated as a dividend or to
properly communicate the information to the withholding agent shall be
imputed to the distributing corporation. In such a case, the Internal
Revenue Service (IRS) may collect from the distributing corporation any
underwithheld amount and subject the distributing corporation to
applicable interest and penalties as a withholding agent.
(D) Example. The rules of this paragraph (c)(2) are illustrated by
the following example:
Example. (i) Facts. Corporation X, a publicly traded corporation
with both U.S. and foreign shareholders and a calendar year taxpayer,
has an accumulated deficit in earnings and profits at the close of 2000.
In 2001, Corporation X generates $1 million of current earnings and
profits each month and makes an $18 million distribution, resulting in a
$12 million dividend. Corporation X plans to make an additional $18
million distribution on October 1, 2002. Approximately one month before
that date, Corporation X's management receives an internal report from
its legal and accounting department concerning Corporation X's estimated
current earnings and profits. The report states that Corporation X
should generate only $5.1 million of current earnings and profits by the
close of the third quarter due to costs relating to substantial
organizational and product changes, but these changes will enable
Corporation X to generate $1.3 million of earnings and profits monthly
for the last quarter of the 2002 fiscal year. Thus, the total amount of
current and earnings and profits for 2002 is estimated to be $9 million.
(ii) Analysis. Based on the facts in paragraph (i) of this Example,
including the fact that earnings and profits estimate was made within a
reasonable time before the distribution, Corporation X can rely on the
estimate under paragraph (c)(2)(ii)(A) of this section. Therefore,
Corporation X may treat $9 million of the $18 million of the October 1,
2002, distribution to foreign shareholders as a non-dividend
distribution.
(3) Special rules in the case of distributions from a regulated
investment company--(i) General rule. If the amount of any distributions
designated as being subject to section 852(b)(3)(C) or (5)(A) exceeds
the amount that may be designated under those sections for the taxable
year, then no penalties will be asserted for any resulting
underwithholding if the designations were based on a reasonable estimate
(made pursuant to the same procedures as are described in paragraph
(c)(2)(ii)(A) of this section) and the adjustments to the amount
withheld are made within the time period described in paragraph
(c)(2)(ii)(B) of this section. Any adjustment to the amount of tax due
and paid to the IRS by the withholding agent as a result of
underwithholding shall not be treated as a distribution for purposes of
section 562(c) and the regulations thereunder. Any amount of U.S. tax
that a foreign shareholder is treated as having paid on the
undistributed capital gain of a regulated investment company under
section 852(b)(3)(D) may be claimed by the foreign shareholder as a
credit or refund under Sec. 1.1464-1.
(ii) Reliance by intermediary on reasonable estimate. For purposes
of determining whether a payment is a distribution designated as subject
to section 852(b) (3)(C) or (5)(A), a withholding agent that is not the
distributing regulated investment company may, absent actual knowledge
or reason to know otherwise, rely on the designations that the
distributing company represents have been made in accordance with
paragraph (c)(3)(i) of this section. Failure by the withholding agent to
withhold the required amount due to a failure by the regulated
investment company to reasonably estimate the required amounts or to
properly communicate the relevant information to the withholding agent
shall be imputed to the distributing company. In such a case, the IRS
may collect from the distributing company any underwithheld amount and
subject
[[Page 112]]
the company to applicable interest and penalties as a withholding agent.
(4) Coordination with withholding under section 1445--(i) In
general. A distribution from a U.S. Real Property Holding Corporation
(USRPHC) (or from a corporation that was a USRPHC at any time during the
five-year period ending on the date of distribution) with respect to
stock that is a U.S. real property interest under section 897(c) or from
a Real Estate Investment Trust (REIT) with respect to its stock is
subject to the withholding provisions under section 1441 (or section
1442 or 1443) and section 1445. A USRPHC making a distribution shall be
treated as satisfying its withholding obligations under both sections if
it withholds in accordance with one of the procedures described in
either paragraph (c)(4)(i) (A) or (B) of this section. A USRPHC must
apply the same withholding procedure to all the distributions made
during the taxable year. However, the USRPHC may change the applicable
withholding procedure from year to year. For rules regarding
distributions by REITs, see paragraph (c)(4)(i)(C) of this section.
(A) Withholding under section 1441. The USRPHC may choose to
withhold on a distribution only under section 1441 (or 1442 or 1443) and
not under section 1445. In such a case, the USRPHC must withhold under
section 1441 (or 1442 or 1443) on the full amount of the distribution,
whether or not any portion of the distribution represents a return of
basis or capital gain. If a reduced tax rate under an income tax treaty
applies to the distribution by the USRPHC, then the applicable rate of
withholding on the distribution shall be no less than 10-percent, unless
the applicable treaty specifies an applicable lower rate for
distributions from a USRPHC, in which case the lower rate may apply.
(B) Withholding under both sections 1441 and 1445. As an alternative
to the procedure described in paragraph (c)(4)(i)(A) of this section, a
USRPHC may choose to withhold under both sections 1441 (or 1442 or 1443)
and 1445 under the procedures set forth in this paragraph (c)(4)(i)(B).
The USRPHC must make a reasonable estimate of the portion of the
distribution that is a dividend under paragraph (c)(2)(ii)(A) of this
section, and must--
(1) Withhold under section 1441 (or 1442 or 1443) on the portion of
the distribution that is estimated to be a dividend under paragraph
(c)(2)(ii)(A) of this section; and
(2) Withhold under section 1445(e)(3) and Sec. 1.1445-5(e) on the
remainder of the distribution or on such smaller portion based on a
withholding certificate obtained in accordance with Sec. 1.1445-
5(e)(2)(iv).
(C) Coordination with REIT withholding. Withholding is required
under section 1441 (or 1442 or 1443) on the portion of a distribution
from a REIT that is not designated as a capital gain dividend or return
of basis. Withholding is required under section 1445 on the portion of
the distribution designated by a REIT as a capital gain dividend. See
Sec. 1.1445-8.
(ii) Intermediary reliance rule. A withholding agent that is not the
distributing USRPHC must withhold under paragraph (c)(4)(i) of this
section, but may, absent actual knowledge or reason to know otherwise,
rely on representations made by the USRPHC regarding the determinations
required under paragraph (c)(4)(i) of this section. Failure by the
withholding agent to withhold the required amount due to a failure by
the distributing USRPHC to make these determinations in a reasonable
manner or to properly communicate the determinations to the withholding
agent shall be imputed to the distributing USRPHC. In such a case, the
IRS may collect from the distributing USRPHC any underwithheld amount
and subject the distributing USRPHC to applicable interest and penalties
as a withholding agent.
(d) Withholding on payments that include an undetermined amount of
income--(1) In general. Where the withholding agent makes a payment and
does not know at the time of payment the amount that is subject to
withholding because the determination of the source of the income or the
calculation of the amount of income subject to tax depends upon facts
that are not known at the time of payment, then the withholding agent
must withhold an amount under Sec. 1.1441-1 based
[[Page 113]]
on the entire amount paid that is necessary to assure that the tax
withheld is not less than 30 percent (or other applicable percentage) of
the amount that will subsequently be determined to be from sources
within the United States or to be income subject to tax. The amount so
withheld shall not exceed 30 percent of the amount paid. In the
alternative, the withholding agent may make a reasonable estimate of the
amount from U.S. sources or of the taxable amount and set aside a
corresponding portion of the amount due under the transaction and hold
such portion in escrow until the amount from U.S. sources or the taxable
amount can be determined, at which point withholding becomes due under
Sec. 1.1441-1. See Sec. 1.1441-1(b)(8) regarding adjustments in the case
of overwithholding. The provisions of this paragraph (d)(1) shall not
apply to the extent that other provisions of the regulations under
chapter 3 of the Internal Revenue Code (Code) specify the amount to be
withheld, if any, when the withholding agent lacks knowledge at the time
of payment (e.g., lack of reliable knowledge regarding the status of the
payee or beneficial owner, addressed in Sec. 1.1441-1(b)(3), or lack of
knowledge regarding the amount of original issue discount under
Sec. 1.1441-2(b)(3)).
(2) Withholding on certain gains. Absent actual knowledge or reason
to know otherwise, a withholding agent may rely on a claim regarding the
amount of gain described in Sec. 1.1441-2(c) if the beneficial owner
withholding certificate, or other appropriate withholding certificate,
states the beneficial owner's basis in the property giving rise to the
gain. In the absence of a reliable representation on a withholding
certificate, the withholding agent must withhold an amount under
Sec. 1.1441-1 that is necessary to assure that the tax withheld is not
less than 30 percent (or other applicable percentage) of the recognized
gain. For this purpose, the recognized gain is determined without regard
to any deduction allowed by the Code from the gains. The amount so
withheld shall not exceed 30 percent of the amount payable by reason of
the transaction giving rise to the recognized gain. See Sec. 1.1441-
1(b)(8) regarding adjustments in the case of overwithholding.
(e) Payments other than in U.S. dollars--(1) In general. The amount
of a payment made in a medium other than U.S. dollars is measured by the
fair market value of the property or services provided in lieu of U.S.
dollars. The withholding agent may liquidate the property prior to
payment in order to withhold the required amount of tax under section
1441 or obtain payment of the tax from an alternative source. However,
the obligation to withhold under section 1441 is not deferred even if no
alternative source can be located. Thus, for purposes of withholding
under chapter 3 of the Code, the provisions of Sec. 31.3406(h)-
2(b)(2)(ii) of this chapter (relating to backup withholding from another
source) shall not apply. If the withholding agent satisfies the tax
liability related to such payments, the rules of paragraph (f) of this
section apply.
(2) Payments in foreign currency. If the amount subject to
withholding tax is paid in a currency other than the U.S. dollar, the
amount of withholding under section 1441 shall be determined by applying
the applicable rate of withholding to the foreign currency amount and
converting the amount withheld into U.S. dollars on the date of payment
at the spot rate (as defined in Sec. 1.988-1(d)(1)) in effect on that
date. A withholding agent making regular or frequent payments in foreign
currency may use a month-end spot rate or a monthly average spot rate. A
spot rate convention must be used consistently for all non-dollar
amounts withheld and from year to year. Such convention cannot be
changed without the consent of the Commissioner. The U.S. dollar amount
so determined shall be treated by the beneficial owner as the amount of
tax paid on the income for purposes of determining the final U.S. tax
liability and, if applicable, claiming a refund or credit of tax.
(f) Tax liability of beneficial owner satisfied by withholding
agent--(1) General rule. In the event that the satisfaction of a tax
liability of a beneficial owner by a withholding agent constitutes
income to the beneficial owner and such income is of a type that is
subject to
[[Page 114]]
withholding, the amount of the payment deemed made by the withholding
agent for purposes of this paragraph (f) shall be determined under the
gross-up formula provided in this paragraph (f)(1). Whether the payment
of the tax by the withholding agent constitutes a satisfaction of the
beneficial owner's tax liability and whether, as such, it constitutes
additional income to the beneficial owner, must be determined under all
the facts and circumstances surrounding the transaction, including any
agreements between the parties and applicable law. The formula described
in this paragraph (f)(1) is as follows:
[GRAPHIC] [TIFF OMITTED] TR14OC97.000
(2) Example. The following example illustrates the provisions of
this paragraph (f):
Example. College X awards a qualified scholarship within the meaning
of section 117(b) to foreign student, FS, who is in the United States on
an F visa. FS is a resident of a country that does not have an income
tax treaty with the United States. The scholarship is $20,000 to be
applied to tuition, mandatory fees and books, plus benefits in kind
consisting of room and board and roundtrip air transportation. College X
agrees to pay any U.S. income tax owed by FS with respect to the
scholarship. The fair market value of the room and board measured by the
amount College X charges non-scholarship students is $6,000. The cost of
the roundtrip air transportation is $2,600. Therefore, the total fair
market value of the scholarship received by FS is $28,600. However, the
amount taxable is limited to the fair market value of the benefits in
kind ($8,600) because the portion of the scholarship amount for tuition,
fees, and books is not included in gross income under section 117. The
applicable rate of withholding is 14 percent under section 1441(b).
Therefore, under the gross-up formula, College X is deemed to make a
payment of $10,000 ($8,600 divided by (1-.14). The U.S. tax that must be
deducted and withheld from the payment under section 1441(b) is $1,400
(.14 x $10,000). College X reports scholarship income of $30,000 and
$1,400 of U.S. tax withheld on Forms 1042 and 1042-S.
(g) Conduit financing arrangements--(1) Duty to withhold. A financed
entity or other person required to withhold tax under section 1441 with
respect to a financing arrangement that is a conduit financing
arrangement within the meaning of Sec. 1.881-3(a)(2)(iv) shall be
required to withhold under section 1441 as if the district director had
determined, pursuant to Sec. 1.881-3(a)(3), that all conduit entities
that are parties to the conduit financing arrangement should be
disregarded. The amount of tax required to be withheld shall be
determined under Sec. 1.881-3(d). The withholding agent may withhold tax
at a reduced rate if the financing entity establishes that it is
entitled to the benefit of a treaty that provides a reduced rate of tax
on a payment of the type deemed to have been paid to the financing
entity. Section 1.881-3(a)(3)(ii)(E) shall not apply for purposes of
determining whether any person is required to deduct and withhold tax
pursuant to this paragraph (g), or whether any party to a financing
arrangement is liable for failure to withhold or entitled to a refund of
tax under sections 1441 or 1461 to 1464 (except to the extent the amount
withheld exceeds the tax liability determined under Sec. 1.881-3(d)).
See Sec. 1.1441-7(f) relating to withholding tax liability of the
withholding agent in conduit financing arrangements subject to
Sec. 1.881-3.
(2) Effective date. This paragraph (g) is effective for payments
made by financed entities on or after September 11, 1995. This paragraph
shall not apply to interest payments covered by section 127(g)(3) of the
Tax Reform Act of 1984, and to interest payments with respect to other
debt obligations issued prior to October 15, 1984 (whether or not such
debt was issued by a Netherlands Antilles corporation).
(h) Effective date. Except as otherwise provided in paragraph (g) of
this section, this section applies to payments made after December 31,
2000.
[T.D. 6500, 25 FR 12074, Nov. 26, 1960, as amended by T.D. 6908, 31 FR
16771, Dec. 31, 1966; T.D. 7378, 40 FR 45436, Oct. 2, 1975; T.D. 7977,
49 FR 36831, Sept. 20, 1984; T.D. 8611, 60 FR 41014, Aug. 11, 1995; T.D.
8734, 62 FR 53446, Oct. 14, 1997; T.D. 8804, 63 FR 72187, Dec. 31, 1998;
T.D. 8856, 64 FR 73412, Dec. 30, 1999]
Effective Date Note 1: By T.D. 8734, 62 FR 53446, Oct. 14, 1997,
Sec. 1.1441-3 was amended by revising the section heading, and
paragraphs (a) through (f) and (h); by removing paragraphs (g) and (i);
by redesignating paragraph (j) as paragraph (g); by removing ``(j)'' and
inserting ``(g)'' in its place in the fourth sentence of newly
designated paragraph
[[Page 115]]
(g)(1) and in the first sentence of newly designated paragraph (g)(2);
by removing ``Sec. 1.1441-7(d)'' in the last sentence of newly
designated paragraph (g)(1) and inserting ``1.1441-7(f)'' in its place;
and by removing the authority citation at the end of the section,
effective Jan. 1, 1999. By T.D. 8804, 63 FR 72183, Dec. 31, 1998, the
effective date of Sec. 1.1441-3 was delayed until Jan. 1, 2000. By T.D.
8856, 64 FR 73408, Dec. 30, 1999, the effective date was further delayed
until Jan. 1, 2001. For the convenience of the user, the superseded text
is set forth as follows:
Sec. 1.1441-3 Exceptions and rules of special application.
(a) Income from sources without the United States. To the extent
that items of income constitute gross income from sources without the
United States, they are not subject to withholding under Sec. 1.1441-1.
For rules governing the determination of the sources of income, see part
I (section 861 and following), subchapter N, chapter 1 of the Code, and
the regulations thereunder.
(b) Corporate distributions--(1) Nontaxable portion. The tax shall
be withheld at the source under Sec. 1.1441-1 on the gross amount of any
distribution made by a corporation other than:
(i) A nontaxable distribution payable in stock or stock rights, and
(ii) A distribution which is treated as a distribution in part or
full payment in exchange for stock.
This rule shall apply without regard to any claim that all or a portion
of the distribution is not taxable under section 871 or 881. The tax
shall be withheld on the gross amount of the distribution even though
the payee may be entitled to the benefits of section 116, relating to
partial exclusion of dividends received by individuals. Appropriate
adjustment, if any, will be made upon the payee's filing of a claim for
refund, together with appropriate supporting evidence, in accordance
with paragraph (h) of this section.
(2) Dividends paid by a foreign corporation--(i) Payments in taxable
years of recipients beginning before January 1, 1967. In the case of
dividends paid in taxable years of recipients beginning before January
1, 1967, no withholding under Sec. 1.1441-1 is required in the case of
dividends paid by a foreign corporation unless (a) the corporation is
engaged in trade or business within the United States and (b) more than
85 percent of the gross income of the corporation for the 3-year period
ending with the close of its taxable year preceding the declaration of
the dividends (or for such part of such period as the corporation has
been in existence) was derived from sources within the United States as
determined under the provisions of Part I (section 861 and following),
Subchapter N, Chapter 1 of the Code, and the regulations thereunder.
(ii) Payments in taxable years of recipients beginning after
December 31, 1966. In the case of dividends paid in taxable years of
recipients beginning after December 31, 1966, all dividends paid by a
foreign corporation which are treated as income from sources within the
United States are subject to withholding under Sec. 1.1441-1.
(3) Dividends paid to shareholder whose status is not definite. When
a payer corporation or any other person, including a nominee, having the
control, receipt, custody, disposal, or payment of dividends has no
definite knowledge of the status of a shareholder, the tax shall be
withheld under Sec. 1.1441-1 if the shareholder's address is outside the
United States. If the shareholder's address is within the United States,
it may be assumed for the purpose of withholding on dividends that, in
the case of an individual, the shareholder is a citizen or resident of
the United States; and, in the case of a partnership or corporation, the
shareholder is a domestic partnership or a domestic corporation, as the
case may be. Unless the facts and circumstances indicate clearly that
the shareholder is a nonresident alien individual, foreign partnership,
or foreign corporation, an address in care of another person in the
United States does not of itself warrant treating the shareholder as a
person who is subject to withholding upon dividends under Sec. 1.1441-1.
If a shareholder changes his address from a place outside the United
States to a place within the United States, the tax shall be withheld on
dividends unless (i) proof is furnished showing that, in the case of an
individual, he is a citizen or resident of the United States or, in the
case of a partnership or corporation, it is a domestic partnership or
corporation, or (ii) the withholding agent is otherwise satisfied that
the shareholder is not a person who is subject to withholding under
Sec. 1.1441-1. For general provisions for claiming to be a person not
subject to withholding under Sec. 1.1441-1, see Sec. 1.1441-5.
(c) Interest--(1) Government obligations. Withholding is required
under Sec. 1.1441-1 in the case of interest paid on obligations issued
on or after March 1, 1941, by the United States or any agency or
instrumentality thereof. See section 103 and the regulations thereunder,
relating to the taxation of such interest, and Sec. 1.1461-1, relating
to ownership certificates.
(2) Assumed obligations. If, in connection with the sale of a
corporation's property, payment of the bonds or other obligations of the
corporation is assumed by the assignee, the assignee, whether an
individual, partnership, or corporation, shall deduct and withhold such
taxes under Sec. 1.1441-1 as would be required to be withheld by the
assignor had no such sale or transfer been made.
(3) Defaulted interest coupons. The tax shall be withheld at the
source under Sec. 1.1441-1 on
[[Page 116]]
the gross amount of interest without regard to whether or not the
payment constitutes a return of capital or the payment of income within
the meaning of section 61. Thus, for example, the tax shall be withheld
in accordance with Sec. 1.1441-1 from defaulted interest payments upon
bonds which were purchased flat at quotations representing the price of
both the bonds and the defaulted matured interest coupons. Appropriate
adjustments, if any, will be made upon the payee's filing of a claim for
refund, together with appropriate supporting evidence, in accordance
with paragraph (h) of this section.
(4) Unknown owner. Withholding is required under Sec. 1.1441-1 in
the case of interest upon all bonds or securities the owners of which
are not known to the withholding agent unless such bonds or securities
were issued by a corporation before January 1, 1934, contain a tax-free
covenant, and do not have a maturity date which was extended on or after
that date. For withholding under section 1451 in the case of unknown
owners, see paragraph (a)(2) of Sec. 1.1451-1.
(5) Tax-free covenant bonds--(i) Issued on or after January 1, 1934.
Withholding is required under Sec. 1.1441-1 in the case of interest upon
bonds or other corporate obligations issued on or after January 1, 1934,
and containing a tax-free covenant.
(ii) Issued before January 1, 1934. Withholding is not required
under Sec. 1.1441-1 in the case of interest upon bonds or other
corporate obligations issued before January 1, 1934, containing a tax-
free covenant, and not having a maturity date which was extended on or
after that date. A domestic or resident fiduciary is required, however,
to withhold tax under Sec. 1.1441-1 in the case of so much of such
interest as is properly allocable under section 652 or 662 to a
nonresident alien beneficiary. See paragraph (f) of this section and of
Sec. 1.1451-1. For general rules respecting the withholding of tax under
section 1451 in the case of such interest, see Sec. 1.1451-1.
(iii) Extended maturity date. Withholding is required under
Sec. 1.1441-1 in the case of interest upon bonds or other corporate
obligations issued before January 1, 1934, and containing a tax-free
covenant, if the maturity date of the bonds or obligations has been
extended on or after that date. See paragraph (c) of Sec. 1.1451-1.
(iv) Special rate of 27\1/2\ percent. The rate of tax to be withheld
at the source under Sec. 1.1441-1 shall not exceed 27\1/2\ percent in
the case of interest on bonds, mortgages, or deeds of trust, or other
similar obligations of a corporation if:
(a) The liability assumed by the debtor exceeds 27\1/2\ percent of
the interest, and
(b) The interest would be subject to withholding under the
provisions of subsections (a), (b), and (c) of section 1451 except for
the fact that the maturity date of the obligations has been extended on
or after January 1, 1934. See paragraph (c) of Sec. 1.1451-1.
(d) Special rules applicable to certain income--(1) Determination of
amount to be withheld. If in the case of amounts described in paragraph
(b) of Sec. 1.1441-2, other than amounts described in subparagraph
(2)(ii) of such paragraph, the withholding agent does not know the
amount of recognized gain, he is required to deduct and withhold such
amount under Sec. 1.1441-1 as may be necessary to assure that the tax
withheld will not be less than 30 percent of the recognized gain. For
this purpose, the recognized gain shall be determined without regard to
the deduction allowed by section 1202 with respect to capital gains. The
amount so withheld shall not exceed 30 percent of the amount payable by
reason of the transaction giving rise to the recognized gain, except
that the amount payable may be determined by excluding the net
unrealized appreciation described in section 402(a)(2). Appropriate
adjustment, if any, will be made by the payee's filing of a claim for
refund, together with appropriate supporting evidence, in accordance
with paragraph (h) of this section.
(2) Statement showing recognized gain. The withholding agent may,
unless he has reason to believe to the contrary, rely on the statement
of the person entitled to the gain described in subparagraph (1) of this
paragraph as to the amount of gain which is recognized on the
transaction involved and subject to withholding under Sec. 1.1441-1.
This statement shall be filed with the withholding agent in duplicate.
It shall show the computation of the amount of gain subject to
withholding, shall be dated, shall be signed by the person entitled to
the income, shall contain the taxpayer's identifying number, if any, and
shall contain, or be verified by, a written declaration that it is made
under the penalties of perjury. No particular form is prescribed for
this statement. The duplicate copy of each statement filed during any
calendar year pursuant to this subparagraph shall be forwarded by the
withholding agent with, and attached to, the Form 1042S required by
paragraph (c) of Sec. 1.1461-2 with respect to such gain for such
calendar year.
(e) Personal exemption--(1) The taxation of nonresident alien
individuals is provided for in part II (section 871 and following),
subchapter N, chapter 1 of the Code. Section 874(a) makes the filing of
a return a prerequisite to the allowance of deductions, including
deductions of personal exemptions. Except in the circumstances described
in subparagraph (2) of this paragraph, personal exemptions do not serve
to reduce the amount of tax to be withheld under Sec. 1.1441-1.
(2) In the determination of the tax to be withheld at the source
under Sec. 1.1441-1 from remuneration paid for labor or personal
services performed within the United States by a
[[Page 117]]
nonresident alien individual, the benefit of the deduction for personal
exemptions provided in section 151, to the extent allowable under
section 873(b)(3) and the regulations thereunder, shall be allowed,
prorated upon a daily basis for the period during which labor or
personal services are performed within the United States by the alien
individual. The benefit of the deduction for such personal exemptions
shall also be allowed in the determination of the tax of 14 percent to
be withheld at the source under Sec. 1.1441-1 and paragraph (c) of
Sec. 1.1441-2 from amounts paid after March 4, 1964, to nonresident
alien individuals who are temporarily present in the United States as
nonimmigrants under subparagraph (F) or (J) of the Immigration and
Nationality Act, as amended, and such personal exemptions shall be
prorated upon a daily basis for the period during which the described
nonresident alien student or scholar receives the payments. The
proration is on a basis of $1.70 per day for each exemption to which the
nonresident alien individual is entitled. Thus, if A, a married
nonresident alien individual without dependents is paid remuneration
subject to withholding under Sec. 1.1441-1 for performing personal
services during a stay of 100 days in the United States, the amount of
$170 will be allocated as the portion of the deduction to be allowed
against the remuneration for personal services performed within the
United States during that period; and withholding at 30 percent shall be
applied against the balance, if any, of the remuneration. If, for
example, the total remuneration paid to A for that period is $2,000, a
total tax in the amount of $549 [($2,000-$170) x 0.30] is required to be
withheld under Sec. 1.1441-1. However, if A is a resident of Canada or
Mexico, and his spouse has no gross income from sources within the
United States, which is subject to income tax under chapter 1 of the
Code, and is not the dependent of another taxpayer subject to such tax,
an amount of $340 will be allocated as the portion of the deduction to
be allowed against the remuneration for personal services performed
within the United States. Thus, in such case, a total tax in the amount
of $498 [($2,000-$340) x 0.30] is required to be withheld under
Sec. 1.1441-1. As to what constitutes remuneration for labor or personal
services performed within the United States see section 861(a)(3) and
the regulations thereunder.
(f) Partnerships and fiduciaries. Domestic partnerships are required
to withhold the tax at source under Sec. 1.1441.1 on items of income
described in paragraphs (a) and (b) of Sec. 1.1441-2 that are included
in the distributive share (including amounts that are not actually
distributed) of a member of such partnership who is a nonresident alien
individual, nonresident alien or foreign fiduciary of a trust or estate,
foreign partnership, or foreign corporation. Resident or domestic
fiduciaries of trusts and estates are required to withhold the tax at
source under Sec. 1.1441-1 on all items of income described in
paragraphs (a) and (b) of Sec. 1.1441-2 that constitute gross income
from sources within the United States (including amounts that are not
actually distributed) of beneficiaries who are nonresident alien
individuals, foreign partnerships, or foreign corporations. Because the
gross income allocable to a partner and the income includable in the
gross income of the beneficiary cannot be determined until the end of a
taxable year of the partnership, trust, or estate, the partnership and
the fiduciary of a trust or estate shall withhold under this section on
all distributions to such partners and beneficiaries during the taxable
years to the extent such distributions include items of income described
in paragraphs (a) and (b) of Sec. 1.1441-2. If the tax on actual
distributions exceeds the tax on amounts includable in the gross income
of the partner or beneficiary, the partner or beneficiary may file a
claim for refund together with appropriate supporting evidence in
accordance with paragraph (h) of this section. If a partnership or a
fiduciary withholds under this section on a distributive partnership
share or distributable net income of a trust or estate before the income
is actually distributed to a partner or beneficiary, then withholding is
not required when such income is subsequently distributed. Income
described in paragraphs (a) and (b) of Sec. 1.1441-2 that is paid to a
foreign partnership or to a nonresident alien or foreign fiduciary is
subject to withholding under Sec. 1.1441-1 even though the members of
the partnership or the beneficiaries of the trust or estate are
individuals who are citizens or residents of the United States or are
domestic corporations.
(g) Trust income taxable to grantor. The income of a trust created
by a nonresident alien individual and taxable to the grantor under the
provisions of subpart E, part I, subchapter J, chapter 1 of the Code, is
subject to withholding under Sec. 1.1441-1, even though the fiduciary or
beneficiaries of the trust are citizens or residents of the United
States and regardless of whether the beneficiaries are exempt from
income tax.
(h) Claims for refund. A claim for refund referred to in paragraph
(b) (1), (c) (3), (d) (1), or (f) of this section shall be made in
accordance with the provisions of Secs. 301.6402-2 and 301.6402-3 of
this chapter (Regulations on Procedure and Administration).
(i) Rents paid to foreign tax-exempt organizations. For the rule for
withholding on rents paid to foreign tax- exempt organizations, see
Sec. 1.1443-1.
* * * * *
[[Page 118]]
(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C.
7805) of the Internal Revenue Code of 1954)
Effective Date Note 2: By T.D. 8856, 64 FR 73412, Dec. 30, 1999,
Sec. 1.1441-3 was amended in paragraph (h) by removing December 31, 1999
and adding in its place December 31, 2000, effective Jan. 1, 2001.
