Payments Directed Outside the United States — Withholding and Reporting Provisions Under Chapters 3 and 4 (Portfolio 915)

Tax Management Portfolio, Payments Directed Outside the United States — Withholding and Reporting Provisions Under Chapters 3 and 4, addresses the withholding of U.S. federal income tax under §§1441-1443 of the Internal Revenue Code from payments of certain U.S. source income made to foreign persons and under §§1471-1474 on withholdable payments to foreign financial entities and nonfinancial foreign entities.

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The discussion sets forth the documentation requirements imposed under §§1441, 1443 and chapter 61 (§§6041-6050W), the requirements and withholding under §§1471-1474, the information reporting requirements under §1461 and chapter 61 and the applicable backup withholding procedures under §3406. The Portfolio also addresses the relationship of withholding under §§1441, 1442, and 1443 with the requirements imposed by chapter 61 and the backup withholding rules under §3406, an important aspect of which is the mandatory presumption rules for withholding and reporting on payments in the absence of reliable documentation as to the classification and status of the payee. Additionally, the portfolio provides a detailed discussion of the procedures applicable to intermediaries, both qualified and non-qualified. Special topics include a discussion of the application of §1441 to specific types of income such as the various types of interest income and effectively connected income. Other special topics include the application of the regulations to specific types of entities such as U.S. branches of certain foreign corporations, partnerships, trusts and estates, foreign governments and international organizations, and tax-exempt organizations.

Further, the Portfolio addresses the procedures applicable to claims of reduced withholding (including exemptions from withholding) under income tax treaties. The detailed rules delineating the responsibilities and liabilities of withholding agents are also discussed. Finally, the portfolio sets forth the rules concerning refund and reimbursement procedures under §§1461-1464 and penalties applicable to failures to comply with the §1441 and/or §1461 regulations.
This Portfolio does not discuss a U.S. employer's obligation to withhold federal income and employment taxes from “wages” paid to nonresident alien employees, withholding on a foreign partner's share of effectively connected income under §1446, or withholding on gain from dispositions of U.S. real property interests under §1445. 


U.S. Withholding and Reporting Requirements for Payments of U.S. Source Income to Foreign Persons was authored by the following experts.
Carol P. Tello, Esq.

Carol P. Tello, B.A., College of William and Mary, J.D., University of Maryland School of Law, and M.L.T., Georgetown University Law Center; lecturer on international tax topics; author of numerous articles on international taxation; Vice-Chair, Foreign Activities of U.S. Taxpayers and U.S. Activities of Foreigners Committee of the ABA Section of Taxation; member of the Tax Management U.S. International Advisory Board; member, U.S.A. Branch Council, International Fiscal Association; former attorney-advisor, Office of Associate Chief Counsel (International), and Technical Advisor to the Assistant Commissioner (International).

Table of Contents

Detailed Analysis

I. Introduction

A. In General - Scope of Portfolio

B. Theory of "Withholding"

C. Statutory History

D. Regulatory History

E. Overview of 2001 Regulations

1. Reasons for Revision of the § 1441 Regulations

2. General Description of the Withholding Provisions

a. Basic Framework

b. Requirement of Documentation or Maximum Withholding

3. Chapter 61 Information Reporting Provisions and § 3406 Backup Withholding

4. Roadmap to the Regulations

5. Obsolete Revenue Rulings

6. Withdrawal and Amendments to Income Tax Treaty Regulations

7. Where to Find It - A Finding List of Useful Provisions

a. Presumption Rules

b. Requirement to Provide a Taxpayer Identifying Number ("TIN")

c. Definitions

d. List of Exemptions from, or Reduced Rates of, Withholding Under § 1441

e. List of Provisions That Exempt Foreign Persons from Information Reporting and Backup Withholding on Certain Income

f. Rules Concerning Payments to U.S. Branches of Certain Non-U.S. Banks and Insurance Companies

g. Exempt Recipients

h. "Eyeball" Tests

F. Responsibilities of a Withholding Agent and Documentation Requirements Under § 1441

1. In General

2. Determination of the Payee

a. In General

b. Claim of Status

(1) Claim of U.S. Status

(2) Claim of Foreign Status

c. Payments to a U.S. Branch of Certain Foreign Banks or Foreign Insurance Companies

