[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

[[Page 78]]

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

[[Page 79]]

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

[[Page 80]]

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)).

[[Page 81]]

    (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.

[[Page 82]]

    (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

[[Page 83]]

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

[[Page 84]]

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

[[Page 97]]

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

[[Page 98]]

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

[[Page 99]]

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

[[Page 127]]

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

[[Page 128]]

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

[[Page 130]]

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

[[Page 131]]

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

[[Page 133]]

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

[[Page 168]]

    (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

[[Page 171]]

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