Sec. 1.1441-4 Exemptions from withholding for certain effectively
connected income and other amounts.
(a) Certain income connected with a U.S. trade or business--(1) In
general. No withholding is required under section 1441 on income
otherwise subject to withholding if the income is (or is deemed to be)
effectively connected with the conduct of a trade or business within the
United States and is includible in the beneficial owner's gross income
for the taxable year. For purposes of this paragraph (a), an amount is
not deemed to be includible in gross income if the amount is (or is
deemed to be) effectively connected with the conduct of a trade or
business within the United States and the beneficial owner claims an
exemption from tax under an income tax treaty because the income is not
attributable to a permanent establishment in the United States. To claim
a reduced rate of withholding because the income is not attributable to
a permanent establishment, see Sec. 1.1441-6(b)(1). This paragraph (a)
does not apply to income of a foreign corporation to which section
543(a)(7) applies for the taxable year or to compensation for personal
services performed by an individual. See paragraph (b) of this section
for compensation for personal services performed by an individual.
(2) Withholding agent's reliance on a claim of effectively connected
income--(i) In general. Absent actual knowledge or reason to know
otherwise, a withholding agent may rely on a claim of exemption based
upon paragraph (a)(1) of this section if, prior to the payment to the
foreign person, the withholding agent can reliably associate the payment
with a Form W-8 upon which it can rely to treat the payment as made to a
foreign beneficial owner in accordance with Sec. 1.1441-1(e)(1)(ii). For
purposes of this paragraph (a), a withholding certificate is valid only
if, in addition to other applicable requirements, it includes the
taxpayer identifying number of the person whose name is on the Form W-8
and represents, under penalties of perjury, that the amounts for which
the certificate is furnished are effectively connected with the conduct
of a trade or business in the United States and is includable in the
beneficial owner's gross income for the taxable year. In the absence of
a reliable claim that the income is effectively connected with the
conduct of a trade or business in the United States, the income is
presumed not to be effectively connected, except as otherwise provided
in paragraph (a) (2)(ii) or (3) of this section. See Sec. 1.1441-
1(e)(4)(ii)(C) for the period of validity applicable to a certificate
provided under this section and Sec. 1.1441-1(e)(4)(ii)(D) for changes
in circumstances arising during the taxable year indicating that the
income to which the certificate relates is not, or is no longer expected
to be, effectively connected with the conduct of a trade or business
within the United States. A withholding certificate shall be effective
only for the item or items of income specified therein. The provisions
of Sec. 1.1441-1(b)(3)(iv) dealing with a 90-day grace period shall
apply for purposes of this section.
(ii) Special rules for U.S. branches of foreign persons--(A) U.S.
branches of certain foreign banks or foreign insurance companies. A
payment to a U.S. branch described in Sec. 1.1441-1(b)(2)(iv)(A) is
presumed to be effectively connected with the conduct of a trade or
business in the United States without the need to furnish a certificate,
unless the U.S. branch provides a U.S. branch withholding certificate
described in Sec. 1.1441-1(e)(3)(v) that represents otherwise. If no
certificate is furnished but the income is not, in fact, effectively
connected income, then the branch must withhold whether the payment is
collected on behalf of other persons or on behalf of another branch of
the same entity. See Sec. 1.1441-1(b) (2)(iv) and (6) for general rules
applicable to payments to U.S. branches of foreign persons.
(B) Other U.S. branches. See Sec. 1.1441-1(b)(2)(iv)(E) for similar
procedures for
[[Page 119]]
other U.S. branches to the extent provided in a determination letter
from the district director or the Assistant Commissioner
(International).
(3) Income on notional principal contracts--(i) General rule. A
withholding agent that pays amounts attributable to a notional principal
contract described in Sec. 1.863-7(a) or 1.988-2(e) shall have no
obligation to withhold on the amounts paid under the terms of the
notional principal contract regardless of whether a withholding
certificate is provided. However, a withholding agent must file returns
under Sec. 1.1461-1(b) and (c) reporting the income that it must treat
as paid to a foreign person and as effectively connected with the
conduct of a trade or business in the United States under the provisions
of this paragraph (a)(3). Except as otherwise provided in paragraph
(a)(3)(ii) of this section, a withholding agent must so treat the income
unless it can reliably associate the payment with a withholding
certificate upon which it can rely to treat the payment as an amount
that is not effectively connected. Income on a notional principal
contract does not include the amount characterized as interest under the
provisions of Sec. 1.446-3(g)(4).
(ii) Exception for certain payments. A payment to a foreign
financial institution (within the meaning of Sec. 1.165-12(c)(1)(iv))
shall not be treated as effectively connected with the conduct of a
trade or business within the United States for purposes of paragraph
(a)(3)(i) of this section even if no withholding certificate is
furnished if the payee provides a representation in a master agreement
that governs the transactions in notional principal contracts between
the parties (for example an International Swaps and Derivatives
Association (ISDA) Agreement, including the Schedule thereto) or in the
confirmation on the particular notional principal contract transaction
that the counterparty is a U.S. person or a non-U.S. branch of a foreign
person.
(b) Compensation for personal services of an individual--(1)
Exemption from withholding. Withholding is not required under
Sec. 1.1441-1 from salaries, wages, remuneration, or any other
compensation for personal services of a nonresident alien individual if
such compensation is effectively connected with the conduct of a trade
or business within the United States and--
(i) Such compensation is subject to withholding under section 3402
(relating to withholding on wages) and the regulations under that
section;
(ii) Such compensation would be subject to withholding under section
3402 but for the provisions of section 3401(a) (not including paragraph
(a)(6) of that section) and the regulations under that section. This
paragraph (b)(1)(ii) does not apply to payments to a nonresident alien
individual from any trust described in section 401(a), any annuity plan
described in section 403(a), or any annuity, custodial account, or
retirement income account described in section 403(b). Instead, these
payments are subject to withholding under this section to the extent
they are exempted from the definition of wages under section 3401(a)(12)
or to the extent they are from an annuity, custodial account, or
retirement income account described in section 403(b). Thus, for
example, payments to a nonresident alien individual from a trust
described in section 401(a) are subject to withholding under section
1441 and not under section 3405 or 3406;
(iii) Such compensation is for services performed by a nonresident
alien individual who is a resident of Canada or Mexico and who enters
and leaves the United States at frequent intervals;
(iv) Such compensation is, or will be, exempt from the income tax
imposed by chapter 1 of the Code by reason of a provision of the
Internal Revenue Code or a tax treaty to which the United States is a
party;
(v) Such compensation is paid after January 3, 1979 as a commission
or rebate paid by a ship supplier to a nonresident alien individual, who
is employed by a nonresident alien individual, foreign partnership, or
foreign corporation in the operation of a ship or ships of foreign
registry, for placing orders for supplies to be used in the operation of
such ship or ships with the supplier. See section 162(c) and the
regulations thereunder for denial of deductions for illegal bribes,
kickbacks, and other payments; or
[[Page 120]]
(vi) Compensation that is exempt from withholding under section 3402
by reason of section 3402(e), provided that the employee and his
employer enter into an agreement under section 3402(p) to provide for
the withholding of income tax upon payments of amounts described in
Sec. 31.3401(a)-3(b)(1) of this chapter. An employee who desires to
enter into such an agreement should furnish his employer with Form W-4
(withholding exemption certificate) (or such other form as the Internal
Revenue Service (IRS) may prescribe). See section 3402(f) and the
regulations thereunder and Sec. 31.3402(p)-1 of this chapter.
(2) Manner of obtaining withholding exemption under tax treaty--(i)
In general. In order to obtain the exemption from withholding by reason
of a tax treaty, provided by paragraph (b)(1)(iv) of this section, a
nonresident alien individual must submit a withholding certificate
(described in paragraph (b)(2)(ii) of this section) to each withholding
agent from whom amounts are to be received. A separate withholding
certificate must be filed for each taxable year of the alien individual.
If the withholding agent is satisfied that an exemption from withholding
is warranted (see paragraph (b)(2)(iii) of this section), the
withholding certificate shall be accepted in the manner set forth in
paragraph (b)(2)(iv) of this section. The exemption from withholding
becomes effective for payments made at least ten days after a copy of
the accepted withholding certificate is forwarded to the Assistant
Commissioner (International). The withholding agent may rely on an
accepted withholding certificate only if the IRS has not objected to the
certificate. For purposes of this paragraph (b)(2)(i), the IRS will be
considered to have not objected to the certificate if it has not
notified the withholding agent within a 10-day period beginning from the
date that the withholding certificate is forwarded to the IRS pursuant
to paragraph (b)(2)(v) of this section. After expiration of the 10-day
period, the withholding agent may rely on the withholding certificate
retroactive to the date of the first payment covered by the certificate.
The fact that the IRS does not object to the withholding certificate
within the 10-day period provided in this paragraph (b)(2)(i) shall not
preclude the IRS from examining the withholding agent at a later date in
light of facts that the withholding agent knew or had reason to know
regarding the payment and eligibility for a reduced rate and that were
not disclosed to the IRS as part of the 10-day review process.
(ii) Withholding certificate claiming withholding exemption. The
statement claiming an exemption from withholding shall be made on Form
8233 (or an acceptable substitute or such other form as the IRS may
prescribe). Form 8233 shall be dated, signed by the beneficial owner
under penalties of perjury, and contain the following information--
(A) The individual's name, permanent residence address, taxpayer
identifying number (or a copy of a completed Form W-7 or SS-5 showing
that a number has been applied for), and the U.S. visa number, if any;
(B) The individual's current immigration status and visa type;
(C) The individual's original date of entry into the United States;
(D) The country that issued the individual's passport and the number
of such passport, or the individual's permanent address if a citizen of
Canada or Mexico;
(E) The taxable year for which the statement is to apply, the
compensation to which it relates, and the amount (or estimated amount if
exact amount not known) of such compensation;
(F) A statement that the individual is not a citizen or resident of
the United States;
(G) The number of personal exemptions claimed by the individual;
(H) A statement as to whether the compensation to be paid to him or
her during the taxable year is or will be exempt from income tax and the
reason why the compensation is exempt;
(I) If the compensation is exempt from withholding by reason of an
income tax treaty to which the United States is a party, the tax treaty
and provision under which the exemption from withholding is claimed and
the country of which the individual is a resident;
[[Page 121]]
(J) Sufficient facts to justify the claim in exemption from
withholding; and
(K) Any other information as may be required by the form or
accompanying instructions in addition to, or in lieu of, the information
described in this paragraph (b)(2)(ii).
(iii) Review by withholding agent. The exemption from withholding
provided by paragraph (b)(1)(iv) of this section shall not apply unless
the withholding agent accepts (in the manner provided in paragraph
(b)(2)(iv) of this section) the statement on Form 8233 supplied by the
nonresident alien individual. Before accepting the statement the
withholding agent must examine the statement. If the withholding agent
knows or has reason to know that any of the facts or assertions on Form
8233 may be false or that the eligibility of the individual's
compensation for the exemption cannot be readily determined, the
withholding agent may not accept the statement on Form 8233 and is
required to withhold under this section. If the withholding agent
accepts the statement and subsequently finds that any of the facts or
assertions contained on Form 8233 may be false or that the eligibility
of the individual's compensation for the exemption can no longer be
readily determined, then the withholding agent shall promptly so notify
the Assistant Commissioner (International) by letter, and the
withholding agent is not relieved of liability to withhold on any
amounts still to be paid. If the withholding agent is notified by the
Assistant Commissioner (International) that the eligibility of the
individual's compensation for the exemption is in doubt or that such
compensation is not eligible for the exemption, the withholding agent is
required to withhold under this section. The rules of this paragraph are
illustrated by the following examples.
Example 1. C, a nonresident alien individual, submits Form 8233 to
W, a withholding agent. The statement on Form 8233 does not include all
the information required by paragraph (b)(2)(ii) of this section.
Therefore, W has reason to know that he or she cannot readily determine
whether C's compensation for personal services is eligible for an
exemption from withholding and, therefore, W must withhold.
Example 2. D, a nonresident alien, is performing services for W, a
withholding agent. W has accepted a statement on Form 8233 submitted by
D, according to the provisions of this section. W receives notice from
the Internal Revenue Service that the eligibility of D's compensation
for a withholding exemption is in doubt. Therefore, W has reason to know
that the eligibility of the compensation for a withholding exemption
cannot be readily determined, as of the date W receives the
notification, and W must withhold tax under section 1441 on amounts paid
after receipt of the notification.
Example 3. E, a nonresident alien individual, submits Form 8233 to
W, a withholding agent for whom E is to perform personal services. The
statement contains all the information requested on Form 8233. E claims
an exemption from withholding based on a personal exemption amount
computed on the number of days E will perform personal services for W in
the United States. If W does not know or have reason to know that any
statement on the Form 8233 is false or that the eligibility of E's
compensation for the withholding exemption cannot be readily determined,
W can accept the statement on Form 8233 and exempt from withholding the
appropriate amount of E's income.
(iv) Acceptance by withholding agent. If after the review described
in paragraph (b)(2)(iii) of this section the withholding agent is
satisfied that an exemption from withholding is warranted, the
withholding agent may accept the statement by making a certification,
verified by a declaration
that it is made under the penalties of perjury, on Form 8233. The
certification shall be--
(A) That the withholding agent has examined the statement,
(B) That the withholding agent is satisfied that an exemption from
withholding is warranted, and
(C) That the withholding agent does not know or have reason to know
that the individual's compensation is not entitled to the exemption or
that the eligibility of the individual's compensation for the exemption
cannot be readily determined.
(v) Copies of Form 8233. The withholding agent shall forward one
copy of each Form 8233 that is accepted under paragraph (b)(2)(iv) of
this section to the Assistant Commissioner (International), within five
days of such acceptance. The withholding agent shall retain a copy of
Form 8233.
[[Page 122]]
(3) Withholding agreements. Compensation for personal services of a
nonresident alien individual who is engaged during the taxable year in
the conduct of a trade or business within the United States may be
wholly or partially exempted from the withholding required by
Sec. 1.1441-1 if an agreement is reached between the Assistant
Commissioner (International) and the alien individual with respect to
the amount of withholding required. Such agreement shall be available in
the circumstances and in the manner set forth by the Internal Revenue
Service, and shall be effective for payments covered by the agreement
that are made after the agreement is executed by all parties. The alien
individual must agree to timely file an income tax return for the
current taxable year.
(4) Final payment exemption--(i) General rule. Compensation for
independent personal services of a nonresident alien individual who is
engaged during the taxable year in the conduct of a trade or business
within the United States may be wholly or partially exempted from the
withholding required by Sec. 1.1441-1 from the final payment of
compensation for independent personal services. This exemption does not
apply to wages. This exemption from withholding is available only once
during an alien individual's taxable year and is obtained by the alien
individual presenting to the withholding agent a letter in duplicate
from a district director stating the amount of compensation subject to
the exemption and the amount that would otherwise be withheld from such
final payment under section 1441 that shall be paid to the alien
individual due to the exemption. The alien individual shall attach a
copy of the letter to his or her income tax return for the taxable year
for which the exemption is effective.
(ii) Final payment of compensation for personal services. For
purposes of this paragraph, final payment of compensation for personal
services means the last payment of compensation, other than wages, for
personal services rendered within the United States that the individual
expects to receive from any withholding agent during the taxable year.
(iii) Manner of applying for final payment exemption. In order to
obtain the final payment exemption provided by paragraph (b)(4)(i) of
this section, the nonresident alien individual (or his or her agent)
must file the forms and provide the information required by the district
director. Ordinary and necessary business expenses may be taken into
account if substantiated to the satisfaction of the district director.
The alien individual must submit a statement, signed by him or her and
verified by a declaration that it is made under the penalties of
perjury, that all the information provided is true and that to his or
her knowledge no relevant information has been omitted. The information
required to be submitted includes, but is not limited to--
(A) A statement by each withholding agent from whom amounts of gross
income effectively connected with the conduct of a trade or business
within the United States have been received by the alien individual
during the taxable year, of the amount of such income paid and the
amount of tax withheld, signed and verified by a declaration that it is
made under penalties of perjury;
(B) A statement by the withholding agent from whom the final payment
of compensation for personal services will be received, of the amount of
such final payment and the amount which would be withheld under
Sec. 1.1441-1 if a final payment exemption under paragraph (b)(4)(i) of
this section is not granted, signed and verified by a declaration that
it is made under penalties of perjury;
(C) A statement by the individual that he or she does not intend to
receive any other amounts of gross income effectively connected with the
conduct of a trade or business within the United States during the
current taxable year;
(D) The amount of tax which has been withheld (or paid) under any
other provision of the Code or regulations with respect to any income
effectively connected with the conduct of a trade or business within the
United States during the current taxable year;
[[Page 123]]
(E) The amount of any outstanding tax liabilities (and interest and
penalties relating thereto) from the current taxable year or prior
taxable periods; and
(F) The provision of any income tax treaty under which a partial or
complete exemption from withholding may be claimed, the country of the
individual's residence, and a statement of sufficient facts to justify
an exemption pursuant to such treaty.
(iv) Letter to withholding agent. If the district director is
satisfied that the information provided under paragraph (b)(4)(iii) of
this section is sufficient, the district director will, after
coordination with the Director of the Foreign Operations District,
ascertain the amount of the alien individual's tentative income tax for
the taxable year with respect to gross income that is effectively
connected with the conduct of a trade or business within the United
States. After the tentative tax has been ascertained, the district
director will provide the alien individual with a letter to the
withholding agent stating the amount of the final payment of
compensation for personal services that is exempt from withholding, and
the amount that would otherwise be withheld under section 1441 that
shall be paid to the alien individual due to the exemption. The amount
of compensation for personal services exempt from withholding under this
paragraph (b)(4) shall not exceed $5,000.
Example 1. On July 15, 1983, B, a non-resident alien individual,
appears before a district director with the information required by
paragraph (b)(4)(iii) of this section. B has received personal service
income in 1983 from which $3,000 has been withheld under section 1441.
On August 1, 1983, B will receive $5,000 in personal service income from
W. B does not intend to receive any other income subject to U.S. tax
during 1983. Taking into account B's substantiated deductible business
expenses, the district director computes the tentative tax liability on
B's income effectively connected with the conduct of a trade or business
in the United States during 1983 (including the $5,000 payment to be
made on August 1, 1983) to be $3,300. B does not owe U.S. tax for any
other taxable periods. The amount of B's final payment exemption is
determined as follows:
(1) The amount of total withholding is $4,500 ($3,000 previously
withheld plus $1,500, 30% of the $5,000 final payment);
(2) The amount of tentative excess withholding is $1,200 (total
withholding of $4,500 minus B's tentative tax liability of $3,300); and
(3) To allow B to receive $1,200 of the amount which would otherwise
have been withheld from the final payment, the district director allows
a withholding exemption for $4,000 of B's final payment. W must withhold
$300 from the final payment.
Example 2. The facts are the same as in Example 1 except B will
receive a final payment of compensation on August 1, 1983, in the amount
of $10,000 and B's tentative tax liability is $3,900. The amount of B's
final payment exemption is determined as follows:
(1) The amount of total withholding is $6,000 ($3,000 previously
withheld plus $3,000, 30% of the $10,000 final payment);
(2) The amount of tentative excess withholding is $2,100 (total
withholding of $6,000 minus B's tentative tax liability of $3,900); and
(3) To allow B to receive $2,100 of the amount which would otherwise
be withheld from the final payment, $7,000 of the final payment would
have to be exempt from withholding; however, as no more than $5,000 of
the final payment can be exempt from withholding under this paragraph
(b)(4), the district director allows a withholding exemption for $5,000
of B's final payment. B must file a claim for refund at the end of the
taxable year to obtain a refund of $600. W must withhold $1,500 from the
final payment.
(5) Requirement of return. The tentative tax determined by the
district director under paragraph (b)(4)(iv) of this section or by the
Director of the Foreign Operations District under the withholding
agreement procedure of paragraph (b)(3) of this section shall not
constitute a final determination of the income tax liability of the
nonresident alien individual, nor shall such determination constitute a
tax return of the nonresident alien individual for any taxable period.
An alien individual who applies for or obtains an exemption from
withholding under the procedures of paragraphs (b) (2), (3), or (4) of
this section is not relieved of the obligation to file a return of
income under section 6012.
(6) Personal exemption--(i) In general. To determine the tax to be
withheld at source under Sec. 1.1441-1 from remuneration paid for
personal services performed within the United States by a nonresident
alien individual and from scholarship and fellowship income described in
paragraph (c) of this section,
[[Page 124]]
a withholding agent may take into account one personal exemption
pursuant to sections 873(b)(3) and 151 regardless of whether the income
is effectively connected. For purposes of withholding under section 1441
on remuneration for personal services, the exemption must be prorated
upon a daily basis for the period during which the personal services are
performed within the United States by the nonresident alien individual
by dividing by 365 the number of days in the period during which the
individual is present in the United States for the purpose of performing
the services and multiplying the result by the amount of the personal
exemption in effect for the taxable year. See Sec. 31.3402(f)(6)-1 of
this chapter.
(ii) Multiple exemptions. More than one personal exemption may be
claimed in the case of a resident of a contiguous country or a national
of the United States under section 873(b)(3). In addition, residents of
a country with which the United States has an income tax treaty in
effect may be eligible to claim more than one personal exemption if the
treaty so provides. Claims for more than one personal exemption shall be
made on the withholding certificate furnished to the withholding agent.
The exemption must be prorated on a daily basis in the same manner as
described in paragraph (b)(6)(i) of this section.
(iii) Special rule where both certain scholarship and compensation
income are received. The fact that both non-compensatory scholarship
income and compensation income (including compensatory scholarship
income) are received during the taxable year does not entitle the
taxpayer to claim more than one personal exemption amount (or more than
the additional amounts permitted under paragraph (b)(6)(ii) of this
section). Thus, if a nonresident alien student receives non-compensatory
taxable scholarship income from one withholding agent and compensation
income from another withholding agent, no more than the total personal
exemption amount permitted under the Internal Revenue Code or under an
income tax treaty may be taken into account by both withholding agents.
For this purpose, the withholding agent may rely on a representation
from the beneficial owner that the exemption amount claimed does not
exceed the amount permissible under this section.
(c) Special rules for scholarship and fellowship income--(1) In
general. Under section 871(c), certain amounts paid as a scholarship or
fellowship for study, training, or research in the United States to a
nonresident alien individual temporarily present in the United States as
a nonimmigrant under section 101(a)(15) (F), (J), (M), or (Q) of the
Immigration and Nationality Act are treated as income effectively
connected with the conduct of a trade or business within the United
States. The amounts described in the preceding sentence are those
amounts that do not represent compensation for services. Such amounts
(as described in the second sentence of section 1441(b)) are subject to
withholding under section 1441, but at the lower rate of 14 percent.
That rate may be reduced under the provisions of an income tax treaty.
Claims of a reduced rate under an income tax treaty shall be made under
the procedures described in Sec. 1.1441-6(b)(1). Therefore, claims for
reduction in withholding under an income tax treaty on amounts described
in this paragraph (c)(1) may not be made on a Form 8233. However, if the
payee is receiving both compensation for personal services (including
compensatory scholarship income) and non-compensatory scholarship income
described in this paragraph (c)(1) from the same withholding agent,
claims for reduction of withholding on both types of income may be made
on Form 8233.
(2) Alternate withholding election. A withholding agent may elect to
withhold on the amounts described in paragraph (c)(1) of this section at
the rates applicable under section 3402, as if the income were wages.
Such election shall be made by obtaining a Form W-4 (or an acceptable
substitute or such other form as the IRS may prescribe) from the
beneficial owner. The fact that the withholding agent asks the
beneficial owner to furnish a Form W-4 for such fellowship or
scholarship income or to take such income into account in preparing such
Form W-4 shall serve as notice to the beneficial owner that the income
is being treated as wages for
[[Page 125]]
purposes of withholding tax under section 1441.
(d) Annuities received under qualified plans. Withholding is not
required under section Sec. 1.1441-1 in the case of any amount received
as an annuity if the amount is exempt from tax under section 871(f) and
the regulations under that section. The withholding agent may exempt the
payment from withholding if, prior to payment, it can reliably associate
the payment with documentation upon which it can rely to treat the
payment as made to a beneficial owner in accordance with Sec. 1.1441-
1(e)(1)(ii). A beneficial owner withholding certificate furnished for
purposes of claiming the benefits of the exemption under this paragraph
(d) is valid only if, in addition to other applicable requirements, it
contains a taxpayer identifying number.
(e) Per diem of certain alien trainees. Withholding is not required
under section 1441(a) and Sec. 1.1441-1 on per diem amounts paid for
subsistence by the United States Government (directly or by contract) to
any nonresident alien individual who is engaged in any program of
training in the United States under the Mutual Security Act of 1954, as
amended (22 U.S.C. chapter 24). This rule shall apply even though such
amounts are subject to tax under section 871. Any exemption from
withholding pursuant to this paragraph (e) applies without a requirement
that documentation be furnished to the withholding agent. However,
documentation may have to be furnished for purposes of the information
reporting provisions under section 6041 and backup withholding under
section 3406. The exemption from withholding granted by this paragraph
(e) is not a determination that the amounts are not fixed or
determinable annual or periodical income.
(f) Failure to receive withholding certificates timely or to act in
accordance with applicable presumptions. See applicable procedures
described in Sec. 1.1441-1(b)(7) in the event the withholding agent does
not hold an appropriate withholding certificate or other appropriate
documentation at the time of payment or does not act in accordance with
applicable presumptions described in paragraph (a) (2)(i), (2)(ii), or
(3) of this section.
(g) Effective date--(1) General rule. This section applies to
payments made after December 31, 2000.
(2) Transition rules. The validity of a Form 4224 or 8233 that was
valid on January 1, 1998, under the regulations in effect prior to
January 1, 2001 (see 26 CFR part 1, revised April 1, 1999) and expired,
or will expire, at any time during 1998, is extended until December 31,
1998. The validity of a Form 4224 or 8233 that is valid on or after
January 1, 1999, remains valid until its validity expires under the
regulations in effect prior to January 1, 2001 (see 26 CFR part 1,
revised April 1, 1999) but in no event will such form remain valid after
December 31, 2000. The rule in this paragraph (g)(2), however, does not
apply to extend the validity period of a Form 4224 or 8223 that expires
solely by reason of changes in the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of
this paragraph (g)(2), a withholding agent may choose to not take
advantage of the transition rule in this paragraph (g)(2) with respect
to one or more withholding certificates valid under the regulations in
effect prior to January 1, 2001 (see 26 CFR part 1, revised April 1,
1999) and, therefore, to require withholding certificates conforming to
the requirements described in this section (new withholding
certificates). For purposes of this section, a new withholding
certificate is deemed to satisfy the documentation requirement under the
regulations in effect prior to January 1, 2001 (see 26 CFR part 1,
revised April 1, 1999). Further, a new withholding certificate remains
valid for the period specified in Sec. 1.1441-1(e)(4)(ii), regardless of
when the certificate is obtained.
[T.D. 6500, 25 FR 12075, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting
Sec. 1.1441-4, see the List of Sections Affected in the Finding Aids
section of this volume.
Effective Date Note 1: By T.D. 8734, 62 FR 53450, Oct. 14, 1997,
Sec. 1.1441-4 was amended by revising the section heading and paragraph
(a); by revising paragraphs (b)(1) (i) and (ii); by removing the period
at the end of paragraph (b)(1)(iii) and adding a semicolon in its place;
by removing the language ``or''
[[Page 126]]
at the end of paragraph (b)(1)(iv) and adding a semicolon in its place;
by removing the period at the end of paragraph (b)(1)(v) and adding ``
or'' in its place; by adding paragraph (b)(1)(vi); by adding four
sentences at the end of pargraph (b)(2)(i); by revising paragraph
(b)(2)(ii) heading and introductory text, and paragraph (b)(2)(ii)(A);
by redesignating paragraph (b)(2)(ii)(H) as paragraph (b)(2)(ii)(J) and
amending newly designated paragraph (b)(2)(ii)(J) by removing the period
at the end of the paragraph and adding ``; and'' in its place; by
redesignating pargraphs (b)(2)(ii) (B), (C), (D), (E), (F), and (G) as
paragraphs (b)(2)(ii) (D), (E), (F), (G), (H), and (I), respectively; by
adding new paragraphs (b)(2)(ii) (B), (C), and (K); by removing the
period at the end of newly designated paragraph (b)(2)(ii)(D) and the
comma at the end of newly designated paragaphs (b)(2)(ii) (E), (F), (G),
and (H) and adding a semicolon in each place; by removing ``, and'' and
adding a semicolon in its place in newly designated paragraph
(b)(2)(ii)(I); by removing the concluding text immediately following
paragraph (b)(2)(iv)(C); by revising paragraph (b)(2)(v); by removing
the word ``statement'' and inserting the words ``withholding
certificate'' in each place in paragraph (b)(2)(i); by removing the
words ``Director of the Foreign Operations District'' and inserting in
their place the words ``Assistant Commissioner (International)'' in the
fourth sentence of paragraph (b)(2)(i), in the fourth and fifth
sentences of paragraph (b)(2)(iii), and in the first sentence of
paragraph (b)(3); by adding paragraph (b)(6); by revising paragraphs
(c), (d), (e), (f), and (g); by removing paragraphs (h) and (i); and by
removing the OMB parenthetical and the authority citation at the end of
the section, effective Jan. 1, 1999. By T.D. 8804, 63 FR 72183, Dec. 31,
1998, the effective date of Sec. 1.1441-4 was delayed until Jan. 1,
2000. By T.D. 8856, 64 FR 73408, 73409, Dec. 30, 1999, the effective
date of Sec. 1.1441-4 was delayed until Jan. 1, 2001 and paragraph (g)
was revised, effective Jan. 1, 2001. For the convenience of the user,
the superseded text is set forth as follows:
Sec. 1.1441-4 Exemptions from withholding.