d. Payments to a U.S. Agent of a Foreign Person

e. Payments to Wholly Owned Entities

(1) Foreign-Owned Domestic Entities

(2) Foreign Entities

(3) Foreign Intermediaries That Collect Payments for Others

(4) Foreign Intermediaries That Are Payees

f. Partnerships

(1) Domestic Partnerships

(2) Foreign Partnerships

g. Foreign Simple Trusts and Foreign Grantor Trusts

h. Foreign Complex Trusts and Estates

i. Foreign Investment Funds

II. Documentation Requirements for Foreign Persons Under Chapter 61 and § 3406

A. In General

B. General Changes Made by T.D. 8734 and T.D. 8881

III. Section 6049 - Returns of Information as to Interest Paid and Original Issue Discount Includible in Gross Income

A. In General

B. Definitions

1. Middleman

2. Payor

3. U.S. Payor, U.S. Middleman, Non-U.S. Payor, and Non-U.S. Middleman

a. Non-U.S. Payor and Non-U.S. Middleman

b. U.S. Payor and U.S. Middleman

4. Offshore Account

5. Amounts Paid Outside the United States

6. Amounts Not Paid Outside the United States

a. Amounts Paid by an Issuer or Paying Agent of the Issuer

b. Amounts Paid by a U.S. Middleman

7. Special Rule for Amounts Paid on Bank Deposits or Other Accounts with Other Financial Institutions

a. Paid Where Credited

b. Anti-Abuse Rules

8. Special Rule for Coupon Bonds and Discount Obligations in Bearer Form

9. Special Rule for Foreign-Targeted Registered Obligations

a. Payor Is Issuer or Issuer's Agent

b. International Account

c. International Financial Organization

C. Exempt Recipient

1. In General

2. Corporate "Eyeball" Tests

3. Other "Eyeball" Tests

D. Interest Excluded from Reporting Under § 6049 - Regs. § 1.6049-5(b)

1. General Rule

2. Definition of Documentary Evidence

3. Review and Maintenance Procedures for Documentary Evidence

4. Special Documentation Rules for Interest on Certain Accounts and Proceeds from Securities Sales

a. Nonrenewable Documentary Evidence

b. Declaration of Foreign Status

c. Accounts Opened Before January 1, 2001

5. Applicable Due Diligence Requirements for Payor

6. Presumption Rules Applicable to Chapter 61 - Regs. § 1.6049-5(d)

a. Identification of the Payee

b. Presumptions of Classification and Status

(1) Application of § 1441 Presumption Rules with Modifications

(2) Grace Period for Payments of Interest and Dividends and Broker Proceeds

(a) Requirements for Grace Period to Apply

(b) Beginning of Grace Period

(c) Termination of Grace Period

(d) Obligations of Payor at End of Grace Period

(3) Joint Payees

(4) Presumptions for Amounts Paid to Foreign Intermediaries and Flow-Through Entities

(a) Payments Subject to § 1441 Withholding

(b) Payments Not Subject to § 1441 Withholding (Not Including Short-Term OID and Deposit Interest)

(c) Redemptions of Short-Term OID Obligations and Deposit Interest

(d) Short-Term Deposits and Repurchase Transactions

E. Exemption for U.S. Payors in U.S. Possessions

IV. Section 6041

A. In General

B. Exempt Recipients for Purposes of § 6041

C. Regs. § 1.6041-1 - Notional Principal Contracts

1. In General

2. Amounts Required to Be Reported

D. Regs. § 1.6041-4 - Foreign-Related Items and Other Exceptions

1. In General

2. Exemptions Under Regs. § 1.6041-4

3. Presumption Rule for Joint Owners

V. Sections 6041A, 6042, 6044 and 6045

A. In General

1. Change Made by 2000 Regulations

2. Change Made by Notice 2001-4

3. Exempt Recipients for Purposes of § 6041A

4. Section 6042 - Returns of Information as to Dividends Paid

5. Section 6044 - Returns of Information for Patronage Dividends

a. In General

b. Changes Made by T.D. 8734

c. Section 6045 - Returns of Information of Brokers and Barter Exchanges

(1) In General

(2) Foreign Currency Rules Added by T.D. 8734

(a) Determination of Profit or Loss from Foreign Currency Contracts

(i) In General

(ii) Closing by Delivery

(iii) Closing by Offsetting Contract

(iv) Net Unrealized Profit or Loss

(b) Sale Date

(3) Conversion of Foreign Currency into U.S. Dollars

(a) Basic Rule for Conversion

(b) Effect of Identification of Contracts Under Regs. § 1.988-5(a), (b), or (c)