(a) Income connected with a U.S. business--(1) In general. No
withholding is required under Sec. 1.1441-1 in the case of any item of
income if such income is effectively connected with the conduct of a
trade or business within the United States by the person entitled to
such income and is includible in the person's gross income under section
871(b)(2), section 842, or section 882(a)(2) for the taxable year and if
the person has filed the statement prescribed by paragraph (a)(2) of
this section. This paragraph (a)(1) shall apply to income for services
performed by a foreign partnership or a foreign corporation (other than
a foreign corporation which has income to which section 543(a)(7)
applies for the taxable year) but shall not apply to compensation for
personal services performed by an individual. In determining whether
services are performed by a foreign corporation or by an individual, see
Revenue Ruling 74-330, 1974-2 C.B. 278, and Revenue Ruling 74-331, 1974-
2 C.B. 282. For rules with respect to compensation for personal services
performed by an individual, see paragraph (b) of this section. In
determining whether an item of income from sources within the United
States is, or is deemed to be, effectively connected with the conduct of
a trade or business within the United States by the person entitled to
the income, see section 864(c)(2), section 871(d), and sections 882 (d)
and (e), and the regulations thereunder.
(2) Statement claiming exemption. In order for the exemption
provided by paragraph (a)(1) of this section to apply for any taxable
year, the person entitled to the income must file with the withholding
agent a statement in duplicate that the income described in the
statement is, or is expected to be, effectively connected with the
conduct of a trade or business within the United States and that such
income is includible in his gross income for the taxable year. This
statement shall show (i) the name and address of the withholding agent
and of the person entitled to the income, (ii) the taxpayer's
identifying number, (iii) the nature of the item or items of income with
respect to which the statement is filed, (iv) the trade or business with
which such income is, or is expected to be, effectively connected, and
(v) the taxable year in respect of which the statement is made. This
statement shall be filed with the withholding agent for each taxable
year of the person entitled to the income, and before payment of the
income in respect of which it applies. Any statement so filed shall be
effective only with respect to the item or items of income specified
therein and shall constitute authorization to the withholding agent to
pay such income during the taxable year without deduction of the tax at
source under Sec. 1.1441-1. The statement shall be amended by the person
entitled to the income if subsequent circumstances arising during the
taxable year indicate that the income is not, or is not expected to be,
effectively connected with the conduct of a trade or business within the
United States. Any statement required by this subparagraph may be made
on a properly executed Form 4224, which shall be filed in duplicate with
the withholding agent. The duplicate copy of each statement or form
filed during any calendar year pursuant to this subparagraph shall be
forwarded by the withholding agent
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with, and attached to, any Form 1042S required by paragraph (c) of
Sec. 1.1461-2 with respect to such income for such calendar year.
* * * * *
(b) * * * (1) * * *
(i) Such compensation is subject to withholding under section 3402,
relating to withholding of tax at source on wages, and the regulations
thereunder.
(ii) [Reserved] For guidance, see Sec. 1.1441-4T(b)(1)(ii).
* * * * *
(2) * * * (i) * * * (ii) Statement claiming withholding exemption.
The statement claiming an exemption from withholding shall be made on
Form 8233. Form 8233 may be used for claiming exemption from withholding
under tax treaties to which the United States is a party or with respect
to the personal exemption amount described in Sec. 1.1441-3(e)(2). Form
8233 shall be dated, signed by the person claiming the exemption from
withholding, and verified by a declaration that the statements are made
under the penalties of perjury. Form 8233 shall contain--
(A) The individual's name, address, United States taxpayer
identification number, and United States visa number, if any,
* * * * *
(iv) * * * (C) * * *
The exemption from withholding becomes effective for payments made at
least ten days after a copy of the accepted statement is mailed in a
proper manner by the withholding agent to the Director of the Foreign
Operations District, pursuant to paragraph (b)(2)(v) of this section.
(v) Copies of Form 8233. The withholding agent shall forward one
copy of each Form 8233 that is accepted by him or her to the Director of
the Foreign Operations District, Internal Revenue Service, Washington,
DC 20225, within five days of his or her acceptance. The Director of the
Foreign Operations District may review the forms so submitted. The
withholding agent shall retain a copy of Form 8233.
* * * * *
(c) Dividends paid by China Trade Act corporations. Withholding is
not required under Sec. 1.1441-1 upon dividends distributed by a
corporation organized under the China Trade Act of 1922 (15 U.S.C.,
chapter 4) to or for the benefit of a resident of Formosa or Hong Kong
and which are exempt from taxation by section 943.
(d) Inhabitants of the Virgin Islands--(1) Allowance of exemption.
This paragraph shall not apply after June 22, 1981. No withholding is
required under Sec. 1.1441-1 upon any item of income paid to any person
who at the time of payment reasonably expects to satisfy his income tax
obligations with respect to that item under section 28(a) of the Revised
Organic Act of the Virgin Islands. That section provides that all
persons whose permanent residence is in the Virgin Islands ``shall
satisfy their income tax obligations under applicable taxing statutes of
the United States by paying their tax on income derived from all sources
both within and outside the Virgin Islands into the Treasury of the
Virgin Islands.'' For the purpose of this paragraph, the term ``person''
shall include an individual, partnership, and corporation.
(2) Claiming exemption. To avoid withholding of tax at source under
Sec. 1.1441-1, the payee of the income shall notify the withholding
agent by letter in duplicate that he expects to satisfy his income tax
obligations under section 28(a) of the Revised Organic Act of the Virgin
Islands with respect to all income to be paid to him by the withholding
agent during the current calendar year. This letter of notification
shall constitute authorization to the payer of the income to pay income
to the payee during that year without deduction of the tax at source
under Sec. 1.1441-1.
(3) Disposition of letter. The duplicate copy of each letter of
notification filed pursuant to subparagraph (2) of this paragraph shall
be forwarded with a letter of transmittal to the Director of
International Operations, Internal Revenue Service, Washington, DC
20225.
(e) Per diem of certain alien trainees. Effective with respect to
payments made on and after July 18, 1956, withholding is not required
under section 1441(a) or Sec. 1.1441-1 in the case of amounts of per
diem for subsistence paid by the United States Government (directly or
by contract) to any nonresident alien individual who is engaged in any
program of training in the United States under the Mutual Security Act
of 1954, as amended (22 U.S.C. chapter 24). This rule shall apply even
though such amounts are subject to tax under section 871.
(f) Exemption of certain foreign partnerships and foreign
corporations--(1) In general. No withholding is required under
Sec. 1.1441-1 upon any item of income paid to a foreign partnership, or
foreign corporation, engaged in trade or business in the United States
at any time during the taxable year, if it is established to the
satisfaction of the district director in whose district the related
books and records are kept that the requirements of section 1441(a), or
1442(a), and Sec. 1.1441-1 impose an undue administrative burden for
such taxable year and that the collection of the tax imposed by section
871(a) or section 881 on the members of such partnership, or by section
881 on such corporation, as the case may be, will not be jeopardized by
the exemption
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from withholding. As a general rule, the requirements of section
1441(a), or 1442(a), and Sec. 1.1441-1 will be considered to impose an
undue administrative burden only in a case where (i) the person entitled
to the income, such as a foreign insurance company, receives from the
withholding agent income on securities issued by a single corporation,
some of which is, and some of which is not, effectively connected with
the conduct of a trade or business within the United States and (ii) the
criteria for determining the effective connection are unduly difficult
to apply because of the circumstances under which such securities are
held. Thus, for example, if a foreign corporation carrying on a life
insurance business in the United States finds that, because of the
requirements of State law which cause its U.S. reserves to fluctuate
frequently, it is unduly difficult with respect to any class of income
to identify the income which is, and the income which is not,
effectively connected with its conduct of business in the United States
during the taxable year, the corporation will be considered to have
satisfied the requirements of subdivision (ii) of this subparagraph. No
exemption from withholding shall be granted under this paragraph unless
the person entitled to the income complies with such other requirements
as may be imposed by the district director and unless the district
director is satisfied that the collection of the tax on the income
involved will not be jeopardized by the exemption from withholding.
(2) Claiming exemption--(i) Statement required. In order for the
exemption provided by paragraph (f)(1) of this section to apply for any
taxable year the foreign partnership or the foreign corporation must
file with the district director in whose district the related books and
records are kept a statement indicating the reasons why specific classes
of income should be exempted from the withholding requirements of
Sec. 1.1441-1 for such year. This statement shall show the name and
address of the withholding agent and of the person entitled to the
income, the taxpayer's identifying number, the class or classes of
income to be exempted from withholding, the trade or business with which
such income is in part effectively connected, the taxable year during
which such exemption is to apply, and, in such form and to such extent
as shall satisfy the district director, the identity of the securities
or other underlying property involved.
(ii) Notification of determination. The district director shall
notify the partnership or corporation by letter in duplicate of his or
her determination in respect of the application for exemption. If the
exemption from withholding is granted, the duplicate copy of the notice
from the district director shall be filed with the withholding agent and
shall constitute authorization to pay the specified class or classes of
income during the specified taxable year without deduction of the tax at
source under Sec. 1.1441-1.
(iii) Bond requirement. The district director may, as a condition
precedent to the allowance of the exemption from withholding for the
taxable year, require a bond in such sum as the Commissioner may
prescribe, conditioned upon the payment of the tax on the income
involved and such further conditions as the district director may
require. This bond shall be executed by the foreign partnership or
foreign corporation and shall conform to the requirements of
Sec. 301.7101-1 as to form of bond and surety required. No bond shall be
required pursuant to this subparagraph from a foreign corporation which
is required to file a declaration of estimated income tax under section
6016 for the taxable year in respect of which the exemption from
withholding applies.
(g) Annuities received under qualified plans. Withholding is not
required under Sec. 1.1441-1 in the case of any amount received as an
annuity if such amount is exempt under section 871(f) and the
regulations thereunder from the tax imposed by section 871(a). In order
for the exemption provided by this paragraph to apply for any taxable
year in those cases where the withholding agent is not the employer by
whom the annuity plan or qualified trust under or from which such
annuity is paid was established, the person entitled to the annuity must
file with the withholding agent a statement in duplicate setting forth
his or her name, address, and taxpayer identifying number, if any, and
certifying that he or she is not a citizen or resident of the United
States and that the annuity in respect of which the statement is filed
is excluded from gross income by reason of section 871(f). This
statement shall be dated, shall identify the taxable year to which it
relates, shall be signed by the person entitled to the annuity, and
shall contain, or be verified by, a written declaration that it is made
under the penalties of perjury. No particular form is prescribed for the
statement. The duplicate copy of each statement filed during any
calendar year pursuant to this paragraph shall be forwarded by the
withholding agent with, and attached to, the Form 1042S required by
paragraph (c) of Sec. 1.1461-2 with respect to such annuity for such
calendar year.
(h) Interest on bonds sold between interest dates. Except as
provided by paragraph (b)(2)(ii) of Sec. 1.1441-2, the tax is not
required to be withheld under Sec. 1.1441-1 on accrued interest paid by
the buyer in connection with the sale of bonds between interest dates,
even though the interest is subject to tax under section 871 or section
881. The exemption from withholding granted by this paragraph is not a
determination that the accrued interest is not fixed or determinable
annual or periodical income.
[[Page 129]]
(i) Income of foreign central bank of issue or Bank for
International Settlements. (1) Section 895 provides for the exclusion
from gross income of certain income derived by a foreign central bank of
issue, or by the Bank for International Settlements, from obligations of
the United States or of any agency or instrumentality thereof or from
bank deposits. In the absence of knowledge that a foreign central bank
of issue, or the Bank for International Settlements, is operating
without the scope of the exclusion granted by section 895, the
withholding agent is not required to withhold under Sec. 1.1441-1 upon
income derived by such bank from obligations of the United States or of
any agency or instrumentality thereof, or upon interest derived from
deposits with persons carrying on the banking business, if the
withholding agent receives from the bank a statement certifying that the
bank--
(i) Is a foreign central bank of issue, or the Bank for
International Settlements, as the case may be,
(ii) Is the owner of the obligations of the United States or of any
agency or instrumentality thereof, or the owner of such bank deposits,
as the case may be, and
(iii) Does not, and will not, hold such obligations or such bank
deposits for, or use them in connection with, the conduct of a
commercial banking function or other commercial activity.
(2) A copy of the statement filed pursuant to paragraph (i)(1) of
this section shall be forwarded by the withholding agent with, and
attached to, the Form 1042S required by paragraph (c) of Sec. 1.1461-2
with respect to payments of income made on such obligations or bank
deposits during the calendar year.
(Approved by the Office of Management and Budget under control number
1545-0795)
(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C.
7805), Internal Revenue Code of 1954; secs. 1441, 1442, and 7805,
Internal Revenue Code (80 Stat. 1553, 26 U.S.C. 1441; 80 Stat. 1558, 26
U.S.C. 1442; 68A Stat. 917, 26 U.S.C. 7805))
Sec. 1.1441-4T Exemption from withholding (temporary).
(a) [Reserved]
(b) Compensation for personal services of an individual--(1)
Exemption from withholding.
(i) [Reserved]
(ii) Withholding is not required under Sec. 1.1441-1 from salaries,
wages, remuneration, or any other compensation for personal services of
a nonresident alien individual if such compensation is effectively
connected with the conduct of a trade or business within the United
States and such compensation would be subject to withholding under
section 3402 but for the provisions of section 3401(a) (other than
paragraph (a)(6) thereof) and the regulations under that section,
provided that an election of no withholding under section 3405 (a)(2) or
(b)(3) is not in effect.
(b) (1)(iii)-(5) [Reserved]
(c)-(i) [Reserved]
[T.D. 8288, 55 FR 3716, Feb. 5, 1990]
Effective Date Note: By T.D. 8734, 62 FR 53452, Oct. 14, 1997,
Sec. 1.1441-4T was removed, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of the removal of Sec. 1.1441-
4T was delayed until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, Dec. 30,
1999, the effective date was delayed until Jan. 1, 2001.
Sec. 1.1441-5 Withholding on payments to partnerships, trusts, and
estates.
(a) Rules of withholding applicable to payments to partnerships.
This paragraph (a) describes the determinations that a withholding agent
must make when making a payment to a person that may be a partnership
(as defined in Sec. 1.1441-1(c)(6)(ii)(C)). Such determinations are made
in order to determine a withholding agent's obligations under chapters 3
and 61 of the Internal Revenue Code (Code) and sections 3402, 3405, and
3406 (and applicable regulations under those provisions) to withhold and
report payments of amounts subject to withholding under chapter 3 of the
Code and the regulations thereunder. The reliance provisions stated in
this paragraph (a) are subject to the presumptions described in
Sec. 1.1441-1(b)(3) and paragraph (d) of this section, including
Sec. 1.1441-1(b)(3)(ix) regarding the withholding agent's actual
knowledge or reason to know that the presumptions are not correct. For
similar presumptions for reporting and withholding on amounts not
subject to withholding under chapter 3 of the Code (e.g., foreign source
income, broker proceeds) that may be paid to a foreign partnership, see
Sec. 1.6049-5(d) (2) through (5).
(1) The withholding agent must determine whether the payee is a U.S.
or a foreign person. For this purpose, the
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withholding agent may treat the payee as U.S. or foreign if it can
reliably associate the payment with a Form W-9 described in Sec. 1.1441-
1(d) or a Form W-8 described in Sec. 1.1441-1(e)(2)(i) or (3)(i). In the
absence of documentation, see Sec. 1.1441-1(b)(3) and paragraph (d) of
this section for applicable presumptions of foreign or U.S. status and
other relevant characteristics.
(2) If the payee is determined to be a foreign person, the
withholding agent must determine whether the foreign payee is acting for
its own account or for the account of others (i.e., as an intermediary,
as defined in Sec. 1.1441-1(e)(3)(i)). The withholding agent may treat
the payee as a foreign intermediary if it can reliably associate the
payment with a Form W-8 described in Sec. 1.1441-1(e)(3) (ii), (iii), or
(v), within the meaning of Sec. 1.1441-1(b)(3)(v)(A).
(3) If the foreign payee is determined to act as an intermediary
described in Sec. 1.1441-1(e)(3)(i), the withholding agent must
determine whether or not the payee is a qualified intermediary. The
withholding agent may treat the payee as a qualified intermediary only
if it can reliably associate the payment with a Form W-8 described in
Sec. 1.1441-1(e)(3)(ii). A foreign payee that is treated as an
intermediary with respect to a payment is subject to the provisions
applicable to intermediaries in Sec. 1.1441-1(e) (3) or (5). In such a
case, the provisions of paragraph (c) of this section do not apply to
the payment.
(4) If the foreign payee is determined to act for its own account
(or is so presumed), the withholding agent must determine the status of
the payee as a partnership. The withholding agent may treat the payee as
a domestic or as a foreign partnership if it can reliably associate the
payment with a Form W-9 furnished in accordance with Sec. 1.1441-1(d)
(2) or (4) (for a domestic partnership) or a Form W-8 described in
paragraph (c) (2)(iv) or (3)(iii) of this section (for a foreign
partnership). See Sec. 1.1441-1(e)(4)(viii) for reliance on the payee's
representations on a Form W-8. In the absence of documentation, see
Sec. 1.1441-1(b)(3)(ii) and paragraph (d)(2) of this section for
applicable presumptions of status.
(5) If the foreign payee is determined to be a foreign partnership
and the withholding agent has determined (or presumes) that the
partnership is acting for the account of its partners, then the
withholding agent must determine whether the payment represents income
effectively connected with the partnership's conduct of a U.S. trade or
business. The withholding agent may treat the payment as effectively
connected if it can reliably associate the payment with a Form W-8
described in paragraph (c)(3)(iii) of this section representing that the
income is effectively connected or if it so presumes in accordance with
the provisions in Sec. 1.1441-4(a) (2)(ii) or (3). In the absence of
documentation, the payment is generally presumed to be non-effectively
connected. See Sec. 1.1441-4(a)(2)(i). See Secs. 1.1461-1(c)(2)(ii)(A),
1.6031-1 and 1.6031(b)-1T for reporting requirements applicable to the
withholding agent and to the partnership.
(6) If the withholding agent cannot reliably treat the payment as
effectively connected income nor presume that it is so connected, then
the withholding agent must determine whether the partnership is a
withholding foreign partnership described in paragraph (c)(2)(i) of this
section. The withholding agent may treat the foreign partnership as a
withholding foreign partnership if it can reliably associate the payment
with a Form W-8 described in paragraph (c)(2)(iv) of this section. In
the absence of a reliable Form W-8, the foreign partnership is presumed
to be a non-withholding foreign partnership described in paragraph
(c)(3)(i) of this section. In such a case, under paragraph (c)(1)(i) of
this section, the withholding agent must treat the partners, rather than
the partnership, as payees. See paragraph (d) of this section for
determining the status of the partners as U.S. or foreign persons in the
absence of documentation. See Sec. 1.1461-1(c)(2)(ii)(A), 1.6031-1 and
1.6031(b)-1T for reporting requirements applicable to the withholding
agent and to the partnership.
(7) If the withholding agent determines that the payee is a U.S.
partnership, or so presumes in accordance with paragraph (d)(2) of this
section in the
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absence of documentation, the withholding agent is not required to
withhold under paragraph (b)(1) of this section because the partnership
is treated as a U.S. payee. See paragraph (b)(2) of this section for
withholding requirements applicable to a domestic partnership with
foreign partners. See Secs. 1.1461-1(c)(2)(ii)(A), 1.6031-1 and
1.6031(b)-1T for reporting requirements applicable to the withholding
agent and to the partnership.
(8) In order to determine whether to rely on a claim for a reduced
rate under a tax treaty by a person that the withholding agent treats as
a partnership or as a partner in a partnership, the withholding agent
must apply the provisions of Sec. 1.894-1T(d). For applicable procedures
regarding reliance by a withholding agent on a claim for benefits under
a tax treaty in such a situation, see Sec. 1.1441-6(b)(4).
(b) Domestic partnerships--(1) Exemption from withholding on payment
to domestic partnerships. A payment to a person that the withholding
agent may treat as a domestic partnership is treated as a payment to a
U.S. payee. Therefore, a payment to a domestic partnership is not
subject to withholding under section 1441 even though it may have
partners that are foreign persons. A withholding agent may treat the
person to whom the payment is made as a domestic partnership if it can
reliably associate the payment with a Form W-9 furnished by the
partnership in accordance with the procedures under Sec. 1.1441-1(d) (2)
or (4) or based upon the presumptions described in paragraph (d)(2) of
this section.
(2) Withholding by a domestic partnership--(i) In general. A
domestic partnership is required to withhold under Sec. 1.1441-1 as a
withholding agent on the gross amount of items of income subject to
withholding that are includible in the distributive share of income of a
partner that is a foreign person. Pursuant to the authority provided
under section 702(a), each partner shall take into account separately
its distributive share of amounts subject to withholding, and thus the
partnership, pursuant to section 703(a)(1), shall separately state these
amounts when computing its taxable income. A partnership shall withhold
when any distributions that include amounts subject to withholding are
made or when guaranteed payments are made. To the extent a foreign
partner's distributive share of an amount subject to withholding has not
been actually distributed, the partnership is required to withhold on
the partner's distributive share of that amount on the earlier of the
date that the statement required under section 6031(b) and
Sec. 1.6031(b)-1T to be provided to that partner is mailed or otherwise
furnished to the partner or the due date for furnishing that statement
as provided under Sec. 1.6031(b)-1T. If a partnership withholds on a
distributive share before the amount is actually distributed to the
partner, then withholding is not required when the amount is
subsequently distributed. Withholding on items of income that are
effectively connected income in the hands of the partners who are
foreign persons is governed by section 1446 and not by this section. In
such a case, partners in a domestic partnership are not required to
furnish a withholding certificate in order to claim an exemption from
withholding under section 1441(c)(1) and Sec. 1.1441-4.
(ii) Determination by the domestic partnership of the partners'
status. For purposes of determining whether the partners or some other
persons are the payees of the partners' distributive shares of any
payment made to the partnership and the status of the partners, the
partnership shall apply the rules of Sec. 1.1441-1(b) (2) and (3), and
of paragraphs (c)(1) and (d) of this section (in the case of a partner
that is a foreign partnership) and of paragraph (e) of this section (in
the case of a partner that is a foreign estate or a foreign trust) in
the same manner as if the partnership were making a payment directly to
the partners other than in their capacity as partners.
(iii) Reliance on a partner's claim for reduced withholding. Absent
actual knowledge or reason to know otherwise, a domestic partnership may
rely on a claim for reduced withholding under chapter 3 of the Code by a
partner, if prior to the time the partnership is required to withhold,
the partnership can reliably associate the partner's distributive share
of the partnership items with documentation upon which
[[Page 132]]
it may rely to treat the partner or another person as a U.S. person
under Sec. 1.1441-1(d) (2) or (3), as a U.S. beneficial owner under
Sec. 1.1441-1(d)(4), or as a foreign beneficial owner under Sec. 1.1441-
1(e)(1)(ii).
(iv) Rules for reliably associating a payment with documentation.
For rules regarding the reliable association of a payment with
documentation, see Sec. 1.1441-1(b)(2)(vii).
(v) Coordination with chapter 61 of the Internal Revenue Code and
section 3406. A domestic partnership is not a payor for purposes of
chapter 61 of the Code or section 3406 with respect to payments to its
partners in their capacity as partners. Thus, it is not required to make
an information return on Form 1099 nor to backup withhold with respect
to its partners' distributive share of partnership items. However, it
must file returns under section 6031. Such returns are in lieu of making
returns under Sec. 1.1461-1 (b) and (c). See Sec. 1.1461-1(c)(2)(ii)(A).
(c) Foreign partnerships--(1) Determination of payee--(i) Payments
treated as made to partners. Except as otherwise provided in paragraph
(c)(1)(ii) of this section, a payment to a person that the withholding
agent may treat as a foreign partnership in accordance with paragraph
(c)(2)(i), (3)(i), or (d)(2) of this section is treated as a payment to
the partners (looking through partners that are foreign flow-through
entities) as follows--
(A) If the withholding agent can reliably associate the partner's
distributive share of the payment with a Form W-9, a Form W-8, or other
appropriate documentation upon which it can rely to treat the payment as
made to a U.S. or foreign beneficial owner under Sec. 1.1441-1 (d)(4) or
(e)(1)(ii), then the beneficial owner so identified is treated as the
payee;
(B) If the withholding agent can reliably associate the partner's
distributive share with an intermediary certificate described in
Sec. 1.1441-1(e)(3) (ii), (iii), or (v), then the rules of Sec. 1.1441-
1(b)(2)(v) shall apply to determine who the payee is in the same manner
as if the partner's distributive share of the payment had been paid
directly to such intermediary;
(C) If the withholding agent can reliably associate the partner's
distributive share with a partnership certificate described in paragraph
(c)(2)(iv) or (3)(iii) of this section, then the rules of paragraph
(c)(1) (i) or (ii) of this section shall apply to determine whether the
payment is treated as made to the partners of the higher-tier
partnership under this paragraph (c)(1)(i) or to the higher tier
partnership (under the rules of paragraph (c)(1)(ii) of this section),
in the same manner as if the partner's distributive share of the payment
had been paid directly to such foreign partnership;
(D) If the withholding agent can reliably associate the partner's
distributive share with a withholding certificate described in
Sec. 1.1441-1(e)(3)(i) regarding a foreign trust or estate, then the
rules of paragraph (e) of this section shall apply to determine who the
payees are; and
(E) If the withholding agent cannot reliably associate the partner's
distributive share with a withholding certificate or other appropriate
documentation, the partners are considered to be the payees and the
presumptions described in paragraph (d)(3) of this section shall apply
to determine the status of the partners.
(ii) Payments treated as made to the partnership. A payment to a
person that the withholding agent may treat as a foreign partnership in
accordance with paragraph (c) (2)(i), (3)(i), or (d)(2) of this section
is treated as a payment to the foreign partnership and not to its
partners only if--
(A) The withholding agent can reliably associate the payment with a
withholding certificate described in paragraph (c)(2)(iv) of this
section (dealing with a certificate from a person representing to be a
withholding foreign partnership); or
(B) The withholding agent can reliably associate the payment with a
withholding certificate described in paragraph (c)(3)(iii) of this
section certifying that the payment is income that is effectively
connected with the conduct of a trade or business in the United States.
(iii) Rules for reliably associating a payment with documentation.
For rules regarding the reliable association of a
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payment with documentation, see Sec. 1.1441-1(b)(2)(vii). In the absence
of documentation, see Sec. 1.1441-1(b)(3) and paragraph (d) of this
section for applicable presumptions.
(iv) Example. The rules of paragraphs (c)(1) (i) and (ii) of this
section are illustrated by the following example:
Example. (i) Facts. A foreign partnership, P, has two partners, a
corporation, C, and a partnership, P1, both organized in country X. P1
has three partners, a foreign pension fund, a domestic partnership, P2,
and a foreign partnership, P3, organized in country Y. P2's partners are
foreign pension funds. P holds U.S. Treasury obligations in registered
form, on which it receives interest from U.S. custodian, Z. P1 is not a
withholding foreign partnership and it does not certify that the
interest is effectively connected with the conduct of a U.S. trade or
business. P3 is a withholding foreign partnership. P has furnished a
valid withholding certificate described in paragraph (c)(3)(iii) of this
section to which it has attached valid withholding certificates for C
(beneficial owner Form W-8 described in Sec. 1.1441-1(e)(2)(i)), P1, and
P1's three partners (a Form W-9 for P2, a withholding certificate
described in paragraph (c)(2)(iv) of this section for P3 and a
beneficial owner Form W-8 described in Sec. 1.1441-1(e)(2)(i) for the
foreign pension fund). P has furnished appropriate information in
accordance with paragraph (c)(3)(iv) of this section upon which the
withholding agent can rely to determine which portion of the payment is
associated with each withholding certificate.
(ii) Analysis. The payment to P is treated as a payment to its
partners because none of the conditions described in paragraph
(c)(1)(ii) exist under the facts to treat P as the payee (i.e., it is
not a withholding foreign partnership and, although it has furnished a
withholding certificate described under paragraph (c)(3)(iii) of this
section, it is not claiming that the interest is effectively connected
with the conduct of a U.S. trade or business). Under paragraph
(c)(1)(i)(A) of this section, C, as a partner of P, is treated as a
payee because it is not a flow-through entity or an intermediary (based
on the documentation furnished for C). Under paragraph (c)(1)(i)(C) of
this section, P1 is not treated as a payee because it is a foreign
partnership and none of the conditions described under paragraph
(c)(1)(ii) of this section exist under the facts to treat P as the
payee. Instead, P2 (under paragraph (c)(1)(i)(A) of this section), P3
(under paragraph (c)(1)(ii)(A) of this section), and the foreign pension
fund that is a partner of P1 (under paragraph (c)(1)(i)(A) of this
section), are treated as the payees of P1's distributive share of the
payment to P. P2 is a payee because, although a flow-through entity, it
is a domestic partnership (see paragraph (b)(1) of this section). P3 is
treated as a payee under paragraph (c)(1)(ii)(A) of this section,
irrespective of who its partners are, because it has furnished a valid
withholding certificate as a withholding foreign partnership. The
foreign pension fund is treated as a payee under paragraph (c)(1)(i)(A)
of this section because it has furnished a beneficial owner Form W-8
described in Sec. 1.1441-1(e)(2)(i).
(2) Withholding foreign partnerships--(i) Reliance on claim of
withholding foreign partnership status. A withholding foreign
partnership is a foreign partnership that has entered into an agreement
with the Internal Revenue Service (IRS), as described in paragraph
(c)(2)(ii) of this section. A withholding agent that can reliably
associate a payment with a certificate described in paragraph (c)(2)(iv)
of this section may treat the person to whom it makes the payment as a
withholding foreign partnership for purposes of withholding under
chapter 3 of the Code, information reporting under chapter 61 of the
Code, backup withholding under section 3406, and withholding under other
provisions of the Internal Revenue Code. Furnishing such a certificate
is in lieu of transmitting to a withholding agent withholding
certificates or other appropriate documentation for its partners.
Although the withholding foreign partnership generally will be required
to obtain withholding certificates or other appropriate documentation
from its partners pursuant to its agreement with the IRS, it is not
required to attach such documentation to the partnership withholding
certificate.
(ii) Withholding agreement--(A) In general. A foreign partnership
may claim withholding foreign partnership status before an agreement is
executed with the IRS if it has applied for such status and the IRS
authorizes such status on an interim basis under such procedures as the
IRS may issue. A withholding foreign partnership must file a partnership
return under section 6031(a) to the extent required under the
regulations under that section and furnish statements on Form K-1 to its
partners under section 6031(b) to the extent required under the
regulations under that section. See Secs. 1.6031-1 and 1.6031(b)-1T. See
Sec. 1.1461-1(c)(2)(ii)(A)
[[Page 134]]
for an exemption from filing Forms 1042 and 1042-S. A foreign
withholding partnership that wishes to also be a qualified intermediary
under Sec. 1.1441-1(e)(5) for payments it receives for persons other
than its partners may combine both agreements into one single agreement.
(B) Terms of withholding agreement. The IRS may, upon request, enter
into a withholding agreement with a foreign partnership pursuant to such
procedures as the IRS may prescribe in published guidance (see
Sec. 601.601(d)(2) of this chapter). Under such withholding agreement, a
foreign partnership shall generally be subject to the applicable
withholding and reporting provisions applicable to withholding agents
and payors under chapters 3 and 61 of the Code, and section 3406, and
the regulations under those provisions, and other withholding provisions
of the Code, except to the extent provided under the agreement. In
particular, the agreement must include provisions for reporting of
information on Form 1065 and furnishing K-1 statements to the partners
in the manner required under section 6031 and the regulations under that
section. Under the agreement, a foreign partnership may agree to act as
an acceptance agent to perform the duties described in Sec. 301.6109-
1(d)(3)(iv)(A) of this chapter. The agreement may specify the manner in
which applicable procedures for adjustments for underwithholding and
overwithholding, including refund procedures apply to the foreign
partnership and its partners and the extent to which applicable
procedures may be modified. In particular, a withholding agreement may
allow a withholding foreign partnership to claim refunds of overwithheld
amounts on behalf of its partners. In addition, the agreement must
specify the manner in which the IRS will audit the foreign partnership's
books and records in order to verify the accuracy of the Forms 1065
filed by the partnership and K-1 statements furnished to the partners as
required under section 6031 and the regulations under that section. The
agreement shall also specify the assets that the foreign partnership has
in the United States or alternative means of collection, if necessary.
(iii) Withholding responsibility. A withholding foreign partnership
must assume primary withholding responsibility for all payments that are
made to it and, therefore, is not required to provide information to the
withholding agent regarding each partner's distributive share of the
payment (see paragraph (c)(3)(iv) of this section for the requirement to
provide distributive share information to the withholding agent in the
case of other foreign partnerships). The partnership shall be a
withholding agent with respect to each of its partner's distributive
share of income subject to withholding that is paid to the partnership.
Therefore, the withholding agent is not required to withhold any amount
under chapter 3 of the Code on a payment to a foreign partnership that
has furnished a withholding certificate representing that it is a
withholding foreign partnership, unless it has actual knowledge or
reason to know that the certificate is incorrect. The foreign
partnership shall withhold the payments under the same procedures and at
the same time as is prescribed for withholding by a domestic partnership
under paragraph (b)(2) of this section, except that, for purposes of
determining the partner's status, the provisions of paragraph (d)(4)(iv)
of this section shall apply and paragraph (b)(2)(ii) of this section
shall not apply.
(iv) Withholding certificate from a withholding foreign partnership.
The rules of Sec. 1.1441-1(e)(4) shall apply to withholding certificates
described in this paragraph (c)(2)(iv). A withholding certificate
furnished by a withholding foreign partnership is valid with regard to
any partner on whose behalf the certificate is furnished only if it is
furnished on a Form W-8 (or an acceptable substitute form or such other
form as the IRS may prescribe), it is signed under penalties of perjury
by a partner with authority to sign for the partnership, its validity
has not expired, and it contains the information, statement, and
certifications described in this paragraph (c)(2)(iv) as follows--
(A) The name, permanent residence address (as described in
Sec. 1.1441-1(e)(2)(ii)), and the employer identification number of the
partnership, and
[[Page 135]]
the country under the laws of which the partnership is created or
governed;
(B) A certification that the partnership is a withholding foreign
partnership within the meaning of paragraph (c)(2)(i) of this section;
and
(C) Any other information or certification as may be required by the
form or accompanying instructions in addition to, or in lieu of, the
information and certifications described in this paragraph (c)(2)(iv).
(3) Other foreign partnerships--(i) Reliance on claim of foreign
partnership status. A withholding agent that can reliably associate a
payment with a certificate described in paragraph (c)(3)(iii) of this
section may treat the person to whom it makes the payment as a foreign
partnership that is not a withholding foreign partnership. Such reliance
is permitted for purposes of withholding under chapter 3 of the Code,
information reporting under chapter 61 of the Code, backup withholding
under section 3406, and withholding under other provisions of the
Internal Revenue Code. For purposes of this paragraph (c)(3)(i), a
payment that the withholding agent can reliably associate with a
withholding certificate described in paragraph (c)(3)(iii) of this
section that would be valid except for the fact that some or all of the
withholding certificates or other appropriate documentation required to
be attached are lacking or are unreliable, or that information for
allocating the payment among the partners is lacking or is unreliable,
shall nevertheless be treated as a payment to a foreign partnership.
(ii) Reliance on claim of reduced withholding by a partnership for
its partners. This paragraph (c)(3)(ii) describes the manner in which a
withholding agent may rely on a claim of reduced withholding when making
a payment to a foreign partnership that is not a withholding foreign
partnership. To the extent that a withholding agent treats a payment to
a foreign partnership as a payment to its partners in accordance with
paragraph (c)(1) of this section, it may rely on a claim for reduced
withholding by a partner if, prior to the payment, the withholding agent
can reliably associate the payment with a withholding certificate
described in paragraph (c)(3)(iii) of this section pertaining to the
partner unless the withholding agent has actual knowledge or reason to
know that the withholding certificate is unreliable. The certificate
will be considered to pertain to the partner if the appropriate
withholding certificate for the partner is attached to the partnership's
withholding certificate. An appropriate withholding certificate for a
partner includes a beneficial owner withholding certificate described in
Sec. 1.1441-1(e)(2)(i) or, if applicable, documentary evidence described
in Sec. 1.1441-6(b)(2)(i) or in Sec. 1.6049-5(c)(1) (for a partner
claiming to be a foreign person and a beneficial owner, determined under
the provisions of Sec. 1.1441-1(c)(6)), the applicable certificates
described in Sec. 1.1441-1(d)(2) or (3) (for a partner claiming to be a
U.S. payee), an intermediary withholding certificate described in
Sec. 1.1441-1(e)(3)(ii) or (iii), a U.S. branch withholding certificate
described in Sec. 1.1441-1(e)(3)(v), or a partnership withholding
certificate described in paragraph (c)(2)(iv) or (3)(iii) of this
section. Except where the partnership certificate is provided for income
claimed to be effectively connected with the conduct of a trade or
business in the United States, a claim must be presented for each
portion of the payment that represents an item of income includible in
the distributive share of the partner as required under paragraph
(c)(3)(iii)(C) of this section. When making a claim for several
partners, the partnership may present a single partnership withholding
certificate to which the partners' certificates are attached. Where the
partnership certificate is provided for income claimed to be effectively
connected with the conduct of a trade or business in the United States,
the claim may be presented without having to identify the partner's
distributive share of the payment if the certificate contains the
certification described in paragraph (c)(3)(iii)(E) of this section.
(iii) Withholding certificate from a foreign partnership that is not
a withholding foreign partnership. A withholding certificate furnished
by a foreign partnership that is not a withholding foreign partnership
is valid only if it is furnished on a Form W-8 (or an acceptable
substitute form or such other form as
[[Page 136]]
the IRS may prescribe), it is signed under penalties of perjury by a
partner with authority to sign for the partnership, its validity has not
expired, it contains the information, statement, and certifications
described in this paragraph (c)(3)(iii), and the withholding
certificates or other appropriate documentation for all of the partners
are attached (except that certificates for partners are not required to
be attached for a certificate furnished solely for income claimed to be
effectively connected with the conduct of a trade or business in the
United States, regardless of any partner's status as a U.S. person). The
rules of Sec. 1.1441-1(e)(4) shall apply to withholding certificates
described in this paragraph (c)(3)(iii). The information, statement, and
certifications required on the withholding certificate are as follows:
(A) The name, permanent residence address (as described in
Sec. 1.1441-1(e)(2)(ii)), and the employer identification number of the
partnership, and the country under the laws of which the partnership is
created or governed.
(B) A representation that the person whose name is on the
certificate is a foreign partnership.
(C) A statement attached to the certificate that provides such
information as may be required by the form and accompanying
instructions, including sufficient information to the withholding agent
to determine the amount required to be withheld from amounts paid to the
partnership, such as each partner's distributive share of amounts to
which the certificate relates, prepared in the manner described in
paragraph (c)(3)(iv) of this section. No statement is required for a
certificate furnished for income claimed to be effectively connected
with the conduct of a trade or business in the United States.
(D) If the withholding certificates are required to be attached to
the partnership's withholding certificate, a statement either that the
attached withholding certificates represent all of the partners or that
the amounts allocatable to the partners for whom withholding
certificates are lacking are separately identified in the statement
required under paragraph (c)(3)(iv) of this section.
(E) A certification that the income is effectively connected with
the conduct of a trade or business in the United States, if applicable.
(F) Any other information or certification as may be required by the
form or accompanying instructions in addition to, or in lieu of, the
information and certifications described in this paragraph (c)(3)(iii).
(iv) Information to the withholding agent regarding each partner's
distributive share. The partnership must furnish information sufficient
for the withholding agent to determine each partner's distributive share
of reportable amounts (described in Sec. 1.1441-1(e)(3)(vi)). The sum of
all partners' distributive shares, expressed as a percentage, must
equal, but not exceed one hundred percent. For purposes of this
paragraph (c)(3)(iv), the rules of Sec. 1.1441-1(e)(3)(iv) regarding the
information to furnish to the withholding agent shall apply.
(v) Withholding by a foreign partnership. A foreign partnership
described in this paragraph (c)(3) that receives an amount subject to
withholding under chapter 3 of the Code shall be deemed to have
satisfied any obligation under such chapter to withhold on the amount
with respect to any partner to the extent that the partner's
distributive share of the payment can be reliably associated with a
withholding certificate described in paragraph (c)(3)(iii) of this
section pertaining to the partner that the partnership has furnished to
a withholding agent and the partnership does not know and has no reason
to know that the correct amount has not been withheld under chapter 3 of
the Code and the regulations under such chapter.
(d) Presumptions regarding payee's status in the absence of
documentation--(1) In general. This paragraph (d) contains the
applicable presumptions for determining the status of the partnership
and its partners in the absence of documentation. The provisions of
Sec. 1.1441-1(b)(3)(iv) (regarding the 90-day grace period) and
Sec. 1.1441-1(b)(3) (vii) through (ix) shall apply for purposes of this
paragraph (d).
[[Page 137]]
(2) Determination of partnership status as domestic or foreign in
the absence of documentation. In the absence of a valid representation
of domestic partnership status in accordance with paragraph (b)(1) of
this section and of foreign partnership status in accordance with
paragraph (c)(2)(i) or (3)(i) of this section, the withholding agent
shall determine the status of the payee as a corporation, a partnership
or otherwise, based upon the presumptions set forth in Sec. 1.1441-
1(b)(3)(ii). If, based upon these presumptions, the withholding agent
treats the payee as a partnership, the partnership shall be presumed to
be a foreign partnership if the withholding agent has actual knowledge
of the payee's employer identification number and that number begins
with the two digits ``98,'' if the withholding agent's communications
with the payee are mailed to an address in a foreign country, or if the
payment is made outside the United States (as defined in Sec. 1.6049-
5(e)). For rules regarding reliable association with a withholding
certificate from a domestic or a foreign partnership, see Sec. 1.1441-
1(b)(2)(vii).
(3) Determination of partners' status in the absence of certain
documentation. If the withholding agent treats the payee as a foreign
partnership in accordance with paragraph (c)(2)(i), (3)(i), or (d)(2) of
this section, the presumptions described in this paragraph (d)(3) shall
apply when the withholding agent cannot reliably associate a payment
with partner documentation. The provisions of paragraphs (d) (3)(i),
(ii), and (iii) of this section are not relevant to a payment that a
withholding agent can reliably associate with a withholding certificate
described in paragraph (c)(2)(iv) of this section.
(i) Documentation regarding the status of a partner is lacking or
unreliable. Any portion of a payment that the withholding agent cannot
reliably associate with a partner because a withholding certificate or
other appropriate documentation for that partner is lacking or
unreliable is presumed to be made to foreign payee. Therefore, under
Sec. 1.1441-1(b)(1), the withholding agent must withhold 30 percent from
payments to the partnership of amounts subject to withholding that are
allocable to such partner or group of partners.
(ii) Information regarding the allocation of payment is lacking or
unreliable. If a withholding agent can reliably associate a payment with
a group of partners but lacks reliable information to determine how much
of the payment is allocable to each partner in the group, the payment,
to the extent it cannot reliably be allocated, is presumed to be
allocable entirely to the partner in the group with the highest
applicable withholding rate or, if the rates are equal, to the partner
in the group with the highest U.S. tax liability, as the withholding
agent shall estimate, based on its knowledge and available information.
If a withholding certificate attached to the partnership certificate is
another partnership certificate or an intermediary certificate described
in Sec. 1.1441-1(e)(3)(iii), the rules of this paragraph (d)(3)(ii)
apply by treating the share of the payment allocable to the other
partnership or the intermediary certificate as if the payment were made
directly to the foreign partnership or intermediary.
(iii) Certification that the foreign partnership has furnished
documentation for all of the persons to whom the intermediary
certificate relates is lacking or unreliable. If the certification
required under paragraph (c)(3)(iii)(D) of this section (that the
attached withholding certificates and other appropriate documentation
represent all of the partners in the partnership) is lacking or is
unreliable and, as a result, the withholding agent cannot reliably
determine how much of the payment is allocable to each of the partners
or group of partners for which the withholding agent holds a withholding
certificate or other appropriate documentation, then none of the payment
can reliably be associated with any one partner and the entire payment
is presumed to be made to a foreign payee.
(iv) Determination by a withholding foreign partnership of the
status of its partners. For purposes of determining whether the partners
or some other persons are the payees of the partners' distributive
shares of any payment made to a withholding foreign partnership, the
partnership shall apply the
[[Page 138]]
rules of Sec. 1.1441-1(b)(2), and of paragraph (c)(1) of this section
(in the case of a partner that is a foreign partnership) and of
paragraph (e) (in the case of a partner that is a foreign estate or a
foreign trust), in the same manner as if the partnership were making a
payment directly to the partners other than in their capacity as
partners. Further, the provisions of paragraphs (d)(3) (i), (ii), and
(iii) of this section shall apply to determine the status of partners
and the applicable withholding rates to the extent that, at the time the
foreign partnership is required to withhold on the amount, it cannot
reliably associate the amount with documentation for any one or more of
its partners. See Secs. 1.6031-1 and 1.6031-1T for reporting and filing
requirements applicable to a withholding foreign partnership.
(4) Examples. The rules of this paragraph (d) may be illustrated by
the following examples:
Example 1. (i) Facts. FP is a foreign partnership receiving U.S.
source interest that would qualify as portfolio interest described in
section 871(h)(2)(B) if the statement described in section 871(h)(5)
were furnished. FP has three partners, A, B, and C. FP furnishes to the
withholding agent a partnership withholding certificate described in
paragraph (c)(3)(iii) of this section to which it attaches a Form W-9
for A and a beneficial owner Form W-8 for B. Nothing on A's Form W-9
indicates that A is an exempt recipient within the meaning of
Sec. 1.6049-4(c)(1)(i). No documentation is attached for C. The
partnership has one single account with the withholding agent. It
furnishes a statement to the withholding agent under paragraph
(c)(3)(iv) of this section indicating that A's, B's, and C's respective
distributive shares of the payments are 40%, 40%, and 20% and
represents, in accordance with paragraph (c)(3)(iii)(D) of this section,
that there are only three partners.
(ii) Analysis. Absent actual knowledge or reason to know otherwise,
the withholding agent may rely on FP's withholding certificate and A's
Form W-9 to treat A as a U.S. beneficial owner under Sec. 1.1441-
1(d)(4)(i) and as a U.S. payee under paragraph (c)(1)(i)(A) of this
section to the extent of 40 percent of the payment. Under Sec. 1.1441-
1(b)(1), the withholding agent is not required to withhold on A's share
of the payment. Under Sec. 1.6049-4(a), the withholding agent must
comply with information reporting obligations (i.e., file a Form 1099)
with respect to A who is treated as a U.S. payee under paragraph
(c)(1)(i)(A) of this section and Sec. 1.6049-5(d)(1) for purposes of the
information reporting provisions of chapter 61 of the Code and the
regulations thereunder. Absent actual knowledge or reason to know
otherwise, the withholding agent may also rely on FP's withholding
certificate and B's Form W-8 to treat B as a foreign beneficial owner
under Sec. 1.1441-1(e)(1)(ii)(A)(1) and paragraph (c)(1)(i)(A) of this
section. Thus, under Sec. 1.1441-1(b)(1), the withholding agent may rely
on B's claim for portfolio interest treatment for B's share of the
payment. Under Sec. 1.1461-1(b)(1) and (c)(1), the withholding agent
must report the payment to B on Forms 1042 and 1042-S unless, under
section 6031 and the regulations under that section, the partnership is
required to file a return. Because the withholding agent cannot
associate the documentation (as defined in Sec. 1.1441-1(b)(3)(vii)) for
C's share of the interest income, the withholding agent must, under
paragraph (d)(3)(i) of this section, treat that amount as a payment made
to an unidentified foreign partner and withhold 30 percent under section
1441 in accordance with Sec. 1.1441-1(b)(1).
Example 2. The facts are the same as in Example 1, but the
partnership has furnished no information under paragraph (c)(3)(iv) of
this section regarding how much of the payment to the foreign
partnership is attributable to A and C. Under paragraph (d)(3)(ii) of
this section, the payment allocable to group A-C is presumed made
entirely to A or to C, depending on who of A or C is subject to the
highest withholding rate. A is not subject to withholding because it has
furnished a valid Form W-9. C is subject to a 30-percent withholding
rate under Sec. 1.1441-1(b)(1) because it is presumed to be an
unidentified foreign partner under paragraph (d)(3)(i) of this section.
Therefore, under paragraph (d)(3)(ii) of this section, the portion of
the payment that the withholding agent can associate with A and C is
subject to withholding at a 30-percent rate. The withholding agent may
ignore the fact that A has furnished a valid Form W-9 supporting his
claim of exemption from withholding as a U.S. person because it has no
reliable information on how much of the payment is allocable to A.
Because the withholding agent has a Form W-9 for the U.S. individual
partner, it must also report A's distributive share on a Form 1099. To
the extent that A's exact share is not known, the entire amount should
be reported on the Form 1099.
(e) Trusts and estates. [Reserved]
(f) Failure to receive withholding certificate timely or to act in
accordance with applicable presumptions. See applicable procedures
described in Sec. 1.1441-1(b)(7) in the event the withholding agent does
not hold an appropriate withholding certificate or other appropriate
documentation at the time of
[[Page 139]]
payment or fails to rely on the presumptions set forth in Sec. 1.1441-
1(b)(3) or in paragraph (d) or (e) of this section.
(g) Effective date--(1) General rule. This section applies to
payments made after December 31, 2000.
(2) Transition rules. The validity of a withholding certificate that
was valid on January 1, 1998, under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and
expired, or will expire, at any time during 1998, is extended until
December 31, 1998. The validity of a withholding certificate that is
valid on or after January 1, 1999, remains valid until its validity
expires under the regulations in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1, 1999) but in no event will such a
withholding certificate remain valid after December 31, 2000. The rule
in this paragraph (g)(2), however, does not apply to extend the validity
period of a withholding certificate that expires solely by reason of
changes in the circumstances of the person whose name is on the
certificate. Notwithstanding the first three sentences of this paragraph
(g)(2), a withholding agent may choose to not take advantage of the
transition rule in this paragraph (g)(2) with respect to one or more
withholding certificates valid under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and,
therefore, to require withholding certificates conforming to the
requirements described in this section (new withholding certificates).
For purposes of this section, a new withholding certificate is deemed to
satisfy the documentation requirement under the regulations in effect
prior to January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1,
1999). Further, a new withholding certificate remains valid for the
period specified in Sec. 1.1441-1(e)(4)(ii), regardless of when the
certificate is obtained.
[T.D. 8734, 62 FR 53452, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72185, 72188, Dec. 31, 1998; 64 FR 73410, Dec. 30, 1999]
Effective Date Note: By T.D. 8734, 62 FR 53452, Oct. 14, 1997,
Sec. 1.1441-5 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-5 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, 73410, Dec. 30, 1999, the
effective date was delayed until Jan. 1, 2001 and paragraph (g) was
revised effective Jan. 1, 2001. For the convenience of the user, the
superseded text is set forth as follows:
Sec. 1.1441-5 Claiming to be a person not subject to withholding.
(a) Individuals. For purposes of chapter 3 of the Code, an
individual's written statement that he or she is a citizen or resident
of the United States may be relied upon by the payer of the income as
proof that such individual is a citizen or resident of the United
States. This statement shall be furnished to the withholding agent in
duplicate. An alien may claim residence in the United States by filing
Form 1078 with the withholding agent in duplicate in lieu of the above
statement.
(b) Partnerships and corporations. For purposes of chapter 3 of the
Code a written statement from a partnership or corporation claiming that
it is not a foreign partnership or foreign corporation may be relied
upon by the withholding agent as proof that such partnership or
corporation is domestic. This statement shall be furnished to the
withholding agent in duplicate. It shall contain the address of the
taxpayer's office or place of business in the United States and shall be
signed by a member of the partnership or by an officer of the
corporation. The official title of the corporate officer shall also be
given.
(c) Disposition of statement and form. The duplicate copy of each
statement and form filed pursuant to this section shall be forwarded
with a letter of transmittal to Internal Revenue Service Center,
Philadelphia, PA 19255. The original statement shall be retained by the
withholding agent.
(d) Definitions. For determining whether an alien individual is a
resident of the United States see Secs. 301.7701(b)-1 through
301.7701(b)-9 of this chapter. An individual with respect to whom an
election to be treated as a resident under section 6013(g) is in effect
is not, in accordance with Sec. 1.1441-1, a resident for purposes of
this section. For definition of the terms ``foreign partnership'' and
``foreign corporation'' see section 7701(a) (4) and (5) and
Sec. 301.7701-5 of this chapter. For definition of the term ``United
States'' and for other geographical definitions relating to the
Continental Shelf see section 638 and Sec. 1.638-1.
(Approved by the Office of Management and Budget under control number
1545-0795)
(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C.
7805) of the Internal Revenue Code of 1954)
[T.D. 6500, 25 FR 12076, Nov. 26, 1960, as amended by T.D. 6908, 31 FR
16773, Dec. 31, 1966; T.D. 7277, 38 FR 12742, May 15, 1973; T.D. 7842,
47 FR 49842, Nov. 3, 1982; T.D. 7977, 49 FR
[[Page 140]]
36834, Sept. 20, 1984; T.D. 8160, 52 FR 33933, Sept. 9, 1987; T.D. 8411,
57 FR 15241, Apr. 27, 1992]
Sec. 1.1441-6 Claim of reduced withholding under an income tax treaty.
(a) In general. The rate of withholding on a payment of income
subject to withholding may be reduced to the extent provided under an
income tax treaty in effect between the United States and a foreign
country. Most benefits under income tax treaties are to foreign persons
who reside in the treaty country. In some cases, benefits are available
under an income tax treaty to U.S. citizens or U.S. residents or to
residents of a third country.
See paragraph (b)(5) of this section for claims of benefits by U.S.
persons. If the requirements of this section are met, the amount
withheld from the payment may be reduced at source to account for the
treaty benefit. See also Sec. 1.1441-4(b)(2) for rules regarding claims
of reduced rate of withholding under an income tax treaty in the case of
compensation from personal services.
(b) Reliance on claim of reduced withholding under an income tax
treaty--(1) In general. Absent actual knowledge or reason to know
otherwise, a withholding agent may rely on a claim that a beneficial
owner is entitled to a reduced rate of withholding based upon an income
tax treaty if, prior to the payment, the withholding agent can reliably
associate the payment with documentation upon which it can rely to treat
the payment as made to a foreign beneficial owner in accordance with
Sec. 1.1441-1(e)(1)(ii) (not including 1.1441-1(e)(1)(ii)(A)(2) relating
to documentary evidence). Except as otherwise provided in paragraph
(b)(2) or (3) of this section, for purposes of this paragraph (b)(1), a
beneficial owner withholding certificate described in Sec. 1.1441-
1(e)(2)(i) is valid only if it includes the beneficial owner's taxpayer
identifying number and certifies that the taxpayer has complied with the
advance ruling requirements described in paragraph (e) of this section
(if applicable), and, if the beneficial owner is a person related to the
withholding agent within the meaning of section 482, that the beneficial
owner will file the statement required under Sec. 301.6114-1(d) of this
chapter (if applicable). The requirement to file an information
statement under section 6114 for income subject to withholding applies
only to amounts received during the calendar year that, in the
aggregate, exceed $500,000. See Sec. 301.6114-1(d) of this chapter. The
Internal Revenue Service (IRS) may apply the provisions of Sec. 1.1441-
1(e)(1)(ii)(B) to notify the withholding agent that the certificate
cannot be relied upon to grant benefits under an income tax treaty. A
beneficial owner's taxpayer identifying number on a withholding
certificate is valid for purposes of establishing proof of residence in
a treaty country only if the taxpayer identifying number is certified by
the IRS in accordance with the procedures set forth in paragraph (c) of
this section. However, absent actual knowledge or reason to know
otherwise, a withholding agent may rely on a taxpayer identifying number
without having to inquire as to whether the taxpayer identifying number
is certified, if the number appears correct on its face and the
permanent residence address on the certificate is in the country whose
tax treaty with the United States is invoked. See 1.1441-1(e)(4)(viii)
regarding reliance on a withholding certificate by a withholding agent.
The provisions of Sec. 1.1441-1(b)(3)(iv) dealing with a 90-day grace
period shall apply for purposes of this section.
(2) Exemption from requirement to furnish a taxpayer identifying
number and special documentary evidence rules for certain income--(i)
General rule. In the case of income described in paragraph (b)(2)(ii) of
this section, a withholding agent may rely on a beneficial owner
withholding certificate described in paragraph (b)(1) of this section
even if the person whose name is on the certificate has not provided a
taxpayer identifying number. In the case of payments made outside the
United States (as defined in Sec. 1.6049-5(e)) with respect to an
offshore account (as defined in Sec. 1.6049-5(c)(1)), a withholding
agent may, as an alternative to a withholding certificate described in
paragraph (b)(1) of this section, rely on a certificate of residence
described in
[[Page 141]]
paragraph (c)(3) of this section or documentary evidence described in
paragraph (c)(4) of this section, relating to the beneficial owner, that
the withholding agent has reviewed and maintains in its records in
accordance with Sec. 1.1441-1(e)(4)(iii). In the case of a payment to a
person other than an individual, the certificate of residence or
documentary evidence must be accompanied by the certifications described
in paragraphs (c)(5) (i) and (ii) of this section regarding limitation
on benefits and whether the amount paid is derived by such person or by
one of its interest holders. The withholding agent maintains the
reviewed documents by retaining either the documents viewed or a
photocopy thereof and noting in its records the date on which, and by
whom, the documents were received and reviewed. This paragraph (b)(2)(i)
shall not apply to amounts that are exempt from withholding based on a
claim that the income is effectively connected with the conduct of a
trade or business in the United States.
(ii) Income to which special rules apply. The income to which
paragraph (b)(2)(i) of this section applies is dividends and interest
from stocks and debt obligations that are actively traded, dividends
from any redeemable security issued by an investment company registered
under the Investment Company Act of 1940 (15 U.S.C. 80a-1), dividends,
interest, or royalties from units of beneficial interest in a unit
investment trust that are (or were, upon issuance) publicly offered and
are registered with the Securities and Exchange Commission under the
Securities Act of 1933 (15 U.S.C. 77a) and amounts paid with respect to
loans of securities described in this paragraph (b)(2)(ii). For purposes
of this paragraph (b)(2)(ii), a stock or debt obligation is actively
traded if it is actively traded within the meaning of section 1092(d)
and Sec. 1.1092(d)-1 when documentation is provided.