B. Exempt Foreign Persons

1. In General

2. Documentation

3. Payments of Debt Principal and Redemption of Non-U.S. Issued Stock Outside the United States

a. Debt Obligations

(1) Non-U.S. Obligations

(2) U.S. Obligations

b. Redemption of Foreign Stock or Debt

4. Special Rules of Application

a. Blocked Assets

b. Presumption Rule for Joint Owners

c. Determination of the Customer

d. Determination of Place Where Sale Is Effected

(1) Sale Outside the United States

(2) Sale Inside the United States

e. Special Rules for Foreign Intermediary or Certain U.S. Branch Customers

VI. Section 6050H - Mortgage Interest Received in Trade or Business from Individuals

A. In General

B. Information Reporting Required by Foreign Person

C. Exemption from Information Reporting for Nonresident Alien Individual

VII. Section 6050I - Information Reporting Relating to Cash Received in a Trade or Business

A. In General

B. Exception for Foreign Cash Transaction

VIII. Section 6050J - Information Returns Relating to Foreclosures and Abandonments of Security

A. In General

B. Exemption for Exempt Foreign Persons

IX. Section 6050M - Returns Relating to Contracts with Federal Executive Agencies

A. In General

B. Exemptions for Foreign Government and Persons Not Required to Have a TIN

X. Section 6050P - Information Reporting with Respect to Cancellation of Indebtedness Income

A. In General

B. Reporting Requirements Applicable to Foreign Branches of U.S. Financial Institutions with Respect to Foreign Debtors

XI. Section 6050N - Royalties Paid After December 31, 1986

A. In General

B. Exemption for Foreign-Related Items

C. Presumption Rule for Joint Owners

XII. Section 6050S - Information Reporting for Higher Education Tuition and Related Expenses

A. In General

B. Exemption from Information Reporting for Nonresident Alien Individuals

XIII. Section 3406

A. In General

B. Rate

C. Changes Made by T.D. 8734

D. Incorrect Payee TINs

XIV. Mandatory Presumption Rules

A. In General

B. Specific Presumption Rules

1. Different Presumption Rules for Different Applications

2. Classification Presumption Rules

a. General Rule

b. Special Rules for Documentary Evidence Furnished with Respect to an Offshore Account

(1) Payee Presumed to Be an Exempt Recipient

(2) Payee Presumed to Be a Corporation

(3) Payee Presumed to Be a Partnership

(4) Payee Presumed to Be a Foreign Corporation Not Treated as a Beneficial Owner

(5) Payee Presumed to Be a Foreign Corporation Treated as a Beneficial Owner

3. U.S. or Foreign Status Presumption Rules

a. General Rule

b. Payments to Exempt Recipients

c. Scholarship and Grant Payments

d. Pension and Annuity Payments

(1) Presumption of U.S. Status

(2) Presumption of Foreign Status

(3) No Reduction of Withholding Tax on Payments Made to a Person Presumed to Be a Foreign Person

e. Presumption for Payments Made to an Offshore Account

f. Presumptions Applicable to Payments to Foreign Intermediaries

(1) Presumption Rule for an Intermediary That the Withholding Agent May Not Reliably Treat as a Foreign Intermediary

(2) Presumption Rule for Non-Qualified Intermediaries and Qualified Intermediaries That Do Not Assume Primary Withholding Responsibility Under § 1441 or Chapter 61

g. Presumption for Joint Payees

(1) General Rule

(2) Special Rule for Offshore Accounts

h. Rebuttal of Presumptions

(1) Effect of Actual Knowledge or Reason to Know on Presumptions

(a) General Rule - Reliance on Presumptions

(2) Reliance on Actual Knowledge when Presumptions Require Greater Withholding

(3) Reliance on Actual Knowledge when Actual Knowledge Requires Greater Withholding

i. Grace Period Rules

(1) Documentation Provided

(2) Documentation Not Provided and Payee Presumed to Be a U.S. Nonexempt Recipient