(3) Competent authority agreements. The procedures described in this
section may be modified to the extent the U.S. competent authority may
agree with the competent authority of a country with which the United
States has an income tax treaty in effect.
(4) Eligibility for reduced withholding under an income tax treaty
in the case of a payment to a person other than an individual--(i)
General rule. The withholding imposed under section 1441, 1442, or 1443
on any payment to a foreign person is eligible for reduction under the
terms of an income tax treaty only to the extent that such payment is
treated as derived by a resident of an applicable treaty jurisdiction,
such resident is a beneficial owner of the payment, and all other
applicable requirements for benefits under the treaty are satisfied. A
payment received by an entity is treated as derived by a resident of an
applicable treaty jurisdiction to the extent that the payment is subject
to tax in the hands of a resident of that jurisdiction. For this
purpose, a payment received directly by an entity that is treated as
fiscally transparent by the applicable treaty jurisdiction shall be
considered a payment subject to tax in the hands of a resident of the
jurisdiction to the extent that the interest holders in the entity are
residents of the jurisdiction. For purposes of the preceding sentence,
interest holders do not include any direct or indirect interest holders
that are themselves treated as fiscally transparent entities by the
applicable treaty jurisdiction. A payment received by an entity that is
not treated as fiscally transparent by the applicable treaty
jurisdiction shall be considered a payment subject to tax in the hands
of a resident of such jurisdiction only if the entity is itself a
resident of that jurisdiction. If the entity is a wholly-owned entity
that is disregarded for federal tax purposes under Sec. 301.7701-2(c)(2)
of this chapter as an entity separate from its owner and whose single
member is a foreign person, amounts paid to such entity may nevertheless
be treated as derived by a resident of a treaty country if the entity is
treated by the applicable treaty country as deriving the income as a
resident of that country. The provisions of Sec. 1.894-1T(d) (1) through
(4) shall apply for purposes of determinations made under this paragraph
(b)(4).
(ii) Withholding certificates--(A) In general. The type of
withholding certificate or other appropriate documentation that must be
furnished by a
[[Page 142]]
person claiming a reduced rate of withholding under an income tax treaty
depends upon the status of the entity under the laws of the applicable
treaty jurisdiction. For example, if the person receiving the payment is
a foreign entity but the persons eligible for benefits under the
applicable income tax treaty are the entity's interest holders in the
foreign entity receiving the payment, rather than the entity itself,
then the entity shall be treated as a foreign partnership for purposes
of determining which withholding certificate is appropriate irrespective
of the fact that the entity may be treated as a corporation for U.S. tax
purposes. If, conversely, the person eligible for benefits under an
income tax treaty is the entity rather than the interest holders, then
the entity shall be treated as a corporation for purposes of determining
which withholding certificate is appropriate irrespective of the fact
that the entity may be treated as a partnership for U.S. tax purposes.
In the event of a claim for dual treatment described in paragraph
(b)(4)(iii) of this section, multiple withholding certificates may have
to be furnished. Multiple withholding certificates may also have to be
furnished if the entity receives income for which a reduction of
withholding is claimed under a provision of the Internal Revenue Code
(e.g., portfolio interest) and income for which a reduction of
withholding is claimed under an income tax treaty. Absent actual
knowledge or reason to know otherwise, a withholding agent may rely on
the representations on the certificate that the beneficial owner derives
the income and is a resident of the applicable treaty country, within
the meaning of Sec. 1.894-1T(d) and the applicable income tax treaty,
without having to inquire into the truthfulness of these representations
or to research foreign law.
(B) Certification by qualified intermediary. A foreign corporation
that is a qualified intermediary described in Sec. 1.1441-1(e)(5)(ii)(C)
for purposes of claiming reduced rates of withholding under an income
tax treaty for its shareholders (who are treated as deriving the income
paid to the corporation as resident of an applicable treaty
jurisdiction) may furnish a single Form W-8 for its shareholders for
amounts for which it claims the benefit of a reduced rate of withholding
under an applicable income tax treaty. The Form W-8 shall be one
described under Sec. 1.1441-1(e)(3)(ii).
(iii) Multiple claims of treaty benefits. A withholding agent may
make a payment to a foreign entity that is simultaneously claiming a
reduced rate of tax on its own behalf for a portion of the payment and a
reduced rate on behalf of persons in their capacity as interest holders
in that entity for the same or for another portion of the payment. In
the case of concurrent and inconsistent claims of treaty benefits for
the same amount, the withholding agent may choose to reject the claim
and request that a consistent claim be submitted or it may choose which
reduction to apply. In the case of concurrent and consistent claims
(e.g., the entity that is paid the amount claims a reduced rate for a
portion of the payment and an interest holder claims a different reduced
rate for the balance of the payment), the withholding agent may, at its
option, accept such dual claim based, as appropriate, on withholding
certificates furnished by such persons with respect to their respective
shares of such payment, even though the withholding agent holds
different withholding certificates that requires it to treat the entity
inconsistently with respect to different payments or with respect to
different portions of the same payment. See paragraph (b)(4)(iv) Example
2 of this section. If the withholding agent does not accept claims of
reduced rate presented by any one or more of the interest holders, or by
the entity, any interest holder or the entity may subsequently claim a
refund or credit of any amount so withheld to the extent the holder's or
entity's share of such withholding exceeds the amount of tax due under
section 894 (in the case of a foreign person) or under section 1 or 11
(in the case of a U.S. person).
(iv) Examples. This paragraph (b)(4) is illustrated by the following
examples:
Example 1. (i) Facts. Entity A is a business organization formed
under the laws of country Y that has an income tax treaty with the
United States. A receives U.S. source royalties from withholding agent R
and claims a
[[Page 143]]
reduced rate of withholding under the U.S.-Y tax treaty on its own
behalf (rather than on behalf of its interest holders). A furnishes a
beneficial owner withholding certificate described in paragraph (b)(1)
of this section that represents that A is a resident of country Y
(within the meaning of the U.S.-Y tax treaty) and the beneficial owner
of the royalties (within the meaning of the U.S.-Y tax treaty).
(ii) Analysis. Absent actual knowledge or reason to know otherwise,
R may rely on the representation that A is a resident of country Y and a
beneficial owner of the royalty income within the meaning of the U.S.-Y
tax treaty.
Example 2. (i) Facts. The facts are the same as under Example 1,
except that one of A's interest holders, T, is an entity organized in
country Z. The U.S.-Z tax treaty reduces the rate on royalties to zero
whereas the rate on royalties under the U.S.-Y tax treaty is only
reduced to 5 percent. T furnishes a beneficial owner withholding
certificate to A that represents that T is deriving its distributive
share of the royalty income paid to A as a resident of country Z (within
the meaning of Sec. 1.894-1T(d)(1) and the U.S.-Z tax treaty) and is the
beneficial owner of the royalty income (within the meaning of the U.S.-Z
tax treaty). A furnishes to R an intermediary withholding certificate
described in Sec. 1.1441-1(e)(3)(iii) to which it attaches T's
beneficial owner withholding certificate for the portion of the payment
that T claims as its distributive share of the royalty income. A also
furnishes to R a beneficial owner withholding certificate for itself for
the portion of the payment that T does not claim as its distributive
share.
(ii) Analysis. Absent actual knowledge or reason to know otherwise,
R may rely on the documentation furnished by A in order to treat the
royalty payment to a single foreign entity (A) as derived by different
residents of tax treaty countries as a result of concurrent and
consistent claims presented under different treaties. R may, at its
option, grant dual treatment, that is, a reduced rate of zero percent
under the U.S.-Z treaty on the portion of the royalty payment that T
claims to derive as a resident of country Z and a reduced rate of 5
percent under the U.S.-Y treaty for the balance. However, under
paragraph (b)(4)(iii) of this section, R may, at its option, treat A as
the only relevant person deriving the royalty and grant benefits under
the U.S.-Y treaty only.
Example 3. (i) Facts. Entity A is a business organization formed
under the laws of the United States and is classified as a partnership
for U.S. tax purposes. A's partners are S and T. S is an entity
organized in country Z. T is an entity organized in country X. Under the
laws of country Z, A is treated as an entity taxable at the entity
level. Therefore, S is treated as a shareholder for purposes of the laws
of country Z and is not required to take A's income into account for
purposes of determining its tax liability under those laws.
Distributions from A are treated as distributions from a corporate
entity for purposes of the tax laws of Country Z. Under the laws of
country X, A is treated as a fiscally transparent entity and T is
required to take into account its distributive share of A's income for
purposes of determining its tax liability under those laws. A receives
U.S. source royalties that are not connected with a trade or business.
The United States has a tax treaty with countries Z and X under which
the rate on royalties is reduced to zero. Both S and T furnish a
beneficial owner certificate to A representing that they are resident of
their respective countries and a beneficial owner of their respective
distributive share of royalty income. A has actual knowledge of the tax
treatment of S and T in their respective countries.
(ii) Analysis. Because A is a partnership for U.S. tax purposes, S
and T are each taxable on their respective distributive share of the
royalty income under section 881(a). However, under Sec. 1.1441-5(b)(1),
the payment of royalty to A is not a payment subject to withholding.
Instead, under Sec. 1.1441-5(b)(2), A must withhold on each partner's
distributive share of U.S. source royalty income and may apply the rules
of this section to determine the extent to which the 30-percent
withholding rate under section 1442 should be reduced under the income
tax treaties with countries Z and X. Because A has actual knowledge of
the tax treatment of S in country Z as a shareholder of A and not as a
partner (or owner of a fiscally transparent entity), A may not rely on
the certificate furnished by S in order to reduce the rate of
withholding under the U.S.-Z tax treaty. Therefore, it withholds 30
percent of S's distributive share of royalty income. A may rely on T's
certificate to treat T as deriving its distributive share of A's royalty
income as a resident of country X and as a beneficial owner. Therefore,
A withholds on T's distributive share of royalty income at the reduced
rate under the U.S.-X tax treaty.
Example 4. (i) Facts. Entity A is a business organization formed
under the laws of country Y. A receives from withholding agent R U.S.
source royalties and U.S. source interest income that is potentially
eligible for the portfolio interest exemption under section 871(h) and
881(c). A's interest holders are S, an individual who resides in country
Y, T, an individual who resides in country Z, and U, an individual
resident in the United States. The United States has a tax treaty with
both country Y and country Z. The U.S.-Y tax treaty reduces the rate on
royalties to 5 percent, and the U.S.-Z tax treaty reduces the rate to
zero. A is classified as a partnership under U.S. tax principles. Under
the tax laws
[[Page 144]]
of country Y, A is treated as a fiscally transparent entity and S is
required to include in income his distributive share of A's income. A
furnishes to R an intermediary withholding certificate described in
Sec. 1.1441-5(c)(3)(iii) to which it attaches--
(A) A Form W-9 for U; and
(B) Beneficial owner withholding certificates for S and T that
represent that S and T are foreign persons. For purposes of claiming the
reduced rate under each applicable tax treaty, each of S's and T's
certificates represents that S and T are deriving their distributive
share of the royalty income as a resident of their respective countries
(within the meaning of Sec. 1.894-1T(d)(1) and of the applicable tax
treaty) and as a beneficial owner (within the meaning of the applicable
tax treaty).
(ii) Analysis. Absent actual knowledge or reason to know otherwise,
R may rely on the representations that S and T derive a distributive
share of the royalty income as resident of their respective countries
and are the beneficial owners of the income. Therefore, R may withhold
on S's distributive share of the royalty income paid to A at the 5-
percent rate under the U.S.-Y tax treaty. R may withhold on T's
distributive share of the royalty income paid to A at the zero rate
under the U.S.-Z tax treaty, even though A is not organized in, or a
resident of, country Z. R may rely on U's Form W-9 to treat U as a U.S.
person. Therefore, R does not withhold on U's share of the royalty
payment. R also does not withhold on any portion of the interest paid to
A because S and T have furnished beneficial owner certificates and U has
furnished a Form W-9.
Example 5. (i) Facts. The facts are the same as in Example 4, except
that A represents that it derives the royalty income it receives from R
as a resident of country Y (within the meaning of Sec. 1.894-1T(d)(1)
and the U.S.-Y tax treaty) and as a beneficial owner of the income
(within the meaning of the U.S.-Y tax treaty). Neither T nor S represent
to derive the royalty income as resident of their respective country. A
furnishes an intermediary withholding certificate described in
Sec. 1.1441-1(e)(3)(iii) to which it attaches a Form W-9 for U and
beneficial owner withholding certificates for S and T. No claims of
reduced rate under a tax treaty are made on S's or T's certificates. A
also furnishes to R its own beneficial withholding certificate in order
to claim the reduced rate under the U.S.-Y tax treaty for the royalty
income.
(ii) Analysis. Absent actual knowledge or reason to know otherwise,
R may rely on A's intermediary certificate and the certificates attached
thereto in order to treat S and T as foreign beneficial owners for
purposes of treating the interest as portfolio interest and to treat U
as a U.S. payee. Therefore, R does not withhold on the payment of
interest to A. In addition, absent actual knowledge or reason to know
otherwise, R may rely on A's beneficial owner certificate in order to
reduce the rate of withholding on the royalty income under the U.S.-Y
tax treaty.
(5) Claim of benefits under an income tax treaty by a U.S. person.
In certain cases, a U.S. person may claim the benefit of an income tax
treaty. For example, under certain treaties, a U.S. citizen residing in
the treaty country may claim a reduced rate of U.S. tax on certain
amounts representing a pension or an annuity from U.S. sources. Claims
of treaty benefits by a U.S. person may be made by furnishing a Form W-9
to the withholding agent or such other form as the IRS may prescribe in
published guidance (see Sec. 601.601(d)(2) of this chapter).
(c) Proof of tax residence in a treaty country and certification of
entitlement to treaty benefits--(1) In general. A beneficial owner
establishes proof of its tax residence in a treaty country for purposes
of its claim to the withholding agent that a reduced rate of tax applies
under an income tax treaty by complying with the procedures described in
this paragraph (c) or with such other procedures as the IRS may
prescribe in published guidance (see Sec. 601.601(d)(2) of this
chapter). For purposes of this section, the residence of a beneficial
owner must be determined in accordance with the provisions of the
applicable U.S. income tax treaty as may be clarified by any applicable
regulations thereunder, or technical explanations thereof, or other
published guidance.
(2) Certification of taxpayer identifying number--(i) In general. A
taxpayer may certify its taxpayer identifying number as required under
paragraph (b)(1) of this section by having the number certified by the
IRS either directly as provided under paragraph (c)(2)(ii) of this
section or through a qualified intermediary as provided in paragraph
(c)(2)(iii) of this section.
(ii) IRS-certified TIN. The IRS shall certify a taxpayer identifying
number (TIN) upon receipt of a certificate of residence described in
paragraph (c)(3) of this section to which it shall attach the
certifications described in paragraphs (c)(5) (i) and (ii) of this
section, if applicable. The taxpayer may provide documentary evidence
described
[[Page 145]]
in paragraph (c)(4) of this section instead of a certificate of
residence. However, a taxpayer (other than a person organized as a
corporate body in the applicable treaty jurisdiction) may furnish
documentary evidence instead of a certificate of residence only if a
certificate of residence is not available to the taxpayer. A certificate
of residence is not available for purposes of this paragraph (c)(2)(ii)
if the tax administration of the country where the taxpayer claims to be
a resident does not have a procedure in effect by which such
certificates are routinely issued or the taxpayer establishes that
obtaining such certificate would require an unreasonable amount of time
or costs relative to the taxpayer's circumstances (e.g., amount of
investments in the United States). A person organized as a corporate
body in the applicable treaty jurisdiction may, instead of a certificate
of residence, furnish a certificate of incorporation, articles of
incorporation, or other official document reflecting the taxpayer's
status as a corporate body in that jurisdiction, regardless of whether a
certificate of residence described in paragraph (c)(3) of this section
is otherwise available. The certificate or documentary evidence must be
furnished to the IRS by, or on behalf of, the beneficial owner upon
application for the taxpayer identifying number or at any other time, as
permitted under such procedures as the IRS may prescribe in published
guidance (see Sec. 601.601(d)(2) of this chapter). If the tax residence
of the beneficial owner changes, the beneficial owner shall notify the
IRS of that change within 30 days thereof. This requirement is in
addition to the notification requirements described in Sec. 1.1441-
1(e)(4)(ii)(D) regarding notification to a withholding agent in the
event of changes in the beneficial owner s circumstances. The IRS may,
under the exchange of information provisions of an applicable income tax
treaty, exchange information with the relevant foreign competent
authority for the purpose of confirming with appropriate tax officials
of the other country that the beneficial owner continues to be a tax
resident of that country. The IRS may from time to time, in its
discretion, request that the beneficial owner reconfirm its residence in
the treaty country.
(iii) Special rules for qualified intermediaries. The IRS may
certify a taxpayer identifying number based upon the certification of a
qualified intermediary described in Sec. 1.1441-1(e)(5)(ii) regarding
the tax residence of any of its account holders, under procedures agreed
upon with the IRS. If a new account holder has a TIN at the time it
opens an account, the qualified intermediary may rely on a statement by
the account or interest holder that appropriate proof of tax residence
in the treaty jurisdiction was previously provided to the IRS. In such
case, the qualified intermediary must notify the IRS each time that the
account or interest holder's address changes to another country or when
the account or interest holder terminates its relationship with the
qualified intermediary within 30 days of that change.
(3) Certificate of residence. A certificate of residence referred to
in paragraph (b)(2)(i) or (c)(2)(ii) of this section is a certification
issued by the competent authority (or another appropriate tax official)
of the treaty country of which the taxpayer claims to be a resident that
the taxpayer has filed its most recent income tax return as a resident
of that country (within the meaning of the applicable tax treaty). A
certificate of residence is valid for a period of three years or such
longer period as the IRS may prescribe in published guidance (see
Sec. 601.601(d)(2) of this chapter). The competent authorities may agree
to a different procedure for certifying residence, in which case such
procedure shall govern for payments made to a person claiming to be a
resident of the country with which such an agreement is in effect.
(4) Documentary evidence establishing residence in the treaty
country--(i) Individuals. For purposes of this paragraph (c)(4),
documentary evidence establishes the residence of an individual in a
treaty country if it includes the name, address, and photograph of the
person seeking to prove residence, is an official document issued by an
authorized governmental body (i.e., a government or agency thereof, or a
municipality), and has been issued no more than three years prior to
presentation
[[Page 146]]
to the IRS or the withholding agent. A document older than three years
may be relied upon as proof of residence only if it is accompanied by
additional evidence of the person's residence in the treaty country
(e.g., a bank statement, utility bills, or medical bills). Documentary
evidence must be in the form of original documents or certified copies
thereof. Documentary evidence must be accompanied by an affidavit of the
taxpayer signed under penalties of perjury that the documentary evidence
submitted is true and complete.
(ii) Persons other than individuals. For purposes of this paragraph
(c)(4), documentary evidence establishes the residence in a treaty
country of a person other than an individual if it includes the name of
the entity and the address of its principal office in the treaty
country, and is an official document issued by an authorized
governmental body (e.g., a government or agency thereof, or a
municipality).
(5) Certifications regarding entitlement to treaty benefits--(i)
Certification regarding conditions under a Limitation on Benefits
Article. A taxpayer that is not an individual must certify to the IRS by
way of an affidavit attached to its request for certification of its
employer identification number that it meets one or more of the
conditions set forth in the Limitation on Benefits Article (if any, or
in a similar provision) contained in the applicable tax treaty. The
affidavit must describe sufficient facts for the IRS to determine which
condition the taxpayer claims to satisfy. The affidavit must be signed
by the taxpayer under penalties of perjury.
(ii) Certification regarding whether the taxpayer derives the
income. A taxpayer that is not an individual shall certify to the IRS by
way of an affidavit attached to its request for certification of its
employer identification number that any income for which it intends to
claim benefits under an applicable income tax treaty is income that will
properly be treated as derived by itself as a resident of the applicable
treaty jurisdiction within the meaning of Sec. 1.894-1T(d)(1). The
affidavit must be signed under penalties of perjury. This requirement
does not apply if the taxpayer furnishes a certificate of residence that
certifies that fact.
(d) Joint owners. In the case of a payment to joint owners, each
owner must furnish a withholding certificate or, if applicable,
documentary evidence or a certificate of residence. The applicable rate
of withholding on a payment of income to joint owners shall be the
highest applicable rate.
(e) Related party dividends under U.S.-Denmark income tax treaty.
Article VI(3) of the income tax treaty between the United States and
Denmark (see 1950-1 C.B. 77; see also Sec. 601.601(d)(2) of this
chapter) reduces the rate of tax on dividends between related
corporations to 5 percent subject to the condition that the relationship
between the domestic and foreign corporations was not arranged or
maintained for the purpose of securing the reduced rate. A domestic
corporation that makes a distribution derived by a resident of Denmark
may treat this condition as satisfied if, prior to the payment, a
request has been made to the IRS for a private letter ruling determining
that the relationship between the corporation and the Danish resident
was not arranged or maintained for such purpose and the IRS has either
issued a favorable ruling (and the ruling has not been revoked) or is
considering the ruling request.
(f) Failure to receive withholding certificate timely. See
applicable procedures described in Sec. 1.1441-1(b)(7) in the event the
withholding agent does not hold an appropriate withholding certificate
or other appropriate documentation at the time of payment.
(g) Effective date--(1) General rule. This section applies to
payments made after December 31, 2000.
(2) Transition rules. For purposes of this section, the validity of
a Form 1001 or 8233 that was valid on January 1, 1998, under the
regulations in effect prior to January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) and expired, or will expire, at any time
during 1998, is extended until December 31, 1998. The validity of a Form
1001 or 8233 that is valid on or after January 1, 1999, remains valid
until its validity expires under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) but
in no event will such a form remain
[[Page 147]]
valid after December 31, 2000. The rule in this paragraph (g)(2),
however, does not apply to extend the validity period of a Form 1001 or
8233 that expires solely by reason of changes in the circumstances of
the person whose name is on the certificate or in interpretation of the
law under the regulations under Sec. 1.894-1T(d). Notwithstanding the
first three sentences of this paragraph (g)(2), a withholding agent may
choose to not take advantage of the transition rule in this paragraph
(g)(2) with respect to one or more withholding certificates valid under
the regulations in effect prior to January 1, 2001 (see 26 CFR parts 1
and 35a, revised April 1, 1999) and, therefore, to require withholding
certificates conforming to the requirements described in this section
(new withholding certificates). For purposes of this section, a new
withholding certificate is deemed to satisfy the documentation
requirement under the regulations in effect prior to January 1, 2001
(see 26 CFR parts 1 and 35a, revised April 1, 1999). Further, a new
withholding certificate remains valid for the period specified in
Sec. 1.1441-1(e)(4)(ii), regardless of when the certificate is obtained.
[T.D. 8734, 62 FR 53458, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72185, 72188, Dec. 31, 1998; T.D. 8856, 64 FR 73410, Dec. 30, 1999; 65
FR 16320, Mar. 28, 2000]
Effective Date Note: By T.D. 8734, 62 FR 53458, Oct. 14, 1997,
Sec. 1.1441-6 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-6 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, 73410, Dec. 30, 1999, the
effective date was delayed until Jan. 1, 2001, and paragraph (g) was
revised effective Jan. 1, 2001. At 65 FR 16320, Mar. 28, 2000, paragraph
(g)(2) was corrected in the second sentence by adding the word ``that''
following ``8233'', effective Jan. 1, 2001. For the convenience of the
user, the superseded text is set forth as follows:
Sec. 1.1441-6 Withholding pursuant to the application of a tax treaty
which confers a reduced rate of, or an exemption from, United
States income tax.
(a) In general. The rate of 30 percent or 14 percent shall be
reduced as may be provided by a treaty with any country. In case of
payments of any of the items specified in Sec. 1.1441-2 (other than
dividends) made on or before December 31, 1971, and in the case of
payments of dividends made at any time, the withholding agent shall
determine the applicable rate pursuant to the appropriate tax treaty and
the regulations issued thereunder. In case of payments on or after
January 1, 1972, of any of the items specified in Sec. 1.1441-2 (other
than dividends), the requirements of paragraphs (b) and (c) of this
section shall apply in lieu of the ownership certificate or the
exemption (or reduced rate) certificate (or corresponding letter)
required by the regulations under the various income tax conventions in
effect to which the United States is a party.
(b) Coupon bond interest. To secure the reduced rate of, or
exemption from, U.S. income tax at source in the case of coupon bond
interest, the recipient shall, if entitled to such treatment pursuant to
a tax convention, for each issue of bonds file Form 1001 (Ownership,
Exemption, or Reduced Rate Certificate) with the withholding agent when
presenting the interest coupons for payment. This form shall be
completed and signed by either the owner of the interest, his trustee,
or his agent, and shall include such information as is required by the
form and accompanying instructions. The form shall contain a statement
that the owner of the income is entitled to a reduced rate of, or an
exemption from, tax pursuant to a tax convention. The Form 1001 shall be
retained by the withholding agent for at least 4 years after the close
of the calendar year in which the interest is paid.
(c) Income other than coupon bond interest or dividends. (1) To
secure the reduced rate of, or exemption from, U.S. income tax at source
in case of items of income specified in Sec. 1.1441-2 other than coupon
bond interest and dividends, the recipient shall, if entitled to such
treatment pursuant to a tax convention, file Form 1001 (Ownership,
Exemption, or Reduced Rate Certificate) with the withholding agent. This
form shall be completed and signed by either the owner of the income,
his trustee, or his agent, and shall include such information as is
required by the form and accompanying instructions. A separate Form 1001
shall be used for each type of income. For this purpose, all income from
a trust, estate, or investment account shall be considered as a single
type of income. Each form shall also contain a statement that the owner
of the income is entitled to a reduced rate of, or exemption from, tax
pursuant to a tax convention. If, after filing such form, the owner
ceases to be eligible for the benefits of the tax convention for such
income, he shall promptly notify the withholding agent by letter. Form
1001 shall not be used to secure a reduced rate of, or exemption from,
withholding on independent personal services income. See Sec. 1.1441-
4(b)(2).
(2) Form 1001 shall be effective for the successive 3-calendar-year
period during which the income to which the form applies is paid. Each
such form filed with any withholding agent shall be filed as soon as
practicable.
[[Page 148]]
Once a form has been filed for a type of income (other than coupon bond
interest) with respect to such a 3-year period, no additional Form 1001
for such income need be filed with respect to such period unless the
Commissioner of Internal Revenue notifies the withholding agent that the
taxpayer shall file another form. If any change occurs in the ownership
of income subject to a Form 1001 recorded on the books of the
withholding agent, the Form 1001 shall no longer be effective. The Form
1001 shall be retained by the withholding agent for at least 4 years
after the end of the last calendar year in which income subject to the
form is paid.
(3) Form 1001 need not be filed with respect to payments (other than
payments of coupon bond interest) made prior to December 31, 1974, if an
exemption (or reduced rate) certificate (or corresponding letter)
required by the regulations under the applicable income tax convention
has been filed with respect to such payments prior to December 31, 1971.
(d) Section 6013(g) election. A nonresident alien individual with
respect to whom a section 6013(g) election to be treated as a resident
is in effect may not, in accordance with Sec. 1.6013-6(a)(2)(v), claim a
reduced rate of, or exemption from, United States income tax under an
income tax treaty.
(Approved by the Office of Management and Budget under control number
1545-0795)
(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C.
7805) of the Internal Revenue Code of 1954)
[T.D. 7157, 36 FR 25227, Dec. 30, 1971, as amended by T.D. 7842, 47 FR
49842, Nov. 3, 1982; T.D. 7977, 49 FR 36834, Sept. 20, 1984]
Sec. 1.1441-7 General provisions relating to withholding agents.
(a) Withholding agent defined. For purposes of chapter 3 of the
Internal Revenue Code (Code) and the regulations under such chapter, the
term withholding agent means any person, U.S. or foreign, that has the
control, receipt, custody, disposal, or payment of an item of income of
a foreign person subject to withholding, including (but not limited to)
a foreign intermediary described in Sec. 1.1441-1(e)(3)(i), a foreign
partnership, or a U.S. branch described in Sec. 1.1441-1(b)(2)(iv) (A)
or (E). See Sec. 1.1441-1(b) (1) and (2) for determining whether a
payment is considered made to a foreign person. Any person who meets the
definition of a withholding agent is required to deposit any tax
withheld under Sec. 1.1461-1(a) and to make the returns prescribed by
Sec. 1.1461-1 (b) and (c), as modified by the terms of an agreement with
a qualified intermediary (in the case of a qualified intermediary) or,
in the case of a foreign partnership, to make the returns prescribed
under section 6031 and the regulations thereunder. When several persons
qualify as withholding agents with respect to a single payment, only one
tax is required to be withheld and, generally, only one return (on Form
1042, as required under Sec. 1.1461-1(b)), is required to be made. See
Sec. 1.1461-1(b)(2) and (c)(4) for filing procedures when multiple
withholding agents are involved. In the case of a withholding agent
paying to partners of a withholding foreign partnership described in
Sec. 1.1441-5(c)(2)(i), the withholding agent may arrange with the
partnership to withhold if it is provided the information by the
partnership, in which case the partnership does not have to withhold.