(3) Documentation Not Provided and Payee Presumed to Be a Foreign Person

XV. Amounts Subject to Withholding

A. Overview

B. Basic Principles

1. Fixed or Determinable Annual or Periodical Income

a. In General

b. Cross-Border Lending Transactions

c. Miscellaneous Income

2. Gains Subject to Withholding

3. Withholding Not Required Where No Money or Property Is Paid or Lack of Knowledge

4. Payments

a. Section 482 Adjustments

b. Secondary Adjustments

c. Blocked Income

d. Dividends

e. Accrued Interest Election by Foreign Corporations Under Regs. § 1.884-4(c)(1)

f. Payments in Foreign Currency and Other Property

XVI. Determination of Amounts To Be Withheld

A. Gross Basis Withholding

B. Sales of Debt Obligations Between Interest Dates

C. Corporate Distributions

1. Reasonable Estimates

2. Underwithholding

3. Reliance by Intermediary on Reasonable Estimate

4. Distributions from a Regulated Investment Company

5. Coordination with § 1445 Withholding

6. Coordination with REIT Withholding

7. Undetermined Amounts of Income

8. Applicable Rate Under an Income Tax Treaty

9. Section 304 Deemed Dividend Distributions

10. Special Rule for Gains Subject to § 1441 Withholding

D. Payments in Other than U.S. Dollars

1. General Rule

2. Foreign Currency Payments

E. "Gross-Up" Rule

F. Conduit Financing Arrangements

1. Regulatory Withholding Requirements

2. Reason to Know in Context of a Conduit Financing Arrangement

3. Rebuttable Presumption Applicable to Knowledge of Financing Entity

4. Case Law

a. In General

b. Specific Factors That Affected the Outcome

c. Fast-Pay Stock and Certain Covenant Bonds

(1) Fast-Pay Stock

(2) Interest on Tax-Free Covenant Bonds

XVII. Interest and Other Income Exempt from § 1441 Withholding

A. Portfolio Interest Paid to Certain Foreign Payees on Registered Obligations

1. What Portfolio Interest Is

2. General Rules

3. Registered Form

4. Portfolio Interest Qualification Requirements

5. Statement Requirement for Certain Registered Obligations

a. In General

b. Statements from Beneficial Owners, QIs and Certain Others

c. Statements from Certain Financial Institutions

d. Competent Authority Procedures

e. Time for Providing Statement

6. Certain Foreign-Targeted Registered Obligations

a. Special Rules for Obligations Sold Through Public Auctions

b. Special Statement Requirement for Interest Paid to Certain Financial Institutions

c. Due Date for Foreign-Targeted Obligation Certificate

d. U.S. Beneficial Ownership Notification

e. Failure to Provide Form W-9 or Substitute Statement

f. Procedures for Clearing Organizations

g. Retention Requirement for Foreign-Targeted Registered Obligation Certificates

h. Form 1042-S Reporting Requirement Not Applicable

i. Statement Requirement for All Other Beneficial Owners of Foreign-Targeted Registered Obligations

j. Reporting Requirements

k. Disqualification of Documentation

7. Pass-Through Certificates


B. Bank Deposit Interest (Including Original Issue Discount)

1. Bank Deposit Interest Not Effectively Connected

2. Bank Deposit Interest Paid by a Foreign Branch of a Domestic Corporation or Partnership

C. Interest or OID on Short-Term Obligations

D. Certain Dividends Paid by a Foreign Corporation Treated as U.S. Source Dividends

E. Market Discount

F. Interest on Tax-Free Covenant Bonds

G. Bond Income of Residents of Ryukyu Islands or the Trust Territory of the Pacific Islands

XVIII. Effectively Connected Income

A. In General

B. Effectively Connected Income Other Than Compensation for Personal Services Performed by an Individual

1. Withholding Generally Not Required

2. Form W-8ECI Requirement

3. Special Rule for a U.S. Branch of Certain Foreign Banks or Insurance Companies

4. Special Rule for Notional Principal Contracts

a. General Rules

b. Exception from ECI Characterization for Payments Covered by Representations in Master Agreements