However, the partnership must still file a partnership return under
section 6031(a) and the regulations under that section. The withholding
agent does not have to file Forms 1042-S (but does have to file a Form
1042) since the withholding foreign partnership furnishes Forms K-1 to
its partners pursuant to section 6031(b) and Sec. 1.6031(b)-1T. For
purposes of this section and any requirement to withhold under chapter 3
of the Code and the regulations thereunder, a person who, as a nominee
described in Sec. 1.6031(c)-1T, has furnished to a partnership all of
the information required to be furnished under Sec. 1.6031(c)-1T(a)
shall not be treated as a withholding agent if it has notified the
partnership that it is treating the provision of information to the
partnership as a discharge of its obligations as a withholding agent.
(b) Standards of knowledge--(1) In general. A withholding agent must
withhold at the full 30-percent rate under section 1441, 1442, or
1443(a) or at the full 4-percent rate under section 1443(b) if it has
actual knowledge or reason to know that a claim of U.S. status or of a
reduced rate of withholding under section 1441, 1442, or 1443 is
incorrect. A withholding agent shall be liable for tax, interest, and
penalties to the extent provided under sections 1461 and 1463 and the
regulations under those
[[Page 149]]
sections if it fails to withhold the correct amount despite its actual
knowledge or reason to know the amount required to be withheld. For
purposes of the regulations under sections 1441, 1442, and 1443, a
withholding agent may rely on information or certifications contained
in, or attached to, a withholding certificate or other documentation
furnished by or for a beneficial owner or payee unless the withholding
agent has actual knowledge or reason to know that the information or
certifications are not correct and, if based on such knowledge or reason
to know, it should withhold (under chapter 3 of the Code or another
withholding provision of the Code) an amount greater than would be the
case if it relied on the information or certifications, or it should
report (under chapter 3 of the Code or under another provision of the
Code) an amount that would not otherwise be reportable if it relied on
the information or certifications. See Sec. 1.1441-1(e)(4)(viii) for
applicable reliance rules. A withholding agent that has received
notification by the Internal Revenue Service (IRS) that a claim of U.S.
status or of a reduced rate is incorrect has actual knowledge beginning
on the date that is 30 calendar days after the date the notice is
received. A withholding agent that fails to act in accordance with the
presumptions set forth in Secs. 1.1441-1(b)(3), 1.1441-4(a), 1.1441-5
(d) and (e), or 1.1441-9(b)(3) may also be liable for tax, interest, and
penalties. See Sec. 1.1441-1(b)(3)(ix) and (7).
(2) Reason to know--(i) In general. A withholding agent shall be
considered to have reason to know if its knowledge of relevant facts or
statements contained in the withholding certificates or other
documentation is such that a reasonably prudent person in the position
of the withholding agent would question the claims made.
(ii) Limits on reason to know in certain cases. Except as otherwise
provided in paragraph (b)(3) of this section, a withholding agent that
is a financial institution (including a regulated investment company)
with which a customer may open an account has a reason to know with
respect to payments of amounts described in Sec. 1.1441-6(b)(2)(ii) that
a beneficial owner withholding certificate or documentary evidence for a
beneficial owner is not reliable only if any one or more of the
circumstances described in this paragraph (b)(2)(ii) exist for a
withholding certificate. In such a case, the withholding agent may
require a new withholding certificate. In the absence of a new
certificate, a withholding agent may rely on the withholding certificate
only after documentation is provided in support of the claim of foreign
status, classification, or reduced rate of tax under a tax treaty.
(A) The permanent residence address on the withholding certificate
is an address in the United States. In the case of an individual, trust,
or estate, the withholding agent may rely on information in its files
that is less than three years old and that supports the beneficial
owner's claim of foreign status, despite a U.S. address (for example, a
bank has evidence of the diplomatic status of a customer). In the
absence of evidence in the withholding agent's files, the agent meets
its due diligence obligation for purposes of this paragraph
(b)(2)(ii)(A) if it contacts the beneficial owner or its agent in the
United States and obtains an explanation in writing supporting the
foreign status of the beneficial owner (for example, the beneficial
owner is a nonresident alien individual temporarily present in the
United States as a teacher; see Sec. 301.7701(b)-3(b)(3) of this
chapter) and documentation supporting the claim of foreign status is
attached to the beneficial owner's statement (for example, in the case
of a nonresident alien individual teacher, a copy of the relevant pages
of the beneficial owner's passport showing the individual's U.S. visa
status or a copy of relevant INS documents). In the case of a beneficial
owner other than an individual, trust, or estate, the withholding agent
must inquire as to whether the person whose name is on the certificate
is actually organized or created under the laws of a foreign country.
(B) The payment is directed to a P.O. Box, an in-care-of address, or
a U.S. address. In the case of an individual, the withholding agent may
rely, for example, on documentary evidence of a type described in
Sec. 1.1441-6(c) (3) or (4) supporting the beneficial owner's claim of
[[Page 150]]
residence in a foreign country to ascertain that the individual is a
nonresident alien individual. In the case of a person other than an
individual, the withholding agent may rely on other evidence to
ascertain that the person whose name is on the certificate is not a U.S.
person.
(C) In the case of income for which benefits are claimed under an
income tax treaty, the permanent residence address or mailing address is
not in the corresponding treaty country. In such a case, the withholding
agent may rely, for example, on documentary evidence of a type described
in Sec. 1.1441-6(c) (3) or (4) supporting the beneficial owner's claim
of residence in the country whose benefits under an income tax treaty
with the United States are invoked.
(D) The mailing address on the withholding certificate is in the
United States or the beneficial owner notifies the withholding agent of
a new address for mailing or residential purposes that is in the United
States, a P.O. box, or an in-care-address, or, in the case of income for
which benefits are claimed under an income tax treaty, the mailing
address on the certificate or the new mailing or residential address
notified to the withholding agent is not in the treaty country. The
withholding agent may, however, rely on documentary evidence of a type
described in Sec. 1.1441-6(c) (3) or (4) supporting the beneficial
owner's claim of residence in a foreign country.
(E) The name of the person on the withholding certificate or
documentary evidence indicates that the person's status is a
corporation, partnership, trust, estate, or an individual, and the
person's claim of status is not consistent with such indication. For
example, a person whose name indicates that it is a per se corporation
described in Sec. 301.7701-2(b)(8)(i) of this chapter represents on a
Form W-8 that it is a partnership.
(F) Such other circumstances as the IRS may prescribe in published
guidance (see Sec. 601.601(d)(2) of this chapter).
(3) Coordinated account information systems. See Sec. 1.1441-
1(e)(4)(ix) for application of these rules other than on an account-by-
account basis so that a withholding agent that relies on a coordinated
account information system for documentation is considered to know or
have reason to know the facts recorded in the system.
(c) Authorized agent--(1) In general. The acts of an agent of a
withholding agent (including the receipt of withholding certificates,
the payment of amounts of income subject to withholding, and the deposit
of tax withheld) are imputed to the withholding agent on whose behalf it
is acting. However, if the agent is a foreign person, a withholding
agent that is a U.S. person may treat the acts of the foreign agent as
its own for purposes of determining whether it has complied with the
provisions of this section, but only if the agent is an authorized
foreign agent, as defined in paragraph (c)(2) of this section. An
authorized foreign agent cannot apply the provisions of this paragraph
(c) to appoint another person its authorized foreign agent with respect
to the payments it receives from the withholding agent.
(2) Authorized foreign agent. An agent is an authorized foreign
agent only if--
(i) There is a written agreement between the withholding agent and
the foreign person acting as agent;
(ii) The notification procedures described in paragraph (c)(3) of
this section have been complied with;
(iii) Books and records and relevant personnel of the foreign agent
are available (on a continuous basis, including after termination of the
relationship) for examination by the IRS in order to evaluate the
withholding agent's compliance with the provisions of chapters 3 and 61
of the Code, section 3406, and the regulations under those provisions;
and
(iv) The U.S. withholding agent remains fully liable for the acts of
its agent and does not assert any of the defenses that may otherwise be
available, including under common law principles of agency in order to
avoid tax liability under the Internal Revenue Code.
(3) Notification. A withholding agent that appoints an authorized
agent to act on its behalf for purposes of Sec. 1.871-14(c)(2), the
withholding provisions of chapter 3 of the Code, section 3406 or other
withholding provisions of the Internal Revenue Code, or the reporting
[[Page 151]]
provisions of chapter 61 of the Code, is required to file notice of such
appointment with the Office of the Assistant Commissioner
(International). Such notice shall be filed before the first payment for
which the authorized agent acts as such. Such notice shall acknowledge
the withholding agent liability as provided in paragraph (c)(2)(iv) of
this section.
(4) Liability of U.S. withholding agent. An authorized foreign agent
is subject to the same withholding and reporting obligations that apply
to any withholding agent under the provisions of chapter 3 of the Code
and the regulations thereunder. In particular, an authorized foreign
agent does not benefit from the special procedures or exceptions that
may apply to a qualified intermediary. A withholding agent acting
through an authorized foreign agent is liable for any failure of the
agent, such as failure to withhold an amount or make payment of tax, in
the same manner and to the same extent as if the agent's failure had
been the failure of the U.S. withholding agent. For this purpose, the
foreign agent's actual knowledge or reason to know shall be imputed to
the U.S. withholding agent. The U.S. withholding agent's liability shall
exist irrespective of the fact that the authorized foreign agent is also
a withholding agent and is itself separately liable for failure to
comply with the provisions of the regulations under section 1441, 1442,
or 1443. However, the same tax, interest, or penalties shall not be
collected more than once.
(5) Filing of returns. See Sec. 1.1461-1(b)(2)(iii) and (c)(4)(iii)
regarding returns required to be made where a U.S. withholding agent
acts through an authorized foreign agent.
(d) United States obligations. If the United States is a withholding
agent for an item of interest, including original issue discount, on
obligations of the United States or of any agency or instrumentality
thereof, the withholding obligation of the United States is assumed and
discharged by--
(1) The Commissioner of the Public Debt, for interest paid by checks
issued through the Bureau of the Public Debt;
(2) The Treasurer of the United States, for interest paid by him or
her, whether by check or otherwise;
(3) Each Federal Reserve Bank, for interest paid by it, whether by
check or otherwise; or
(4) Such other person as may be designated by the IRS.
(e) Assumed obligations. If, in connection with the sale of a
corporation's property, payment on the bonds or other obligations of the
corporation is assumed by a person, then that person shall be a
withholding agent to the extent amounts subject to withholding are paid
to a foreign person. Thus, the person shall withhold such amounts under
Sec. 1.1441-1 as would be required to be withheld by the seller or
corporation had no such sale or assumption been made.
(f) Conduit financing arrangements--(1) Liability of withholding
agent. Subject to paragraph (f)(2) of this section, any person that is
required to deduct and withhold tax under Sec. 1.1441-3(g) is made
liable for that tax by section 1461. A person that is required to deduct
and withhold tax but fails to do so is liable for the payment of the tax
and any applicable penalties and interest.
(2) Exception for withholding agents that do not know of conduit
financing arrangement--(i) In general. A withholding agent will not be
liable under paragraph (f)(1) of this section for failing to deduct and
withhold with respect to a conduit financing arrangement unless the
person knows or has reason to know that the financing arrangement is a
conduit financing arrangement. This standard shall be satisfied if the
withholding agent knows or has reason to know of facts sufficient to
establish that the financing arrangement is a conduit financing
arrangement, including facts sufficient to establish that the
participation of the intermediate entity in the financing arrangement is
pursuant to a tax avoidance plan. A withholding agent that knows only of
the financing transactions that comprise the financing arrangement will
not be considered to know or have reason to know of facts sufficient to
establish that the financing arrangement is a conduit financing
arrangement.
(ii) Examples. The following examples illustrate the operation of
paragraph (d)(2) of this section.
[[Page 152]]
Example 1. (i) DS is a U.S. subsidiary of FP, a corporation
organized in Country N, a country that does not have an income tax
treaty with the United States. FS is a special purpose subsidiary of FP
that is incorporated in Country T, a country that has an income tax
treaty with the United States that prohibits the imposition of
withholding tax on payments of interest. FS is capitalized with
$10,000,000 in debt from BK, a Country N bank, and $1,000,000 in capital
from FS.
(ii) On May 1, 1995, C, a U.S. person, purchases an automobile from
DS in return for an installment note. On July 1, 1995, DS sells a number
of installment notes, including C's, to FS in exchange for $10,000,000.
DS continues to service the installment notes for FS and C is not
notified of the sale of its obligation and continues to make payments to
DS. But for the withholding tax on payments of interest by DS to BK, DS
would have borrowed directly from BK, pledging the installment notes as
collateral.
(iii) The C installment note is a financing transaction, whether
held by DS or by FS, and the FS note held by BK also is a financing
transaction. After FS purchases the installment note, and during the
time the installment note is held by FS, the transactions constitute a
financing arrangement, within the meaning of Sec. 1.881-3(a)(2)(i). BK
is the financing entity, FS is the intermediate entity, and C is the
financed entity. Because the participation of FS in the financing
arrangement reduces the tax imposed by section 881 and because there was
a tax avoidance plan, FS is a conduit entity.
(iv) Because C does not know or have reason to know of the tax
avoidance plan (and by extension that the financing arrangement is a
conduit financing arrangement), C is not required to withhold tax under
section 1441. However, DS, who knows that FS's participation in the
financing arrangement is pursuant to a tax avoidance plan and is a
withholding agent for purposes of section 1441, is not relieved of its
withholding responsibilities.
Example 2. Assume the same facts as in Example, 1 except that C
receives a new payment booklet on which DS is described as ``agent''.
Although C may deduce that its installment note has been sold, without
more C has no reason to know of the existence of a financing
arrangement. Accordingly, C is not liable for failure to withhold,
although DS still is not relieved of its withholding responsibilities.
Example 3. (i) DC is a U.S. corporation that is in the process of
negotiating a loan of $10,000,000 from BK1, a bank located in Country N,
a country that does not have an income tax treaty with the United
States. Before the loan agreement is signed, DC's tax lawyers point out
that interest on the loan would not be subject to withholding tax if the
loan were made by BK2, a subsidiary of BK1 that is incorporated in
Country T, a country that has an income tax treaty with the United
States that prohibits the imposition of withholding tax on payments of
interest. BK1 makes a loan to BK2 to enable BK2 to make the loan to DC.
Without the loan from BK1 to BK2, BK2 would not have been able to make
the loan to DC.
(ii) The loan from BK1 to BK2 and the loan from BK2 to DC are both
financing transactions and together constitute a financing arrangement
within the meaning of Sec. 1.881-3(a)(2)(i). BK1 is the financing
entity, BK2 is the intermediate entity, and DC is the financed entity.
Because the participation of BK2 in the financing arrangement reduces
the tax imposed by section 881 and because there is a tax avoidance
plan, BK2 is a conduit entity.
(iii) Because DC is a party to the tax avoidance plan (and
accordingly knows of its existence), DC must withhold tax under section
1441. If DC does not withhold tax on its payment of interest, BK2, a
party to the plan and a withholding agent for purposes of section 1441,
must withhold tax as required by section 1441.
Example 4. (i) DC is a U.S. corporation that has a long-standing
banking relationship with BK2, a U.S. subsidiary of BK1, a bank
incorporated in Country N, a country that does not have an income tax
treaty with the United States. DC has borrowed amounts of as much as
$75,000,000 from BK2 in the past. On January 1, 1995, DC asks to borrow
$50,000,000 from BK2. BK2 does not have the funds available to make a
loan of that size. BK2 considers asking BK1 to enter into a loan with DC
but rejects this possibility because of the additional withholding tax
that would be incurred. Accordingly, BK2 borrows the necessary amount
from BK1 with the intention of on-lending to DC. BK1 does not make the
loan directly to DC because of the withholding tax that would apply to
payments of interest from DC to BK1. DC does not negotiate with BK1 and
has no reason to know that BK1 was the source of the loan.
(ii) The loan from BK2 to DC and the loan from BK1 to BK2 are both
financing transactions and together constitute a financing arrangement
within the meaning of Sec. 1.881-3(a)(2)(i). BK1 is the financing
entity, BK2 is the intermediate entity, and DC is the financed entity.
The participation of BK2 in the financing arrangement reduces the tax
imposed by section 881. Because the participation of BK2 in the
financing arrangement reduces the tax imposed by section 881 and because
there was a tax avoidance plan, BK2 is a conduit entity.
(iii) Because DC does not know or have reason to know of the tax
avoidance plan (and by extension that the financing arrangement is a
conduit financing arrangement), DC is not required to withhold tax under
section
[[Page 153]]
1441. However, BK2, who is also a withholding agent under section 1441
and who knows that the financing arrangement is a conduit financing
arrangement, is not relieved of its withholding responsibilities.
(3) Effective date. This paragraph (f) is effective for payments
made by financed entities on or after September 11, 1995. This paragraph
shall not apply to interest payments covered by section 127(g)(3) of the
Tax Reform Act of 1984, and to interest payments with respect to other
debt obligations issued prior to October 15, 1984 (whether or not such
debt was issued by a Netherlands Antilles corporation).
(g) Effective date. Except as otherwise provided in paragraph (f)(3)
of this section, this section applies to payments made after December
31, 2000.
[T.D. 7977, 49 FR 36834, Sept. 20, 1984, as amended by T.D. 8611, 60 FR
41014, Aug. 11, 1995; 60 FR 55312, Oct. 31, 1995; T.D. 8734, 62 FR
53462, Oct. 14, 1997; T.D. 8804, 63 FR 72188, Dec. 31, 1998; T.D. 8856,
64 FR 73412, Dec. 30, 1999]
Effective Date Note: By T.D. 8734, 62 FR 53462, Oct. 14, 1997,
Sec. 1.1441-7 was amended by revising paragraphs (a) through (c); by
redesignating paragraph (d) as paragraph (f); by adding new paragraphs
(d), (e), and (g); by removing the language ``(j)'' and inserting
``(g)'' in the first sentence of newly designated paragraph (f)(1); by
removing the language ``(d)'' and inserting ''(f)'' in the first
sentence of newly designated paragraph (f)(1), in the first sentence of
newly designated paragraph (f)(2)(i), and in the first sentence of newly
designated paragraph (f)(3); and by removing the authority citation at
the end of the section, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-7 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, 73412, Dec. 30, 1999, the
effective date was delayed until Jan. 1, 2001, and paragraph (g) was
amended by removing ``December 31, 1999'' and adding in its place
``December 31, 2000'', effective Jan. 1, 2001. For the convenience of
the user, the superseded text is set forth as follows:
Sec. 1.1441-7 General provisions relating to withholding agents.
(a) Withholding agent defined--(1) In general. For purposes of
Chapter 3 of the Code, the term ``withholding agent'' means any person
who pays or causes to be paid an item of income specified in
Sec. 1.1441-2 to (or to the agent of) a nonresident alien individual, a
foreign partnership, a nonresident alien or foreign fiduciary of a trust
or estate, or a foreign corporation, and who is required to withhold tax
under sections 1441, 1442, 1443, or 1451 from such item of income. Any
person who meets the definition of a withholding agent is required to
file the returns prescribed by Sec. 1.1461-1. For example, an employer
(as defined in Sec. 31.3401(d)-1 of this chapter), to the extent the
employer pays remuneration for services performed by a nonresident alien
individual in the United States and such remuneration is excepted from
the term ``wages'' under Sec. 31.3401(a)(6)-(1) (c) or (e) of this
chapter, must file a return as required by Sec. 1.1461-2(c)(1).
(2) United States obligations. If the United States is a withholding
agent for an item of interest, including original issue discount, on
obligations of the United States or of any agency or instrumentality
thereof, the withholding obligation of the United States shall be
assumed and discharged by:
(i) The Commissioner of the Public Debt, for interest paid by checks
issued through the Bureau of the Public Debt.
(ii) The Treasurer of the United States, for interest paid by him or
her, whether by check or otherwise,
(iii) Each Federal Reserve Bank, for interest paid by it, whether by
check or otherwise, or
(iv) Such other person as may be designated by the Commissioner.
(b) Person designated to act for withholding agent--(1) Notice of
duly authorized agent. A withholding agent (including a state or
possession of the United States or any agency or instrumentality
thereof) that appoints a duly authorized agent to act on its behalf
under the withholding provisions of chapter 3 of the Code is required to
file a notice of such appointment with the Director of the Foreign
Operations District, Internal Revenue Service, Washington, DC 20225.
Such notice must be filed before the first payment with respect to which
the authorized agent acts as such.
(2) In general--liability of withholding agent. If a duly authorized
agent has become insolvent or for any other reason fails to make payment
of money deposited with it by the withholding agent to pay tax required
to be withheld under Chapter 3 of the Code, or of money withheld under
such chapter, the withholding agent is not discharged of its liability
under such chapter since the authorized agent is merely the agent of the
withholding agent.
(3) Tax-free covenant bonds--liability of withholding agent. If the
duly authorized agent designated by a withholding agent to act for it
has not withheld any tax from the income nor received any funds from the
withholding agent to pay the tax which the withholding agent assumed in
connection with its tax-free covenant bonds, then that authorized agent
cannot be held liable for the tax assumed by the withholding agent
merely by
[[Page 154]]
reason of the appointment as duly authorized agent. The withholding
agent remains liable under chapter 3 of the Code since the duly
authorized agent is merely the agent of the withholding agent.
(c) Payments other than money. In any case where income is payable
in any medium other than money the withholding agent shall not release
the property so received until the property has been converted into
funds sufficient to enable the withholding agent to pay over in money
the tax required to be withheld under chapter 3 of the Code with respect
to such income.
* * * * *
(Secs. 1441(c)(4) (80 Stat. 1553; 26 U.S.C. 1441(c)(4)), 3401(a)(6) (80
Stat. 1554; 26 U.S.C. 3401(a)(6)), and 7805 (68A Stat. 917; 26 U.S.C.
7805) of the Internal Revenue Code of 1954)
Sec. 1.1441-8 Exemption from withholding for payments to foreign
governments, international organizations, foreign central
banks of issue, and the Bank for International Settlements.
(a) Foreign governments. Under section 892, certain specific types
of income received by foreign governments are excluded from gross income
and are exempt from taxation, unless derived from the conduct of a
commercial activity or received from or by a controlled commercial
entity. Accordingly, withholding is not required under Sec. 1.1441.1
with regard to any item of income which is exempt from taxation under
section 892.
(b) Reliance on claim of exemption by foreign government. Absent
actual knowledge or reason to know otherwise, the withholding agent may
rely upon a claim of exemption made by the foreign government if, prior
to the payment, the withholding agent can reliably associate the payment
with documentation upon which it can rely to treat the payment as made
to a beneficial owner in accordance with Sec. 1.1441-1(e)(1)(ii). A Form
W-8 furnished by a foreign government for purposes of claiming an
exemption under this paragraph (b) is valid only if, in addition to
other applicable requirements, it certifies that the income is, or will
be, exempt from taxation under section 892 and the regulations under
that section and whether the person whose name is on the certificate is
an integral part of a foreign government (as defined in Sec. 1.892-
2T(a)(2)) or a controlled entity (as defined in Sec. 1.892-2T(a)(3)).
(c) Income of a foreign central bank of issue or the Bank for
International Settlements--(1) Certain interest income. Section 895
provides for the exclusion from gross income of certain income derived
by a foreign central bank of issue, or by the Bank for International
Settlements, from obligations of the United States or of any agency or
instrumentality thereof or from interest on deposits with persons
carrying on the banking business if the bank is the owner of the
obligations or deposits and does not hold the obligations or deposits
for, or use them in connection with, the conduct of a commercial banking
function or other commercial activity by such bank. See Sec. 1.895-1.
Absent actual knowledge or reason to know that a foreign central bank of
issue, or the Bank for International Settlements, is operating outside
the scope of the exclusion granted by section 895 and the regulations
under that section, the withholding agent may rely on a claim of
exemption if, prior to the payment, the withholding agent can reliably
associate the payment with documentation upon which it can rely to treat
the foreign central bank of issue or the Bank for International
Settlements as the beneficial owner of the payment in accordance with
Sec. 1.1441-1(e)(1)(ii). A Form W-8 furnished by a foreign central bank
of issue or the Bank for International Settlements for purposes of
claiming an exemption under this paragraph (c)(1) is valid only if, in
addition to other applicable requirements, it certifies that the person
whose name is on the certificate is a foreign central bank of issue, or
the Bank for International Settlements, and that the bank does not, and
will not, hold the obligations or the bank deposits covered by the Form
W-8 for, or use them in connection with, the conduct of a commercial
banking function or other commercial activity.
(2) Bankers acceptances. Interest derived by a foreign central bank
of issue from bankers acceptances is exempt from tax under sections
871(i)(2)(C) and 881(d) and Sec. 1.861-2(b)(4). With respect to bankers'
acceptances, a withholding
[[Page 155]]
agent may treat a payee as a foreign central bank of issue without
requiring a withholding certificate if the name of the payee and other
facts surrounding the payment reasonably indicate that the payee or
beneficial owner is a foreign central bank of issue, as defined in
Sec. 1.861-2(b)(4).
(d) Exemption for payments to international organizations. A payment
to an international organization (within the meaning of section
7701(a)(18)) is exempt from withholding on any payment. A withholding
agent may treat a payee as an international organization without
requiring a withholding certificate if the name of the payee is one that
is designated as an international organization by executive order
(pursuant to 22 U.S.C. 288 through 288(f)) and other facts surrounding
the transaction reasonably indicate that the international organization
is the beneficial owner of the payment.
(e) Failure to receive withholding certificate timely and other
applicable procedures. See applicable procedures described in
Sec. 1.1441-1(b)(7) in the event the withholding agent does not hold a
valid withholding certificate described in paragraph (b) or (c)(1) of
this section or other appropriate documentation at the time of payment.
Further, the provisions of Sec. 1.1441-1(e)(4) shall apply to
withholding certificates and other documents related thereto furnished
under the provisions of this section.
(f) Effective date--(1) In general. This section applies to payments
made after December 31, 2000.
(2) Transition rules. For purposes of this section, the validity of
a Form 8709 that was valid on January 1, 1998, under the regulations in
effect prior to January 1, 2001 (see 26 CFR part 1, revised April 1,
1999) and expired, or will expire, at any time during 1998, is extended
until December 31, 1998. The validity of a Form 8709 that is valid on or
after January 1, 1999, remains valid until its validity expires under
the regulations in effect prior to January 1, 2001 (see 26 CFR part 1,
revised April 1, 1999) but in no event shall such a form remain valid
after December 31, 2000. The rule in this paragraph (f)(2), however,
does not apply to extend the validity period of a Form 8709 that expires
solely by reason of changes in the circumstances of the person whose
name is on the certificate. Notwithstanding the first three sentences of
this paragraph (f)(2), a withholding agent may choose to not take
advantage of the transition rule in this paragraph (f)(2) with respect
to one or more withholding certificates valid under the regulations in
effect prior to January 1, 2001 (see 26 CFR part 1, revised April 1,
1999) and, therefore, to require withholding certificates conforming to
the requirements described in this section (new withholding
certificates). For purposes of this section, a new withholding
certificate is deemed to satisfy the documentation requirement under the
regulations in effect prior to January 1, 2001 (see 26 CFR part 1,
revised April 1, 1999). Further, a new withholding certificate remains
valid for the period specified in Sec. 1.1441-1(e)(4)(ii), regardless of
when the certificate is obtained.
[T.D. 8211, 53 FR 24066, June 27, 1988, as amended at T.D. 8211, 53 FR
27595, July 21, 1988; Redesignated and amended by T.D. 8734, 62 FR
53464, Oct. 14, 1997; T.D. 8804, 63 FR 72185, Dec. 31, 1998; 64 FR
73410, Dec. 30, 1999]
Effective Date Note: By T.D. 8734, 62 FR 53464, Oct. 14, 1997,
Sec. 1.1441-8T was redesignated as Sec. 1.1441-8; the section heading
and paragraph (b) were revised; and paragraphs (c), (d), (e), and (f),
were added, effective Jan. 1, 1999. By T.D. 8804, 63 FR 72183, Dec. 31,
1998, the effective date of Sec. 1.1441-8T was delayed until Jan. 1,
2000. By T.D. 8856, 64 FR 73408, 73410, paragraph (f) was revised and
the effective date was delayed until Jan. 1, 2001. For the convenience
of the user, the superseded text is set forth as follows:
Sec. 1.1441-8T Foreign government exemption from withholding
(temporary).
* * * * *
(b) Statement claiming exemption. To avoid withholding of tax at
source under Sec. 1.1441-1, a foreign government which is entitled to
the income must file with each withholding agent from whom amounts of
income are to be received, a statement under penalties of perjury (in
duplicate) indicating the extent to which such income described in the
statement is exempt from taxation under section 892. This statement
should contain (i) the name and address of the foreign government
entitled to the income, (ii) the items of income and their amount with
respect to which the statement is filed, (iii) an explanation indicating
why the specific items of
[[Page 156]]
income are exempt from taxation under section 892, and (iv) the taxable
year during which such exemption is to apply. This statement shall be
filed with the withholding agent for each taxable year the foreign
government is entitled to the income, and before payment of the income
in respect of which it applies. Any statement so filed shall be
effective only with respect to the item or items of income specified
therein and only with respect to the types of income specified in
Sec. 1.892-3T(a)(1) (i), (ii) or (iii). The statement shall constitute
authorization to the withholding agent to pay such income during the
taxable year without deduction of the tax at source under Sec. 1.1441-1.
Any statement required by this subparagraph may be made on a form
prescribed by the Internal Revenue Service.
* * * * *
Sec. 1.1441-9 Exemption from withholding on exempt income of a foreign
tax-exempt organization, including foreign private
foundations.
(a) Exemption from withholding for exempt income. No withholding is
required under section 1441(a) or 1442, and the regulations under those
sections, on amounts paid to a foreign organization that is described in
section 501(c) to the extent that the amounts are not income includable
under section 512 in computing the organization's unrelated business
taxable income. See, however, Sec. 1.1443-1 for withholding on payments
of unrelated business income to foreign tax-exempt organizations and on
payments subject to tax under section 4948. For a foreign organization
to claim an exemption from withholding under section 1441(a) or 1442
based on its status as an organization described in section 501(c), it
must furnish the withholding agent with a withholding certificate
described in paragraph (b)(2) of this section. A foreign organization
described in section 501(c) may choose to claim a reduced rate of
withholding under the procedures described in other sections of the
regulations under section 1441 and not under this section. In
particular, if an organization chooses to claim benefits under an income
tax treaty, the withholding procedures applicable to claims of such a
reduced rate are governed solely by the provisions of Sec. 1.1441-6 and
not of this section.
(b) Reliance on foreign organization's claim of exemption from
withholding--(1) General rule. A withholding agent may rely on a claim
of exemption under this section only if, prior to the payment, the
withholding agent can reliably associate the payment with a valid
withholding certificate described in paragraph (b)(2) of this section.
(2) Withholding certificate. A withholding certificate under this
paragraph (b)(2) is valid only if it is a Form W-8 and if, in addition
to other applicable requirements, the Form W-8 includes the taxpayer
identifying number of the organization whose name is on the certificate,
and it certifies that the Internal Revenue Service (IRS) has issued a
favorable determination letter (and the date thereof) that is currently
in effect, what portion, if any, of the amounts paid constitute income
includable under section 512 in computing the organization's unrelated
business taxable income, and, if the organization is described in
section 501(c)(3), whether it is a private foundation described in
section 509. Notwithstanding the preceding sentence, if the organization
cannot certify that it has been issued a favorable determination letter
that is still in effect, its withholding certificate is nevertheless
valid under this paragraph (b)(2) if the organization attaches to the
withholding certificate an opinion that is acceptable to the withholding
agent from a U.S. counsel concluding that the organization is described
in section 501(c). If the determination letter or opinion of counsel to
which the withholding certificate refers concludes that the organization
is described in section 501(c)(3), and the certificate further certifies
that the organization is not a private foundation described in section
509, an affidavit of the organization setting forth sufficient facts
concerning the operations and support of the organization for the
Internal Revenue Service (IRS) to determine that such organization would
be likely to qualify as an organization described in section 509(a) (1),
(2), (3), or (4) must be attached to the withholding certificate. An
organization that provides an opinion of U.S. counsel or an affidavit
may provide the same opinion or affidavit to more than one withholding
[[Page 157]]
agent provided that the opinion is acceptable to each withholding agent
who receives it in conjunction with a withholding certificate. Any such
opinion of counsel or affidavit must be renewed whenever the certificate
to which it is attached is required to be renewed.
(3) Presumptions in the absence of documentation. Notwithstanding
paragraph (b)(1) of this section, if the organization's certification
with respect to whether amounts paid constitute income includable under
section 512 in computing the organization's unrelated business taxable
income is not reliable or is lacking but all other certifications are
reliable, the withholding agent may rely on the certificate but the
amounts paid are presumed to be income includable under section 512 in
computing the organization's unrelated business taxable income. If the
certification regarding private foundation status is not reliable, the
withholding agent may rely on the certificate but the amounts paid are
presumed to be paid to a foreign beneficial owner that is a private
foundation.
(4) Reason to know. Reliance by a withholding agent on the
information and certifications stated on a withholding certificate is
subject to the agent's actual knowledge or reason to know that such
information or certification is incorrect as provided in Sec. 1.1441-
7(b). For example, a withholding agent must cease to treat a foreign
organization's claim for exemption from withholding based on the
organization's tax-exempt status as valid beginning on the earlier of
the date on which such agent knows that the IRS has given notice to such
foreign organization that it is not an organization described in section
501(c) or the date on which the IRS gives notice to the public that such
foreign organization is not an organization described in section 501(c).
Similarly, a withholding agent may no longer rely on a certification
that an amount is not subject to tax under section 4948 beginning on the
earlier of the date on which such agent knows that the IRS has given
notice to such foreign organization that it is subject to tax under
section 4948 or the date on which the IRS gives notice that such foreign
organization is a private foundation within the meaning of section
509(a).
(c) Failure to receive withholding certificate timely and other
applicable procedures. See applicable procedures described in
Sec. 1.1441-1(b)(7) in the event the withholding agent does not hold a
valid withholding certificate or other appropriate documentation at the
time of payment. Further, the provisions of Sec. 1.1441-1(e)(4) shall
apply to withholding certificates and other documents related thereto
furnished under the provisions of this section.
(d) Effective date--(1) In general. This section applies to payments
made after December 31, 2000.
(2) Transition rules. For purposes of this section, the validity of
a Form W-8, 1001, or 4224 or a statement that was valid on January 1,
1998, under the regulations in effect prior to January 1, 2001 (see 26
CFR parts 1 and 35a, revised April 1, 1999) and expired, or will expire,
at any time during 1998, is extended until December 31, 1998. The
validity of a Form W-8, 1001, or 4224 or a statement that is valid on or
after January 1, 1999 remains valid until its validity expires under the
regulations in effect prior to January 1, 2001 (see 26 CFR parts 1 and
35a, revised April 1, 1999) but in no event shall such form or statement
remain valid after December 31, 2000. The rule in this paragraph (d)(2),
however, does not apply to extend the validity period of a Form W-8,
1001, or 4224 or a statement that expires solely by reason of changes in
the circumstances of the person whose name is on the certificate.
Notwithstanding the first three sentences of this paragraph (d)(2), a
withholding agent may choose to not take advantage of the transition
rule in this paragraph (d)(2) with respect to one or more withholding
certificates valid under the regulations in effect prior to January 1,
2001 (see 26 CFR parts 1 and 35a, revised April 1, 1999) and, therefore,
to require withholding certificates conforming to the requirements
described in this section (new withholding certificates). For purposes
of this section, a new withholding certificate is deemed to satisfy the
documentation requirement under the regulations in effect prior to
January 1, 2001 (see 26 CFR parts 1 and 35a, revised April 1,
[[Page 158]]
1999). Further, a new withholding certificate remains valid for the
period specified in Sec. 1.1441-1(e)(4)(ii), regardless of when the
certificate is obtained.
[T.D. 8734, 62 FR 53465, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72185, Dec. 31, 1998; T.D. 8856, 64 FR 73410, Dec. 10, 1999]
Effective Date Note: By T.D. 8734, 62 FR 53465, Oct. 14, 1997,
Sec. 1.1441-9 was added, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1441-9 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, 73410, Dec. 30, 1999, the
effective date was delayed and paragraph (d) was revised, effective Jan.
1, 2001.
Sec. 1.1441-10 Withholding agents with respect to fast-pay
arrangements.
(a) In general. A corporation that issues fast-pay stock in a fast-
pay arrangement described in Sec. 1.7701(l)-3(b)(1) is a withholding
agent with respect to payments made on the fast-pay stock and payments
deemed made under the recharacterization rules of Sec. 1.7701(l)-3.
Except as provided in this paragraph (a) or in paragraph (b) of this
section, the withholding tax rules under section 1441 and section 1442
apply with respect to a fast-pay arrangement described in
Sec. 1.7701(l)-3(c)(1)(i) in accordance with the recharacterization
rules provided in Sec. 1.7701(l)-3(c). In all cases, notwithstanding
paragraph (b) of this section, if at any time the withholding agent
knows or has reason to know that the Commissioner has exercised the
discretion under either Sec. 1.7701(l)-3(c)(1)(ii) to apply the
recharacterization rules of Sec. 1.7701(l)-3(c), or Sec. 1.7701(l)-3(d)
to depart from the recharacterization rules of Sec. 1.7701(l)-3(c) for a
taxpayer, the withholding agent must withhold on payments made (or
deemed made) to that taxpayer in accordance with the characterization of
the fast-pay arrangement imposed by the Commissioner under
Sec. 1.7701(l)-3.
(b) Exception. If at any time the withholding agent knows or has
reason to know that any taxpayer entered into a fast-pay arrangement
with a principal purpose of applying the recharacterization rules of
Sec. 1.7701(l)-3(c) to avoid tax under section 871(a) or section 881,
then for each payment made or deemed made to such taxpayer under the
arrangement, the withholding agent must withhold, under section 1441 or
section 1442, the higher of--
(1) The amount of withholding that would apply to such payment
determined under the form of the arrangement; or
(2) The amount of withholding that would apply to deemed payments
determined under the recharacterization rules of Sec. 1.7701(l)-3(c).
(c) Liability. Any person required to deduct and withhold tax under
this section is made liable for that tax by section 1461, and is also
liable for applicable penalties and interest for failing to comply with
section 1461.
(d) Examples. The following examples illustrate the rules of this
section:
Example 1. REIT W issues shares of fast-pay stock to foreign
individual A, a resident of Country C. United States source dividends
paid to residents of C are subject to a 30 percent withholding tax. W
issues all shares of benefited stock to foreign individuals who are
residents of Country D. D's income tax convention with the United States
reduces the United States withholding tax on dividends to 15 percent.
Under Sec. 1.7701(l)-3(c), the dividends paid by W to A are deemed to be
paid by W to the benefited shareholders. W has reason to know that A
entered into the fast-pay arrangement with a principal purpose of using
the recharacterization rules of Sec. 1.7701(l)-3(c) to reduce United
States withholding tax. W must withhold at the 30 percent rate because
the amount of withholding that applies to the payments determined under
the form of the arrangement is higher than the amount of withholding
that applies to the payments determined under Sec. 1.7701(l)-3(c).
Example 2. The facts are the same as in Example 1 of this paragraph
(d) except that W does not know, or have reason to know, that A entered
into the arrangement with a principal purpose of using the
recharacterization rules of Sec. 1.7701(l)-3(c) to reduce United States
withholding tax. Further, the Commissioner has not exercised the
discretion under Sec. 1.7701(l)-3(d) to depart from the
recharacterization rules of Sec. 1.7701(l)-3(c). Accordingly, W must
withhold tax at a 15 percent rate on the dividends deemed paid to the
benefited shareholders.
(e) Effective date. This section applies to payments made (or deemed
made) on or after January 6, 1999.
[T.D. 8853, 65 FR 1312, Jan. 10, 2000]
[[Page 159]]
Sec. 1.1442-1 Withholding of tax on foreign corporations.
For regulations concerning the withholding of tax at source under
section 1442 in the case of foreign corporations, foreign governments,
international organizations, foreign tax-exempt corporations, or foreign
private foundations, see Secs. 1.1441-1 through 1.1441-9.
[T.D. 8734, 62 FR 53466, Oct. 14, 1997]
Effective Date Note: By T.D. 8734, 62 FR 53466, Oct. 14, 1997,
Sec. 1.1442-1 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1442-1 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the
effective date was delayed until Jan. 1, 2001. For the convenience of
the user, the superseded text is set forth as follows:
Sec. 1.1442-1 Withholding of tax on foreign corporations.
For regulations respecting the withholding of tax at source under
section 1442 in the case of foreign corporations, see Secs. 1.1441-1 and
1.1451-1.
[T.D. 6908, 31 FR 16773, Dec. 31, 1966]
Sec. 1.1442-2 Exemption under a tax treaty.
For regulations providing for a claim of reduced withholding tax
under section 1442 by certain foreign corporations pursuant to the
provisions of an income tax treaty, see Sec. 1.1441-6.
[T.D. 8734, 62 FR 53466, Oct. 14, 1997]
Effective Date Note: By T.D. 8734, 62 FR 53466, Oct. 14, 1997,
Sec. 1.1442-2 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1442-2 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the
effective date was delayed until Jan. 1, 2001. For the convenience of
the user, the superseded text is set forth as follows:
Sec. 1.1442-2 Exemption from withholding of tax on foreign
corporations.
For regulations exempting certain foreign corporations from the
withholding requirements of section 1442 in a case where an undue
administrative burden is imposed, see paragraph (f) of Sec. 1.1441-4.
[T.D. 6908, 31 FR 16773, Dec. 31, 1966]
Sec. 1.1442-3 Tax exempt income of a foreign tax-exempt corporations.
For regulations providing for a claim of exemption for income exempt
from tax under section 501(a) of a foreign tax-exempt corporation, see
Sec. 1.1441-9. See Sec. 1.1443-1 for withholding rules applicable to
foreign private foundations and to the unrelated business income of
foreign tax-exempt organizations.
[T.D. 8734, 62 FR 53466, Oct. 14, 1997]
Effective Date Note: By T.D. 8734, 62 FR 53466, Oct. 14, 1997,
Sec. 1.1442-3 was added, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1442-3 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the
effective date was delayed until Jan. 1, 2001.
Sec. 1.1443-1 Foreign tax-exempt organizations.
(a) Income includible under section 512 in computing unrelated
business taxable income. In the case of a foreign organization that is
described in section 501(c), amounts paid to the organization includible
under section 512 in computing the organization's unrelated business
taxable income are subject to withholding under Secs. 1.1441-1, 1.1441-
4, and 1.1441-6 in the same manner as payments of the same amounts to
any foreign person that is not a tax-exempt organization. Therefore, a
foreign organization receiving amounts includible under section 512 in
computing the organization's unrelated business taxable income may claim
an exemption from withholding or a reduced rate of withholding with
respect to that income in the same manner as a foreign person that is
not a tax-exempt organization. See Sec. 1.1441-9(b)(3) for presumption
that amounts are includible under section 512 in computing the
organization's unrelated business taxable income in the absence of a
reliable certification.
(b) Income subject to tax under section 4948--(1) In general. The
gross investment income (as defined in section 4940(c)(2)) of a foreign
private foundation is subject to withholding under section 1443(b) at
the rate of 4 percent to the extent that the income is from sources
within the United States and is subject to the tax imposed by section
4948(a) and the regulations under that section. Withholding under this
paragraph (b) is required irrespective of the fact that the income may
be effectively connected with the conduct of a trade or business in the
United States by the foreign organization. See Sec. 1.1441-9(b)(3) for
applicable presumptions that
[[Page 160]]
amounts are subject to tax under section 4948. The withholding imposed
under this paragraph (b)(1) does not obviate a private foundation's
obligation to file any return required by law with respect to such
organization, such as the form that the foundation is required to file
under section 6033 for the taxable year.
(2) Reliance on a foreign organization's claim of foreign private
foundation status. For reliance by a withholding agent on a foreign
organization's claim of foreign private foundation status, see
Sec. 1.1441-9 (b) and (c).
(3) Applicable procedures. A withholding agent withholding the 4-
percent amount pursuant to paragraph (b)(1) of this section shall treat
such withholding as withholding under section 1441(a) or 1442(a) for all
purposes, including reporting of the payment on a Form 1042 and a Form
1042-S pursuant to Sec. 1.1461-1 (b) and (c). Similarly, the foreign
private foundation shall treat the 4-percent withholding as withholding
under section 1441(a) or 1442(a), including for purposes of claims for
refunds and credits.
(4) Claim of benefits under an income tax treaty. The withholding
procedures applicable to claims of a reduced rate under an income tax
treaty are governed solely by the provisions of Sec. 1.1441-6 and not by
this section.
(c) Effective date--(1) In general. This section applies to payments
made after December 31, 2000.
(2) Transition rules. For purposes of this section, the validity of
an affidavit or opinion of counsel described in Sec. 1.1443-1(b)(4)(i)
in effect prior to January 1, 2001 (see Sec. 1.1443-1(b)(4)(i) as
contained in 26 CFR part 1, revised April 1, 1999) is extended until
December 31, 2000. However, a withholding agent may choose to not take
advantage of the transition rule in this paragraph (c)(2) with respect
to one or more withholding certificates valid under the regulations in
effect prior to January 1, 2001 (see 26 CFR part 1, revised April 1,
1999) and, therefore, to require withholding certificates conforming to
the requirements described in this section (new withholding
certificates). For purposes of this section, a new withholding
certificate is deemed to satisfy the documentation requirement under the
regulations in effect prior to January 1, 2001 ( see 26 CFR part 1,
revised April 1, 1999). Further, a new withholding certificate remains
valid for the period specified in Sec. 1.1441-1(e)(4)(ii), regardless of
when the certificate is obtained.
[T.D. 8734, 62 FR 53466, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72186, Dec. 31, 1998; T.D. 8856, 64 FR 73411, Dec. 30, 1999]
Effective Date Note: By T.D. 8734, 62 FR 53466, Oct. 14, 1997,
Sec. 1.1443-1 was revised, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date of Sec. 1.1443-1 was delayed
until Jan. 1, 2000. By T.D. 8856, 64 FR 73408, 73411, Dec. 30, 1999,
paragraph (c) was revised and the effective date was delayed until Jan.
1, 2001. For the convenience of the user, the superseded text is set
forth as follows:
Sec. 1.1443-1 Foreign tax-exempt organizations.
(a) Income subject to section 511--(1) Taxable years beginning after
December 31, 1966, and before January 1, 1970. In the case of a foreign
tax-exempt organization which is subject to the tax imposed by section
511, any rents paid to such organization in a taxable year beginning
after December 31, 1966, and before January 1, 1970, which are
includible under section 512 in determining its unrelated business
taxable income, shall not be subject to withholding under Sec. 1.1441-1.
See paragraph (a)(2) of Sec. 1.1441-4 for rules for claiming the
exemption from withholding in the case of such rents.
(2) Taxable years beginning after December 31, 1969. In the case of
a foreign tax-exempt organization which is subject to the tax imposed by
section 511, any income received by such organization in a taxable year
beginning after December 31, 1969, which is includible under section 512
in determining its unrelated business taxable income, shall be subject
to withholding under Sec. 1.1441-1 unless such income is, or may be
expected to be, effectively connected with the conduct of a trade or
business within the United States. See paragraph (a)(2) of Sec. 1.1441-4
for rules for claiming the exemption from withholding in the case of
such income.
(b) Income subject to section 4948-- (1) In general--(i) Application
of withholding provisions. Except as provided in subdivision (ii) of
this subparagraph, in the case of a foreign private foundation which is
subject to the tax imposed by section 4948(a) and the regulations
thereunder, the withholding provisions of chapter 3 of the Code and the
regulations thereunder shall apply with respect to the gross investment
income (as defined in section 4940(c)(2)) of such foundation from
sources within the United States (within the meaning of section 861 and
the regulations thereunder) as if the excise tax imposed by
[[Page 161]]
section 4948(a) were a tax imposed by chapter 3 of the Code, except that
the deduction and withholding shall be at the rate of 4 percent. The
withholding requirements imposed by this paragraph are in addition to
the requirements otherwise applicable to a withholding agent, such as
the depositary requirements of section 6302 and the regulations
thereunder. Similarly, the requirements of this paragraph do not obviate
a private foundation's obligation to file any return required by law
with respect to such an organization, such as the form the foundation is
required to file under section 6033 for the taxable year.
(ii) Special rule with respect to certain tax treaties. Whenever
there exists a tax treaty between the United States and a foreign
country, and a foreign private foundation which is subject to the tax
imposed by section 4948(a) and the regulations thereunder is a resident
of such country or is otherwise entitled to the benefits of such treaty
(whether or not such benefits are available to all residents), if the
treaty provides that any item or items (or all items with respect to an
organization exempt from income taxation) of gross investment income
(within the meaning of section 4940(c)(2)) shall be exempt from income
tax, the withholding provisions of chapter 3 of the Code and the
regulations thereunder shall not apply to such item or items.
(2) Return on Form 1042. Every withholding agent required to deduct
and withhold any amount by virtue of the provisions of this paragraph
shall make a return of the amount required to be deducted and withheld
by completing and filing a Form 1042 with the Internal Revenue Service
in accordance with the instructions accompanying that form and
submitting the balance due (if any). In addition, in any case in which
any amount is so withheld, the withholding agent shall prepare and
submit to the foreign private foundation one of the copies of the Form
1042S showing the tax withheld under this paragraph in addition to any
tax otherwise shown on such form.
(3) Claims for refund and credits. Claims for refund of or credit
for amounts overpaid shall be made on a Form 843 or 1042 or other
appropriate form, which shall be filed with the Mid-Atlantic Service
Center on or after January 1, 1973. Claims filed prior to January 1,
1973, shall be filed with the Director of International Operations. In
determining whether a claim for refund is appropriate and, if
appropriate, who should make the claim, the provisions of section 1464
and the regulations thereunder shall apply.
(4) Identification of foreign private foundations; general rule. (i)
Except as provided in subparagraph (6) of this paragraph, where a
foreign organization does not have a ruling or determination letter that
it is an organization described in section 509(a) (1), (2), (3), or (4),
any person required under section 1443(b) and this paragraph to deduct
and withhold any tax imposed by section 4948(a) on such foreign
organization (if it were a private foundation) shall not be liable for
such tax if prior to the day on which the person deposits or pays to the
Internal Revenue Service any amount required to be withheld, such person
has made a good faith determination that the foreign organization is an
organization described in section 509(a) (1), (2), (3), or (4). For
purposes of this subdivision, such a ``good faith determination''
ordinarily will be considered as made where the determination is based
on an affidavit of the foreign organization or an opinion of counsel (of
the withholding agent or the foreign organization) that the foreign
organization is an organization described in section 509(a) (1), (2),
(3), or (4). Such an affidavit or opinion must set forth sufficient
facts concerning the operations and support of the foreign organization
for the Internal Revenue Service to determine that such organization
would be likely to qualify as an organization described in section
509(a) (1), (2), (3), or (4).
(ii) For special transitional rules relating to the identification
of foreign private foundations, see subparagraph (5) of this paragraph.
(iii) Nothing in this paragraph relieves any foreign private
foundation of the liability for the tax (including interest and
penalties) imposed by section 4948(a).
(5) Special transitional rules relating to identification of foreign
private foundations. (i) Any person required under section 1443(b) and
this paragraph to deduct and withhold any tax imposed by section 4948(a)
on any foreign organization for any period after December 31, 1969, and
before the 90th day after publication of final regulations under section
508 in the Federal Register shall not be liable for such tax if such
person receives a certified statement from the foreign organization
prior to the day on which the person deposits or pays to the Internal
Revenue Service any amount required to be withheld stating that either:
(a) Such foreign organization has properly filed the notice
described in section 508(b) and the regulations thereunder and has not
been notified by the Commissioner or his delegate by the 30th day after
the day on which the notice is filed that such notice has failed to
establish that such foreign organization is not a private foundation, or
(b) The presumption contained in section 508(b) does not apply to
such foreign organization by reason of section 508(c) and the
regulations thereunder.
(ii) If a certified statement described in subdivision (i) of this
subparagraph is not received prior to the day on which a deposit or
payment of any amount withheld in accordance with the provisions of this
paragraph
[[Page 162]]
must be made by any person required to deduct and withhold any tax
imposed by section 4948(a) with respect to any foreign organization,
except as provided in subparagraph (4) of this paragraph such person
shall be liable for all such tax imposed (including interest and
penalties) for the period being returned by such person on Form 1042, to
the extent that such person incurs liability to the foreign organization
for gross investment income, as defined in section 4940(c)(2).
(iii) Any foreign organization to which section 508 by reason of
section 4948(b) does not apply because such organization has received
substantially all of its support (other than gross investment income, as
defined in section 4940(c)(2)) from sources outside the United States
may nevertheless receive the benefits of subdivision (i) of this
subparagraph by following the procedure set forth in such subdivision.
(6) Effect of notice by Internal Revenue Service concerning
organization's statement. Subparagraphs (4) and (5) of this paragraph
shall have no effect with respect to a withholding agent as to a
particular foreign organization on or after the earlier (i) the date on
which such agent acquires knowledge that the Internal Revenue Service
has given notice to such foreign organization that its notice or
statement has failed to establish that it is not a private foundation,
(ii) the date on which the Internal Revenue Service makes notice to the
public that such foreign organization has failed to establish that it is
not a private foundation, or (iii) the date on which the Internal
Revenue Service makes notice to the public that such foreign
organization is a private foundation.
[T.D. 7229, 37 FR 28157, Dec. 21, 1972, as amended by T.D. 7247, 38 FR
767, Jan. 4, 1973]
Sec. 1.1445-1 Withholding on dispositions of U.S. real property
interests by foreign persons: In general.
(a) Purpose and scope of regulations. These regulations set forth
rules relating to the withholding requirements of section 1445. In
general, section 1445(a) provides that any person who acquires a U.S.
real property interest from a foreign person must withhold a tax of 10
percent from the amount realized by the transferor foreign person (or a
lesser amount established by agreement with the Internal Revenue
Service). Section 1445(e) provides special rules requiring withholding
on distributions and certain other transactions by corporations,
partnerships, trusts, and estates. This Sec. 1.1445-1 provides general
rules concerning the withholding requirement of sections 1445(a), as
well as definitions applicable under both section 1445(a) and 1445(e).
Section 1.1445-2 provides for various situations in which withholding is
not required under section 1445(a). Section 1.1445-3 provides for
adjustments to the amount required to be withheld by transferees under
section 1445(a). Section 1.1445-4 prescribes the duties of agents in
transactions subject to withholding under either section 1445(a) or
1445(e). Section 1.1445-5 provides rules concerning the withholding
required under section 1445(e), while Sec. 1.1445-6 provides for
adjustments to the amount required to be withheld under section 1445(e).
Finally, Sec. 1.1445-7 provides rules concerning the treatment of a
foreign corporation that has made an election under section 897(i) to be
treated as a domestic corporation.
(b) Duty to withhold--(1) In general. Transferees of U.S. real
property interests are required to deduct and withhold a tax equal to 10
percent of the amount realized by the transferor, if the transferor is a
foreign person and the disposition takes place on or after January 1,
1985. Neither the transferee's duty to withhold nor the amount required
to be withheld is affected by the amount of cash to be paid by the
transferee. Amounts withheld must be reported and paid over in
accordance with the requirements of paragraph (c) of this section.
Failures to withhold and pay over are subject to the liabilities set
forth in paragraph (e) of this section. If two or more persons are joint
transferees of a U.S. real property interest, each such person is
subject to the obligation to withhold. That obligation is fulfilled with
respect to each such person if any one of them withholds and pays over
the required amount in accordance with the rules of this section. If the
amount realized (as defined in paragraph (g)(5) of this section) by the
transferor is zero, then no withholding is required. For example, if a
real property interest is transferred as a gift (i.e, the recipient does
not assume any liabilities or furnish any other consideration to the
transferor) then no withholding is required. Withholding is not required
with respect to dispositions that takes place before January 1, 1985,
even if the first
[[Page 163]]
payment of consideration is made after December 31, 1984.
(2) U.S. real property interest owned jointly by foreign and non-
foreign transferors. The amount subject to withholding under paragraph
(b)(1) of this section with respect to the transfer of a U.S. real
property interest owned by one or more foreign persons (as defined in
Sec. 1.897-1(k)) and one or more non-foreign persons shall be determined
by allocating the amount realized from the transfer between (or among)
such transferors based upon the capital contribution of each transferor
with respect to the property and by aggregating the amounts allocated to
any foreign person (or persons). For this purpose, a husband and wife
will each be deemed to have contributed 50 percent of the aggregate
capital contributed by such husband and wife. See Sec. 1.1445-
1(f)(3)(iv) with respect to the crediting of the amount withheld between
or among joint foreign transferors.
(3) Options to acquire a U.S. real property interest--(i) No
withholding on grant of option. No withholding is required under section
1445 with respect to any amount realized by the grantor on the grant of
an option to acquire a U.S. real property interest.
(ii) No withholding upon lapse of option. No withholding is required
under section 1445 with respect to any amount realized by the grantor
upon the lapse of an option to acquire a U.S. real property interest.
(iii) Withholding required upon the sale or exchange of option. A
transferee of an option to acquire a U.S. real property interest must
deduct and withhold a tax equal to 10 percent of the amount realized by
the transferor upon the disposition. This Sec. 1.1445-1(b)(3)(iii) does
not apply to require withholding upon the initial grant of an option.
(iv) Withholding required on exercise of option. If the holder
exercises an option to purchase a U.S. real property interest, the
amount paid for the option shall be considered an amount realized by the
grantor/transferor upon the transfer of the property with respect to
which the option was granted, and shall thus be subject to withholding
on the day that such underlying property is transferred. The preceding
sentence applies regardless of whether or not the terms of the option
specifically provide that the option price is applied to the purchase
price.
(4) Exceptions and modifications. The duty to withhold under section
1445(a) is subject to the exceptions and modifications contained in
Secs. 1.1445-2 and 1.1445-3. Generally, Sec. 1.1445-2 provides rules for
determining that withholding is not required because either the
transferor is not a foreign person or the interest transferred is not a
U.S. real property interest. In addition, Sec. 1.1445-2 provides
exceptions to the withholding requirement, including a rule that exempts
from withholding any person who acquires a U.S. real property interest
for use as a residence for a contract price of $300,000 or less. If
withholding is required under section 1445(a), Sec. 1.1445-3 allows the
amount withheld to be modified pursuant to a withholding certificate
issued by the Internal Revenue Service. If a transferee cannot withhold
the full amount required because the first payment of consideration for
the transfer does not involve sufficient cash (or other liquid assets
convertible into cash, such as foreign currency), then a withholding
certificate must be obtained pursuant to Sec. 1.1445-3.