5. Global Dealing Income

C. Effectively Connected Income That Is Compensation for Personal Services Performed by an Individual

1. Dependent Personal Services Compensation

a. In General

b. Compensation Not Paid as Wages Under § 3401 and the Regulations Thereunder

2. Compensation Paid to a Nonresident Alien Individual Commuter Who Is a Resident of Canada or Mexico

3. Compensation That Is Exempt from Income Tax Under a Provision of the Code

4. Payments Made by Ship Chandlers

5. Compensation Exempt from § 3402 Wage Withholding Under § 3402(E)

6. Compensation for Personal Services Exempt from § 1441 Under an Income Tax Treaty

a. General Rule

b. Reliance on Form 8233

c. Contents of Form 8233

d. Review of Form 8233 by Withholding Agent

e. Acceptance by Withholding Agent

f. Forwarding Form 8233 to the IRS

7. Centralized Withholding Agreements with the IRS for Certain Nonresident Alien Entertainers and Athletes

8. Final Payment Exemption

9. Claim for a Personal Exemption

a. General Rule

b. Daily Proration Required

c. Multiple Exemptions

d. Special Rule for Payment of Both Scholarship and Compensation Income

10. Scholarship and Fellowship and Grant Income

a. General Rule

b. Alternative Election to Withhold Under § 3402

11. Annuities Received Under Qualified Plans

12. Per Diem of Certain Alien Trainees

XIX. Intermediaries

A. In General

B. Qualified Intermediaries

1. Definition of a Qualified Intermediary

2. General Obligations of a QI

3. Qualified Intermediary Withholding Certificate

4. Reportable Amount

5. Reportable Payment

a. U.S. Payor

b. Non-U.S. Payor

6. Withholding Statement

a. In General

b. Electronic Withholding Statements

c. Contents of Withholding Statement

d. Withholding Rate Pool

e. Alternative Procedures for U.S. Nonexempt Recipients

f. Transition Rule for Accounts of U.S. Nonexempt Recipients Established Prior to January 1, 2001

g. Post-2001 Accounts

7. Withholding and Reporting Responsibility of a Qualified Intermediary

a. In General

b. No Assumption of Primary Withholding Responsibility Under Either § 1441 or Chapter 61

c. QI Assumes Primary Withholding Responsibility Under § 1441 but Not Primary Chapter 61 Reporting and Backup Withholding Responsibility

d. QI Assumes Primary Chapter 61 Reporting (Form 1099 Reporting) and Backup Withholding Responsibility but Not Primary § 1441 Withholding Responsibility

e. QI Assumes Primary § 1441 Withholding Responsibility and Primary Chapter 61 Reporting and Backup Withholding Responsibility