(c) Reporting and paying over of withheld amounts--(1) In general. A
transferee must report and pay over any tax withheld by the 20th day
after the date of the transfer. Forms 8288 and 8288-A are used for this
purpose, and must be filed with the Internal Revenue Service Center,
Philadelphia, PA, 19255. Pursuant to section 7502 and regulations
thereunder, the timely mailing of Forms 8288 and 8228-A will be treated
as their timely filing. Form 8288-A will be stamped by the IRS to show
receipt, and a stamped copy will be mailed by the IRS to the transferor
(at the address reported on the form) for the transferor's use. See
Secs. 1.1445-1(f) and 1.1445-3(f).
(2) Pending application for withholding certificate--(i) In general.
(A) Delayed reporting and payment with respect to application submitted
by transferee. If an application for a withholding certificate with
respect to a transfer of a U.S. real property interest is submitted to
the Internal Revenue Service by the
[[Page 164]]
transferee on the day of or at any time prior to the transfer, the
transferee must withhold 10 percent of the amount realized as required
by paragraph (b) of this section. However, the amount withheld, or a
lesser amount as determined by the Service, need not be reported and
paid over to the Service until the 20th day following the Service's
final determination with respect to the application for a withholding
certificate. For this purpose, the Service's final determination occurs
on the day when the withholding certificate is mailed to the transferee
by the Service or when a notification denying the request for a
withholding certificate is mailed to the transferee by the Service. An
application is submitted to the Service on the day it is actually
received by the Service at the address provided in Sec. 1.1445-1(g)(10)
or, under the rules of section 7502, on the day it is mailed to the
Service at the address provided in Sec. 1.1445-1(g)(10).
(B) Delayed reporting and payment with respect to application
submitted by transferor. If an application for a withholding certificate
with respect to a transfer of a U.S. real property interest is submitted
to the Internal Revenue Service by the Transferor on the day of or any
time prior to the transfer, such transferor must provide notice to the
transferee prior to the transfer. No particular form is required but the
notice must set forth the name, address, and taxpayer identification
number, if any, of the transferor, a brief description of the property
which is the subject of the application, and the date the application
was submitted to the Service. The transferee must withhold 10 percent of
the amount realized as required in paragraph (b) of this section but
need not report or pay over to the Service such amount (or a lesser
amount as determined by the Service) until the 20th day following the
Service's final determination with respect to the application. The
Service will send a copy of the withholding certificate or copy of the
notification denying the request for a withholding certificate to the
transferee. For this purpose, the Service's final determination will be
deemed to occur on the day when the copy of the withholding certificate
or the copy of the notification denying the request for a withholding
certificate is mailed by the Service to the transferee (or transferees).
An application is submitted to the Service on the day it is actually
received by the Service at the address provided in Sec. 1.1445-1(g)(10)
or, under the rules of Sec. 7502, on the day it is mailed to the Service
at the address provided in Sec. 1.1445-1(g)(10).
(ii) Anti-abuse rule--(A) In general. A transferee that in reliance
upon the rules of this paragraph (c)(2) fails to report and pay over
amounts withheld by the 20th day following the date of the transfer,
shall be subject to the payment of interest and penalties if the
relevant application for a withholding certificate (or an amendment to
the application for a withholding certificate) was submitted for a
principal purpose of delaying the transferee's payment to the IRS of the
amount withheld. Interest and penalties shall be assessed on the amount
that is ultimately paid over (or collected pursuant to the agreement)
with respect to the period between the 20th day after the date of the
transfer and the date on which payment is made (or collected).
(B) Presumption. A principal purpose of delaying payment of the
amount withheld shall be presumed if--
(1) The transferee applies for a withholding certificate pursuant to
Sec. 1.1445-3(c) based on a determination of the transferor's maximum
tax liability, and
(2) Such liability is ultimately determined to be equal to 90
percent or more of the amount that was otherwise required to be withheld
and paid over. However, the presumption created by the previous sentence
may be rebutted by evidence establishing that delaying payment of the
amount withheld was not a principal purpose of the transaction.
(d) Contents of Forms 8288 and 8288-A--(1) Transactions subject to
section 1445(a). Any person that is required to file Forms 8288 and
8288-A pursuant to section 1445(a) and the rules of this section must
set forth thereon the following information:
(i) The name, identifying number (if any), and home address (in the
case of an individual) or office address (in the case of any entity) of
the transferee(s) filing the return;
[[Page 165]]
(ii) The name, identifying number (if any), and home address (in the
case of an individual) or office address (in the case of any entity) of
the transferor(s);
(iii) A brief description of the U.S. real property interest
transferred, including its location and the nature of any substantial
improvements in the case of real property, and the class or type and
amount of interests transferred in the case of interests in a
corporation that constitute U.S. real property interests;
(iv) The date of the transfer;
(v) The amount realized by the transferor, as defined in paragraph
(g)(5) of this section;
(vi) The amount withheld by the transferee and whether withholding
is at the statutory or reduced rate; and
(vii) Such other information as the Commissioner may require.
For purposes of paragraph (d)(1) (i) and (ii), mailing addresses may
be provided in addition to, but not in lieu of, home addresses or office
addresses.
(2) Transactions subject to section 1445(e). Any person that is
required to file Forms 8288 and 8288-A pursuant to the rules of
Sec. 1.1445-5 must set forth thereon the following information:
(i) The name, identifying number (if any), and office address of the
entity or fiduciary filing the return;
(ii) The amount withheld by the entity or fiduciary;
(iii) The date of the transfer;
(iv) In the case of a transaction subject to withholding pursuant to
section 1445(e)(1) and Sec. 1.1445-5(c):
(A) A brief description of the U.S. real property interest
transferred, as described in paragraph (d)(1)(iii) of this section;
(B) The name, identifying number (if any), and home address (in the
case of an individual) or office address (in the case of an entity) of
each holder of an interest in the entity that is a foreign person; and
(C) Each such interest-holder's pro rata share of the amount
withheld;
(v) In the case of a distribution subject to withholding pursuant to
section 1445(e)(2) and Sec. 1.1445-5(d):
(A) A brief description of the U.S. real property interest
transferred, as described in paragraph (d)(1)(iii) of this section; and
(B) The amount of gain recognized upon the distribution by the
corporation.
(vi) In the case of a distribution subject to withholding pursuant
to section 1445(e)(3) and Sec. 1.1445-5(e):
(A) A brief description of the property distributed by the
corporation;
(B) The name, identifying number (if any), and home address (in case
of an individual) or office address (in the case of an entity) of each
holder of an interest in the entity that is a foreign person;
(C) The amount realized upon the distribution by each such foreign
interest holder; and
(D) Each foreign interest-holder's pro rata share of the amount
withheld; and
(vii) Such other information as the Commissioner may require.
(e) Liability of transferee upon failure to withhold--(1) In
general. Every person required to deduct and withhold tax under section
1445 is made liable for that tax by section 1461. Therefore, a person
that is required to deduct and withhold tax but fails to do so may be
held liable for the payment of the tax and any applicable penalties and
interest.
(2) Transferor's liability not otherwise satisfied--(i) Tax and
penalties. Except as provided in paragraph (e)(3) of this section, if a
transferee is required to deduct and withhold tax under section 1445 but
fails to do so, then the tax shall be assessed against and collected
from that transferee. Such person may also be subject to any of the
civil and criminal penalties that apply. Corporate officers or other
responsible persons may be subject to a civil penalty under section 6672
equal to the amount that should have been withheld and paid over.
(ii) Interest. If a transferee is required to deduct and withhold
tax under section 1445 but fails to do so, then such transferee shall be
liable for the payment of interest pursuant to section 6601 and the
regulations thereunder. Interest shall be payable with respect to the
period between--
(A) The last date on which the tax imposed under section 1445 was
required to be paid over by the transferee, and
[[Page 166]]
(B) The date on which such tax is actually paid. Interest shall be
payable with respect to the entire amount that is required to be
deducted and withheld. However, if the Service issues a withholding
certificate providing for withholding of a reduced amount, then, for the
period after the issuance of the certificate, interest shall be payable
with respect to that reduced amount.
(3) Transferor's liability otherwise satisfied--(i) Tax and
penalties. If a transferee is required to deduct and withhold tax under
section 1445 but fails to do so, and the transferor's tax liability with
respect to the transfer was satisfied (or was established to be zero)
by--
(A) The transferor's filing of an income tax return (and payment of
any tax due) with respect to the transfer, or
(B) The issuance of a withholding certificate by the Internal
Revenue Service establishing that the transferor's maximum tax liability
is zero,
then the tax required to be withheld under section 1445 shall not be
collected from the transferee. Such transferee's liability for tax, and
the requirement that such person file Forms 8288 and 8288-A, shall be
deemed to have been satisfied as of the date on which the transferor's
income tax return was filed or the withholding certificate was issued.
No penalty shall be imposed on or collected from such person for failure
to return or pay the tax, unless such failure was fraudulent and for the
purpose of evading payment. A transferee that seeks to avoid liability
for tax and penalties pursuant to the rule of paragraph (e)(3)(i) must
provide sufficient information for the Service to determine whether the
transferor's tax liability was satisfied (or was established to be
zero).
(ii) Interest. If a transferee is required to deduct and withhold
tax under section 1445 but fails to do so, then such person shall be
liable for the payment of interest under section 6601 and regulations
thereunder. Such transferee's liability for the payment of interest
shall not be excused by reason of the deemed satisfaction, pursuant to
subdivision (i) of this paragraph (e)(3), of the transferee's liability
under section 1445, because the deemed satisfaction of that liability is
the equivalent of the late payment of a liability, on which interest
must be paid. Interest shall be payable with respect to the period
between--
(A) The last date on which the tax imposed under section 1445 was
required to be paid over, and
(B) The date (established from information supplied to the Service
by the transferee) on which any tax due is paid with respect to the
transferor's relevant income tax return, or the date the withholding
certificate is issued establishing that the transferor's maximum tax
liability is zero.
Interest shall be payable with respect to the entire amount that is
required to be deducted and withheld. However, if the Service issues a
withholding certificate providing for withholding of a reduced amount,
then for the period after the issuance of the certificate interest shall
be payable with respect to that reduced amount.
(4) Coordination with entity with holding rules. For purposes of
section 1445(e) and Secs. 1.1445-5, 1.1445-6, 1.1445-7, and 1.1445-8T,
the rules of this paragraph (e) shall be applied by--
(i) Substituting the words ``person required to withhold'' for the
word ``transferee'' each place it appears in this paragraph (e), and
(ii) Substituting the words ``person subject to withholding'' for
the word ``transferor'' each place it appears in this paragraph (e).
(f) Effect of withholding on transferor--(1) In general. The
withholding of tax under section 1445(a) does not excuse a foreign
person that disposes of a U.S. real property interest from filing a U.S.
tax return with respect to the income arising from the disposition. Form
1040NR, 1041, or 1120F, as appropriate, must be filed, and any tax due
must be paid, by the filing deadline generally applicable to such
person. (The return may be filed by such later date as is provided in an
extension granted by the Internal Revenue Service.) Any tax withheld
under section 1445(a) shall be credited against the amount of income tax
as computed in such return.
(2) Manner of obtaining credit or refund. A stamped copy of Form
8288-A will be provided to the transferor by the Service (under
paragraph (c) of this
[[Page 167]]
section), and must be attached to the transferor's return to establish
the amount withheld that is available as a credit. If the amount
withheld under section 1445(a) constitutes less than the full amount of
the transferor's U.S. tax liability for that taxable year, then a
payment of estimated tax may be required to be made pursuant to section
6154 or 6654 prior to the filing of the income tax return for that year.
Alternatively, if the amount withheld under section 1445(a) exceeds the
transferor's maximum tax liability with respect to the disposition (as
determined by the IRS), then the transferor may seek an early refund of
the excess pursuant to Sec. 1.1445-3(g), or a normal refund upon the
filing of a tax return.
(3) Special rules--(i) Failure to receive Form 8288-A. If a stamped
copy of Form 8288-A has not been provided to the transferor by the
Service, the transferor may establish the amount of tax withheld by the
transferee by attaching to its return substantial evidence (e.g.,
closing documents) of such amount. Such a transferor must attach to its
return a statement which supplies all of the information required by
Sec. 1.1445-1(d) (except such information that was not obtained after a
diligent effort).
(ii) U.S. persons subjected to withholding. If a transferee
withholds tax under section 1445(a) with respect to a person who is not
a foreign person, such person may credit the amount of any tax withheld
against his income tax liability in accordance with the provisions of
this Sec. 1.1145-1(f) or apply for an early refund under Sec. 1.1445-
3(g).
(iii) Refund in case of installment sale. A transferor that takes
gain into account in accordance with the provisions of section 453 shall
not be entitled to a refund of the amount withheld, unless a withholding
certificate providing for such a refund is obtained from the Internal
Revenue Service pursuant to the provisions of Sec. 1.1445-3.
(iv) Joint foreign transferors. If two or more foreign persons
jointly transfer a U.S. real property interest, each transferor shall be
credited with such portion of the amount withheld as such transferors
mutually agree. Such transferors must request that the transferee
reflect the agreed-upon crediting of the amount withheld on the Forms
8288-A filed by the transferee. If the foreign transferors fail to
request that the transferee reflect the agreed-upon crediting of the
amount withheld by the 10th day after the date of transfer, the
transferee must credit the amount withheld equally between (or among)
the foreign transferors. In such case, the transferee is indemnified
pursuant to section 1461 against any claim by a transferor objecting to
the resulting division of credits. For rules regarding the amount
realized allocated to joint foreign and non-foreign transferors, see
Sec. 1.1445-1(b)(2).
(g) Definitions--(1) In general. Unless otherwise specified, the
definitions of terms provided in Sec. 1.897-1 shall apply for purposes
of this section and Secs. 1.1445-2 through 1.1445-7. For purposes of
section 1445 and the regulations thereunder, definitions of other
relevant terms are provided in this paragraph (g). In addition, the term
``residence'' is defined in 1.1445-2(d)(1), the terms ``transferor's
agent'' and ``transferee's agent'' are defined in 1.1445-4(f), and the
term ``relevant taxpayer'' is defined in 1.1445-6(a)(2).
(2) Transfer. The term ``transfer'' means any transaction that would
constitute a disposition for any purpose, of the Internal Revenue Code
and regulations thereunder. For purposes of Secs. 1.1445-5 and 1.1445-6,
the term includes distribution to shareholders of a corporation,
partners of a partnership and beneficiaries of a trust or estate.
(3) Transferor. The term ``transferor'' means any person, foreign or
domestic, that disposes of a U.S. real property interest by sale,
exchange, gift, or any other transfer. The term ``U.S. real property
interest'' is defined in Sec. 1.897-1(c).
(4) Transferee. The term ``transferee'' means any person, foreign or
domestic, that acquires a U.S. real property interest by purchase,
exchange, gift, or any other transfer.
(5) Amount realized. The amount realized by the transferor for the
transfer of a U.S. real property interest is the sum of.
(i) The cash paid, or to be paid.
(ii) The fair market value of other property transferred, or to be
transferred, and
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(iii) The outstanding amount of any liability assumed by the
transferee or to which the U.S. real property interest is subject
immediately before and after the transfer.
The term ``cash paid or to be paid'' does not include stated or unstated
interest or original issue discount (as determined under the rules of
sections 1271 through 1275).
(6) Contract price. The contract price of a U.S. real property
interest is the sum that is agreed to by the transferee and transferor
as the total amount of consideration to be paid for the property. That
amount will generally be equal to the amount realized by the transferor,
as defined in paragraph (b)(5) of this section.
(7) Fair market value. The fair market value of property means the
price at which the property would change hands between an unrelated
willing buyer and willing seller, neither being under any compulsion to
buy or to sell and both having reasonable knowledge of all relevant
facts.
(8) Date of transfer. The date of transfer of a U.S. real property
interest is the first date on which consideration is paid (or a
liability assumed) by the transferee. However, for purposes of section
1445(e) (2), (3), and (4) and Secs. 1.1445-5(c)(1)(iii) and 1.1445-
5(c)(3) only, the date of transfer is the date of the distribution that
gives rise to the obligation to withhold. For purposes of this paragraph
(g)(8), the payment of consideration does not include the payment, prior
to the passage of legal or equitable title (other than pursuant to an
initial contract for purchase), of earnest money, a good-faith deposit,
or any similar sum that is primarily intended to bind the transferee or
transferor to the entering or performance of a contract. Such a payment
will not constitute a payment of consideration solely because it may
ultimately be applied against the amount owed to the transferor by the
transferee. Such a payment is presumed to be earnest money, a good faith
deposit, or a similar sum if it is subject to forfeiture in the event of
a failure to enter into a contract or a breach of contract. However, a
payment that is not forefeitable may nevertheless be found to constitute
earnest money, a good faith deposit, or a similar sum.
(9) Identifying number. Pursuant to Sec. 1.897-1(p), an individual's
identifying number is the social security number (or the identification
numbers assigned by the Internal Revenue Service). The identifying
number of any other person is its United States employer identification
number.
(10) Address of the Assistant Commissioner International. Any
written communication directed to the Assistant Commissioner
(International) is to be addressed as follows: Director, Philadelphia
Service Center; 11601 Roosevelt Blvd.; Philadelphia, PA 19255; ATTN:
Drop Point 543X.
[T.D. 8113, 51 FR 46629, Dec. 24, 1986; 52 FR 3796, 3916, Feb. 6, 1987,
as amended by T.D. 8647, 60 FR 66076, Dec. 21, 1995]
Sec. 1.1445-2 Situations in which withholding is not required under
section 1445(a).
(a) Purpose and scope of section. This section provides rules
concerning various situations in which withhold is not required under
section 1445(a). In general, a transferee has a duty to withhold under
section 1445(a) only if both of the following are true:
(1) The transferor is a foreign person; and
(2) The transferee is acquiring a U.S. real property interest.
Thus, paragraphs (b) and (c) of this section provide rules under which a
transferee of property can ascertain that he has no duty to withhold
because one or the other of the two key elements is missing. Under
paragraph (b), a transferee may determine that no withholding is
required because the transferor is not a foreign person. Under paragraph
(c), a transferee may determine that no withholding is required because
the property acquired is not a U.S. real property interest. Finally,
paragraph (d) of this section provides rules concerning exceptions to
the withholding requirement.
(b) Transferor not a foreign person--(1) In general. No withholding
is required under section 1445 if the transferor of a U.S. real property
interest is not a foreign person. Therefore, paragraph (b)(2) of this
section provides rules pursuant to which the transferor can provide a
[[Page 169]]
certification of non-foreign status to inform the transferee that
withholding is not required. A transferee that obtains such a
certification must retain that document for five years, as provided in
paragraph (b)(3) of this section. Except to the extent provided in
paragraph (b)(4) of this section, the obtaining of this certification
excuses the transferee from any liability otherwise imposed by section
1445 and Sec. 1.1445-1(e). However, section 1445 and the rules of this
section do not impose any obligation upon a transferee to obtain a
certification from the transferor, thus, a transferee may instead rely
upon other means to ascertain the non-foreign status of the transferor.
If, however, the transferee relies upon other means and the transferor
was, in fact, a foreign person, then the transferee is subject to the
liability imposed by section 1445 and Sec. 1.1445-1(e).
A transferee is in no event required to rely upon other means to
ascertain the non-foreign status of the transferor and may demand a
certification of non-foreign status. If the certification is not
provided, the transferee may withhold tax under section 1445 and will be
considered, for purposes of sections 1461 through 1463, to have been
required to withhold such tax.
(2) Transferor's certification of non-foreign status--(i) In
general. A transferee of a U.S. real property interest is not required
to withhold under section 1445(a) if, prior to or at the time of the
transfer, the transferor furnishes to the transferee a certification
that--
(A) States that the transferor is not a foreign person.
(B) Sets forth the transferor's name, identifying number and home
address (in the case of an individual) or office address (in the case of
an entity), and
(C) Is signed under penalties of perjury.
In general, a foreign person is a nonresident alien individual, foreign
corporation, foreign partnership, foreign trust, or foreign estate, but
not a resident alien individual. In this regard, see Sec. 1.897-1(k).
However, a foreign corporation that has made a valid election under
section 897(i) is generally not treated as a foreign person for purposes
of section 1445. In this regard, see Sec. 1.1445-7. Pursuant to
Sec. 1.897-1(p), an individual's identifying number is the individual's
Social Security number and any other person's identifying number is its
U.S. employer identification number. A certification pursuant to this
paragraph (b) must be vertified as true and signed under penalties of
perjury by a responsible officer in the case of a corporation, by a
general partner in the case of a partnership, and by a trustee,
executor, or equivalent fiduciary in the case of a trust or estate. No
particular form is needed for a certification pursuant to this paragraph
(b), nor is any particular language required, so long as the document
meets the requirements of this paragraph (b)(2)(i). Samples of
acceptable certifications are provided in paragraph(b)(2)(iii) of this
section.
(ii) Foreign corporation that ``has made election under section
897(i). A foreign corporation that has made a valid election under
section 897(i) to be treated as a domestic corporation for purposes of
section 897 may provide a certification of non-foreign status pursuant
to this paragraph (b)(2). However, an electing foreign corporation must
attach to such certification a copy of the acknowledgment of the
election provided to the corporation by the Internal Revenue Service
pursuant to Sec. 1.897-3(d)(4).
An acknowledgment is valid for this purpose only if it states that the
information required by Sec. 1.897-3 has been determined to be complete.
(iii) Sample certifications--(A) Individual transferor.
``Section 1445 of the Internal Revenue Code provides that a
transferee (buyer) of a U.S. real property interest must withhold tax if
the transferor (seller) is a foreign person. To inform the transferee
(buyer) that withholding of tax is not required upon my disposition of a
U.S. real property interest, I, [name of transferor], hereby certify the
following:
1. I am not a nonresident alien for purposes of U.S. income
taxation;
2. My U.S. taxpayer identifying number [Social Security number] is
________; and
3. My home address is:
_______________________________________________________________________
_______________________________________________________________________
I understand that this certification may be disclosed to the
Internal Revenue Service by the transferee and that any false statement
I have made here could be punished by fine, imprisonment, or both.
[[Page 170]]
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true,
correct, and complete. [Signature and Date]''
(B) Entity transferor.
``Section 1445 of the Internal Revenue Code provides that a
transferee of a U.S. real property interest must withhold tax if the
transferor is a foreign person. To inform the transferee that
withholding of tax is not required upon the disposition of a U.S. real
property interest by [name of transferor], the undersigned hereby
certifies the following on behalf of [name of transferor]:
1. [Name of transferor] is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are
defined in the Internal Revenue Code and Income Tax Regulations]:
2. [Name of transferor]'s U.S. employer identification number is
________, and
3. [Name of transferor]'s office address is
_______________________________________________________________________
[Name of transferor] understands that this certification may be
disclosed to the Internal Revenue Service by transferee and that any
false statement contained herein could be punished by fine, imprisonment
or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true,
correct and complete, and I further declare that I have authority to
sign this document on behalf of [name of transferor].
[Signature and date]
[Title ________]
(3) Transferee must retain certification. If a transferee obtains a
transferor's certification pursuant to the rules of this paragraph (b),
then the transferee must retain that certification until the end of the
fifth taxable year following the taxable year in which the transfer
takes place. The transferee must retain the certification, and make it
avaliable to the Internal Revenue Service when requested in accordance
with the requirements of section 6001 and regulations thereunder.
(4) Reliance upon certification not permitted--(i) In general. A
transferee may not rely upon a transferor's certification pursuant to
this paragraph (b) under the circumstances set forth in either
subdivision (ii) or (iii) of this paragraph (b)(4). In either of those
circumstances, a transferee's withholding obligation shall apply as if a
certification had never been obtained, and the transferee is fully
liable pursuant to section 1445 and Sec. 1.1445-1(e) for any failure to
withhold.
(ii) Failure to attach IRS acknowledgment of election. A transferee
that knows that the transferor is a foreign corporation may not rely
upon a certification of non-foreign status provided by the corporation
on the basis of election under section 897(i), unless there is attached
to the certification a copy of the acknowledgment by the Internal
Revenue Service of the corporation's election, as required by paragraph
(b)(2)(ii) of this section.
(iii) Knowledge of falsity. A transferee is not entitled to rely
upon a transferor's certification if prior to or at the time of the
transfer the transferee either--
(A) Has actual knowledge that the transferor's certification is
false; or
(B) Receives a notice that the certification is false from a
transferor's or transferee's agent, pursuant to Sec. 1.1445-4.
(iv) Belated notice of false certification. If after the date of the
transfer a transferee receives a notice that a certification is false,
then that transferee is entitled to rely upon the certification only
with respect to consideration that was paid prior to receipt for the
notice. Such a transferee is required to withhold a full 10 percent of
the amount realized from the consideration that remains to be paid to
the transferor if possible. Thus, if 10 percent or more of the amount
reailzed remains to be paid to the transferor then the transferee is
required to withhold and pay over the full 10 percent. The transferee
must do so by withholding and paying over the entire amount of each
successive payment of consideration to the transferor until the full 10
percent of the amount realized has been withheld and paid over. Amounts
so withheld must be reported and paid over by the 20th day following the
date on which each such payment of consideration is made. A transferee
that is subject to the rules of this paragraph (b)(4)(iv) may not obtain
a withholding certificate pursuant to Sec. 1.1445-3, but must instead
withhold and pay over the amounts required by this paragraph.
(c) Transferred property not a U.S. real property interest--(1) In
general. No withholding is required under section
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1445 if the transferee acquires only property that is not a U.S. real
property interest. As defined in section 897(c) and Sec. 1.897-1(c), a
U.S. real property interest includes certain interests in U.S.
corporations, as well as direct interests in real property and certain
associated personal property. This paragraph (c) provides rules pursuant
to which a person acquiring an interest in a U.S. corporation may
determine that withholding is not required because that interest is not
a U.S. real property interest. To determine whether an interest in
tangible property constitutes a U.S. real property interest the
acquisition of which would be subject to withholding, see Sec. 1.897-1
(b) and (c).
(2) Interests in publicly traded entities. No withholding is
required under section 1445(a) upon the acquisition of an interest in a
domestic corporation if any class of stock of the corporation is
regularly traded on an established securities market.
This exemption shall apply if the disposition is incident to an initial
public offering of stock pursuant to a registration statement filed with
the Securities and Exchange Commission. Similarly, no withholding is
required under section 1445(a) upon the acquisition of an interest in a
publicly traded partnership or trust. However, the rule of this
paragraph (c)(2) shall not apply to the acquisition, from a single
transferor in a single (or related transferors (as defined in
Sec. 1.897-1(i)) transaction (or related transactions), of an interest
described in Sec. 1.897-1(c)(2)(iii)(B) (relating to substantial amounts
of non-publicly traded interests in publicly traded corporations) or to
similar interests in publicly traded partnerships or trusts. The person
making an acquisition described in the preceding sentence must otherwise
determine whether withholding is required, pursuant to section 1445 and
the regulations thereunder. Transactions shall be deemed to be related
if they are undertaken within 90 days of one another or if it can
otherwise be shown that they were undertaken in pursuance of a
prearranged plan.
(3) Transferee receives statement that interest in corporation is
not a U.S. real property interest--(i) In general. No withholding is
required under section 1445(a) upon the acquisition of an interest in a
domestic corporation, if the tranferor provides the transferee with a
copy of a statement, issued by the corporation pursuant to Sec. 1.897-
2(h), certifying that the interest is not a U.S. real property interest.
In general, a corporation may issue such a statement only if the
corporation was not a U.S. real property holding corporation at any time
during the previous five years (or the period in which the interest was
held by its present holder, if shorter) or if interests in the
corporation ceased to be United States real property interests under
section 897(c)(1)(B). (A corporation may not provide such a statement
based on its determination that the interest in question is an interest
solely as a creditor). See Sec. 1.897-2 (f) and (h). The corporation may
provide such a statement directly to the transferee at the transferor's
request. The transferor must request such a statement prior to the
transfer, and shall, to the extent possible, specify the anticipated
date of the transfer. A corporation's statement may be relied upon for
purposes of this paragraph (c)(3) only if the statement is dated not
more than 30 days prior to the date of the transfer. A transferee may
also rely upon a corporation's statement that is voluntarily provided by
the corporation in response to a request from the transferee, if that
statement otherwise complies with the requirements of this paragraph
(c)(3) and Sec. 1.897-2(h).
(ii) Reliance on statement not permitted. A transferee is not
entitled to rely upon a statement that a corporation is not a U.S. real
property holding corporation if, prior to or at the time of the
transfer, the transferee either--
(A) Has actual knowledge that the statement is false, or
(B) Receives a notice that the statement is false from a
transferor's or transferee's agent, pursuant to Sec. 1.1445-4.
Such a transferee's withholding obligations shall apply as if a
statement had never been given, and such a transferee may be held fully
liable pursuant to Sec. 1.1445-1(e) for any failure to withhold.
[[Page 172]]
(iii) Belated notice of false statement. If after the date of the
transfer, a transferee receives notice that a statement provided under
Sec. 1.1445-2(c)(3)(i) (that an interest in a corporation is not a U.S.
real property interest) is false, then such transferee may rely on the
statement only with respect to consideration that was paid prior to the
receipt of the notice.
Such a transferee is required to withhold a full 10 percent of the
amount realized from the consideration that remains to be pai