8. Transition Relief Under Notice 2001-4 and Notice 2001-43

a. Treatment as a QI


c. Deposits of Withholding Tax

d. Account Holder Documentation

e. Primary Form 1099 Reporting and Backup Withholding Responsibility

f. QI Beneficial Owner Accounts

9. QI Application Procedures - Rev. Proc. 2000-12

a. In General

b. Application for QI Status

c. Documentary Evidence - "Know-Your-Customer" Rules

d. Reporting Requirements of a QI

e. Term of a QI Agreement

f. Examples

10. External Audit Procedures

a. In General

b. Three-Part Audit Process

c. Audit Waivers

d. Statistical Sampling

e. Projection of Sampling Results

C. Nonqualified Intermediaries

1. Nonqualified Intermediary Withholding Certificate

2. Nonqualified Intermediary Withholding Statement

a. General Rules

b. Consequence of Not Providing Documentation and Other Required Information

c. Requirements

d. Contents of Withholding Statement

e. Alternative Procedures

f. "Cure" Provision

g. Special Transition Rule for Calendar Year 2001

h. IRS Notice Procedures

XX. Payments to U.S. Branches of Certain Foreign Banks or Foreign Insurance Companies

A. In General

B. Consequences to U.S. Withholding Agent

C. U.S. Branch Treated as a U.S. Person

1. U.S. Branches of Certain Foreign Banks and Foreign Insurance Companies

2. Consequences to the U.S. Branch

a. Treatment as a Separate Person for § 1441 Withholding Purposes

b. Withholding and Reporting Responsibility

(1) Section 1441 Withholding and § 1461 Reporting Responsibility

(2) Chapter 61 Reporting Responsibility

(3) Payment to a U.S. Branch

(4) U.S. Branch Certificates

(a) General Requirements

(b) Requirements if Branch Not Treated as a U.S. Person

(i) Forms W-8IMY, Certifications, and Statements

(ii) Applicable Presumption in Absence of Documentation for Each Account

(iii) Special Rule for Broker Proceeds

c. Reportable Amounts

(1) Included Amounts

(2) Excluded Amounts

d. Requirements if Branch Treated as a U.S. Person

3. Special Presumption Applicable to U.S. Branches

4. Other U.S. Branches

a. Requirements for Similar Treatment

b. Alternative "Undue Burden" Requirement

(1) 2001 Regulations

(2) Pre-2001 Regulations

D. Practical Considerations

1. U.S. Branch as Lead Bank of a Syndicated Loan to a U.S. Borrower

2. Foreign Financial Institution with Multiple U.S. Branches

XXI. Partnerships

A. Domestic Partnerships

B. Foreign Partnerships

1. Withholding Foreign Partnerships

2. Withholding Agreement

3. Withholding Responsibility

4. Withholding Certificate from a Withholding Foreign Partnership

5. Withholding and Reporting Requirements

6. Determination by a Withholding Foreign Partnership of the Status of Its Partners

7. Nonwithholding Foreign Partnerships

a. Claim of Foreign Partnership Status

b. Claim of Reduced Withholding by a Partnership for Its Partners

c. Withholding Certificate of a Nonwithholding Foreign Partnership

d. Withholding Statement Required by a Nonwithholding Foreign Partnership

e. Year 2001 Transition Relief

8. Withholding and Reporting Requirements

9. Planning Techniques

10. Mandatory Presumptions

a. In General

b. Classification of the Payee

c. Status of the Payee

d. Special Partner Presumption Rules

e. Effect of Presumptions

XXII. Trusts and Estates

A. Payments Made to U.S. Trusts and Estates

B. Payments Made by a Simple U.S. Trust

1. Trust as Withholding Agent

2. Reasonable Estimate of Distributable Net Income Allowed

C. Payments Made by a Complex U.S. Trust or a U.S. Estate

1. Payments Made by a U.S. Complex Trust

2. Payments Made by a U.S. Estate

3. Withholding by a U.S. Grantor Trust

4. Subsequent Distributions

D. Foreign Trusts and Estates

1. Payments Made to Foreign Complex Trusts and Foreign Estates

2. Payments Made to Foreign Simple Trusts and Foreign Grantor Trusts

a. Trust Not Treated as a Payee or Beneficial Owner

b. Withholding Foreign Trust

3. TIN Generally Not Required for a Foreign Trust

a. In General

b. Exception for a Foreign Grantor Trust with Five or Fewer Owners

c. Look-Through Option

4. Presumption Rules Applicable to Trusts, Estates, and Beneficiaries

a. Classification Presumptions

b. Presumption as U.S. Trust or Estate Unless Foreign Indicia

c. Foreign Trusts Presumed to Be Complex Foreign Trusts

d. Presumption of Status of Beneficiary or Owner of a Foreign Simple Trust or a Foreign Grantor Trust

XXIII. Special Foreign Exempt Payees

A. Foreign Governments Other Than Governments of U.S. Possessions

B. Governments of U.S. Possessions

C. Income of a Foreign Central Bank of Issue or the Bank for International Settlements

1. Interest Income Under § 895

2. Bankers' Acceptances

3. International Organizations

4. Payments of Exempt Income to Foreign Tax Exempt Organizations and Foreign Private Foundations

a. In General - No Withholding

b. Tax Under § 4948(a)

c. Procedures to Claim an Exemption

d. Special Presumptions

e. Reason to Know of a Withholding Agent

f. Failure to Receive a Form W-8EXP

XXIV. Claims for Exemption or Reduction of Withholding Tax Under an Income Tax Treaty

A. Procedure to Claim Treaty Benefits

1. In General

2. Claims by Foreign Persons

3. Exemption from TIN Requirement

4. Documentary Evidence That Establishes Residency in a Treaty Country

a. Individuals

b. Persons Other Than Individuals

5. Independent Personal Services Income of an Individual

a. Use of Form 8233

b. Form 8233 Procedures for Withholding Agents

6. Certain Dependent Personal Services Income of Students, Professors/Teachers, Researchers, or Vocational Trainees

7. Payments to U.S. Citizens and Residents

B. Payments to Fiscally Transparent Entities

1. Claims by Interest Holders

2. Claims by an Entity That Is a Payee

3. Dual Claims

4. Relationship of § § 894(c) and 1441

5. Residence of a Flow-Through Entity

6. Beneficial Owner

7. Section 894(c)

8. Regulations Under § 894(c)

9. Payments Made to a Domestic Reverse Hybrid Entity

10. U.S. Regular Hybrids

11. Specific Provisions of the Final Regulations

C. Disclosure of Treaty-Based Return Position Under § 6114

1. General Rules

2. Treaty-Based Return Position

3. Instances Where Reporting Is Specifically Required

4. Instances Where Reporting Is Specifically Not Required

5. Required Reports

a. Returns Due After December 15, 1997

b. Modifications Required by Notice 2001-43

c. Returns Due Prior to December 15, 1997

6. Aggregation Rules

7. Penalties for Failure to Disclose

XXV. General Provisions Relating to Withholding Agents

A. Definition of a Withholding Agent

1. In General

2. Multiple Withholding Agents

3. Examples

B. Liability of a Withholding Agent

1. In General

2. Establishment of Satisfaction of Tax Liability

3. Liability of a Withholding Agent for Failure to Timely Obtain Documentation or Act in Accordance with Applicable Presumptions

4. Effect of Receipt of Documentation After Payment

5. Liability for Interest and Penalties Even If No Underlying Tax Liability

6. Examples

7. Civil Penalties

8. Criminal Penalties

9. Withholding Tax a Separate Tax for Purposes of Second Inspection Rule Under § 7605(b)

C. Due Diligence Requirements - Standards of Knowledge Attributed to a Withholding Agent

1. General Rules

2. Effect of Actual Knowledge or Reason to Know on Presumptions

3. Actual Knowledge and Reason to Know

4. Limits on Reason to Know for Financial Institutions

a. Direct Account Holders

b. Indirect Account Holders

5. Establishment of Foreign Status

6. Rebuttal Provisions

a. For Individuals

b. For Non-Flow-Through Entities

c. Offshore Accounts

7. Establishment of a Treaty Reduced Rate of Withholding Claim

a. In General

b. Rebuttal Provisions

(1) Permanent Residence Address

(2) Mailing Address

(3) Payment Outside the Treaty Country

8. Reliance on Documentary Evidence

a. In General

b. Establishment of Foreign Status

(1) Addresses

(2) Relief Provisions for Nonqualifying Addresses

(3) Payments to a U.S. Address or Account

9. Indirect Account Holders (Payments Made to an Intermediary)

a. Review of Withholding Statement

b. Review of Withholding Certificates

c. Review of Documentary Evidence

10. Additional Guidance

11. Due Diligence Requirements for Forms W-9

12. Notified Payee Underreporting

13. Requirements of Regs. § 31.3406(c)-1(c)(3)(iii)

14. Identification of Exempt Recipients

15. Indemnification of a Withholding Agent

16. Remedies Against a Payee in Case of Underwithholding

XXVI. Reporting of Payments Made and Tax Withheld Under § 1461

A. In General

1. Form 1042 - Income Tax Return of Withholding Agent

a. Amended Forms 1042

b. Extensions of Time to File Form 1042

2. Form 1042-S

a. Extensions to File

b. Recipient

c. Amount Subject to Reporting

d. Bank Deposit Interest Paid to Residents of Canada

e. Bank Deposit Interest Paid to Any Nonresident Alien Individual

f. Reporting of Bank Deposit Interest - Joint Owners

3. Exceptions to Reporting on Form 1042-S

4. Information Required to Be Reported on Forms 1042-S

5. Payments to Beneficial Owners

a. General Rule

b. Application of Grace Period Rule

c. Joint Owners

6. Payments to Qualified Intermediaries, Withholding Foreign Partnerships, or Withholding Foreign Trusts

7. Amounts Paid to U.S. Branches That Elect to Be Treated as U.S. Persons

8. Amounts Paid to Authorized Foreign Agents

9. Dual Claims by Fiscally Transparent Entities and Their Interest Holders Under § 894

10. Payments Made to Persons That Are Not Recipients

a. Amounts Paid to Nonqualified Intermediaries, Flow-Through Entities, and U.S. Branches Not Treated as U.S. Persons

b. Disregarded Entities

c. Reporting by Qualified Intermediaries, Withholding Foreign Partnerships, and Withholding Foreign Trusts

d. Reporting by Nonqualified Intermediaries, Flow-Through Entities, and U.S. Branches Not Treated as U.S. Persons

e. Pro Rata Reporting for Allocation Failures

11. Penalties for Failure to File

a. Failure to File Timely and Correct Forms 1042-S

b. Failure to Furnish Timely Forms 1042-S to Payee

c. Other Penalties

B. Deposit of Tax Withheld

1. In General

2. Quarter-Monthly Deposits

C. Monthly Deposits

D. Annual Deposits

E. Tax Paid with Form 1042

F. Time Tax Is Deemed Paid by Withholding Agent

G. Separation of Deposits

XXVII. Adjustments for Overwithholding or Underwithholding of Tax

A. Adjustments of Overwithheld Tax

1. Reimbursement of Tax

2. Set-Off Procedure

B. Withholding of Additional Tax When Underwithholding Occurs

XXVIII. Refunds or Credits

A. In General

B. Interest on Overwithholding Under § 1441

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Form W-8BEN - Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

Worksheet 2 Instructions for Form W-8BEN

Worksheet 3 Form W-9 - Request for Taxpayer Identification Number and Certification

Worksheet 4 Instructions for the Requester of Form W-9

Worksheet 5 Form W-8IMY - Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding

Worksheet 6 Instructions for Form W-8IMY

Worksheet 7 Form W-8ECI - Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States

Worksheet 8 Instructions for Form W-8ECI

Worksheet 9 Form W-8EXP - Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding

Worksheet 10 Instructions for Form W-8EXP

Worksheet 11 Form 8233 - Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual

Worksheet 12 Instructions for Form 8233

Worksheet 13 [Reserved]

Worksheet 14 Form 1042 - Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

Worksheet 15 Form 1042-S - Foreign Person's U.S. Source Income Subject to Withholding

Worksheet 16 Instructions for Form 1042-S

Worksheet 17 Form W-7 - Application for IRS Individual Taxpayer Identification Number

Worksheet 18 Know-Your-Customer Rules for United Kingdom

Worksheet 19 IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities

Worksheet 20 Rev. Proc. 2000-12, 2000-4 I.R.B. 387, Application Procedures for Becoming a Qualified Intermediary and the Model QI Withholding Agreement

Worksheet 21 Rev. Proc. 88-24, 1988-1 C.B. 800 Special Withholding Procedures for Scholarships and Fellowships That Are Treated as Effectively Connected Income

Worksheet 22 Rev. Proc. 89-47, 1989-2 C.B. 598, Central Withholding Agreement Procedures

Worksheet 23 Rev. Proc. 87-8, 1987-1 C.B. 366, Statement Required for Exemption from U.S. Tax for Students

Worksheet 24 Rev. Proc. 87-9, 1987-1 C.B. 368, Statement Required for Exemption from U.S. Tax for Teachers and Professors

Worksheet 25 Rev. Proc. 93-22, 1993-1 C.B. 535, Statement Required for Exemption from U.S. Tax for Students, Teachers, and Professors

Worksheet 26 Flow Chart for Withholding Agents

Worksheet 27 Documentation Requirement Chart for Various Types of Income






General Counsel's Memoranda:


Treasury Rulings:



Books and Treatises: