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Publication 515 Cat. No. 15019L Contents

What's New ...... 1 Department of the Withholding Reminders ...... 2 Treasury Internal Introduction ...... 2 Revenue of Tax on Service Withholding of Tax ...... 3 Nonresident Persons Subject to Chapter 3 or Chapter 4 Withholding ...... 5

Aliens and Documentation ...... 10 Foreign Entities Income Subject to Withholding ..... 23 Withholding on Specific Income ..... 26

Foreign Governments and Certain Other Foreign Organizations .... 39 For use in 2021 U.S. or Foreign TINs ...... 40

Depositing Withheld Taxes ...... 41

Returns Required ...... 42

Partnership Withholding on Effectively Connected Income ... 43

Section 1446(f) Withholding ...... 46

U.S. Real Property Interest ...... 48

Definitions ...... 51

Tax Treaties ...... 52

How To Get Tax Help ...... 52

Index ...... 55

Future Developments For the latest information about developments related to Pub. 515, such as legislation enacted after it was published, go to IRS.gov/Pub515.

What's New New requirement to fax requests for exten- sion to furnish statements to recipients. Requests for an extension of time to furnish cer- tain statements to recipients, including Form 1042-S, should now be faxed to the IRS. For more information see Extension to furnish state- ments to recipients under Extensions of Time To File, later. COVID-19 relief for Form 8233 filers. The IRS has provided relief from withholding on compensation for certain dependent personal services, for individuals who were unable to leave the United States due to the global health Get forms and other information faster and easier at: emergency caused by COVID-19. For more in- • IRS.gov (English) • IRS.gov/Korean (한국어) formation, see the Instructions for Form 8233 • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) revised November 2020. • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt)

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Final regulations under section 1446(f). Fi- Deposit interest paid to certain nonresident Although we can’t respond individually to nal regulations under section 1446(f) of the In- alien individuals for more information. each comment received, we do appreciate your ternal Revenue Code were published in the Electronic deposits. You must make all de- feedback and will consider your comments as Federal Register on November 30, 2020. These posits of taxes paid with respect to Form we revise our tax forms, instructions, and publi- regulations, which are generally effective for 1042-S (including taxes withheld under either cations. Do not send tax questions, tax returns, transfers of partnership interests occurring on chapter 3 or chapter 4 of the Internal Revenue or payments to the above address. or after January 29, 2021, provide guidance for Code) electronically. the implementation of sections 1446(f)(1) and Getting answers to your tax questions. Substitute forms. The official Form 1042-S is If you have a tax question not answered by this 1446(f)(4) of the Internal Revenue Code, which the standard for substitute forms. All substitute were included in the Tax Cuts and Jobs Act publication or the How To Get Tax Help section forms must comply with the rules set out in Pub. at the end of this publication, go to the IRS In- (TCJA). However, Notice 2018-8, 2018-07 1179. A substitute of Form 1042-S, Copy A, I.R.B. 352, at IRS.gov/irb/ teractive Tax Assistant page at IRS.gov/ must be an exact copy of the official form. If it is Help/ITA where you can find topics using the 2018-07_IRB#NOT-2018-08 and Notice not, the IRS may reject the form as incorrect 2018-29, 2018-16 I.R.B. 495, at IRS.gov/irb/ search feature or by viewing the categories lis- and may impose penalties. The IRS provides ted. 2018-16_IRB#NOT-2018-29 generally apply to several means, including electronic, of obtain- transfers that occurred before the effective date ing the most frequently used tax forms. For de- Getting tax forms, instructions, and pub- of the final regulations. The provisions of the fi- tails on the requirements of substitute forms, lications. Visit IRS.gov/Forms to download nal regulations relating to transfers of publicly see Pub. 1179. current and prior-year forms, instructions, and traded partnership interests apply to transfers Filing electronically. If you file Form 1042-S publications. that occur on or after January 1, 2022. Addition- electronically, you will use the Filing Information ally, the provisions under the final regulations Ordering tax forms, instructions, and Returns Electronically (FIRE) system. You get with respect to publicly traded partnership distri- publications. Go to IRS.gov/OrderForms to to the system through the Internet at butions apply to distributions made on or after order current forms, instructions, and publica- FIRE.IRS.gov. January 1, 2022. For more information, see tions; call 800-829-3676 to order prior-year Section 1446(f) Withholding, later. If you submit files on the FIRE system, it is forms and instructions. The IRS will process your responsibility to verify the results of the your order for forms and publications as soon Changes to Forms W-8ECI and W-8IMY. transmission within 5 business days. The IRS as possible. Do not resubmit requests you’ve Based on provisions included in the final regula- will not mail error reports for files that are bad. already sent us. You can get forms and publica- tions under section 1446(f) of the Internal Reve- See Pub. 1187 for information on the require- tions faster online. nue Code, changes are being made to Forms ments for filing Form 1042-S electronically. W-8ECI and W-8IMY and the instructions to Requests for extensions on Form 8809. Re- those forms. The forms will be released in 2021. Useful Items quests on Form 8809 for an extension of time to Certain other forms may also be revised in You may want to see: file Form 1042-S should be made electronically. 2021. For more information, see IRS.gov. See Extension to file Form 1042-S with the IRS, Publication Changes to Form 8833. Changes have been later. made to the Form 8833 for 2020. For more in- Photographs of missing children. The IRS is 15 15 (Circular E), Employer's Tax Guide formation, see the Form 8833 . a proud partner with the National Center for

15-A 15-A Employer's Supplemental Tax Guide Changes to Forms 8288 and 8288-A, and a Missing & Exploited Children® (NCMEC). Pho- new form. Based on provisions included in the tographs of missing children selected by the 15-B 15-B Employer's Tax Guide to Fringe final regulations under section 1446(f) of the In- Center may appear in this publication on pages Benefits ternal Revenue Code, Form 8288 and Form that would otherwise be blank. You can help 15-T 15-T Federal Income Tax Withholding bring these children home by looking at the 8288-A will be revised, and a new form for re- Methods porting under section 1446(f)(4) is under devel- photographs and calling 1-800-THE-LOST opment. For more information, see IRS.gov. (1-800-843-5678) if you recognize a child. 51 51 (Circular A), Agricultural Employer's Tax Guide Changes to Forms 1042 and 1042-S. Based on provisions included in the final regulations Introduction 505 505 Tax Withholding and Estimated Tax under section 1446(f) of the Internal Revenue

This publication is for withholding agents who 519 519 U.S. Tax Guide for Aliens Code, changes will be made. For more informa- pay income to foreign persons, including non- tion, see Form 1042 and Form 1042-S. 901 resident aliens, foreign corporations, foreign 901 U.S. Tax Treaties , partnerships, foreign trusts, foreign estates, for- 1179 1179 General Rules and Specifications eign governments, and international organiza- for Substitute Forms 1096, 1098, tions. Specifically, it describes the persons re- 1099, 5498, and Certain Other sponsible for withholding (withholding agents), Information Returns Reminders the types of income subject to withholding, and

the information return and tax return filing obli- 1187 1187 Specifications for Electronic Filing of Central Withholding Agreement (CWA) sim- Form 1042-S, Foreign Person's U.S. plified application process. We’ve tempora- gations of withholding agents. In addition to dis- cussing the rules that apply generally to pay- Source Income Subject to rily waived the income requirement for which Withholding form to use when applying for a CWA. Form ments of U.S. source income to foreign persons, it also contains sections on the with- 13930-A is currently unavailable. While the 5124 5124 FATCA XML User Guide waiver is in effect, individuals with income be- holding that applies to the disposition of U.S. low $10,000 can apply for a CWA using Form real property interests and the withholding by Form (and Instructions) 13930, Instructions on How to Apply for a Cen- partnerships on income effectively connected

SS-4 SS-4 Application for Employer tral Withholding Agreement PDF. For more in- with the active conduct of a U.S. trade or busi- Identification Number formation on how to apply for a CWA, see Form ness.

13930. W-2 W-2 Wage and Tax Statement Comments and suggestions. We welcome For more information, go to IRS.gov/ your comments about this publication and your W-4 W-4 Employee's Withholding Allowance Individuals/International-Taxpayers/Central- suggestions for future editions. Certificate Withholding-Agreements. You can send us comments through

W-4P W-4P Withholding Certificate for Pension Deposit interest paid to certain nonresident IRS.gov/FormComments. Or, you can write to: or Annuity Payments alien individuals. Deposit interest of $10 or Internal Revenue Service, Tax Forms and Pub-

more paid to certain nonresident alien individu- lications, 1111 Constitution Ave. NW, IR-6526, W-7 W-7 Application for IRS Individual als must be reported on Form 1042-S. See Washington, DC 20224. Taxpayer Identification Number

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W-8BEN W-8BEN Certificate of Foreign Status of insurance companies. You may be a withhold- Beneficial Owner for United States ing agent even if there is no requirement to Tax Withholding and Reporting Withholding of Tax withhold from a payment or even if another per- (Individuals) son has withheld the required amount from the In most cases, a foreign person is subject to payment. W-8BEN-E W-8BEN-E Certificate of Status of U.S. tax on its U.S. source income. Most types Beneficial Owner for United States of U.S. source income received by a foreign Although several persons may be withhold- Tax Withholding and Reporting person are subject to U.S. tax of 30%. A re- (Entities) ing agents for a single payment, the full tax is duced rate, including exemption, may apply if required to be withheld only once. In most ca-

W-8ECI W-8ECI Certificate of Foreign Person's there is a tax treaty between the foreign per- ses, the U.S. person who pays an amount sub- Claim That Income Is Effectively son's country of residence and the United ject to chapter 3 withholding is the person re- Connected With the Conduct of a States. The tax is generally withheld (chapter 3 sponsible for withholding. However, other Trade or Business in the United withholding) from the payment made to the for- persons may be required to withhold. For exam- States eign person. ple, a payment made by a flow-through entity or nonqualified intermediary (NQI) that knows, or W-8EXP W-8EXP Certificate of Foreign The term “chapter 3 withholding” is used in Government or Other Foreign this publication descriptively to refer to with- has reason to know, that the full amount of Organization for United States Tax holding required under sections 1441, 1442, chapter 3 withholding was not done by the per- Withholding and Reporting and 1443 of the Internal Revenue Code. In most son from which it receives a payment is re- cases, chapter 3 withholding describes the quired to do the appropriate withholding since it

W-8IMY W-8IMY Certificate of Foreign withholding regime that requires withholding on also falls within the definition of a withholding Intermediary, Foreign Flow-Through a payment of U.S. source income. Payments to agent. In addition, withholding must be done by Entity, or Certain U.S. Branches for foreign persons, including nonresident alien in- any QI, withholding foreign partnership, or with- United States Tax Withholding and dividuals, foreign entities, and governments, holding foreign trust in accordance with the Reporting may be subject to chapter 3 withholding. terms of its withholding agreement, discussed later. W-8 Inst. W-8 Inst. Instructions for the Requester of Forms W-8BEN, W-8BEN-E, Withholding may also be required on a pay- W-8ECI, W-8EXP, and W-8IMY ment to the extent required under chapter 4. Liability for tax. As a withholding agent, you “chapter 4” refers to chapter 4 of Subtitle A are personally liable for any tax required to be

W-9 W-9 Request for Taxpayer Identification (sections 1471 through 1474 of the Internal withheld. This liability is independent of the tax Number and Certification Revenue Code). See Chapter 4 Withholding liability of the foreign person to whom the pay- Requirements, later. ment is made. If you fail to withhold and the for- W-9 Inst. W-9 Inst. Instructions for the Requester of eign payee fails to satisfy its U.S. tax liability, Form W-9 Chapter 3 withholding does not include then both you and the foreign person are liable withholding under section 1445 of the 941 941 Employer's QUARTERLY Federal ! for tax, as well as interest and any applicable CAUTION Internal Revenue Code (see U.S. Real Tax Return penalties. Property Interest, later) or under section 1446 of The applicable tax will be collected only 945 945 Annual Return of Withheld Federal the Internal Revenue Code (see Partnership once. If the foreign person satisfies its U.S. tax Income Tax Withholding on Effectively Connected Income liability, you are not liable for the tax but remain and Section 1446(f) Withholding, later). 1042 1042 Annual Withholding Tax Return for liable for any interest and penalties for failure to U.S. Source Income of Foreign withhold. Persons A withholding agent (defined next) is the person responsible for withholding on payments Determination of amount to withhold. You 1042-S 1042-S Foreign Person's U.S. Source made to a foreign person. However, a withhold- Income Subject to Withholding must withhold on the gross amount subject to ing agent that can reliably associate the pay- chapter 3 withholding. You cannot reduce the ment with documentation (discussed later) from 1042-T 1042-T Annual Summary and Transmittal gross amount by any deductions. a U.S. person is not required to withhold. In ad- of Forms 1042-S If the determination of the source of the in- dition, a withholding agent may apply a reduced come or the amount subject to tax depends on 13930 13930 Instructions on how to apply for a rate of withholding (including an exemption facts that are not known at the time of payment, Central Withholding Agreement from withholding) if it can reliably associate the you must withhold an amount sufficient to en- payment with documentation from a beneficial 13930-A 13930-A Application for Central sure that at least 30% of the amount subse- owner that is a foreign person entitled to a re- Withholding Agreement Less than quently determined to be subject to withholding duced rate of withholding. $10,000 is withheld. In no case, however, should you withhold more than 30% of the total amount 8233 8233 Exemption From Withholding on If an amount subject to chapter 3 withhold- Compensation for Independent (and ing is also a withholdable payment and chap- paid. You may elect to hold 30% of the payment Certain Dependent) Personal ter 4 withholding is applied to the payment, no in escrow until the earlier of the date that the Services of a Nonresident Alien withholding is required under chapter 3. See amount of income from U.S. sources or the tax- Individual Chapter 4 Withholding Requirements, later. able amount can be determined or 1 year from the date the amount is placed in escrow, at

8288 8288 U.S. Withholding Tax Return for which time the withholding becomes due, or, to Disposition by Foreign Persons of Withholding Agent the extent that withholding is not required, the U.S. Real Property Interests escrowed amount must be paid to the payee. Chapter 3 8288-A 8288-A Statement of Withholding on When to withhold. Withholding is required at Dispositions by Foreign Persons of Withholding Requirements the time you make a payment of an amount U.S. Real Property Interests You are a withholding agent if you are a U.S. or subject to withholding. A payment is made to a

8288-B 8288-B Application for Withholding foreign person, in whatever capacity acting, that person if that person realizes income, whether Certificate for Dispositions by Foreign has control, receipt, custody, disposal, or pay- or not there is an actual transfer of cash or other Persons of U.S. Real Property ment of an amount subject to chapter 3 with- property. A payment is considered made to a Interests holding. A withholding agent may be an individ- person if it is paid for that person's benefit. For ual, corporation, partnership, trust, association, example, a payment made to a creditor of a 8966 8966 FATCA Report nominee (under section 1446 of the Internal person in satisfaction of that person's debt to See How To Get Tax Help at the end of this Revenue Code), or any other entity, including the creditor is considered made to the person. publication for information about getting any foreign intermediary, foreign partnership, or A payment is also considered made to a person publications and forms. U.S. branch of certain foreign banks and if it is made to that person's agent.

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A U.S. partnership should withhold when Generally, a withholdable payment is a pay- A payer files a tax return on Form 945 to re- any distributions that include amounts subject ment of U.S. source fixed or determinable an- port backup withholding. to withholding are made. However, if a foreign nual or periodical (FDAP) income. Specific ex- partner's distributive share of income subject to ceptions to withholdable payments apply You may be required to file Form 1099 and, if withholding is not actually distributed, the U.S. instead of the exemptions from withholding or appropriate, backup withhold, even if you do partnership must withhold on the foreign part- taxation provided under chapter 3. See Income not make the payments directly to that U.S. per- ner's distributive share of the income on the Subject to Withholding, later, for more informa- son. For example, you are required to report in- earlier of the date that a Schedule K-1 (Form tion on payments of U.S. source FDAP income come paid to a foreign intermediary or 1065) is furnished or mailed to the partner or that are excepted from the definition of with- flow-through entity that collects for a U.S. per- the due date for furnishing that schedule. If the holdable payment. son subject to Form 1099 reporting. However, distributable amount consists of effectively con- you may not be required to report on Form 1099 nected income, see Partnership Withholding on If a withholding agent makes a payment if you make a payment to a participating FFI or Effectively Connected Income, later. subject to both chapter 4 withholding and chap- registered deemed-compliant FFI that provides ter 3 withholding, the withholding agent must a withholding statement allocating the payment A U.S. trust is required to withhold on the apply the withholding provisions of chapter 4, to a chapter 4 withholding rate pool of U.S. pay- amount includible in the gross income of a for- and need not withhold on the payment under ees. See Identifying the Payee, later, for more eign beneficiary to the extent the trust's distrib- chapter 3 to the extent that it has withheld under information. Also see Section S. Special Rules utable net income consists of an amount sub- chapter 4. for Reporting Payments Made Through Foreign ject to withholding. To the extent a U.S. trust is Intermediaries and Foreign Flow-Through required to distribute an amount subject to with- Similar rules for withholding agent liability for Entities on Form 1099 in the General Instruc- holding but does not actually distribute the tax, determination of amount to withhold, and tions for Certain Information Returns. when to withhold as those described in Chap- amount, it must withhold on the foreign benefi- Foreign persons who provide a Form ter 3 Withholding Requirements, earlier, also ciary's allocable share at the time the income is TIP W-8 (or applicable documentary evi- apply for chapter 4. required to be reported on Form 1042-S. dence when permitted in lieu of a Form W-8) are exempt from backup withholding and Chapter 4 Forms 1042 and 1042-S Form 1099 reporting. Withholding Requirements Reporting Obligations Form 8966 reporting. For chapter 4 purpo- You are a withholding agent for purposes of You are required to report payments subject to ses, you may be required to report on Form chapter 4 if you are a U.S. or foreign person, in chapter 3 withholding on Form 1042-S and to 8966, FATCA Report, if you make a withholda- whatever capacity you are acting, that has con- file a tax return on Form 1042. (See Returns ble payment to an entity you agree to treat as trol, receipt, custody, disposal, or payment of a Required, later.) You also are required to report an owner-documented FFI or to a passive withholdable payment. Similar rules for deter- withholdable payments to which chapter 4 with- NFFE. See Returns Required, later. mining who is a withholding agent as those de- holding was (or should have been) applied on scribed in Chapter 3 Withholding Require- Form 1042-S and to file a tax return on Form Wages paid to employees. If you are the em- ments, earlier, also apply for chapter 4. For 1042 to report the payments. An exception from ployer of a nonresident alien, you must gener- purposes of chapter 4, a withholding agent in- reporting may apply for chapter 3 purposes to ally withhold taxes at graduated rates. See Pay cludes a participating foreign financial institution individuals who are not required to withhold for Personal Services Performed, later. (FFI) (including a reporting Model 2 FFI) or reg- from a payment and who do not make the pay- istered deemed-compliant FFI to the extent ment in the course of their trade or business. A Effectively connected income by partner- such FFI makes a withholdable payment. similar exception from reporting for chapter 4 ships. A withholding agent that is a partnership purposes may apply to an individual making a (whether U.S. or foreign) is also responsible for Under chapter 4 of the Internal Revenue withholdable payment outside the course of the withholding on its income effectively connected Code, a withholding agent that makes a with- individual’s trade or business (including as an with a U.S. trade or business that is allocable to holdable payment to a payee that is an FFI must agent with respect to making or receiving such foreign partners. See Partnership Withholding withhold 30% on the payment unless the with- payment). on Effectively Connected Income, later, for holding agent is able to treat the FFI as a partic- more information. ipating FFI, deemed-compliant FFI, or exempt beneficial owner. A withholding agent must also Withholding and Transfers of interests in partnerships en- withhold 30% on a withholdable payment made Reporting Obligations gaged in the conduct of a U.S. trade or to a payee that is a foreign entity other than an (Other Than Forms 1042 business. A withholding agent is also respon- FFI (that is, a nonfinancial foreign entity, or and 1042-S Reporting) sible for withholding on the transfer by a foreign NFFE) that fails to identify its substantial U.S. partner of an interest in a partnership (domestic owners (or certify that it does not have any sub- Form 1099 reporting and backup withhold- or foreign) engaged in the conduct of a U.S. stantial U.S. owners) unless the payment is ex- trade or business. See Section 1446(f) With- cepted from withholding under the regulations ing. You may also be responsible as a payer for reporting payments to a U.S. person, gener- holding, later, in this publication for more infor- to section 1472 of the Internal Revenue Code. mation. A participating FFI is a withholding agent under ally on Form 1099. You must withhold 24% chapter 4 and is required to withhold on a with- (backup withholding rate) from certain reporta- ble payments made to a U.S. person that is U.S. real property interest. A withholding holdable payment to the extent required under agent may also be responsible for withholding if the FFI agreement, including on a payment subject to Form 1099 reporting if any of the fol- lowing apply. a foreign person transfers a U.S. real property made to an account holder that the FFI is re- interest to the agent, or if it is a corporation, quired to treat as a recalcitrant account holder. • The U.S. person has not provided its tax- payer identification number (TIN) in the partnership, trust, or estate that distributes a A reporting Model 1 FFI is required to withhold U.S. real property interest to a shareholder, under chapter 4 to the extent required in the ap- manner required. • The IRS notifies you that the TIN furnished partner, or beneficiary that is a foreign person. plicable Intergovernmental Agreement (IGA). A See U.S. Real Property Interest, later. registered deemed-compliant FFI (other than a by the payee is incorrect. reporting Model 1 FFI) is required to withhold • There has been a notified payee underre- under chapter 4 to the extent required under the porting. conditions applicable to its registered • There has been a payee certification fail- deemed-compliant FFI status. See Regulations ure. section 1.1471-5(f)(1) for a description of the In most cases, a TIN must be provided by a types of registered deemed-compliant FFIs that U.S. nonexempt recipient (a U.S. person sub- may have withholding requirements. ject to Form 1099 reporting) on Form W-9.

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For chapter 4 purposes, if you make a with- flow-through entity are the owners or beneficia- holdable payment to a U.S. person and you ries of the flow-through entity. This rule applies Persons Subject have actual knowledge that the U.S. person is for purposes of chapter 3 withholding and for to Chapter 3 or receiving the payment as an intermediary or Form 1099 reporting and backup withholding. agent of a foreign person, you must treat the Income that is, or is deemed to be, effectively Chapter 4 Withholding foreign person as the payee. However, if you connected with the conduct of a U.S. trade or make a withholdable payment to a U.S. finan- business of a flow-through entity is treated as Chapter 3 withholding applies only to payments cial institution or a U.S. insurance broker (to the paid to the entity. made to a payee that is a foreign person. It extent the withholdable payment is a payment The following are flow-through entities. does not apply to payments made to U.S. per- of an insurance premium) that is receiving the • A foreign partnership (other than a with- sons. payment as an intermediary or agent, you may holding foreign partnership). treat the financial institution or insurance broker • A foreign simple or foreign grantor trust Usually, you determine the payee's status as the payee if you do not have reason to know (other than a withholding foreign trust). as a U.S. or foreign person or, if you are making that the financial institution or insurance broker If the chapter 3 payee is a disregarded entity a withholdable payment to an entity (or are an will not comply with its obligations to withhold or flow-through entity for U.S. tax purposes, but FFI making a payment to an account holder), under chapter 4. See Definitions, later, for the the payee is claiming treaty benefits, see Fis- the payee's chapter 4 status, based on the doc- definition of financial institution. umentation that person provides. See Docu- cally transparent entities claiming treaty bene- If the payment is not subject to chapter 3 fits, later. mentation, discussed later. However, if you withholding and is not a withholdable payment, have received no documentation or you cannot you must treat the payment as made to a U.S. Chapter 4 payees. For purposes of chapter 4, reliably associate all or a part of a payment with person and not as a payment to a foreign per- documentation upon which you can rely, then however, a foreign entity that is a flow-through son. You may be required to report the payment entity is a payee with respect to a payment you must apply certain presumption rules, dis- on Form 1099 and, if applicable, backup with- cussed later. (other than income effectively connected with hold. the conduct of a U.S. trade or business) if the Chapter 4 withholding applies to withholda- flow-through entity is: ble payments made to an entity payee that is an Disregarded entities. In general, a business • An FFI that is not a participating FFI or FFI unless the withholding agent is able to treat entity that is not a corporation and that has a deemed-compliant FFI, or restricted dis- the FFI as a participating FFI, deemed-compli- single owner may be disregarded as an entity tributor (an entity that operates as a distrib- ant FFI, or exempt beneficial owner. Chapter 4 separate from its owner (a disregarded entity) utor that holds debt or equity interests in a withholding also applies to withholdable pay- for federal tax purposes. The payee of a pay- restricted fund as a nominee and meets ments made to a passive NFFE that fails to ment made to a disregarded entity is the owner the requirements described in Regulations identify its substantial U.S. owners (or certify of the entity. section 1.1471-5(f)(4)) receiving the pay- that it does not have any substantial U.S. own- If the owner of the entity is a foreign person, ment on behalf of its owners (in such a ers). You must establish the payee’s chapter 4 you must apply chapter 3 withholding unless case, the entity is a nonparticipating FFI status to determine if withholding applies by ap- you can treat the foreign owner as a beneficial subject to withholding under chapter 4); or plying the documentation requirements of chap- owner entitled to a reduced rate of withholding. • An excepted NFFE that is not acting as an ter 4, generally by obtaining a Form W-8 (or, un- If the owner is a U.S. person, you do not ap- agent or intermediary with respect to the der an applicable IGA, a similar agreed form) ply chapter 3 withholding. However, you may be payment. associated with the payment, or other docu- required to report the payment on Form 1099 If you make a withholdable payment to a mentation for payments made outside of the and, if applicable, backup withhold. You may flow-through entity that is not one of the types United States on offshore obligations. See Reg- assume that a foreign entity is not a disregar- described above, you must treat the partner, ulations section 1.1471-3(d) for details on these ded entity unless you can reliably associate the beneficiary, or owner (as applicable) of the documentation requirements. Withholding un- payment with documentation provided by the flow-through entity as the payee for chapter 4 der chapter 4 also applies to account holders of owner or you have actual knowledge or reason purposes (similar to the determination of the a participating FFI or registered deemed-com- to know that the foreign entity is a disregarded payee for chapter 3 purposes) (looking through pliant FFI that the FFI is required to treat as re- entity. partners, beneficiaries, and owners that are calcitrant account holders. Special chapter 4 rules. If you make a with- themselves flow-through entities that are not This section applies to both Chapters 3 and holdable payment to a disregarded entity one of the types described above). 4 except where otherwise indicated and except owned by an FFI, for chapter 4 purposes you where the text clearly applies to one or the other must determine whether you must treat the pay- In most cases, you treat a payee as a (for example, reduced rates and exemptions ment as made to a payee that is a nonpartici- flow-through entity if it provides you with a Form under income tax treaties). pating FFI (to which chapter 4 withholding ap- W-8IMY (see Documentation, later) on which it plies) or a payee that is an FFI with another claims such status. You may also be required to Identifying the Payee chapter 4 status (such as a participating FFI). If treat the entity as a flow-through entity under you make a withholdable payment to a disre- the presumption rules, discussed later. In most cases, the payee is the person to whom garded entity that is treated as a disregarded you make the payment, regardless of whether entity that is a branch of an FFI that cannot For purposes of chapter 3, you must deter- that person is the beneficial owner of the in- comply with the requirements of an applicable mine whether the owners or beneficiaries of a come. However, there are situations in which IGA or the regulations under chapter 4, you flow-through entity are U.S. or foreign persons, the payee is a person other than the one to must treat the payment as made to a nonpartici- how much of the payment relates to each owner whom you actually make a payment. pating FFI and withhold 30% of the payment. or beneficiary, and, if the owner or beneficiary is See the Instructions for Form W-8BEN-E for foreign, whether a reduced rate of chapter 3 U.S. agent of foreign person. For purposes more information on payments to disregarded withholding applies. For purposes of chapter 4, of chapter 3, if you make a payment to a U.S. entities. you must determine the chapter 4 status of the person and you have actual knowledge that the owners or beneficiaries of a flow-through entity U.S. person is receiving the payment as an Flow-Through Entities (subject to the exceptions described above), agent of a foreign person, you must treat the how much of the payment relates to each owner payment as made to the foreign person. How- Chapter 3 payees. The payees of payments or beneficiary, and whether withholding under ever, if the U.S. person is a financial institution, (other than income effectively connected with a chapter 4 applies. You make these determina- you may treat the institution as the payee provi- U.S. trade or business and dispositions of inter- tions based on the documentation and other in- ded you have no reason to believe that the insti- ests in partnerships engaged in a trade or busi- formation (contained in a withholding state- tution will not comply with its own obligation to ness within the United States) made to a foreign ment) that is associated with the flow-through withhold under chapter 3. entity's Form W-8IMY. If you do not have all of

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the information that is required to reliably asso- Form W-8IMY from the second partnership. In to them. Report the payment to the nonresident ciate a payment with a specific payee, you must addition, Forms W-8BEN from the partners are aliens on Forms 1042-S. Report the payment to apply the presumption rules. See Documenta- associated with the Form W-8IMY from the sec- the U.S. citizen on Form 1099-INT. You do not tion and Presumption Rules, later. ond partnership. The Forms W-8IMY from the need to establish the chapter 4 status of the partnerships have complete withholding state- trust because the payment is not a withholdable Withholding foreign partnerships and with- ments associated with them. Because you can payment. holding foreign trusts are not flow-through enti- reliably associate a part of the interest payment ties. with the Form W-8BEN-E provided by the for- Fiscally transparent entities claiming treaty eign corporation and the Forms W-8BEN provi- benefits. For purposes of claiming treaty ben- Foreign partnerships. A foreign partnership ded by the nonresident alien individual partners efits, if an entity is fiscally transparent for U.S. is any partnership (including an entity classified as a result of the withholding statements, you tax purposes (for example, a disregarded entity as a partnership) that is not organized under the must treat them as the payees of the interest. or flow-through entity for U.S. tax purposes) and laws of any state of the United States or the Dis- You do not need to determine the chapter 4 sta- the entity is or is treated as a resident of a treaty trict of Columbia or any partnership that is trea- tus of the partnership because the payment is country, it will derive the item of income and ted as foreign under the income tax regulations. not a withholdable payment. may be eligible for treaty benefits. In such case, If a foreign partnership is not a withholding for- the entity is the payee for chapter 3 purposes. It eign partnership, the payees of income are the Example 3. You make a payment of U.S. does not need to be taxed on such item, but the partners of the partnership, provided the part- source dividends to a withholding foreign part- item must be accounted for as the entity's in- ners are not themselves flow-through entities or nership. Assume that the payment is subject to come, not the interest holders' income, under foreign intermediaries. However, the payee is chapter 3 withholding and is not a withholdable the law of the treaty country whose treaty it is in- the partnership itself if the partnership is claim- payment. The partnership has two partners, voking. It must also meet any other require- ing treaty benefits on the basis that it is not trea- both foreign corporations. You can reliably as- ments for claiming benefits, including a limita- ted as fiscally transparent in the treaty jurisdic- sociate the payment with a valid Form W-8IMY tion on benefits article, if any, in the treaty. The tion and that it meets all the other requirements from the partnership on which it represents that entity should provide a Form W-8BEN-E in such for claiming treaty benefits. If a partner is a for- it is a withholding foreign partnership. You must circumstances. If, for chapter 3 purposes, the eign flow-through entity or a foreign intermedi- treat the partnership as the payee of the divi- payee is a foreign corporation or other ary, you apply the payee determination rules to dends for purposes of both chapter 3 and chap- non-flow-through entity for U.S. tax purposes, it that partner to determine the payees. ter 4, and you must determine the chapter 4 sta- is nonetheless not entitled to claim treaty bene- For purposes of chapter 4, a foreign partner- tus of the partnership. fits if the entity is fiscally transparent in its coun- ship is a payee of a withholdable payment if the try of residence (that is, a foreign reverse hy- partnership is a withholding foreign partnership Foreign simple and grantor trust. A trust is brid). Instead, any interest holder resident in that is not acting as an agent or intermediary foreign unless it meets both of the following that country will derive its allocable share of the with respect to the payment. If the partnership is tests. items of income paid to the foreign reverse hy- not a withholding foreign partnership, the pay- • A court within the United States is able to brid and may be eligible for benefits. If an inter- ees are the partners (looking through any part- exercise primary supervision over the ad- est holder is a resident of a third country, the in- ners that are flow-through entities that are not ministration of the trust. terest holder may claim treaty benefits under its treated as payees under the chapter 4 regula- • One or more U.S. persons have the au- treaty with the United States, if any, only if the tions). thority to control all substantial decisions of foreign reverse hybrid is fiscally transparent un- the trust. der the laws of the third country. If an interest Example 1. A nonwithholding foreign part- In most cases, a foreign simple trust is a for- holder is entitled to treaty benefits under its nership has three partners: a nonresident alien eign trust that is required to distribute all of its country of residence, the payee may provide a individual, a foreign corporation, and a U.S. citi- income annually. A foreign grantor trust is a for- Form W-8IMY and attach Form W-8BEN or zen. You make a payment of U.S. source inter- eign trust that is treated as a grantor trust under W-8BEN-E from any interest holder that claims est to the partnership. Assume that the payment sections 671 through 679 of the Internal Reve- treaty benefits on such income. is subject to chapter 3 withholding but is not a nue Code. The determination of whether an entity is fis- withholdable payment. The partnership gives The payees of a payment made to a foreign cally transparent is made on an item of income you a Form W-8IMY with which it associates simple trust are the beneficiaries of the trust. basis (that is, the determination is made sepa- Form W-8BEN from the nonresident alien, Form The payees of a payment made to a foreign rately for interest, dividends, royalties, etc.). An W-8BEN-E from the foreign corporation, and grantor trust are the owners of the trust. How- interest holder in an entity makes the determi- Form W-9 from the U.S. citizen. The partnership ever, the payee is the foreign simple or grantor nation by applying the laws of the jurisdiction also gives you a complete withholding state- trust itself if the trust is claiming treaty benefits where the interest holder is organized, incorpo- ment that enables you to associate a part of the on the basis that it is not fiscally transparent and rated, or otherwise considered a resident. An interest payment to each partner. that it meets all the other requirements for entity is considered to be fiscally transparent You must treat all three partners as the pay- claiming treaty benefits. If the beneficiaries or with respect to the income to the extent the ees of their part of the interest payment as if the owners are themselves flow-through entities or laws of that jurisdiction require the interest payment were made directly to them. Report foreign intermediaries, you apply the payee de- holder to separately take into account on a cur- the payments to the nonresident alien and the termination rules to that beneficiary or owner to rent basis the interest holder's share of the in- foreign corporation on Forms 1042-S. Report determine the payees. come, whether or not distributed to the interest the payment to the U.S. citizen on Form holder, and the character and source of the in- 1099-INT. You do not need to determine the Example. A foreign simple trust has three come to the interest holder are determined as if chapter 4 status of the partnership because the beneficiaries: two nonresident alien individuals the income was realized directly from the payment is not a withholdable payment. and a U.S. citizen. You make a payment of U.S. source that paid it to the entity. Subject to the source interest to the foreign trust. Assume that Standards of Knowledge for Purposes of Chap- Example 2. A nonwithholding foreign part- the payment is subject to chapter 3 withholding ter 3 and Standards of Knowledge for Purposes nership has two partners: a foreign corporation but is not a withholdable payment. The foreign of Chapter 4 discussed later, you generally and a nonwithholding foreign partnership. The trust gives you a Form W-8IMY with which it as- make the determination that an entity is fiscally second partnership has two partners, both non- sociates Forms W-8BEN from the nonresident transparent based on a Form W-8IMY provided resident alien individuals. You make a payment aliens and a Form W-9 from the U.S. citizen. by the entity. of U.S. source interest to the first partnership. The trust also gives you a complete withholding For chapter 3 purposes, the payees of a Assume that the payment is subject to chap- statement that enables you to associate the in- payment made to a fiscally transparent entity ter 3 withholding but is not a withholdable pay- terest payment with the forms provided by each are the interest holders of the entity if the inter- ment. The partnership gives you a valid Form beneficiary. You must treat all three beneficia- est holders are claiming treaty benefits with re- W-8IMY with which it associates a Form ries as the payees of their part of the interest spect to the payment. W-8BEN-E from the foreign corporation and a payment as if the payment were made directly

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For chapter 4 purposes, if you are making a for purposes of chapter 3 withholding and for foreign persons, and a Form W-9 from a U.S. withholdable payment to a fiscally transparent Form 1099 reporting and backup withholding person for whom the bank is collecting the pay- entity, you must apply the rules of chapter 4 to and chapter 4 withholding, provided the inter- ments. The bank also associates with its Form determine the payee (applying the rules descri- mediary is not a nonparticipating FFI to which W-8IMY a withholding statement on which it al- bed earlier) and whether chapter 4 withholding you make a withholdable payment to which locates the interest payment and provides all applies to the payment based on the payee’s chapter 4 withholding applies. You may, how- other information required to be on the with- chapter 4 status. Thus, chapter 4 withholding ever, treat a QI that has assumed primary with- holding statement. The account holders are the may apply to a withholdable payment made to a holding responsibility for a payment as the payees of the interest payment. You should re- fiscally transparent entity based on the chap- payee, and you are not required to withhold. port the part of the interest paid to the two for- ter 4 status of the entity even when the interest eign persons on Forms 1042-S and the part holders in the entity would be eligible for re- An intermediary is a custodian, broker, nom- paid to the U.S. person on Form 1099-INT. You duced withholding under an income tax treaty inee, or any other person that acts as an agent do not need to establish the chapter 4 status of with respect to the payment. Treaty benefits for another person. A foreign intermediary is ei- the NQI because the payment is not a withhold- may be granted to the interest holder when the ther a QI or an NQI. In most cases, you deter- able payment. payment made is not subject to chapter 4 with- mine whether an entity is a QI or an NQI based holding based on the chapter 4 status of both on the representations the intermediary makes Qualified intermediary (QI). A QI is generally the entity and the interest holder. on Form W-8IMY. a foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a QI Example. Entity A is a business organiza- For purposes of chapter 3, you must deter- agreement (discussed later) with the IRS. Cer- tion organized under the laws of country X that mine whether the customers or account holders tain entities may also act as QIs even when they has an income tax treaty in force with the United of a foreign intermediary are U.S. or foreign per- are not intermediaries. You may treat a QI as a States. A has two interest holders, B and C. B is sons and, if the account holder or customer is payee to the extent it assumes primary Chap- a corporation organized under the laws of coun- foreign, whether a reduced rate of, or exemp- ters 3 and 4 withholding responsibility or pri- try Y. C is a corporation organized under the tion from, chapter 3 withholding applies. For mary Form 1099 reporting and backup with- laws of country Z. Both countries Y and Z have purposes of chapter 4, you must generally de- holding responsibility for a payment. In this an income tax treaty in force with the United termine the chapter 4 status of the account situation, the QI is required to withhold the tax. States. holders of a foreign intermediary if the payment You can determine whether a QI has assumed A receives royalty income from U.S. sources is a withholdable payment. The determination responsibility from the Form W-8IMY provided that is not effectively connected with the con- for chapter 3 purposes is not required when by the QI. duct of a trade or business in the United States withholding applies under chapter 4 (that is, A payment to a QI to the extent it does not and that is not a withholdable payment. The when the chapter 4 status of the foreign inter- assume primary Chapters 3 and 4 withholding chapter 4 status of A does not need to be deter- mediary is a nonparticipating FFI or an entity or responsibility is considered made to the person mined because the payment is not a withholda- branch treated as a nonparticipating FFI under on whose behalf the QI acts. If a QI does not ble payment. an applicable IGA). You make these determina- assume Form 1099 reporting and backup with- For U.S. income tax purposes, A is treated tions based on the foreign intermediary's Form holding responsibility, you must report on Form as a partnership. Country X treats A as a part- W-8IMY and associated information and docu- 1099 and, if applicable, backup withhold as if nership and requires the interest holders in A to mentation. If you do not have all of the informa- you were making the payment directly to the separately take into account on a current basis tion or documentation that is required to reliably U.S. person. See Qualified Intermediary (QI), their respective shares of the income paid to A associate a payment with a payee, you must later, for a discussion of withholding rate pools even if the income is not distributed. The laws apply the presumption rules of chapter 3, and and when a QI may include a U.S. nonexempt of country X provide that the character and must apply the presumption rules of chapter 4 recipient in a U.S. payee pool. source of the income to A's interest holders are to the foreign intermediary if the chapter 4 sta- Qualified derivatives dealers (QDDs). determined as if the income were realized di- tus of the entity (when required) cannot be de- For the definition of QDD, see Qualified deriva- rectly from the source that paid it to A. Accord- termined. See Documentation and Presumption tives dealer (QDD), later. For QDD liability, see ingly, A is fiscally transparent in its jurisdiction, Rules, later. country X. Amounts paid to QDDs, later. B and C are not fiscally transparent under Special rule for chapter 4. For purposes of Branches of financial institutions. the laws of their respective countries of incorpo- chapter 4, a foreign person acting as an inter- Branches of financial institutions are not permit- ration. Country Y requires B to separately take mediary is generally not the payee if the foreign ted to operate as QIs if they are located outside into account on a current basis B's share of the person is: of countries having approved “know-your-cus- income paid to A, and the character and source • An NFFE, unless the NFFE is a QI that has tomer” (KYC) rules. The countries with ap- of the income to B is determined as if the in- assumed primary Chapters 3 and 4 with- proved KYC rules are listed at IRS.gov/ come were realized directly from the source holding responsibility; or Businesses/International-Businesses/List-of- that paid it to A. Accordingly, A is fiscally trans- • A participating FFI, deemed-compliant FFI, Approved-KYC-Rules. parent for that income under the laws of country or restricted distributor, unless such entity Y, and B is treated as deriving its share of the is a QI that has assumed primary Chapters QI agreement. FFIs, foreign clearing or- U.S. source royalty income for purposes of the 3 and 4 withholding responsibility. ganizations, and foreign branches of U.S. finan- U.S.–Y income tax treaty. Country Z, on the cial institutions or clearing organizations can other hand, treats A as a corporation and does If you make a withholdable payment to one enter into an agreement with the IRS to become not require C to take into account its share of of the types of entities described above, the a QI. An eligible entity (as defined in Regula- A's income on a current basis whether or not payee is the person for whom the agent or inter- tions section 1.1441-1(e)(6)(ii)) may also enter distributed. Therefore, A is not treated as fis- mediary collects the payment. into a QI agreement for purposes of becoming a cally transparent under the laws of country Z. QDD. To enter into a QI agreement, an FFI Nonqualified intermediary (NQI). An NQI is Accordingly, C is not treated as deriving its must have a chapter 4 status as: any intermediary that is a foreign person and share of the U.S. source royalty income for pur- • A participating FFI (including a reporting that is not a QI. The payees of a payment made poses of the U.S.–Z income tax treaty. Model 2 FFI); to an NQI for both chapter 3 and chapter 4 pur- • A registered deemed-compliant FFI (in- poses are the customers or account holders on cluding a reporting Model 1 FFI and a non- Foreign Intermediaries whose behalf the NQI is acting. reporting Model 2 FFI treated as registered deemed-compliant); or In most cases, if you make payments to a for- Example. You make a payment of interest An FFI treated as a deemed-compliant FFI eign intermediary, the payees are the persons to a foreign bank that is an NQI. Assume the • under an applicable Model 1 IGA that is for whom the foreign intermediary collects the payment is subject to chapter 3 withholding but subject to similar due diligence and report- payment, such as account holders or custom- is not a withholdable payment. The bank gives ing requirements with respect to U.S. ers, not the intermediary itself. This rule applies you a Form W-8IMY, the Forms W-8BEN of two

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accounts as those applicable to a regis- paid to a U.S. branch are not subject to Form represents that it is acting as a WP or WT for tered deemed-compliant FFI (a “registered 1099 reporting or backup withholding. such amounts. deemed-compliant Model 1 IGA FFI”). Alternatively, a U.S. branch may provide you See Revenue Procedure 2017-21, 2017-6 Certain foreign corporations that are NFFEs with a Form W-8IMY with which it associates I.R.B. 791, available at IRS.gov/irb/ acting on behalf of persons other than share- the documentation of the persons on whose be- 2017-06_IRB#RP-2017-21, for more informa- holders or foreign central banks of issue may half it acts. In this situation, the U.S. branch is tion on becoming a WP or WT. also apply to the IRS to become QIs. not treated as a U.S. person, and the payees are the persons on whose behalf the branch WP agreement and WT agreement. The See Revenue Procedure 2017-15, 2017-3 WP agreement and WT agreement and the ap- I.R.B 437, available at IRS.gov/irb/ acts provided you can reliably associate the payment with valid documentation from those plication procedures for the agreements are in 2017-03_IRB#RP-2017-15, for more informa- Revenue Procedure 2017-21. An entity applies tion on becoming a QI. persons. See Nonqualified Intermediary (NQI) under Documentation, later. for WP or WT status at IRS.gov/Businesses/ An entity may apply for QI status at IRS.gov/ Corporations/Qualified-Intermediary-System. If you cannot reliably associate the payment Businesses/Corporations/Qualified- The WP or WT will be assigned a WP-EIN or with a Form W-8IMY from the U.S. branch but Intermediary-System. WT-EIN to be used only when acting in that ca- you have obtained an employer identification pacity. number (EIN) for the branch, you should treat Note. A QI (other than an NFFE acting on A WP or WT that is an FFI (other than a re- the payment as a payment to a foreign person behalf of persons other than shareholders and tirement fund) must also register with the IRS at of income that is effectively connected with the certain central banks) must also register at IRS.gov/Businesses/Corporations/FATCA- conduct of a trade or business in the United IRS.gov/FATCA to obtain its applicable chap- Foreign-Financial-Institution-Registration- States. If you cannot reliably associate the pay- ter 4 status and global intermediary identifica- System to obtain its applicable chapter 4 status ment with a Form W-8IMY from the U.S. branch tion number (GIIN). and GIIN. and you have not obtained an EIN for the Documentation requirements. For docu- branch, you should treat the payment as a pay- Documentation. A WP or WT must pro- mentation requirements applicable to payments ment to a foreign person of income that is not vide you with a Form W-8IMY that certifies that made to QIs, see Responsibilities and Docu- effectively connected with the conduct of a the WP or WT is acting in that capacity and pro- mentation, discussed later under Qualified In- trade or business in the United States. vides all other information and certifications re- termediary (QI). quired by the form, including its WP-EIN or Withholding foreign partnership and with- Reporting requirements. For the report- WT-EIN. When you make a withholdable pay- holding foreign trust. A withholding foreign ing requirements of QIs, see Form 1042-S re- ment to a WP or WT, the WP or WT generally partnership (WP) is any foreign partnership that porting and Collective refund procedures, dis- may also provide a certificate of a chapter 4 sta- has entered into a WP agreement with the IRS cussed later under Qualified Intermediary (QI). tus permitted of a WP or WT (and GIIN, if appli- and is acting in that capacity with respect to its cable). The WP or WT, when acting in such ca- U.S. branches of foreign banks and foreign partners. A withholding foreign trust (WT) is a pacity, is not required to provide a withholding insurance companies. Special rules apply to foreign simple or grantor trust that has entered statement and is not required to disclose any in- a U.S. branch of a foreign bank subject to Fed- into a WT agreement with the IRS and is acting formation regarding its direct partners, benefi- eral Reserve Board supervision or a foreign in- in that capacity with respect to its owners and ciaries, or owners or any indirect partner, bene- surance company subject to state regulatory beneficiaries. In order to enter into a WP or WT ficiary, or owner for which it acts as a WP or WT supervision. If you make a payment of an agreement with the IRS, a WP or WT that is an that is not a U.S. nonexempt recipient (except amount subject to chapter 3 withholding or a FFI must have chapter 4 status as a: for a U.S. nonexempt recipient included in a withholdable payment to a U.S. branch of a for- • Participating FFI (including a reporting chapter 4 withholding rate pool of U.S. payees). eign bank or insurance company that agrees to Model 2 FFI), A chapter 4 withholding rate pool also means a be treated as a U.S. person, you may treat the • Registered-deemed compliant FFI (includ- payment of a single type of income that is allo- U.S. branch as a payee that is a U.S. person, ing a reporting Model 1 FFI and a nonrep- cated to U.S. payees when the WP provides the provided you receive a Form W-8IMY from the orting Model 2 FFI treated as registered certification required on Form W-8IMY for allo- U.S. branch that you can reliably associate with deemed compliant), cating payments to this pool. When a WP or WT the payment. If you treat the branch as a U.S. • Registered deemed-compliant Model 1 is not acting as a WP or WT with respect to an person, you are not required to withhold on an IGA FFI, or amount distributed to, or included in the distrib- amount subject to chapter 3 withholding or a • Retirement fund. utive share of, an indirect partner, beneficiary, withholdable payment. Even though you agree A WP or WT that is an NFFE may also enter or owner, it must provide you with a nonwith- to treat the branch as a U.S. person, you must into a WP or WT agreement with the IRS. An holding foreign partnership or nonwithholding report the payments made to the branch on FFI that is a foreign reverse hybrid entity may foreign trust withholding certificate on a Form Form 1042-S. apply to enter into a WP agreement, provided W-8IMY and documentation for its indirect part- A territory financial institution is a financial that the FFI is a participating FFI, a registered ners, beneficiaries, and owners that are not in- institution as defined for chapter 4 purposes deemed-compliant FFI, or a registered cluded in a chapter 4 withholding rate pool. (except when it is an investment entity that is deemed-compliant Model 1 IGA FFI. not also a depository institution, custodial insti- A WP or WT must act in that capacity for re- Foreign Persons tution, or specified insurance company) incor- portable amounts that are distributed to, or in- porated or organized under the laws of a pos- cluded in the distributive share of, its direct part- Rules relevant to Chapters 3 and 4. A payee session of the United States. A territory financial ners, beneficiaries, or owners. A WP or WT is subject to withholding only if it is a foreign institution that is an intermediary or flow-through may act in that capacity for reportable amounts person. A foreign person includes a nonresi- entity is treated as a U.S. branch that agrees to that are distributed to, or included in the distrib- dent alien individual, foreign corporation, for- be treated as a U.S. person. The special rules utive share of, its indirect partners, beneficia- eign partnership, foreign trust, foreign estate, described in this section apply to a territory fi- ries, or owners that are not U.S. nonexempt re- and any other person that is not a U.S. person. nancial institution. cipients (except for a U.S. nonexempt recipient It also includes a foreign branch of a U.S. finan- If you are paying a U.S. branch an amount that is included in a chapter 4 withholding rate cial institution if the foreign branch is a QI. In that is not subject to chapter 3 withholding and pool of U.S. payees). A WP or WT acting in that most cases, the U.S. branch of a foreign corpo- is not a withholdable payment, treat the pay- capacity must assume primary Chapters 3 and ration or partnership is treated as a foreign per- ment as made to a foreign person, irrespective 4 withholding responsibility for payments sub- son. The determination of whether a foreign of any agreement to treat the branch as a U.S. ject to withholding and must assume certain re- person is treated as an entity or as a foreign person for such amounts. Consequently, porting requirements with respect to its U.S. corporation, foreign partnership, or foreign trust amounts not subject to chapter 3 withholding partners, beneficiaries, and owners. You may is made under U.S. tax rules. and that are not withholdable payments that are treat a WP or WT as a payee if it has provided If an amount is both a withholdable payment you with documentation (discussed later) that and an amount subject to chapter 3 withholding

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and the withholding agent withholds under withholding rules explained here. A bona fide Other foreign organizations, associations, chapter 4, it may credit this amount against any resident of a possession is someone who: and charitable institutions. An organization tax due under chapter 3. • Meets the presence test, may be exempt from income tax under section • Does not have a tax home outside the pos- 501(a) of the Internal Revenue Code and chap- Nonresident alien. A nonresident alien is an session, and ter 4 withholding tax even if it was formed under individual who is not a U.S. citizen or a resident • Does not have a closer connection to the foreign law. In most cases, you do not have to alien. A resident of a foreign country under the United States or to a foreign country than withhold tax on payments of income to these residence article of an income tax treaty is a to the possession. foreign tax-exempt organizations unless the nonresident alien individual for purposes of For more information, see Pub. 570. IRS has determined that they are foreign private withholding. foundations. Payments to these organizations, however, Married to U.S. citizen or resident alien. Foreign corporations. A foreign corporation must be reported on Form 1042-S if the pay- Nonresident alien individuals married to U.S. is one that does not fit the definition of a domes- ment is subject to chapter 3 withholding, even citizens or resident aliens may choose to be tic corporation. A domestic corporation is one though no tax is withheld. treated as resident aliens for certain income tax that was created or organized in the United purposes. However, these individuals are still States or under the laws of the United States, You must withhold tax on the unrelated busi- subject to the chapter 3 withholding rules that any of its states, or the District of Columbia. ness income (as described in Pub. 598) of for- apply to nonresident aliens for all income ex- eign tax-exempt organizations in the same way Guam or Northern Mariana Islands cor- that you would withhold tax on similar income of cept wages. Wages paid to these individuals porations. A corporation created or organized are subject to graduated withholding. See Wa- nonexempt organizations when the organiza- in, or under the laws of, Guam or the CNMI is tion does not provide you a Form W-8ECI to ges Paid to Employees—Graduated Withhold- not considered a foreign corporation for the pur- ing, later. certify that the income is effectively connected pose of withholding tax for the tax year if: with a U.S. trade or business of the organiza- • At all times during the tax year less than Resident alien. A resident alien is an individ- tion. 25% in value of the corporation's stock is ual who is not a citizen or national of the United owned, directly or indirectly, by foreign per- States and who meets either the green card test U.S. branches of foreign persons. In most sons; and or the substantial presence test for the calendar cases, a payment to a U.S. branch of a foreign • At least 20% of the corporation's gross in- year. person is a payment made to the foreign per- come is derived from sources within Guam Green card test. An alien is a resident son. However, you may treat payments to U.S. • or the CNMI for the 3-year period ending alien if the individual was a lawful perma- branches of foreign banks and foreign insur- with the close of the preceding tax year of nent resident of the United States at any ance companies (discussed earlier) that are the corporation (or the period the corpora- time during the calendar year. This is subject to U.S. regulatory supervision as pay- tion has been in existence, if less). known as the green card test because ments made to a U.S. person, if you and the U.S. branch have agreed to do so, and if their these aliens hold immigrant visas (also Note. The provisions discussed below un- agreement is evidenced by a withholding certifi- known as green cards). der U.S. Virgin Islands and American Samoa cate, Form W-8IMY. For this purpose, a territory • Substantial presence test. An alien is corporations will apply to Guam or CNMI corpo- financial institution acting as an intermediary or considered a resident alien if the individual rations when an implementing agreement is in that is a flow-through entity is treated as a U.S. meets the substantial presence test for the effect between the United States and that pos- branch. calendar year. Under this test, the individ- session. ual must be physically present in the Uni- ted States on at least: U.S. Virgin Islands and American Samoa Additional Rules corporations. A corporation created or organ- Specific to Chapter 4 1. 31 days during the current calendar year; ized in, or under the laws of, the U.S. Virgin Is- and lands or American Samoa is not considered a A payee may be subject to chapter 4 withhold- 2. 183 days during the current year and the 2 foreign corporation for the purposes of with- ing only if it is a foreign entity. A foreign entity preceding years, counting all the days of holding tax for the tax year if: for chapter 4 purposes means any entity that is physical presence in the current year, but • At all times during the tax year less than not a U.S. person and includes a territory entity only 1/3 the number of days of presence in 25% in value of the corporation's stock is as defined in Regulations section 1.1471-1(b) the first preceding year, and only 1/6 the owned, directly or indirectly, by foreign per- (129). number of days in the second preceding sons; year. • At least 65% of the corporation's gross in- A foreign entity is subject to chapter 4 with- come is effectively connected with the con- holding if it is a nonparticipating FFI or a pas- In most cases, the days the alien is in the duct of a trade or business in the U.S. Vir- sive NFFE that does not provide the appropri- United States as a teacher, student, or trainee gin Islands, American Samoa, Guam, the ate certification regarding its substantial U.S. on an “F,” “J,” “M,” or “Q” visa are not counted. CNMI, or the United States for the 3-year owners. A nonparticipating FFI is an FFI other This exception is for a limited period of time. period ending with the close of the tax year than a participating FFI, deemed-compliant FFI, For more information on resident and non- of the corporation (or the period the corpo- or exempt beneficial owner. See Definitions, resident status, the tests for residence, and the ration or any predecessor has been in ex- later, for the definitions of these terms. exceptions to them, see Pub. 519. istence, if less); and • No substantial part of the income of the A passive NFFE is: Note. If your employee is late in notifying corporation is used, directly or indirectly, to An NFFE other than a publicly traded cor- you that his or her status changed from nonresi- • satisfy obligations to a person who is not a poration, dent alien to resident alien, you may have to bona fide resident of the U.S. Virgin Is- Certain affiliated entities related to a pub- make an adjustment to Form 941 if that em- • lands, American Samoa, Guam, the CNMI, licly traded corporation, ployee was exempt from withholding of social or the United States. Certain territory entities, security and Medicare taxes as a nonresident • Active NFFEs, or alien. For more information on making adjust- • Foreign private foundations. A private foun- • Excluded FFIs. ments, see chapter 13 of Pub. 15 (Circular E) . dation that was created or organized under the Resident of a U.S. possession. A bona laws of a foreign country is a foreign private For chapter 4 purposes, a U.S. person does fide resident of Puerto Rico, the U.S. Virgin Is- foundation. Gross investment income from not include a foreign insurance company that lands, Guam, the Commonwealth of the North- sources within the United States paid to a quali- has made an election under section 953(d) of ern Mariana Islands (CNMI), or American Sa- fied foreign private foundation is subject to with- the Internal Revenue Code if it is a specified in- moa who is not a U.S. citizen or a U.S. national holding at a 4% rate (unless exempted by a surance company and is not licensed to do is treated as a nonresident alien for the treaty) rather than the ordinary statutory 30% business in any state. Notwithstanding the fore- rate. going, a withholding agent should treat such

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entity as a U.S. person for purposes of docu- withholdable payments, see Regulations sec- Section 1446(f) withholding. Under section menting the entity’s status for purposes of tion 1.1471-3(d). For rules related to when a 1446(f)(1) of the Internal Revenue Code, a Chapters 3 and 4. withholding agent may rely on an otherwise transferee of an interest in a partnership must valid withholding certificate received electroni- withhold 10% of the amount realized on the dis- cally from a third-party repository, see Regula- position of an interest in a partnership if any Documentation tions section 1.1441-1(e)(4)(iv)(E). Also see portion of the gain (if any) on the disposition Regulations section 1.1471-3(d) for the extent would be treated under section 864(c)(8) of the to which a withholding agent may rely on docu- Internal Revenue Code as effectively connec- Documentation for Chapter 3 mentary evidence (other than a Form W-8) to ted with the conduct of a trade or business establish the chapter 4 status of an entity within the United States. Under section 1446(f) For purposes of chapter 3, in most cases, you payee, including the forms of documentary evi- (4) of the Internal Revenue Code if the trans- must withhold 30% from the gross amount paid dence permitted for each specific chapter 4 sta- feree fails to withhold any amount required to to a foreign payee unless you can reliably asso- tus. For the requirements for documentary evi- be withheld, the partnership must deduct and ciate the payment with valid documentation that dence, see Regulations section 1.1471-3(c)(5). withhold from distributions to the transferee the establishes either of the following. If you make a withholdable payment to an entity amount the transferee failed to withhold (plus • The payee is a U.S. person. payee and cannot reliably associate the pay- interest). • The payee is a foreign person that is the ment with a valid withholding certificate or valid beneficial owner of the income and is enti- documentary evidence, you must apply the Documentation rule for joint payees. If you tled to a reduced rate of withholding under chapter 4 presumption rules described in Pre- make a payment to joint payees (such as hold- the Internal Revenue Code, or an applica- sumption Rules for Chapter 4, later. ers of a joint account), you need to get docu- ble income tax treaty. mentation from each payee. If you make a pay- You may rely on the same documentation ment to joint payees and cannot reliably For rules related to when a withholding for purposes of both Chapters 3 and 4 provided associate the payment with documentation from agent may rely on an otherwise valid withhold- the documentation is sufficient to meet the re- all of the payees, you must generally presume ing certificate received electronically from a quirements of each chapter. For example, you the payment is made to an unidentified U.S. third-party repository, see Regulations section may use a Form W-8BEN-E to obtain both the person. If the payment is a withholdable pay- 1.1441-1(e)(4)(iv)(E). chapter 3 and chapter 4 statuses of an entity ment and any of the payees do not appear, by If withholding is applied under chapter 4 on providing the form. name or other information in the account file, to a payment, no withholding will be required on be an individual, you must treat the entire such payment under chapter 3. Additional Documentation amount as a payment made to an undocumen- ted foreign person. However, if one of the joint Rules Applicable to payees has provided you with a Form W-9, you Documentation for Chapter 4 Chapters 3 and 4 must treat the payment as made to that payee.

If you make a withholdable payment, you must In most cases, you must reliably associate the Form W-9. In most cases, you can treat the determine the chapter 4 status of payees, bene- payment with valid documentation to apply re- payee as a U.S. person if the payee gives you a ficial owners, intermediaries, and flow-through duced withholding and must get the documen- Form W-9. The Form W-9 can be used only by entities receiving the payment to the extent re- tation before you make the payment. The docu- a U.S. person and must contain the payee's quired for chapter 4 purposes. You must also mentation is not valid if you know, or have TIN. U.S. persons are not subject to chapter 3 determine the chapter 4 status of persons that reason to know, that it is unreliable or incorrect. withholding, but may be subject to: own an interest in an entity receiving a withhold- See Standards of Knowledge for Purposes of • Form 1099 reporting and backup withhold- able payment that you treat as an owner-docu- Chapter 3 and Standards of Knowledge for Pur- ing under section 3406 of the Internal Rev- mented FFI, provided you are either a U.S. fi- poses of Chapter 4, later. enue Code, nancial institution, participating FFI, or reporting • Reporting as a U.S. account holder of a Model 1 FFI. To establish chapter 4 status, you If you cannot reliably associate a payment participating FFI or registered must generally obtain a valid withholding certifi- with valid documentation, you must use the pre- deemed-compliant FFI, and cate or documentary evidence that you can reli- sumption rules discussed later to determine the • Classification as a recalcitrant account ably associate with the payment. If you make a rate of withholding. For example, if you do not holder of a participating FFI or registered payment to a passive NFFE, you must obtain ei- have documentation or you cannot determine deemed-compliant FFI for chapter 4 purpo- ther a certification that the NFFE does not have the part of a payment that is allocable to spe- ses (including chapter 4 withholding) when any substantial U.S. owners, or the name, ad- cific documentation, you must use the pre- the FFI is unable to report the information dress, and TIN of each substantial U.S. owner sumption rules of section 1441 of the Internal required with respect to the account of the NFFE (or, under an applicable IGA, each Revenue Code. holder. controlling person that is a specified U.S. per- son). The specific types of documentation are dis- Forms W-8. In most cases, a foreign payee of cussed in this section. However, see Withhold- You can reliably associate a payment with a the income should give you a form in the Form ing on Specific Income, later, as well as the in- W-8 series. Form W-8 for purposes of establishing a structions to the particular forms. As the If certain requirements are met, the foreign payee’s chapter 4 status in most cases if, prior withholding agent, you may also want to see the person can give you documentary evidence, to the payment, you: Instructions for the Requester of Forms rather than a Form W-8. You can rely on docu- • Obtain a valid form that contains the infor- W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and mentary evidence in lieu of a Form W-8 for an mation required for chapter 4 purposes, W-8IMY. • Can reliably determine how much of the amount paid outside the United States with re- spect to an offshore obligation. Refer to Off- payment relates to the form, and Section 1446(a) withholding. Under section shore obligations, later, to determine whether a • Have no actual knowledge or reason to 1446(a) of the Internal Revenue Code, a part- payment qualifies as such a payment. know that any of the information, certifica- nership must withhold tax on its effectively con- tions, or statements in, or associated with, nected income allocable to a foreign partner. In Other documentation. Other documentation the form is unreliable or incorrect for chap- most cases, a partnership determines if a part- may be required to claim an exemption from, or ter 4 purposes. ner is a foreign partner and the partner's tax a reduced rate of, chapter 3 withholding on pay classification based on the withholding certifi- See Standards of Knowledge for Purposes for personal services. The nonresident alien in- cate provided by the partner. This is the same of Chapter 4, later, for the reason to know dividual may have to give you a Form W-4 or a documentation that is filed for chapter 3 with- standards that apply for chapter 4 purposes. Form 8233. These forms are discussed in Pay holding, but may require additional information, for Personal Services Performed under With- For the requirements for documenting spe- as discussed under each of the forms in this holding on Specific Income, later. cific chapter 4 statuses of persons receiving section.

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Beneficial Owners agents, such as financial institutions, have limi- through December 31, 2014, you may use the ted reason to know requirements for this pur- rules regarding the use of documentary evi- If all the appropriate requirements have been pose. See Regulations section 1.1441-7(b) for dence under Regulations sections 1.6049-5(c) established on a Form W-8BEN, W-8BEN-E, these requirements. (1) and (c)(4) as in effect prior to the issuance of W-8ECI, W-8EXP, or, if applicable, on docu- the temporary regulations. Exceptions to TIN requirement. A for- You may rely on documentary evidence mentary evidence, you can treat the payee as a eign person does not have to provide a U.S. or foreign beneficial owner. given to you by an NQI or a flow-through entity foreign TIN to claim a reduced rate of withhold- with its Form W-8IMY. This rule applies even ing under a treaty if the requirements for the fol- Claiming treaty benefits for purposes of though you make the payment to an NQI or lowing exceptions are met. chapter 3. You may apply a reduced rate of flow-through entity in the United States. In most • Income from marketable securities (dis- withholding under chapter 3 to a foreign person cases, the NQI or flow-through entity that gives cussed next). that provides a Form W-8 claiming a reduced you documentary evidence will also have to • Unexpected payments to an individual rate of withholding under an income tax treaty give you a withholding statement, discussed (discussed under U.S. or Foreign TINs, only if the person provides a U.S. or foreign TIN later. later). and certifies that: Documentary evidence. You may apply a It is a resident of a treaty country; The allowance to provide a foreign TIN • reduced rate of withholding to income from mar- It is the beneficial owner of the income; (rather than a U.S. TIN) does not apply to a pay- • ketable securities (discussed earlier) paid out- If it is an entity, it derives the income within ment to compensate an individual for personal • side the United States with respect to an off- the meaning of section 894 of the Internal services. shore obligation if the beneficial owner gives Revenue Code (it is not fiscally transpar- See U.S. or Foreign TINs, later, for when a you documentary evidence in place of a Form ent); and foreign person is required to provide a foreign W-8. To claim treaty benefits, the documentary It meets any limitation on benefits provision TIN for purposes other than making a treaty • evidence must be one of the following. contained in the treaty, if applicable, and claim. specifies the category of the limitation on 1. A certificate of residence that: Marketable securities. A Form W-8 provi- benefits provision. ded to claim treaty benefits does not need a a. Is issued by a tax official of the treaty If the payment you make is a withholdable U.S. or foreign TIN if the foreign beneficial country of which the foreign beneficial payment to an entity, a requirement to withhold owner is claiming the benefits on income from owner claims to be a resident, under chapter 4 may apply based on the chap- marketable securities. For this purpose, income b. States that the person has filed its ter 4 status of the payee regardless of whether from a marketable security consists of the fol- most recent income tax return as a a claim of treaty benefits may apply to such lowing items. resident of that country, and payee or other person receiving the income. • Dividends and interest from stocks and An entity derives income for which it is debt obligations that are actively traded. c. Is issued within 3 years before it is claiming treaty benefits only if the entity is not • Dividends from any redeemable security presented to you. treated as fiscally transparent for that income. issued by an investment company regis- 2. Documentation for an individual that: See Fiscally transparent entities claiming treaty tered under the Investment Company Act benefits, discussed earlier under Flow-Through of 1940 (mutual fund). a. Includes the individual's name, ad- Entities. • Dividends, interest, or royalties from units dress, and photograph; of beneficial interest in a unit investment Limitations on benefits (LOB) provisions in b. Is an official document issued by an trust that are (or were upon issuance) pub- income tax treaties generally prevent third authorized governmental body; and country residents (unless the treaty contains a licly offered and are registered with the derivative benefits rule) and others that do not SEC under the Securities Act of 1933. c. Is issued no more than 3 years prior to have a substantial nexus to the treaty country • Income related to loans of any of the above being presented to you. securities. from obtaining treaty benefits. For example, a 3. Documentation for an entity that: foreign corporation may not be entitled to a re- Offshore obligations. An offshore obliga- duced rate of withholding unless a minimum a. Includes the name of the entity, tion is an account maintained at an office or percentage of its owners are citizens or resi- branch of a bank or other financial institution lo- b. Includes the address of its principal dents of the United States or the treaty country. cated outside the United States or an obliga- office in the treaty country, and Foreign entities that are residents of a country tion, contract, or other instrument with respect whose income tax treaty with the United States c. Is an official document issued by an to which the payer of the payment is either en- contains an LOB article are eligible for treaty authorized governmental body. gaged in business as a broker or dealer in se- benefits only if they satisfy one of the objective curities or a financial institution that engages in In addition to the documentary evidence, a tests under the LOB article or obtain a favorable significant activities at an office or branch loca- foreign beneficial owner that is an entity must discretionary determination from the U.S. com- ted outside the United States. provide a statement that it derives the income petent authority. A payment is made outside the United for which it claims treaty benefits and that it The exemptions from, or reduced rates of, States if you complete the acts necessary to ef- meets one or more of the conditions set forth in U.S. tax vary under each treaty. You must fect the payment outside the United States. a limitation on benefits article, if any (or similar check the provisions of the tax treaty that apply. However, an amount paid by a bank or other fi- provision), contained in the applicable treaty See Tax Treaties, later, for information on how nancial institution on a deposit or account usu- and must identify the specific limitation on ben- to access tax treaties. ally will be treated as paid at the branch or of- efits provision. In the case of a withholdable If you know, or have reason to know, that an fice where the amount is credited unless the payment made to an entity, you must also ob- owner of income is not eligible for treaty bene- other requirements of Regulations section tain the applicable documentation to establish fits claimed or if the United States does not 1.6049-5(e)(2) are met with respect to the that withholding does not apply under chap- have an income tax treaty in force with that branch or office, unless the amount is collected ter 4. country, you may not reduce the rate of with- by the financial institution as an agent of the holding. You are not, however, responsible for payee. Form W-8BEN. This form is used by a foreign misstatements on a Form W-8, documentary If a payment is made outside the United individual to: evidence, or statements accompanying docu- States with respect to an offshore obligation, a • Establish foreign status; mentary evidence for which you did not have payee may give you documentary evidence, • Claim that such individual is the beneficial actual knowledge, or reason to know, that the rather than a Form W-8, to establish that the owner of the income for which the form is statements were incorrect. Certain withholding payee is a foreign person. See Regulations being furnished or a partner in a partner- section 1.6049-5(c)(1) for the requirements for ship subject to withholding under section documentary evidence for offshore obligations. 1446(a) or a transferee of an interest in a For accounts opened on or after July 1, 2014,

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partnership under section 1446(f) of the In- foreign entity may provide a Form W-8BEN-E to See also Foreign Governments and Certain ternal Revenue Code; and a broker to establish that the gross proceeds Other Foreign Organizations, later. • If applicable, claim a reduced rate of, or from the sale of securities are not subject to exemption from, withholding under an in- Form 1099 reporting or backup withholding. come tax treaty. Foreign Intermediaries An entity payee may also provide a Form and Foreign A withholding agent in some cases may W-8BEN-E to establish that certain income from substitute its own form for a Form W-8BEN for notional principal contracts is not effectively Flow-Through Entities individuals. Solely for purposes of chapter 3, a connected with the conduct of a U.S. trade or Form W-8BEN with a revision date of February business. In addition, a foreign hybrid entity Payments made to a foreign intermediary or for- 2006 provided to you by an entity before Janu- claiming treaty benefits on its own behalf should eign flow-through entity that is not a QI that as- ary 1, 2015, will remain valid until the form’s val- provide you with a Form W-8BEN-E with re- sumes primary Chapters 3 and 4 withholding re- idity expires under the applicable chapter 3 reg- spect to the income for which treaty benefits are sponsibility, a WP, a WT, or a branch treated as ulations. For purposes of chapter 4, a Form being claimed. In certain cases, a similar a U.S. person (see U.S. branches of foreign W-8BEN with a revision date of February 2006 agreed form may be associated with the pay- banks and foreign insurance companies, ear- provided to you by an entity before such date is ment instead of a Form W-8BEN-E. lier) are treated as made to the payees on and will remain valid to the extent permitted un- whose behalf the intermediary or entity acts ex- der chapter 4. Form W-8ECI. This form is used by a foreign cept when the intermediary or flow-through en- person to: tity is subject to chapter 4 withholding. See Form W-8BEN may also be used to claim Establish foreign status, Flow-Through Entities and Foreign intermedia- that the foreign individual is exempt from Form • Claim that such person is the beneficial ries, earlier. The Form W-8IMY provided by a 1099 reporting and backup withholding for in- • owner of the income for which the form is foreign intermediary or flow-through entity must come that is not subject to chapter 3 withhold- being furnished, and be accompanied by additional information for ing and is not a withholdable payment. For ex- Claim that the income is effectively con- you to be able to reliably associate the payment ample, a foreign person may provide a Form • nected with the conduct of a trade or busi- with a payee. The additional information re- W-8BEN to a broker to establish that the gross ness in the United States. (See Effectively quired depends on the type of intermediary or proceeds from the sale of securities are not Connected Income, later.) flow-through entity and the extent of the with- subject to Form 1099 reporting or backup with- holding responsibilities it assumes. holding. Effectively connected income for which a valid Form W-8ECI has been provided is gener- Form W-8IMY. This form is used by foreign in- Date of birth requirement for certain ac- ally not subject to chapter 3 or chapter 4 with- termediaries and foreign flow-through entities, count holders. If you are a U.S. office or holding. branch of a depository institution, custodial in- as well as certain U.S. branches, to: If a partner submits this form to a partner- • Represent that a foreign person is a QI or stitution, investment entity, or specified insur- ship, the income claimed to be effectively con- ance company (each as defined in Regulations NQI; nected with the conduct of a U.S. trade or busi- • Establish the entity’s chapter 4 status section 1.1471-5(e)) documenting an individual ness is subject to withholding under section account holder (as defined in Regulations sec- when required for chapter 4 purposes; 1446 of the Internal Revenue Code . If the part- • When applicable, certify that the entity is a tion 1.1471-5(a)(3)) of an account that is a fi- ner has made, or will make, an election under nancial account (as defined in Regulations sec- participating FFI, a registered section 871(d) or 882(d) of the Internal Reve- deemed-compliant FFI, or a QI that may tion 1.1471-5(b)), you must obtain the individual nue Code, the partner must submit Form account holder’s date of birth on the Form provide a withholding statement allocating W-8ECI, and attach a copy of the election, or a a payment to a chapter 4 withholding rate W-8BEN in order for the form to not be invalid statement of intent to elect, to the form. for a payment of U.S. source income reportable pool of U.S. payees; on Form 1042-S. If the individual’s date of birth If the partner's only effectively connec- • Represent, if applicable, that the QI is as- is not provided on the Form W-8BEN, the form ! ted income is the income allocated suming primary Chapters 3 and 4 withhold- is still valid if you otherwise have the date of CAUTION from the partnership and the partner is ing responsibility and/or primary Form birth in your account files for the account holder not making the election under section 871(d) or 1099 reporting and backup withholding re- or you obtain the date of birth on a written state- 882(d) of the Internal Revenue Code, the part- sponsibility; ment (including a written statement transmitted ner should provide Form W-8BEN or • Represent that a foreign partnership or a by email) from the account holder and asso- W-8BEN-E to the partnership. foreign simple or grantor trust is a with- ciate the written statement with the Form holding foreign partnership or a withhold- ing foreign trust; W-8BEN. See the related Foreign TIN require- Form W-8EXP. This form is used by a foreign Represent that a foreign flow-through en- ment discussed under Foreign TIN requirement government, international organization, foreign • tity is a nonwithholding foreign partnership, for account holders., later, which also generally central bank of issue, foreign tax-exempt organ- or a nonwithholding foreign trust; applies with respect to accounts described in ization, foreign private foundation, or govern- Represent that the provider is a U.S. this paragraph. ment of a U.S. possession to: • branch of a foreign bank or insurance com- • Establish foreign status, pany and either is agreeing to be treated Form W-8BEN-E. This form is used by a for- • Establish the entity's chapter 4 status to as a U.S. person or is transmitting docu- eign entity to: the extent required for chapter 4 purposes, mentation of the persons on whose behalf • Establish foreign status; • Claim that such person is the beneficial it is acting for the payments; • Establish an entity's chapter 4 status to the owner of the income for which the form is Represent its status as a qualified securi- extent required for chapter 4 purposes; being furnished, and • ties lender with respect to payments of • Claim that such entity is the beneficial • Claim an exemption from withholding un- U.S. source substitute dividends; owner of the income for which the form is der both chapter 3 and chapter 4 for such Represent its status as a QI acting as a being furnished or a partner in a partner- entity or that the entity is a foreign private • QDD for certain payments; and ship subject to withholding under section foundation subject to the 4% tax. See sec- Represent that, for purposes of section 1446 of the Internal Revenue Code; and tion 1443 of the Internal Revenue Code for • 1446 of the Internal Revenue Code, it is an • If applicable, claim a reduced rate of, or the withholding required for a payment upper-tier foreign partnership or a foreign exemption from, chapter 3 withholding un- made to such an entity. der an income tax treaty. grantor trust and that the form is being If the government or organization named on used to transmit the required documenta- Form W-8BEN-E may also be used to claim the form is a partner in a partnership carrying on tion. For information on qualifying as an that the foreign entity is exempt from Form 1099 a trade or business in the United States, the ef- upper-tier foreign partnership, see Regula- reporting and backup withholding for income fectively connected income allocable to the tions section 1.1446-5. that is not subject to chapter 3 withholding and partner is subject to withholding under section For purposes of chapter 4, an intermediary is not a withholdable payment. For example, a 1446 of the Internal Revenue Code. or flow-through entity that is a participating FFI

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or registered deemed-compliant FFI receiving a Qualified Intermediary (QI) person unless it has assumed primary Form withholdable payment may, instead of providing 1099 reporting and backup withholding respon- documentation for each payee, provide pooled In most cases, a QI is any foreign intermediary sibility and meets the requirements to include allocation information, as described under FFI that has entered into a QI agreement (dis- these recipients in a U.S. payee pool. For the withholding statement, later. cussed earlier) with the IRS. A foreign entity alternative procedure for providing withholding that is a QI acting as a QDD or that is acting rate pool information for U.S. nonexempt per- FFI withholding statement. An FFI with- with respect to payments of substitute interest sons not included in a chapter 4 withholding holding statement must be provided by a partic- (as permitted by the QI agreement) can act as a rate pool of U.S. payees, see the Instructions ipating FFI or registered deemed-compliant FFI QI even though it is not receiving payments as Form W-8IMY. (including a U.S. branch of a participating FFI an intermediary. A foreign entity that has re- The withholding statement must: that is not treated as a U.S. person) that is an ceived a QI employer identification number NQI, nonwithholding foreign partnership, non- (QI-EIN) may represent on Form W-8IMY that it 1. Designate those accounts for which it acts withholding foreign trust, or a QI that makes an is a QI. The QI can claim that it is a QI until the as a QI; election to be withheld on for chapter 4 purpo- IRS revokes its QI-EIN. 2. Designate those accounts for which it as- ses (that is, a QI that does not assume chap- sumes primary Chapters 3 and 4 withhold- ter 3 or 4 withholding responsibility), as descri- ing responsibility and/or primary Form bed next under Qualified Intermediary (QI). A QI can be either an FFI or an NFFE. An 1099 reporting and backup withholding re- An FFI withholding statement may include FFI that is a QI must be a participating FFI (in- sponsibility; either payee-specific information or pooled in- cluding a reporting Model 2 FFI), a registered formation. If the withholding statement includes deemed-compliant FFI (including a reporting 3. If applicable, designate the accounts for pooled information, the withholding statement Model 1 FFI and a nonreporting Model 2 FFI which it acts as a qualified securities must indicate the portion of the payment alloca- treated as a registered deemed-compliant FFI), lender with respect to any U.S. source ble to: or an FFI treated as a deemed-compliant FFI substitute dividend payments; A chapter 4 withholding rate pool of U.S. under an applicable Model 1 IGA that is subject • 4. If applicable, designate those accounts for payees, to similar due diligence and reporting require- which it acts as a QDD; • Each class of recalcitrant account holders ments with respect to its U.S. accounts as those under Regulations section 1.1471-4(d)(6) applicable to a registered deemed-compliant 5. Provide sufficient information for you to al- or a single pool for a QI, or FFI (including the requirement to register with locate the payment, as applicable, to • A class of nonparticipating FFIs. the IRS) (defined in the QI agreement as a “reg- chapter 3 withholding rate pools and, for istered deemed-compliant Model 1 IGA FFI”). payments that are withholdable payments, If the withholding statement includes Thus, you must identify the chapter 4 status of chapter 4 withholding rate pools of non- payee-specific information, it must indicate both an FFI, certifying its status as a QI as one of the participating FFIs and recalcitrant account the portion of the payment allocated to each chapter 4 statuses referenced in the preceding holders when the QI has not assumed pri- payee and each payee’s chapter 4 status. sentence on a Form W-8IMY when a chapter 4 mary chapter 3 or 4 withholding responsi- Any withholding statement provided by an status is required for chapter 4 purposes. bility; and FFI other than an FFI acting as a WP, WT, or QI with respect to the account must also identify Responsibilities and documentation. Pay- 6. Provide sufficient information for you to al- each intermediary or flow-through entity that re- ments made to a QI that does not assume pri- locate payments to each U.S. nonexempt ceives the payment and such entity’s chapter 4 mary Chapters 3 and 4 withholding responsibili- recipient or to a pool of U.S. payees to the status and GIIN, when applicable. ties are treated as paid to its account holders. extent described earlier under this head- For additional information on the require- However, a QI is not required to provide you ing. ments for FFI withholding statements, see Reg- with documentation it obtains from its foreign The extent to which you must have withhold- ulations section 1.1471-3(c)(3)(iii)(B)(2). account holders or from U.S. exempt recipients ing rate pool information depends on the with- (U.S. persons exempt from Form 1099 report- Chapter 4 withholding statement. A holding and reporting obligations assumed by ing). Instead, it provides you with a withholding chapter 4 withholding statement must be provi- the QI. statement that contains either chapter 3 or ded by the following. chapter 4 withholding rate pool information. A If a QI that is permitted to do so by the QI • A territory financial institution that does not chapter 4 withholding rate pool is a payment of agreement obtains documentary evidence un- agree to be treated as a U.S. person. a single type of income that is a withholdable der the “KYC” rules that apply to the QI under • A U.S. branch that is not a U.S. branch of a payment that is allocated to payees that are local law, and the documentary evidence is of a participating FFI. nonparticipating FFIs or recalcitrant account type specified in an attachment to the QI agree- • An NFFE or certified deemed-compliant holders (in a single pool). A chapter 4 withhold- ment, the documentary evidence remains valid FFI that is an NQI, nonwithholding foreign ing rate pool also means a payment of a single until there is a change in circumstances or the partnership, or nonwithholding foreign trust type of income that is allocated to U.S. payees QI knows the information is incorrect. A QI may and is not the payee. when the QI provides the certification required rely on a Form W-8 until its validity expires un- A chapter 4 withholding statement must on Form W-8IMY for allocating payments to this der Regulations section 1.1441-1(e)(4)(ii) and contain the following. pool and a withholding statement. A QI may in- may rely on documentary evidence not ob- • The name, address, TIN (if any), entity clude in its chapter 4 withholding rate pools its tained pursuant to “KYC” rules until its validity type, and chapter 4 status of each payee. direct account holders as well as account hold- expires under Regulations section 1.6049-5(c). • The amount allocated to each payee. ers of another QI or a participating FFI or regis- Primary Chapters 3 and 4 withholding • A valid withholding certificate or other ap- tered deemed-compliant FFI. With respect to a responsibilities not assumed. If a QI does propriate documentation sufficient to es- payment to a foreign person for which no chap- not assume primary Chapters 3 and 4 withhold- tablish the chapter 4 status of each payee, ter 4 withholding is required, a chapter 3 with- ing responsibility or primary Form 1099 report- and each intermediary or flow-through en- holding rate pool is a payment of a single type ing and backup withholding responsibility for tity that receives the payment on behalf of of income that is subject to a single rate of with- the payment, you can reliably associate the the payee. holding and that is reported on Form 1042-S payment with valid documentation only to the • Any other information the withholding under a single chapter 4 exemption code. Pay- extent you can reliably determine the part of the agent reasonably requests in order to fulfill ments made to U.S. exempt recipients may also payment that relates to each withholding rate its obligations under chapter 4. be included in a chapter 3 withholding rate pool pool for foreign and U.S. payees. Unless the al- A chapter 4 withholding statement is permit- to which withholding does not apply. ternative procedure applies and the QI is per- ted to provide pooled allocation information with A QI is required to provide you with informa- mitted to include U.S. nonexempt recipients in a respect to payees that are treated as nonpartici- tion regarding U.S. nonexempt recipients (U.S. chapter 4 withholding rate pool of U.S. payees, pating FFIs. persons subject to Form 1099 information re- the QI must provide you with a separate with- porting) and to provide you withholding rate holding rate pool for each U.S. nonexempt pool information separately for each such U.S. recipient that must be reported on Form 1099. If

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you and the QI agree, the QI may apply the al- Joint account treatment. A QI may apply joint a payment made by the QI to the partner- ternative procedures for U.S. nonexempt recipi- account treatment to a partnership or trust if the ship or trust. ents by establishing a single withholding rate partnership or trust meets the following condi- • It agrees to permit the QI to treat its direct pool (not subject to backup withholding) for all tions. and indirect partners, beneficiaries, or U.S. nonexempt recipient account holders for • It is a nonwithholding foreign partnership or owners as direct and indirect account hold- whom the QI is required to report on Form 1099 nonwithholding foreign trust that is either a ers, respectively, of the QI under the QI and has provided you with Forms W-9 prior to simple or grantor trust. agreement. you making the reportable payment, or, if appli- • It is a certified deemed-compliant FFI • It agrees to comply with the compliance cable, designated broker proceeds to which (other than a registered deemed-compliant procedures of the QI agreement. backup withholding does not apply. The QI Model 1 IGA FFI), an owner-documented For information on these rules, see section must provide a Form W-9 or, in the absence of FFI with respect to the QI, an exempt ben- 4.06 of the QI agreement in Revenue Proce- the form, the name, address, and TIN, if availa- eficial owner, an NFFE, or is covered as an dure 2017-15, available at IRS.gov/irb/ ble, for each U.S. nonexempt recipient. account that is excluded from the definition 2017-03_IRB#RP-2017-15. of financial account under Annex II of an Primary Chapters 3 and 4 withholding applicable IGA or under Regulations sec- responsibilities assumed. If you make a pay- Form 1042-S reporting. A QI is generally per- tion 1.1471-5(a) and has provided the QI mitted to report payments made to its foreign ment to a QI that assumes primary Chapters 3 with a certification that it has maintained and 4 withholding responsibilities (but not pri- account holders on a pooled basis rather than such chapter 4 status during each certifica- reporting payments to each account holder spe- mary Form 1099 reporting and backup with- tion period. holding responsibility), you can reliably asso- cifically. Pooled basis reporting is not available • It is a direct account holder of the QI. for payments to certain account holders, such ciate the payment with valid documentation only • None of its partners, beneficiaries, or own- to the extent you can reliably determine the part as nonqualified intermediaries, flow-through en- ers is a flow-through entity or is acting as tities (discussed earlier) and certain of their ac- of the payment that relates to the chapter 4 an intermediary for a payment made by the withholding rate pools and chapter 3 withhold- count holders and owners, private arrangement QI to the partnership or trust, and none of intermediaries, and, in certain circumstances, ing rate pools, as applicable, and the part of the its partners, beneficiaries, or owners is a payment attributable to withholding rate pools qualified intermediaries, withholding foreign U.S. person. partnerships, and withholding foreign trusts. for each U.S. nonexempt recipient, unless the • None of its foreign partners, beneficiaries, alternative procedure applies for Form 1099 re- Notwithstanding these requirements, separate or owners is subject to withholding or re- Forms 1042-S are not issued to account hold- porting and/or backup withholding purposes. porting under chapter 4. The QI must provide a Form W-9 or, in the ab- ers that the QI is permitted to include in a chap- • It agrees to make available upon request to ter 4 withholding rate pool. sence of the form, the name, address, and TIN, the QI (or QI’s reviewer) records that es- if available, for such person. tablish it has provided the QI with docu- Collective refund procedures. A QI may Primary Chapters 3 and 4 withholding mentation for purposes of Chapters 3 and seek a refund of tax withheld under Chapters 3 responsibilities and Form 1099 reporting 4 for all of its partners, beneficiaries, or and 4 on behalf of its account holders when the and backup withholding responsibilities as- owners. QI has not issued a Form 1042-S to the account sumed. If you make a payment to a QI that as- For information on these rules, see section holders that received the payment that was sumes primary Chapters 3 and 4 withholding re- 4.05 of the QI agreement in Revenue Proce- subject to overwithholding. The account hold- sponsibilities and primary Form 1099 reporting dure 2017-15, available at IRS.gov/irb/ ers, therefore, are not required to file claims for and backup withholding responsibility, you can 2017-03_IRB#RP-2017-15. refund with the IRS to obtain refunds, but rather reliably associate the payment with valid docu- may obtain them from the QI. A QI may obtain a mentation provided that you receive a valid Agency option. A QI may apply the agency refund of tax withheld under chapter 4, how- Form W-8IMY. It is not necessary to associate option to a partnership or trust under which the ever, to the extent permitted under the QI the payment with any chapter 3 or chapter 4 partnership or trust agrees to act as an agent of agreement. withholding rate pools. the QI and to apply the provisions of the QI If you make a payment to a QI that is also a agreement to its partners, beneficiaries, or own- Nonqualified Intermediary (NQI) QDD, the QI must provide a withholding state- ers. A QI and a partnership or trust may only ap- ment designating the accounts for which it acts ply the agency option if the partnership or trust If you are making a payment to an NQI or U.S. as a QDD even if it assumes primary withhold- meets the following conditions. branch that is using Form W-8IMY to transmit ing responsibility for all payments, unless it is • It is a nonwithholding foreign partnership or information about the branch's account holders acting as a QDD for all payments it receives. nonwithholding foreign trust that is either a or customers, you can treat the payment (or a simple or grantor trust. part of the payment) as reliably associated with Example. You make a payment of U.S. • It is either a direct account holder of the QI valid documentation from a specific payee only source dividends to a QI. It has five customers: or an indirect account holder of the QI that if, before making the payment: two are foreign persons who have provided is a direct partner, beneficiary, or owner of • You can allocate the payment to a valid documentation entitling them to a 15% rate of a partnership or trust to which the QI also Form W-8IMY; withholding on dividends; two are foreign per- applies the agency option. • You can reliably determine how much of sons subject to a 30% rate of withholding on • It is an FFI that is a certified deemed-com- the payment relates to valid documentation dividends; and one is a U.S. individual who pro- pliant FFI (other than a registered provided by a payee (a person that is not vides it with a Form W-9. Each customer is enti- deemed-compliant Model 1 IGA FFI), an itself a foreign intermediary, flow-through tled to 20% of the dividend payment. The QI owner-documented FFI with respect to the entity, or U.S. branch with a chapter 4 with- does not assume any primary withholding re- QI, an NFFE, an exempt beneficial owner, holding rate pool) (see Pooled withholding sponsibility. The QI gives you a Form W-8IMY or is covered as an account that is exclu- information, later); and with which it associates the Form W-9 and a ded from the definition of financial account • You have sufficient information to report withholding statement that allocates 40% of the under Annex II of an applicable IGA or un- the payment on Form 1042-S or Form dividend to a 15% withholding rate pool, 40% to der Regulations section 1.1471-5(a) and 1099, if reporting is required. a 30% withholding rate pool, and 20% to the has provided the QI with a certification that U.S. individual. You should report on Forms it has maintained such chapter 4 status Withholding statement. The NQI or U.S. 1042-S, 40% of the payment as made to a 15% during each certification period. branch must give you certain information on a rate dividend pool and 40% of the payment as • None of its partners, beneficiaries, or own- withholding statement that is associated with made to a 30% rate dividend pool. The part of ers is a withholding foreign trust, withhold- the Form W-8IMY. A withholding statement the payment allocable to the U.S. individual ing foreign partnership, participating FFI, must be updated to keep the information accu- (20%) is reportable on Form 1099-DIV. registered deemed-compliant FFI, regis- rate prior to each payment. See, however, Reg- tered deemed-compliant Model 1 IGA FFI, ulations section 1.1441-3(e)(4)(iv)(C) for when or another QI acting as an intermediary for

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a withholding agent may instead accept an al- statement must include the information descri- tain your consent. You must receive the with- ternative withholding statement. bed below for a reportable amount. holding statement with all the required informa- tion (other than item 5) before the NQI makes 1. The name, address, and TIN (if any, or if For chapter 4 purposes. An NQI receiving the payment. a withholdable payment must provide a with- required) of each person for whom docu- holding statement which satisfies the require- mentation is provided. The alternative procedure cannot, how- ever, be used for payments to U.S. ments of an FFI withholding statement or, if the 2. The type of documentation (documentary ! CAUTION nonexempt recipients other than those NQI is not a participating FFI or registered evidence, Form W-8, or Form W-9) for ev- recipients included in a chapter 4 withholding deemed-compliant FFI, a chapter 4 withholding ery person for whom documentation has rate pool of U.S. payees. See Chapter 4, later. statement. been provided, and, for a withholdable Therefore, an NQI must provide you with alloca- An FFI withholding statement may allocate payment, that the documentation estab- tion information for any U.S. nonexempt recipi- the payment to chapter 4 reporting rate pools lishes the payee’s chapter 4 status to the ents not included in a chapter 4 withholding rate (as appropriate), including a chapter 4 withhold- extent required for chapter 4 purposes. ing rate pool for nonparticipating FFIs, recalci- pool of U.S. payees before the NQI makes a trant account holders (in each class of account 3. The status of the person for whom the payment. holders, as described in the chapter 4 regula- documentation has been provided, such tions), and, for an NQI that is a participating FFI as whether the person is a U.S. exempt re- Pooled withholding information. If an (including a reporting Model 2 FFI) or a regis- cipient, U.S. nonexempt recipient, or a for- NQI uses the alternative procedure, it must pro- tered deemed-compliant FFI (including a report- eign person. For a foreign person, the vide you with withholding rate pool information, ing Model 1 FFI), U.S. payees. However, an statement must indicate whether the per- as opposed to individual allocation information, NQI may allocate a payment of a reportable son is the beneficial owner or a foreign in- before the payment of a reportable amount. The amount (regardless of whether the payment is a termediary, flow-through entity, or a U.S. NQI must provide you with the payee specific withholdable payment) to a chapter 4 withhold- branch that is not included in a chapter 4 allocation information (information allocating ing rate pool of U.S. payees when the NQI sat- withholding rate pool or in a pool of pay- each payment to each payee) by January 31 isfies the requirements for providing such a ees under the alternative procedures (see following the calendar year of payment, except pool, including the requirement to certify to its Alternative procedure, later). as otherwise permitted for chapter 4 purposes, status as a participating FFI, including a report- 4. The type of recipient the person is, based when using this procedure. ing Model 2 FFI, or registered deemed-compli- on the recipient codes used on Form Chapter 4. In the case of a reportable ant FFI, including a reporting Model 1 FFI. 1042-S. If the FFI withholding statement instead in- amount that is also a withholdable payment, an cludes payee-specific information for purposes 5. Information allocating each payment, by NQI may include amounts allocable to a chap- of chapter 4, it must indicate both the portion of income type, to each payee (including ter 4 withholding rate pool (other than a chap- the payment allocated to each payee and each U.S. exempt and nonexempt recipients) ter 4 withholding rate pool of U.S. payees) and payee’s chapter 4 status. The withholding state- for whom documentation has been provi- payees subject to chapter 4 withholding for ment must also identify each intermediary or ded that is not included in a chapter 4 whom the NQI will provide payee-specific infor- flow-through entity that is receiving a payment withholding rate pool or in a pool of pay- mation in a 30% rate pool together with payees (excluding any intermediary or flow-through en- ees under the alternative procedures (see subject to chapter 3 withholding at the 30% tity that is an account holder or interest holder in Alternative procedure, later). rate. For the amount of the payment allocable to a chapter 4 withholding rate pool of U.S. pay- another QI, WP, or WT), each such entity’s 6. The rate of withholding that applies to chapter 4 status and GIIN (if applicable) when ees, an NQI may include amounts allocable to each foreign person to whom a payment is the pool with other amounts exempt from with- required for chapter 4 purposes, and the chap- allocated. ter 4 withholding rate pools associated with holding (and an NQI may allocate payments to each such entity. 7. A foreign payee's country of residence. this pool regardless of whether the payment is a A chapter 4 withholding statement must withholdable payment) and may not otherwise 8. If a reduced rate of withholding is claimed apply these provisions for payments made to contain the name, address, TIN (if any), entity under chapter 3, the basis for a reduced type, chapter 4 status of each payee, the U.S. nonexempt recipients. The NQI must iden- rate of withholding (for example, portfolio tify prior to the payment each chapter 4 with- amount allocated to each payee, and a valid interest, treaty benefit, etc.). withholding certificate or other documentation holding rate pool to be allocated a portion of the sufficient to establish each payee’s chapter 4 9. In the case of treaty benefits claimed by payment, in addition to each payee to be alloca- status for payees that are not included in a entities, whether the applicable limitation ted the payments that is not included in such a chapter 4 withholding rate pool of nonparticipat- on benefits statement and the statement pool. The NQI must then also allocate, by Janu- ing FFIs. The withholding statement must also that the foreign person derives the income ary 31 following the calendar year of the pay- identify each intermediary or flow-through entity for which treaty benefits are claimed, have ment, the portion of the payment to each such that is receiving a payment (excluding any inter- been made. pool in addition to allocating the payment to each payee that is not included in the pool. mediary or flow-through entity that is an account 10. The name, address, and TIN (if any) and, holder or interest holder in another QI, WP, or for a withholdable payment, the chapter 4 Failure to provide allocation informa- WT), each such entity’s chapter 4 status and status (if required) and GIIN (if applicable) tion. If an NQI fails to provide you with the GIIN (if applicable), and the chapter 4 withhold- of any other NQI, flow-through entity, or payee specific allocation information for a with- ing rate pools associated with each such entity. U.S. branch from which the payee will di- holding rate pool or chapter 4 withholding rate An allocation of a payment to an NQI, nonwith- rectly receive a payment. pool by January 31, you must not apply the al- holding foreign partnership, or nonwithholding ternative procedure to any of the NQI's with- foreign trust of an amount subject to chapter 3 11. Any other information a withholding agent holding rate pools from that date forward. You withholding to a chapter 4 withholding rate pool requests to fulfill its reporting and with- must treat the payees as undocumented and of U.S. payees must identify the payees consis- holding obligations. apply the presumption rules, discussed later in tent with the description in Regulations section Presumption Rules. An NQI is deemed to have 1.1471-3(c)(3)(iii)(B)(2)(iii). Alternative procedure. Under this alternative failed to provide specific allocation information if procedure, the NQI can give you the informa- For chapter 3 purposes. The withholding it does not give you such information for more tion that allocates each payment to each foreign than 10% of any one withholding rate pool. statement should allocate for chapter 3 purpo- and U.S. exempt recipient or chapter 4 with- ses only the portion of the payment that was not holding rate pool by January 31 following the allocated to a chapter 4 withholding rate pool or calendar year of payment, rather than before However, if you receive such information by to a payee identified on a withholding statement the payment is made, as otherwise required. To February 14, you may make the appropriate ad- to whom withholding was applied under chap- take advantage of this procedure, the NQI must justments to repay any excess withholding in- ter 4. For chapter 3 purposes, a withholding (a) inform you, on its withholding statement, that curred between February 1 and on or before it is using the alternative procedure; and (b) ob- February 14.

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If the NQI fails to allocate more than 10% of or not the WP is required to furnish the state- holder) that is an NFFE (other than an excepted the payment to a withholding rate pool by Feb- ment). NFFE) with one or more substantial U.S. own- ruary 14 following the calendar year of pay- The WP may determine the amount of with- ers (or, under an applicable IGA, controlling ment, you must file a Form 1042-S for each ac- holding based on a reasonable estimate of the persons that are specified U.S. persons) and count holder in the pool on a pro-rata basis partner's distributive share of income subject to that is the beneficial owner of the withholdable (treating a chapter 4 withholding rate pool as an withholding for the year. The WP must correct payment received by the WP, unless the account holder for this purpose and excluding the estimated withholding to reflect the actual pass-through partner certifies to the WP that it U.S. exempt recipients). For example, if there distributive share on the earlier of the dates is reporting on the account holder (or interest are four account holders in a withholding rate mentioned in the preceding paragraph. If that holder) pursuant to its U.S. account reporting pool that receives a $100 payment and the NQI date is after the earlier of the due date (includ- requirements. The preceding sentence applies fails to allocate more than $10 of the payment, ing extensions) for filing the WP's Form 1042-S with respect to a pass-through partner to which you must file four Forms 1042-S, one for each or the date the WP actually issues Form 1042-S the WP applies the agency option or which has account holder in the pool, showing $25 of in- for the calendar year, the WP may withhold and partners, beneficiaries, or owners that are indi- come to each. You must also check the report any adjustments required by correcting rect partners of the WP. “Pro-rata Basis Reporting” box at the top of the information for the following calendar year. each form. If, however, the NQI provides alloca- Joint account treatment. Under special pro- tion information for 90% or more of the payment Form 1042 filing. The WP must file Form cedures provided in the WP agreement, a WP to a withholding rate pool, the pro-rata reporting 1042 even if no amount was withheld. In addi- may apply joint account treatment to a partner- method is not required. Instead, you must file a tion to the information that is required for the ship or trust that is a direct partner of the WP. A Form 1042-S for each account holder for whom Form 1042, the WP must attach a statement WP that applies the joint account option must you have allocation information and report the showing the amounts of any over- or un- elect to perform pool reporting for amounts sub- unallocated part of the payment on a Form der-withholding adjustments and an explana- ject to chapter 3 withholding that either are not 1042-S issued to “unknown recipient.” tion of those adjustments. withholdable payments or are withholdable pay- Form 1042-S reporting. The WP can ments for which no chapter 4 withholding is re- Withholding Foreign Partnerships elect to report payments made to its foreign di- quired and that the WP distributes to, or in- (WPs) rect partners on a pooled basis for chapter 3 cludes in the distributive share of, a foreign purposes rather than reporting payments to direct partner. These rules only apply to a part- If you are making payments to a WP, you do not each direct partner in addition to reporting pay- nership or trust that meets the following condi- have to withhold if the WP is acting in that ca- ments in a chapter 4 withholding rate pool to the tions. pacity. The WP must assume primary Chapters extent the WP is permitted to do so based on its • It is a nonwithholding foreign partnership or 3 and 4 withholding responsibility for amounts chapter 4 status. A WP can treat as its direct nonwithholding foreign trust that is either a that are distributed to, or included in the distrib- partners those indirect partners of the WP for simple or grantor trust. utive share of, any direct partner and may as- which it applies joint account treatment or the • It is a certified deemed-compliant FFI sume Chapters 3 and 4 withholding responsibil- agency option (described later). A WP must (other than a registered deemed-compliant ities for certain of its indirect partners. The WP otherwise issue a Form 1042-S to each partner Model 1 IGA FFI, as defined in the WP must withhold the amount required to be with- to the extent it is required to do so under the agreement), an owner-documented FFI, an held. A WP must provide you with a Form WP agreement. You may issue a single Form exempt beneficial owner, or an NFFE W-8IMY that certifies that the WP is acting in 1042-S for all payments you make to a WP (other than a WP or WT). that capacity and provides all other information other than payments for which the entity does • It is a direct partner of the WP. and certifications required by the form. The not act as a WP. You may, however, have Form • None of its partners, beneficiaries, or own- Form W-8IMY must contain the WP-EIN and 1099 requirements for certain indirect partners ers is a flow-through entity or intermediary. GIIN (if applicable). of a WP that are U.S. nonexempt recipients. • None of the partnership’s or trust’s part- ners, beneficiaries, or owners is a U.S. A WP can be either an FFI or an NFFE. An Collective refund procedures. A WP may person or is subject to withholding or re- FFI (other than a retirement fund) that is a WP seek a refund of tax withheld under Chapters 3 porting under chapter 4. must be a participating FFI, a registered and 4 on behalf of its partners when the WP has • It agrees to make available upon request to deemed-compliant FFI, or an FFI treated as a not issued a Form 1042-S to the partners that the WP (or the WP’s auditor) records that deemed-compliant FFI under an applicable received the payment that was subject to over- establish it has provided the WP with doc- Model 1 IGA that is subject to similar due dili- withholding. The partners, therefore, are not re- umentation for purposes of Chapters 3 and gence and reporting requirements with respect quired to file claims for refund with the IRS to 4 for all of its partners, beneficiaries, or to its U.S. accounts as those applicable to a obtain refunds, but rather may obtain them from owners. registered deemed-compliant FFI under Regu- the WP. A WP may obtain a refund of tax with- For more information on applying these lations section 1.1471-5(f)(1) (including the re- held under chapter 4 to the extent permitted un- rules, see section 9.01 of the WP agreement in quirement to register with the IRS) (defined in der the WP agreement. section 6 of Revenue Procedure 2017-21, avail- the WP agreement as a “registered Reporting of U.S. partners. A WP must able at IRS.gov/irb/2017-06_IRB#RP-2017-21. deemed-compliant Model 1 IGA FFI”). Thus, an report its U.S. partners on Schedule K-1 to the FFI certifying its status as a WP must provide extent required under the WP agreement. If the Agency option. A WP may apply the agency you a Form W-8IMY that certifies to one of the WP is an FFI, it is also required to report each of option to a partnership or trust under which the chapter 4 statuses referenced in the preceding its U.S. accounts (or U.S. reportable accounts if partnership or trust agrees to act as an agent of sentence when a chapter 4 status is required. a reporting Model 1 FFI) on Form 8966 consis- the WP and to apply the provisions of the WP tent with its chapter 4 requirements or the re- agreement to its partners, beneficiaries, or own- Responsibilities of the WP. The WP must quirements of an IGA. If the WP is an NFFE, the ers. A WP that applies the agency option must withhold under chapter 3 or 4 on the date it WP must file Form 8966 to report any partner elect to perform pool reporting for amounts sub- makes a distribution of a withholdable payment that is an NFFE (other than an excepted NFFE) ject to chapter 3 withholding that either are not or an amount subject to chapter 3 withholding to with one or more substantial U.S. owners (or, withholdable payments or are withholdable pay- a direct foreign partner based on the Forms under an applicable IGA, controlling persons ments for which no chapter 4 withholding is re- W-8 or W-9 it receives from its partners. If the that are specified U.S. persons) if the NFFE is quired and that the WP distributes to, or in- partner's distributive share has not been distrib- the beneficial owner of a withholdable payment cludes in the distributive share of, a foreign uted, the WP must withhold on the partner's dis- received by the WP. The WP must also file a direct partner. A WP and a partnership or trust tributive share on the earlier of the date that the Form 8966 to report withholdable payments may only apply the agency option if the partner- partnership must mail or otherwise provide to made to a pass-through partner for which the ship or trust meets the following conditions. the partner a Schedule K-1 (Form 1065) or the WP acts under the WP agreement that provides • It is a nonwithholding foreign partnership or due date for furnishing the statement (whether information on an account holder (or interest nonwithholding foreign trust that is either a simple or grantor trust.

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• It is either a direct partner of the WP or an chapter 4 withholding rate pools (to the extent that the trust must mail or otherwise provide to indirect partner of the WP that is a direct permitted), and, for an amount subject to chap- the beneficiary or owner the statement required partner, beneficiary, or owner of a partner- ter 3 withholding that is not a withholdable pay- under section 6048(b) of the Internal Revenue ship or trust to which the WP also applies ment or is a withholdable payment for which Code or the due date for furnishing the state- the agency option. chapter 4 withholding is not required, valid doc- ment (whether or not the WT is required to fur- • It is an FFI that is a certified deemed-com- umentation provided by the account holders or nish the statement). pliant FFI (other than a registered interest holders of the pass-through partner that The WT may determine the amount of with- deemed-compliant Model 1 IGA FFI, as are not themselves QIs or flow-through entities. holding based on a reasonable estimate of the defined in the WP agreement), an For more information on applying these beneficiary's or owner's distributive share of in- owner-documented FFI, an NFFE, or an rules, see section 9.03 of the WP agreement in come subject to withholding for the year. The exempt beneficial owner. section 6 of Revenue Procedure 2017-21, avail- WT must correct the estimated withholding to • None of its partners, beneficiaries, or own- able at IRS.gov/irb/2017-06_IRB#RP-2017-21. reflect the actual distributive share on the earlier ers is a WT, WP, participating FFI, regis- of the dates mentioned in the preceding para- tered deemed-compliant FFI, registered Not acting as a WP. A foreign partnership that graph. If that date is after the earlier of the due deemed-compliant Model 1 IGA FFI (as is not acting as a WP is a nonwithholding for- date (including extensions) for filing the WT's defined in the WP agreement), or QI acting eign partnership. This occurs if a WP is not act- Form 1042-S or the date the WT actually issues as an intermediary for a payment made by ing in that capacity for some or all of the Form 1042-S for the calendar year, the WT may the WP to the partnership or trust. amounts it receives from you. withhold and report any adjustments required • The WP may not act as a withholding for- You must treat payments made to a non- by correcting the information for the following eign partnership with respect to any direct withholding foreign partnership as made to the calendar year. or indirect partner of the partnership or partners of the partnership. The partnership trust that is a U.S. nonexempt recipient, must provide you with a Form W-8IMY (with Form 1042 filing. The WT must file Form unless the U.S. nonexempt recipient is a Part VIII completed), a withholding statement 1042 even if no amount was withheld. In addi- partner of an owner-documented FFI or identifying the amounts, the withholding certifi- tion to the information that is required for the passive NFFE to which the WP applies the cates or documentary evidence of the partners, Form 1042, the WT must attach a statement agency option and is included in the WP’s and the information shown earlier under With- showing the amounts of any over- or un- der-withholding adjustments and an explana- U.S. payee pool. holding statement under Nonqualified Interme- tion of those adjustments. • It agrees to comply with the compliance diary (NQI). procedures described in section 8.05 of Form 1042-S reporting. The WT can the WP agreement by providing the WP Withholding Foreign Trusts (WTs) elect to report payments made to its foreign di- with the certification described in section rect beneficiaries or owners on a pooled basis 8.03 of the WP agreement and providing If you are making payments to a WT, you do not for chapter 3 purposes rather than reporting the WP with documentation or other infor- have to withhold if the WT is acting in that ca- payments made to each foreign direct benefi- mation for review. pacity. The WT must assume primary Chapters ciary or owner in addition to reporting payments • It agrees to comply with the documentation 3 and 4 withholding responsibility for amounts in a chapter 4 withholding rate pool to the extent requirements of a WP in the WP agree- that are distributed to, or included in the distrib- the WT is permitted to do so based on its chap- ment. utive share of, any direct beneficiary or owner ter 4 status. A WT can treat as its direct benefi- For more information on applying these and may assume primary Chapters 3 and 4 ciaries or owners those indirect beneficiaries or rules, see section 9.02 of the WP agreement in withholding responsibility for certain of its indi- owners of the WT for which it applies joint ac- section 6 of Revenue Procedure 2017-21, avail- rect beneficiaries or owners. The WT must with- count treatment or the agency option (descri- able at IRS.gov/irb/2017-06_IRB#RP-2017-21. hold the amount required to be withheld. A WT bed later). A WT must otherwise issue a Form must provide you with a Form W-8IMY that cer- 1042-S to each beneficiary or owner to the ex- WP acting for indirect partners. A WP may tifies that the WT is acting in that capacity and tent it is required to do so under the WT agree- act as a WP with respect to an indirect partner provides all other information and certifications ment. You may issue a single Form 1042-S for of the WP that is not a U.S. nonexempt recipi- required by the form. The Form W-8IMY must all payments you make to a WT other than pay- ent. However, a WP may act as a WP for an in- contain the WT-EIN and GIIN (if applicable). ments for which the entity does not act as a WT. direct partner that is a U.S. nonexempt recipient You may, however, have Form 1099 require- if the indirect partner is included in a A WT can be either an FFI or an NFFE. An ments for certain indirect beneficiaries or own- pass-through partner’s chapter 4 withholding FFI (other than a retirement fund) that is a WT ers of a WT that are U.S. nonexempt recipients. rate pool of recalcitrant account holders or U.S. must be a participating FFI, a registered Collective refund procedures. A WT payees. A WP acting as a WP for an indirect deemed-compliant FFI, or an FFI treated as a may seek a refund of tax withheld under Chap- partner is not required to forward to its withhold- deemed-compliant FFI under an applicable ters 3 and 4 on behalf of its beneficiaries or ing agent the documentation and the withhold- Model 1 IGA that is subject to similar due dili- owners when the WT has not issued a Form ing statement of the pass-through partner and gence and reporting requirements with respect 1042-S to the beneficiaries or owners that re- indirect partner that the WP would have other- to its U.S. accounts as those applicable to a ceived the payment that was subject to over- wise been required to provide under the re- registered deemed-compliant FFI under Regu- withholding. The beneficiaries or owners, there- quirements of a nonwithholding foreign partner- lations section 1.1471-5(f)(1) (including the re- fore, are not required to file claims for refund ship. See Not acting as a WP, later. However, a quirement to register with the IRS) (defined in with the IRS to obtain refunds, but rather may WP must provide the withholding agent with the WT agreement as a “registered obtain them from the WT. A WT may obtain a documentation and any other information from deemed-compliant Model 1 IGA FFI”). Thus, refund of tax withheld under chapter 4 to the ex- any pass-through partner whose direct or indi- you must identify the chapter 4 status of an FFI tent permitted under the WT agreement. rect partner, beneficiary, or owner is a U.S. non- certifying its status as a WT as one of the chap- exempt recipient unless the recipient is inclu- ter 4 statuses referenced in the preceding sen- Reporting of U.S. beneficiaries or own- ded in the pass-through partner’s chapter 4 tence on a Form W-8IMY when a chapter 4 sta- ers. If the WT is a grantor trust with U.S. own- withholding rate pool of recalcitrant account tus is required for chapter 4 purposes. ers, the WT is required to file Form 3520-A, and holders or U.S. payees. to provide statements to a U.S. owner, as well If a WP is making a payment that is a with- Responsibilities of a WT. The WT must with- as each U.S. beneficiary who is not an owner holdable payment, the pass-through partner’s hold on the date it makes a distribution of a and receives a distribution. If the WT is an FFI, withholding statement must meet the require- withholdable payment or an amount subject to it is required to report each of its U.S. accounts ments of Regulations section 1.1471-3(c)(3)(iii) chapter 3 withholding to a direct foreign benefi- (or U.S. reportable accounts if a reporting (B). The pass-through partner’s withholding ciary or owner. If the beneficiary's or owner's Model 1 FFI) on Form 8966 consistent with its statement must include the account holders or distributive share has not been distributed, the FATCA requirements or the requirements of an interest holders of the pass-through partner in WT must withhold on the beneficiary's or own- IGA. If the WT is an NFFE, the WT must file er's distributive share on the earlier of the date

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Form 8966 to report any beneficiary or owner mentation for purposes of Chapters 3 and indirect beneficiary or owner of the WT that is that is an NFFE (other than an excepted NFFE) 4 for all of its partners, beneficiaries, or not a U.S. nonexempt recipient. However, a WT with one or more substantial U.S. owners (or, owners. may act as a WT for an indirect beneficiary or under an applicable IGA, controlling persons For more information on applying these owner that is a U.S. nonexempt recipient if the that are specified U.S. persons) if the NFFE is rules, see section 9.01 of the WT agreement indirect beneficiary or owner is included in a the beneficial owner of a withholdable payment found in section 7 of Revenue Procedure pass-through beneficiary’s or owner’s chapter 4 received by the WT. 2017-21, available at IRS.gov/irb/ withholding rate pool of recalcitrant account The WT must also file a Form 8966 to report 2017-06_IRB#RP-2017-21. holders or U.S. payees. A WT acting as a WT withholdable payments made to a pass-through for an indirect beneficiary or owner is not re- beneficiary or owner for which the WT acts un- Agency option. A WT may apply the agency quired to forward to its withholding agent the der the WT agreement that provides information option to a partnership or trust under which the documentation and the withholding statement on an account holder (or interest holder) that is partnership or trust agrees to act as an agent of of the pass-through beneficiary or owner and in- an NFFE (other than an excepted NFFE) with the WT and to apply the provisions of the WT direct beneficiary or owner that the WT would one or more substantial U.S. owners (or, under agreement to its partners, beneficiaries, or own- have otherwise been required to provide under an applicable IGA,controlling persons that are ers. A WT that applies the agency option must the requirements of a nonwithholding foreign specified U.S. persons) and that is the benefi- elect to perform pool reporting for amounts sub- trust. See Not acting as a WT, later. However, a cial owner of the withholdable payment re- ject to chapter 3 withholding that either are not WT must provide the withholding agent with ceived by the WT, unless the pass-through ben- withholdable payments or are withholdable pay- documentation and any other information from eficiary or owner certifies to the WT that it is ments for which no chapter 4 withholding is re- any pass-through beneficiary or owner whose reporting on the account holder (or interest quired and that the WT distributes to, or in- direct or indirect partner, beneficiary, or owner holder) pursuant to its U.S. account reporting cludes in the distributive share of, a foreign is a U.S. nonexempt recipient unless the recipi- requirements. The preceding sentence applies direct beneficiary or owner. A WT and a part- ent is included in the pass-through beneficiary’s with respect to a pass-through beneficiary or nership or trust may only apply the agency op- or owner’s chapter 4 withholding rate pool of re- owner to which the WT applies the agency op- tion if the partnership or trust meets the follow- calcitrant account holders or U.S. payees. If a tion or which has partners, beneficiaries, or ing conditions. WT is making a payment that is a withholdable owners that are indirect beneficiaries or owners • It is a nonwithholding foreign partnership or payment, the pass-through beneficiary’s or of the WT. In addition, if the WT is not a partici- nonwithholding foreign trust that is either a owner’s withholding statement must meet the pating FFI, a registered deemed-compliant FFI, simple or grantor trust. requirements of Regulations section or a registered deemed-compliant Model 1 IGA • It is either a direct beneficiary or owner of 1.1471-3(c)(3)(iii)(B). The pass-through benefi- FFI and is not required to report with respect to the WT or an indirect beneficiary or owner ciary’s or owner’s withholding statement must a U.S. beneficiary of the WT on Form 3520-A, of the WT that is a direct partner, benefi- include the account holders or interest holders then the WT must report with respect to such ciary, or owner of a partnership or trust to of the pass-through beneficiary or owner in beneficiary on Form 8966, as required in the which the WT also applies the agency op- chapter 4 withholding rate pools (to the extent WT agreement. A beneficiary for this purpose tion. permitted), and, for an amount subject to chap- means a beneficiary that receives a distribution • It is an FFI that is a certified deemed-com- ter 3 withholding that is not a withholdable pay- from the WT during the year or that is required pliant FFI (other than a registered ment or is a withholdable payment for which to include an amount in gross income with re- deemed-compliant Model 1 IGA FFI, as chapter 4 withholding is not required, valid doc- spect to the WT under sections 652(a) or defined in the WT agreement), an umentation provided by the account holders or 662(a) of the Internal Revenue Code. owner-documented FFI, an NFFE, or an interest holders of the pass-through beneficiary exempt beneficial owner. or owner that are not themselves QIs or Joint account treatment. Under special pro- • None of its partners, beneficiaries, or own- flow-through entities. cedures provided in the WT agreement, a WT ers is a WT, WP, participating FFI, regis- For more information on applying these may apply joint account treatment to a partner- tered deemed-compliant FFI, registered rules, see section 9.03 of the WT agreement in ship or trust that is a direct beneficiary or owner deemed-compliant Model 1 IGA FFI (as section 7 of Revenue Procedure 2017-21, avail- of the WT. A WT that applies the joint account defined in the WT agreement), or a QI act- able at IRS.gov/irb/2017-06_IRB#RP-2017-21. option must elect to perform pool reporting for ing as an intermediary for a payment made amounts subject to chapter 3 withholding that by the WT to the partnership or trust. Not acting as a WT. A foreign trust that is not either are not withholdable payments or are • The WT may not act as a withholding for- acting as a WT is a nonwithholding foreign trust. withholdable payments for which no chapter 4 eign trust with respect to any direct or indi- This occurs if a WT is not acting in that capacity withholding is required and that the WT distrib- rect beneficiary or owner of the partnership for some or all of the amounts it receives from utes to, or includes in the distributive share of, a or trust that is a U.S. nonexempt recipient, you. foreign direct beneficiary or owner. These rules unless the U.S. nonexempt recipient is a In most cases, you must treat payments only apply to a partnership or trust that meets beneficiary or owner of an owner-docu- made to a nonwithholding foreign trust as made the following conditions. mented FFI or passive NFFE to which the to the beneficiaries of a simple trust or the own- • It is a nonwithholding foreign partnership or WT applies the agency option and is inclu- ers of a grantor trust. The trust must provide nonwithholding foreign trust that is either a ded in the WT’s U.S. payee pool. you with a Form W-8IMY (with Part VIII comple- simple or grantor trust. • It agrees to comply with the compliance ted), a withholding statement identifying the • It is a certified deemed-compliant FFI procedures described in section 8.05 of amounts, the withholding certificates or docu- (other than a registered deemed-compliant the WT agreement by providing the WT mentary evidence of the beneficiaries or own- Model 1 IGA FFI, as defined in the WT with the certification described in section ers, and the information shown earlier under agreement), an owner-documented FFI, an 8.03 of the WT agreement and providing Withholding statement under Nonqualified Inter- exempt beneficial owner, or an NFFE the WT with documentation or other infor- mediary (NQI). (other than a WP or WT). mation for review. • It is a direct beneficiary or owner of the • It agrees to comply with the documentation Standards of Knowledge WT. requirements of a WT in the WT agree- • None of its partners, beneficiaries, or own- ment. for Purposes of Chapter 3 ers is a flow-through entity or intermediary. • None of the partnership’s or trust’s part- For more information on applying these You must withhold in accordance with the pre- ners, beneficiaries, or owners is a U.S. rules, see section 9.02 of the WT agreement in sumption rules (discussed later) if you know or person or is subject to withholding or re- section 7 of Revenue Procedure 2017-21, avail- have reason to know that a withholding certifi- porting under chapter 4. able at IRS.gov/irb/2017-06_IRB#RP-2017-21. cate or documentary evidence provided by a • It agrees to make available upon request to payee is unreliable or incorrect to establish the WT acting for indirect beneficiaries or own- the WT (or the WT’s auditor) records that payee's status for chapter 3 purposes. If you ers. A WT may act as a WT with respect to an establish it has provided the WT with docu- rely on an agent to obtain documentation, you

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are considered to know, or have reason to of withholding, if a reduced rate is claimed; the extent described in Regulations sec- know, the facts that are within the knowledge of or tion 1.1441-7(b)(5)). your agent for this purpose. • You have information not contained on the form that is inconsistent with the claims You may, however, rely on a Form W-8 as made on the form. establishing the account holder's foreign status Reason To Know if any of the following apply. In general, you are considered to have reason The rules below apply to withholding agents 1. You receive the Form W-8BEN from an in- to know that a claim of foreign status or of a re- that are financial institutions, insurance compa- dividual and: duced rate of withholding is incorrect if state- nies, or brokers or dealers in securities. a. You possess or obtain documentary ments contained in the withholding certificate or evidence (that does not contain a U.S. Limits on reason to know for preexisting other documentation, or other relevant facts of address) that supports the claim of obligations. With respect to a preexisting obli- which you have knowledge, would cause a rea- foreign status, and the individual pro- gation (that is, an obligation, including an ac- sonably prudent person in your position to vides you with a reasonable explana- count, held by an individual that is outstanding question the claims made. tion, in writing, supporting the claim of on June 30, 2014, or an obligation, including an foreign status; For an obligation that is not a preexisting ob- account, held by an entity that is opened, exe- ligation (that is, an obligation, including an ac- cuted, or issued before January 1, 2015), if you b. If you make a payment outside the count, held by an individual that is outstanding have documented the foreign status of an ac- United States with respect to an off- on June 30, 2014, or an obligation, including an count holder for purposes of chapter 3 or 61 shore obligation and you possess or account, held by an entity that is opened, exe- prior to July 1, 2014, you may continue to rely obtain documentary evidence estab- cuted, or issued before January 1, 2015), you on that documentation. In addition, if you make lishing foreign status that does not have reason to know that an account holder’s a payment to a new entity account holder that contain a U.S. address; chapter 3 claim is unreliable or incorrect if any you treat as a preexisting entity account under c. With respect to an offshore obligation, information contained in your account opening Notice 2014-33, 2014-20 I.R.B. 1006, available if you classify the individual as a resi- files or other account information conflicts with at IRS.gov/irb/2014-21_IRB#NOT-2014-33 you dent of the country where the obliga- the account holder’s claim. For an obligation may apply the standards of knowledge in Regu- tion is maintained and you are re- other than a preexisting obligation, you will not lations sections 1.1441-7(b)(5) and (b)(8), that quired to report payments to the be considered to have reason to know that a were applicable prior to the issuance of the tem- individual annually to the tax authority person’s chapter 3 claim is unreliable or incor- porary regulations. See Notice 2014-59, of the country where the obligation is rect based on documentation collected for 2014-44 I.R.B. 747, available at IRS.gov/irb/ maintained and that country has a tax anti-money laundering (AML) purposes until 30 2014-44_IRB#NOT-2014-59. treaty or information exchange agree- days after the obligation is executed, or 30 days However, if you review documentation for an ment in effect with the United States; after the account is opened for such person, individual account holder claiming foreign sta- or whichever is applicable. tus that contains a U.S. place of birth or if you are notified of a change in circumstances, the d. You have classified the account Financial institutions, insurance companies, obligation will be treated as having a change in holder as a U.S person in your ac- or brokers or dealers in securities have reason circumstances as of the date you review the count information and you possess or to know that documentation provided by a di- documentation or receive the notification, and obtain documentary evidence evi- rect account holder is unreliable or incorrect you will then have reason to know that the doc- dencing citizenship in a country other only in the circumstances discussed next. If the umentation is unreliable or incorrect. However, than the United States. documentation is considered unreliable or in- if you are reviewing documentation provided by 2. You receive the Form W-8BEN-E from an correct, you must get new documentation to an entity before January 1, 2015, you will not be entity that is not a flow-through entity and: support the payee’s claimed status or may rely required to treat the additional U.S. indicia on the original documentation if you receive the added to Regulations section 1.1441-7(b) by a. You have in your possession or obtain additional statements and/or documentation the temporary regulations as a change in cir- documentation establishing foreign discussed later and are a withholding agent de- cumstances. See Notice 2014-59, for more in- status that substantiates that the en- scribed above with respect to a direct account formation. tity is organized or created under for- holder (defined in Regulations section eign law; or 1.1441-7(b)(3)(i)). Such documentation is de- Establishment of foreign status by certain b. With respect to an offshore obligation, scribed in Regulations section 1.1471-3(c)(5)(i). withholding agents. You have reason to if you classify the entity as a resident know that a Form W-8BEN or W-8BEN-E is un- of the country where the obligation is The circumstances, discussed next, also reliable or incorrect to establish a direct account maintained and you are required to apply to other withholding agents. However, holder's status as a foreign person if: report payments to the entity annually these withholding agents are not limited to to the tax authority of the country these circumstances in determining if they have 1. The Form W-8 has a current permanent where the obligation is maintained reason to know that documentation is unreliable residence address in the United States, and that country has a tax treaty or in- or incorrect. These withholding agents cannot 2. The Form W-8 has a current mailing ad- formation exchange agreement in ef- base their determination on the receipt of addi- dress in the United States, fect with the United States. tional statements or documents. They need to get new documentation. 3. You have a current residence or current 3. The account holder (whether an individual mailing address as part of your account in- or an entity) has provided standing instruc- formation that is an address in the United Withholding Certificates tions to make payments with respect to an States, offshore obligation to an address in, or an You have reason to know that a Form W-8 pro- 4. The account holder notifies you of a new account maintained in, the United States, vided by a direct account holder that is a foreign residence or mailing address in the United unless the account holder provides a rea- person is unreliable or incorrect if: States, sonable explanation, in writing, that sup- ports its foreign status or provides docu- • The Form W-8 is incomplete with respect 5. You have classified the account holder as to any item on the form that is relevant to mentary evidence supporting its foreign a U.S. person in your account information, status. the claims made by the account holder; or • The Form W-8 contains any information 4. If an individual account holder provides a that is inconsistent with the account hold- 6. You have a current telephone number for Form W-8BEN to establish the individual’s er's claim; the account holder in the United States foreign status, and you have, either on ac- • The Form W-8 lacks information necessary and no telephone number for the account companying documentation or as part of to establish entitlement to a reduced rate holder outside the United States (only to

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your account information, an unambigu- c. You know that the address outside • For documentary evidence received after ous indication of a place of birth for the in- the treaty country is a branch of the December 31, 2000, if you do not have a dividual in the United States, you may not account holder that is a resident of the permanent residence address for the ac- rely on the Form W-8BEN unless you pos- treaty country, or count holder, if you have classified the ac- sess or obtain documentary evidence evi- count holder as a U.S. person in your ac- d. You obtain a written statement from dencing citizenship in a country other than count information, if you have a current the beneficial owner that reasonably the United States, and either (i) a copy of mailing or current permanent residence establishes its entitlement to treaty the individual’s Certificate of Loss of Na- address (whether or not on the documen- benefits. tionality of the United States, or (ii) a rea- tation) for the account holder in the United sonable written explanation for the individ- 3. You have instructions to pay amounts out- States, if the account holder notifies you of ual’s renunciation of U.S. citizenship (or, side the treaty country and the account a new residence or mailing address in the under an applicable IGA, the reason the holder gives you a reasonable explana- United States, or if you have a current tele- individual does not have a Certificate of tion, in writing, establishing residence in phone number for the account holder in the Loss of Nationality of the United States the applicable treaty country or you pos- United States and no telephone number despite relinquishing its U.S. citizenship), sess or obtain documentary evidence de- for the account holder outside the United or the reason the individual did not obtain scribed in Regulations section 1.1471-3(c) States. U.S. citizenship at birth. (5)(i) establishing the account holder’s • If the account holder is an individual and residence in the treaty country. you have, either on the documentary evi- Claim of reduced rate of withholding under dence or as part of your account informa- treaty by certain withholding agents. You Hold mail instruction. An address that is pro- tion, an unambiguous place of birth for the have reason to know that a Form W-8BEN or vided subject to an instruction to hold all mail to individual in the United States. W-8BEN-E provided by a direct account holder that address is not a permanent residence ad- • With respect to an offshore obligation, the to claim a reduced rate of withholding under a dress such that you may not rely upon the Form account holder has standing instructions treaty is unreliable or incorrect for purposes of W-8. However, the address can be used as a directing you to pay amounts from the ac- establishing the account holder's residency in a permanent residence address if the person has count to an address or account maintained treaty country if: provided you with documentary evidence that is in the United States. The permanent residence address on the permitted under Regulations section • You may, however, rely on documentary evi- Form W-8 is not in the treaty country or the 1.1441-1(c)(38)(ii). If, after a Form W-8 is provi- dence as establishing an account holder's for- beneficial owner notifies you of a new per- ded, a person’s permanent residence address eign status if any of the following apply. manent residence address that is not in the is subsequently subject to a hold mail instruc- treaty country, tion, this is a change in circumstances requiring 1. The mailing or residence address or sole • The permanent residence address on the the person to provide the documentary evi- telephone number is in the United States, Form W-8 is in the treaty country but the dence described in the preceding sentence in you receive the documentary evidence withholding certificate (or your account in- order to use the address as a permanent resi- from an individual, and: formation) contains a mailing address that dence address. a. You possess or obtain additional is not in the treaty country, documentary evidence (that does not You have a current mailing address in your • Documentary Evidence contain a U.S. address) supporting account information outside the treaty the claim of foreign status and a rea- country, or You have reason to know that documentary evi- sonable explanation, in writing, sup- The account holder has standing instruc- • dence provided by a direct account holder to porting the account holder's foreign tions for you to pay amounts from its ac- support a claim of foreign status is unreliable or status; count to an address or an account not in incorrect if: the treaty country. • The documentary evidence does not rea- b. You obtain a Form W-8 that contains a permanent residence address and You may, however, rely on a Form W-8 as sonably establish the identity of the person mailing address outside the United establishing an account holder's claim of a re- presenting the documentary evidence; States (or, if a mailing address is in- duced rate of withholding under a treaty if any • The documentary evidence contains infor- side the United States, the account of the following apply. mation that is inconsistent with the account holder's claim of a reduced rate of with- holder provides a reasonable explan- 1. The permanent residence address is not holding; or ation, in writing, supporting the ac- in the treaty country and: • You have account information that is in- count holder’s foreign status); or a. The account holder provides a rea- consistent with the account holder's claim c. For a payment made with respect to sonable explanation for the perma- of a reduced rate of withholding, or the an offshore obligation, if you classify nent residence address outside the documentary evidence lacks information the individual as a resident of the treaty country, or necessary to establish a reduced rate of country where the obligation is main- withholding. For example, the documen- tained, you are required to report a b. You possess or obtain documentary tary evidence does not contain, or is not payment made to the individual annu- evidence described in Regulations supplemented by, statements regarding ally on a tax information statement section 1.1471-3(c)(5)(i) that estab- the derivation of the income or compliance filed with that country’s tax authority lishes residency in a treaty country. with limitations on benefits provisions in as part of the resident reporting re- 2. The mailing address is not in the treaty the case of an entity claiming treaty bene- quirements, and that country has a tax country and: fits. information exchange agreement or income tax treaty in effect with the a. You possess or obtain documentary Establishment of foreign status. You have United States. evidence described in Regulations reason to know that documentary evidence is section 1.1471-3(c)(5)(i) (that does unreliable or incorrect to establish a direct ac- 2. The mailing or residence address or sole not contain an address outside the count holder's status as a foreign person if any telephone number is in the United States, treaty country) supporting the benefi- of the following apply. you receive the documentary evidence cial owner's claim of residence in the • For documentary evidence received prior from an entity (other than a flow-through treaty country, to January 1, 2001, if you have actual entity), and: b. You possess or obtain documentation knowledge that the account holder is a a. You possess or obtain documentation that establishes that the beneficial U.S. person or if you have a mailing or resi- to substantiate that the entity is ac- owner is an entity organized in a dence address for the account holder in tually organized or created under the treaty country, the United States. laws of a foreign country;

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b. You obtain a valid Form W-8 that con- 1. The mailing or residence address is out- there is a discrepancy, you may rely on the tains a permanent residence address side the treaty country and: Form W-8, if valid, and instruct the NQI, and mailing address outside the Uni- flow-through entity, or U.S. branch to correct a. You possess or obtain additional ted States (or, if a mailing address is the withholding statement, or, alternatively, you documentary evidence supporting the inside the United States, the account may apply the presumption rules, discussed account holder's claim of residence in holder provides a reasonable explan- later in Presumption Rules, to the payee. the treaty country (and the documen- ation, in writing, supporting the ac- tary evidence does not contain an ad- If you choose to rely on the withholding cer- count holder’s foreign status); or dress outside the treaty country, a tificate, you must, in addition to instructing the c. For a payment made with respect to P.O. box, an in-care-of address, or NQI, flow-through entity, or U.S. branch to cor- an offshore obligation, if you classify the address of a financial institution), rect the withholding statement, instruct the NQI, the entity as a resident of the country flow-through entity, or U.S. branch to confirm b. You possess or obtain documentary where the obligation is maintained that it does not know or have reason to know evidence that establishes that the ac- and you are required to report a pay- that the withholding certificate is unreliable or count holder is an entity organized in ment made to the entity annually on a inaccurate. a treaty country, or tax information statement filed with Documentary evidence. If you receive docu- that country’s tax authority as part of c. You obtain a valid Form W-8 that con- mentary evidence for a payee in association the resident reporting requirements, tains a permanent residence address with a Form W-8IMY, you must review the and that country has a tax information and a mailing address in the applica- documentary evidence provided by the NQI, exchange agreement or income tax ble treaty country. flow-through entity, or U.S. branch to determine treaty in effect with the United States. 2. You have instructions to pay amounts out- that there is no obvious indication that the 3. You have instructions to pay amounts to side the treaty country and the account payee is a U.S. person subject to Form 1099 re- an address or an account in the United holder gives you a reasonable explana- porting or that the documentary evidence does States and the account holder provides tion, in writing, establishing residence in not establish the identity of the person who pro- you with a reasonable explanation, in writ- the applicable treaty country or a valid vided the documentation (for example, the ing, that supports the account holder's for- beneficial owner withholding certificate documentary evidence does not appear to be eign status or a valid beneficial owner that contains a permanent residence ad- an identification document). withholding certificate claiming foreign sta- dress and a mailing address in the appli- tus. cable treaty country. Standards of Knowledge 4. You have an unambiguous place of birth in for Purposes of Chapter 4 the United States for an individual account Indirect Account Holders' Chapter 3 Status holder and you possess or obtain docu- If you make a withholdable payment, you must mentary evidence demonstrating the indi- withhold in accordance with the presumption A withholding agent that receives documenta- vidual’s citizenship in a country other than rules (discussed later) if you know or have rea- tion from a payee through an NQI, a the United States and a copy of the indi- son to know that a withholding certificate or flow-through entity, or a U.S. branch of a foreign vidual’s Certificate of Loss of Nationality of documentary evidence provided by the payee is bank or insurance company subject to U.S. or the United States. Alternatively, you may unreliable or incorrect to establish a payee’s state regulatory supervision or a territory finan- treat such an individual as a foreign per- chapter 4 status. If you rely on an agent to ob- cial institution (other than a U.S. branch treated son if you obtain a valid beneficial owner tain documentation, you are considered to as a U.S. person) has reason to know that the withholding certificate that establishes the know, or have reason to know, the facts that are documentary evidence is unreliable or incorrect individual’s foreign status, documentary within the knowledge of your agent for this pur- for purposes of a claim of foreign status or a evidence evidencing citizenship in a coun- pose. try other than the United States, and a rea- treaty claim if a reasonably prudent person in sonable explanation, in writing, of the indi- the withholding agent's position would question vidual’s renunciation of U.S. citizenship the claims made. This standard requires, but is Notification by the IRS (or, under an applicable IGA, the reason not limited to, compliance with the following the individual does not have a Certificate rules. If you receive notification from the IRS that a of Loss of Nationality of the United States claim of status as a U.S. person, a participating despite relinquishing U.S. citizenship) or Withholding statement. You must review the FFI, a deemed-compliant FFI, or other entity en- the reason the individual did not obtain withholding statement provided with Form titled to a reduced rate of withholding under U.S. citizenship at birth. W-8IMY and may not rely on information in the chapter 4 is incorrect, you are considered to statement to the extent the information does not have knowledge that such a claim is incorrect Claim of reduced rate of withholding under support the claims made for a payee. You may beginning 30 days after you receive the notice. treaty. You have reason to know that docu- not treat a payee as a foreign person if a U.S. mentary evidence provided by a direct account address is provided for the payee. You may not GIIN Verification holder to claim a reduced rate of withholding treat a person as a resident of a country with under a treaty is unreliable or incorrect for pur- which the United States has an income tax If you have received a Form W-8BEN-E or Form poses of establishing the account holder's resi- treaty if the address for the person is outside W-8IMY from an entity payee that is claiming dency in a treaty country if: the treaty country. certain chapter 4 statuses, you must obtain and • You have a mailing or residence address You may, however, treat a payee as a for- verify the entity’s GIIN against the published for the account holder that is outside the eign person and may treat a foreign person as a IRS FFI list. The IRS FFI list can be found at applicable treaty country, resident of a treaty country if the withholding IRS.gov/Businesses/Corporations/FFI-List- • You have no permanent residence for the statement is accompanied by a valid withhold- Resources-Page. You must obtain and verify account holder, or ing certificate and documentary evidence or a against the published IRS FFI list a GIIN for the • The account holder has standing instruc- reasonable explanation is provided, by the NQI, following chapter 4 statuses. tions for you to pay amounts from its ac- flow-through entity, or U.S. branch supporting • Participating FFIs (including reporting count to an address or account not in the the payee’s foreign status or residency in a Model 2 FFIs). treaty country. treaty country. • Registered deemed-compliant FFIs (in- cluding reporting Model 1 FFIs). You may, however, rely on documentary evi- Withholding certificate. If you receive a Form Sponsored FFIs. dence as establishing an account holder's claim • W-8 for a payee in association with a Form Direct reporting NFFEs. of a reduced rate of withholding under a treaty if • W-8IMY, you must review each Form W-8 and Sponsored direct reporting NFFEs. any of the following apply. • verify that the information is consistent with the • Certain nonreporting IGA FFIs (as descri- information on the withholding statement. If bed below).

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If you receive a Form W-8BEN-E or Form FFI) that is identified as the FFI (or branch of, or • You have other account information that is W-8IMY from a nonreporting IGA FFI that is a disregarded entity wholly owned by, such FFI) inconsistent with the person’s claim; trustee-documented trust with a foreign trustee, that is supposed to receive the payment and for • The withholding certificate lacks informa- you must obtain the GIIN of a foreign trustee, which the FFI's GIIN is not confirmed, as descri- tion necessary to establish entitlement to but you are not required to verify the GIIN. The bed in the preceding paragraphs. an exemption from withholding for chap- GIIN that the trustee must provide is the GIIN The preceding sentence does not apply to ter 4 purposes; or that it received when it registered as a partici- an FFI that is an investment entity. If an FFI • With respect to an alternative certification pating FFI or reporting Model 1 FFI, not the (other than an investment entity) directs you to under an applicable IGA included with a GIIN that it received when it registered as a make the payment to an account held by the withholding certificate, if you know or have trustee of a trustee-documented trust. FFI and maintained by another financial institu- reason to know the certification is incor- tion, the FFI must provide to you a statement, in rect. If you receive a Form W-8BEN-E or Form writing, that the FFI is not directing the payment W-8IMY from a nonreporting IGA FFI that to any branch of such FFI that is not a partici- If you obtain a withholding certificate associ- checks Model 2 IGA in Part XII of Form pating FFI or a registered deemed-compliant ated with a withholdable payment to a partici- W-8BEN-E or Part XIX of Form W-8IMY (as ap- FFI. pating FFI, a registered deemed-compliant FFI, plicable) and identifies a category of entity that a sponsoring entity, or a sponsored FFI, you do is a registered deemed-compliant FFI under An- Sponsored, closely held investment vehi- not need to apply the standards of knowledge nex II of an applicable Model 2 IGA, you must cles. If you make a withholdable payment to a described earlier with respect to an account obtain and verify the GIIN of the nonreporting certified deemed-compliant FFI that is a spon- holder’s claim of foreign status if you have con- IGA FFI. Additionally, if you receive a Form sored, closely held investment vehicle, you firmed the FFI’s GIIN on the current published W-8BEN-E or Form W-8IMY from a nonreport- must obtain a GIIN for the sponsoring entity and IRS FFI list within 90 days of receipt of the with- ing IGA FFI that provides a citation to a section verify it against the published IRS FFI list. holding certificate. of the regulations for its registered A withholding certificate used for chap- deemed-compliant status in Part XII of Form Reason To Know W-8BEN-E or Part XIX of Form W-8IMY (as ap- ! ter 4 purposes must also include the in- CAUTION formation required for chapter 3 purpo- plicable), you must obtain and verify the GIIN of In general, you have reason to know that a ses (that is, the entity’s tax classification) with the nonreporting IGA FFI. You will have reason claim of chapter 4 status is unreliable or incor- regard to a payment that is a reportable amount to know that such payee is not such a financial rect if your knowledge of relevant facts or state- under Regulations section 1.1441-1(e)(3)(vi). institution if the payee's name (including a ments contained in the withholding certificate or name reasonably similar to the name the with- other documentation is such that a reasonably holding agent has on file for the payee) and prudent person would question the claim being Documentary Evidence GIIN do not appear on the most recently pub- made. For an obligation other than a preexisting lished IRS FFI list within 90 days of the date that obligation (that is, an obligation other than an You have reason to know that documentary evi- the claim is made. obligation, including an account, held by an in- dence provided by a person is unreliable or in- dividual that is outstanding on June 30, 2014, or correct with respect to a claim of chapter 4 sta- If you receive a Form W-8BEN-E or Form an obligation, including an account, held by an tus if: W-8IMY from an entity payee and the form con- entity that is opened, executed, or issued be- • The documentary evidence does not rea- tains “Applied for” in the box for the GIIN, the fore January 1, 2015), you have reason to know sonably establish the identity of the person payee must provide you its GIIN within 90 days that a claim of chapter 4 status is unreliable or presenting the documentary evidence, of providing the form. A Form W-8BEN-E or incorrect if any information contained in the ac- • The documentary evidence contains infor- Form W-8IMY from such payee that does not count opening files or other customer account mation that is inconsistent with the per- include a GIIN, or includes a GIIN that does not files, including documentation collected for AML son’s claim as to its chapter 4 status, appear on the published IRS FFI list, will be in- due diligence purposes, conflicts with the chap- • You have other account information that is valid for chapter 4 purposes 90 days after the ter 4 status being claimed. You will not have inconsistent with the person’s chapter 4 date the form is provided. reason to know that a claim of chapter 4 status status, or is unreliable or incorrect based on documenta- • The documentary evidence lacks informa- The GIIN that you must confirm is the GIIN tion collected for AML due diligence purposes tion necessary to establish the person’s assigned to the FFI identifying its country of res- until the date that is 30 days after the obligation chapter 4 status. idence for tax purposes (or place of organiza- is created. tion if the FFI has no country of residence), ex- For standards of knowledge applicable to If you have classified an entity as engaged cept as otherwise provided. specific types of documentary evidence, see in a particular type of business based on your Regulations section 1.1471-3. Branches and disregarded entities. If you records, such as through the use of a standar- make a withholdable payment to a branch of, or dized industry coding system, you have reason an entity that is disregarded as an entity sepa- to know that the chapter 4 status claimed by the Payee Documentation rate from, a participating FFI or registered entity is unreliable or incorrect only if the entity’s From Intermediaries deemed-compliant FFI located outside of the claim conflicts with the withholding agent’s clas- or Flow-Through Entities FFI's country of residence or organization, the sification of the entity’s business type. GIIN you must verify is the GIIN of the branch or In general. If you receive documentation for a disregarded entity receiving the payment. You Withholding Certificates payee of a withholdable payment through one must identify a GIIN associated with a disregar- or more intermediaries or flow-through entities, ded entity to the extent provided in the Instruc- In general, you have reason to know that a with- you must, in addition to determining each such tions for Form W-8BEN-E or the Instructions for holding certificate from a person is unreliable or entity’s chapter 4 status when required for Form W-8IMY. incorrect with respect to claim of chapter 4 sta- chapter 4 purposes, review all documentation You will have reason to know that a with- tus if: obtained with respect to the payee. Under cer- holdable payment is made to a branch (includ- • The withholding certificate is incomplete tain circumstances, you may rely on a withhold- ing a disregarded entity) of a participating FFI or with respect to any item on the certificate ing certificate with an electronic signature provi- registered deemed-compliant FFI that is not it- that is relevant to the claim made by the ded by an account holder that is an NQI, when self a participating FFI or registered person; you are permitted to do so under Regulations deemed-compliant FFI when you are directed • The withholding certificate contains any in- section 1.1441-1(e)(4)(i)(B). When withholding to make the payment to an address in a jurisdic- formation that is inconsistent with the per- under chapter 4 is not applied based on the tion other than that of the participating FFI or son’s claim; chapter 4 status of an intermediary or registered deemed-compliant FFI (or branch of, flow-through entity, you are not required to ob- or disregarded entity wholly owned by, such tain documentation for a payee through an

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intermediary or flow-through entity that is a QI, status. For more information, see Regulations Chart A. Presumption Rules in the WP, or WT or a payee that is included in a section 1.1471-3(e)(4)(vii) or, if you are a re- Absence of Documentation chapter 4 withholding rate pool of U.S. payees. porting Model 1 FFI or a reporting Model 2 FFI, the requirements of the applicable IGA. For the See Regulations Withholding statement. You must review the withholding statement provided and may presumption section: not rely on information in the statement to the Presumption Rules rules related to: extent the information does not support the 1.1441-1(b)(3); If you cannot reliably associate a payment with claims made regarding the chapter 4 status of 1.6049-5(d); the payee. You may not treat a person as a for- valid documentation, you must apply certain 1.1471-3(f) eign person if a U.S. address is provided, un- presumption rules or you may be liable for tax, less the withholding statement is accompanied interest, and penalties. If you comply with the Payee's status (chapter 4 payees) by a valid withholding certificate and documen- presumption rules, you are not liable for tax, in- Effectively tary evidence establishing foreign status. terest, and penalties even if the rate of withhold- connected income 1.1441-4(a)(2) ing that should have been applied based on the Withholding certificate. You must review payee's actual status is different from that pre- Partnership and its 1.1441-5(d); each withholding certificate, written statement sumed. partners 1.1446-1(c)(3) (as permitted for chapter 4 purposes with re- spect to certain payments to entities), or docu- The presumption rules apply to determine Estate or trust and mentary evidence, and must verify that the in- the status of the person you pay as a U.S. or its beneficiaries or formation is consistent with the information on foreign person and other relevant characteris- owner 1.1441-5(e)(6) tics, such as whether the payee is a beneficial the withholding statement. If there is a discrep- Foreign ancy, you may rely on the documentation provi- owner or intermediary, and whether the payee tax-exempt ded such documentation is valid and the inter- is an individual, corporation, partnership, or mediary or flow-through entity does not indicate trust. In the case of a withholdable payment you organizations that the documentation is unreliable or incor- make to an entity, you must apply the presump- (including private rect, or, alternatively, you may apply the pre- tion rules for chapter 4 purposes to treat the en- foundations) 1.1441-9(b)(3) sumption rules. If you choose to rely on the doc- tity as a nonparticipating FFI when you cannot umentation, you must instruct the intermediary reliably associate the payment with documenta- or flow-through entity to correct the withholding tion permitted for chapter 4 purposes. You are Presumption Rules for Chapter 4 statement and confirm that the intermediary or not permitted to apply a reduced rate of chap- flow-through entity does not know or have rea- ter 3 withholding based on a payee's presumed If you determine that you are making a withhold- son to know that the documentation is unrelia- status if documentation is required to establish able payment to an entity and cannot reliably ble or incorrect. See Regulations section a reduced rate of withholding. For example, if associate the payment with a valid Form W-8 or 1.1471-3(d) for when a written statement is per- the payee of interest is presumed to be a for- other documentation that you are permitted to mitted for chapter 4 purposes. eign person, you may not apply the portfolio in- rely upon and that is sufficient to determine the terest exception or a reduced rate of withhold- chapter 4 status of the entity, you are required Documentation from participating FFIs and ing under a tax treaty since both exceptions to treat the entity payee as a nonparticipating registered deemed-compliant FFIs. If you require documentation. FFI such that withholding applies. For purposes receive documentation for a payee of a with- of determining whether the payment is made to If you rely on your actual knowledge about a holdable payment through a participating FFI or an individual or an entity, or to a U.S. person or payee's status and withhold an amount less registered deemed-compliant FFI that is an in- a foreign person, if you cannot reliably asso- than that required under the presumption rules termediary or flow-through entity receiving the ciate a payment with a valid Form W-8 or other or do not report a payment that is subject to re- payment, you may rely on the chapter 4 status documentation that you are permitted to rely porting under the presumption rules, you may provided in the withholding statement, including upon and from which you are able to determine be liable for tax, interest, and penalties. You a chapter 4 status determined under the re- the payee’s status as an individual or entity, or should, however, rely on your actual knowledge quirements of (and documentation or informa- U.S. or foreign status, you must apply the pre- if doing so results in withholding an amount tion that is publicly available that determines the sumption rules of Regulations section greater than would apply under the presumption chapter 4 status of the payee permitted under) 1.1441-1(b)(3)(ii) to determine the payee’s sta- rules or in reporting an amount that would not an applicable IGA, provided that you have the tus as an individual or entity and Regulations be subject to reporting under the presumption information necessary to report on Form section 1.1441-1(b)(3)(iii) to determine the rules. 1042-S, unless you have information that con- payee’s U.S. or foreign status. flicts with the chapter 4 status provided. If un- In the case of a participating FFI or regis- derlying documentation is provided for the tered deemed-compliant FFI that cannot report If you are making a withholdable payment to payee and information in the documentation or with respect to an individual account holder, the joint payees and cannot reliably associate the in your records conflicts with the chapter 4 sta- FFI must classify the account holder under the payment with valid documentation from each tus claimed, you have reason to know that the requirements (as applicable) of the FFI agree- payee and each of the payees appears to be an chapter 4 status claimed is unreliable or incor- ment, Regulations section 1.1471-5(f), or an ap- individual, the payment is presumed made to an rect. However, you are not required to verify the plicable IGA. Whether withholding applies to unidentified U.S. person. If any of the joint pay- information contained in the documentation that payments made to such account holders classi- ees does not appear, by its name or other infor- is not facially incorrect, and you are generally fied as recalcitrant account holders (including mation in its account file, to be an individual, not required to obtain supporting documenta- payments to intermediaries or flow-through enti- then the entire payment is treated as made to a tion for the payee. You may determine the re- ties allocating payments to such account hold- nonparticipating FFI. However, if you receive cipient code of a payee for chapter 4 purposes ers on an applicable withholding statement) dif- from one of the joint payees a Form W-9, the (for filing Form 1042-S) that is not identified on fers under these requirements. payment shall be treated as made to that a withholding statement when you are able to payee. do so based on other information included on or The presumption rules, in the absence of with the withholding statement or in your re- documentation, for the subject matter are dis- cords with respect to the payee. cussed in the regulations section indicated on Chart A. Income Subject Preexisting obligation of entities. If you to Withholding make a withholdable payment with respect to a preexisting obligation to an entity, the scope of This section explains how to determine if a pay- review is limited with respect to the time in ment is subject to chapter 3 withholding or is a which you must determine the entity’s chapter 4 withholdable payment.

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Amounts Subject to • Payments made under a grandfathered source income is the amount that results from obligation (for example, obligations out- multiplying the total amount of pay by the fol- Chapter 3 Withholding standing on July 1, 2014). lowing fraction. A payment is subject to chapter 3 withholding if it is from sources within the United States, and it Source of Income Number of days services are performed in the is fixed or determinable annual or periodical United States (FDAP) income. Generally, excluding gains but In most cases, income is from U.S. sources if it Total number of days of service for which including certain gains from the disposal of tim- is paid by domestic corporations, U.S. citizens compensation is paid ber, coal, and iron ore, or from the sale or ex- or resident aliens, or entities formed under the change of patents, copyrights, and similar intan- laws of the United States or a state. Income is Multiyear compensation. Generally, the gible property. also from U.S. sources if the property that pro- source of multiyear compensation is deter- duces the income is located in the United In addition, a payment is subject to chap- mined on a time basis over the period to which States or the services for which the income is ter 3 withholding if withholding is specifically re- the compensation is attributable. Multiyear paid were performed in the United States or the quired, even though it may not constitute U.S. compensation is compensation that is included income is a dividend equivalent. A payment is source income or FDAP income. For example, in the taxable income of a recipient in 1 tax year treated as being from sources within the United corporate distributions may be subject to chap- but that is attributable to a period that includes 2 States if the source of the payment cannot be ter 3 withholding even though a part of the dis- or more tax years. The determination of the pe- determined at the time of payment, such as tribution may be a return of capital or capital riod to which the compensation is attributable, fees for personal services paid before the serv- gain that is not FDAP income. for purposes of determining its source, is based ices have been performed. Other source rules on the facts and circumstances of each case. are summarized in Chart B and explained in de- Amounts not subject to chapter 3 withhold- For example, an amount of compensation that tail in the separate discussions under Withhold- ing. The following amounts are not subject to specifically relates to a period of time that in- ing on Specific Income, later. chapter 3 withholding. cludes several calendar years is attributable to Portfolio interest paid on obligations that • In most cases, interest on an obligation of a the entire multiyear period. Where determining meet certain requirements. See Interest, foreign corporation or foreign partnership is for- the source of multiyear compensation on a time later. eign-source income. If the entity is engaged in a basis is appropriate, the amount of compensa- Bank deposit interest that is not effectively • trade or business in the United States during its tion treated as from U.S. sources is figured by connected with the conduct of a U.S. trade tax year, interest paid by such entity is treated multiplying the total multiyear compensation by or business. See Interest, later. as from U.S. sources only if the interest is paid a fraction. The numerator of the fraction is the Original issue discount on certain short- • by a U.S. trade or business conducted by the number of days (or unit of time less than a day, term obligations. See Original issue dis- entity or is allocable to income that is treated as if appropriate) that labor or personal services count, later. effectively connected with the conduct of a U.S. were performed in the United States in connec- Nonbusiness gambling income of a non- • trade or business. This applies to a foreign part- tion with the project. The denominator of the resident alien playing blackjack, baccarat, nership only if it is predominantly engaged in fraction is the total number of days (or unit of craps, roulette, or big-6 wheel in the United the active conduct of a trade or business out- time less than a day, if appropriate) that labor or States. See Gambling winnings, later. side the United States. personal services were performed in connec- • Amounts paid as part of the purchase price tion with the project. of an obligation sold between interest pay- Guarantee income. Certain amounts paid, di- Employees. If the services are performed ment dates. See Interest, later. rectly or indirectly, for the provision of a guaran- partly in the United States and partly outside the • Original issue discount paid on the sale of tee of indebtedness issued after September 27, United States by an employee, the allocation of an obligation other than a redemption. See 2010, are from U.S. sources. The amounts pay, other than certain fringe benefits, is deter- Original issue discount, later. must be paid by one of the following. • Insurance premiums paid on a contract is- mined on a time basis. The following fringe ben- sued by a foreign insurer subject to the ex- 1. A noncorporate U.S. resident or a U.S. efits are sourced on a geographical basis as cise tax under section 4371 of the Internal corporation for the provision of a guaran- shown in the following list. Revenue Code. tee of the resident or corporation. • Housing—employee's main job location. • Education—employee's main job location. • U.S. source transportation income subject 2. Any foreign person for the provision of a • Local transportation—employee's main job to a 4 percent tax on gross income. guarantee if the payment of income is ef- location. fectively connected, or treated as effec- Tax reimbursement—jurisdiction imposing tively connected, with the conduct of a • tax. Amounts Subject to U.S. trade or business. Chapter 4 Withholding • Hazardous or hardship duty pay—location of pay zone. Personal service income (for purposes of Moving expense reimbursement—employ- U.S. source FDAP income for purposes of chapter 3 withholding). If the income is for • ee's new main job location. chapter 4 is similar to U.S. source FDAP in- personal services performed in the United come for purposes of chapter 3, subject to cer- States, it is from U.S. sources. The place where For information on what is included in these tain modifications such as the exclusion of cer- the services are performed determines the benefits, see Regulations section 1.861-4(b)(2) tain types of non-financial payments and the source of the income, regardless of where the (ii)(D). inclusion (as U.S. source interest) of deposit in- contract was made, the place of payment, or An employee's main job location (principal terest paid by a foreign branch of a U. S. corpo- the residence of the payer. place of work) is usually the place where the ration or partnership. Also, see Fixed or Deter- However, under certain circumstances, pay- employee spends most of his or her working minable Annual or Periodical Income (FDAP), ment for personal services performed in the time. If there is no one place where most of the later. United States is not considered income from work time is spent, the main job location is the A withholding agent must withhold on a pay- sources within the United States. For informa- place where the work is centered, such as ment of U.S. source FDAP income that is a tion on this exception, see Pay for Personal where the employee reports for work or is other- withholdable payment to which an exception Services Performed, later. wise required to base his or her work. does not apply under chapter 4. If the income is for personal services per- An employee can use an alternative basis formed partly in the United States and partly based on facts and circumstances, rather than Amounts not subject to withholding under outside the United States, you must make an the time or geographical basis. The employee, chapter 4. The following amounts are not sub- accurate allocation of income for services per- not the employer, must demonstrate that the al- ject to withholding under chapter 4. formed in the United States based on the facts ternative basis more properly determines the • Interest or original issue discount from a and circumstances. In most cases, you make source of the pay or fringe benefits. short-term obligation. this allocation on a time basis. That is, U.S.

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Territorial limits. Wages received for serv- The compensation element is sourced the • Original issue discount. ices rendered inside the territorial limits of the same as compensation from the performance of • Real estate mortgage investment conduit United States and wages of an alien seaman personal services. The part attributable to serv- (REMIC) excess inclusion income. earned on a voyage along the coast of the Uni- ices performed in the United States is U.S. • Pensions and annuities. ted States are regarded as from sources in the source income, and the part attributable to serv- • Alimony (no longer income if the divorce or United States. Wages or salaries for personal ices performed outside the United States is for- separation agreement is executed after services performed in a mine or on an oil or gas eign source income. December 31, 2018, or if executed before well located or being developed on the conti- Employer contributions to a defined benefit January 1, 2019, but modified after De- nental shelf of the United States are treated as plan covering more than one individual are not cember 31, 2018, the modification must from sources in the United States. made for the benefit of a specific participant, state that section 11051 of P.L. 115-97 Income from the performance of services di- but are made based on the total liabilities to all (TCJA) applies to the modification). rectly related to the use of a vessel or aircraft is participants. All funds held under the plan are • Real property income, such as rents, other treated as derived entirely from sources in the available to provide benefits to any participant. than gains from the sale of real property. United States if the use begins and ends in the If the payment is from such a plan, you can use • Royalties. United States. This income is subject to with- the method in Revenue Procedure 2004-37, • Taxable scholarships and fellowship holding if it is not effectively connected with a 2004-26 I.R.B. 1099, available at IRS.gov/irb/ grants. U.S. trade or business. If the use either begins 2004-26_IRB#RP-2004-37, to allocate the pay- • Other taxable grants, prizes, and awards. or ends in the United States, see Transportation ment to sources within and without the United • A sales commission paid or credited income, later. States. monthly. • A commission paid for a single transaction. Crew members. Income from the perform- The earnings part of a pension payment is U.S. source income if the trust is a U.S. trust. • The distributable net income of an estate ance of services by a nonresident alien in con- or trust that is FDAP income and must be nection with the individual's temporary pres- distributed currently, or has been paid or ence in the United States as a regular member Chart B. Summary of Source Rules for FDAP Income credited during the tax year. of the crew of a foreign vessel engaged in trans- • FDAP income distributed by a partnership portation between the United States and a for- IF you have... THEN the source of that that, or such an amount that, although not eign country or a U.S. possession is not income income is determined by... actually distributed, is includible in the from U.S. sources. pay for personal services where the services are gross income of a foreign partner. Multilevel marketing. Certain companies performed. • Taxes, mortgage interest, or insurance sell products through a multilevel marketing ar- dividends the type of corporation (U.S. premiums paid to, or for the account of, a rangement, such that an upper-tier distributor, or foreign). nonresident alien landlord by a tenant un- der the terms of a lease. who has sponsored a lower-tier distributor, is interest the residence of the payer. entitled to a payment from the company based • Publication rights. rents where the property is • Prizes awarded to nonresident alien artists on certain activities of that lower-tier distributor. located. Generally, depending on the facts, payments for pictures exhibited in the United States. from such multilevel marketing companies to in- royalties—patents, • Purses paid to nonresident alien boxers for copyrights, etc. where the property is used. dependent (nonemployee) distributors (up- prize fights in the United States. per-tier distributors) that are based on the sales royalties—natural where the property is • Prizes awarded to nonresident alien pro- or purchases of persons whom they have spon- resources located. fessional golfers in golfing tournaments in sored (lower-tier distributors) constitute income pensions—distributions the United States. attributable to where the services were for the performance of personal services in re- Payments for the following purposes are ex- contributions performed. cruiting, training, and supporting the lower-tier amples of payments that are not withholdable distributors. The source of such income is gen- pensions—investment payments. erally based on where the services of the up- earnings on contributions the location of pension trust. • Services (including wages and other forms per-tier distributor are performed, and may, de- scholarships and in most cases, the of employee compensation (such as stock pending on the facts, be considered multiyear fellowship grants residence of the payer. options)). compensation, with the source of income deter- guarantee of the residence of the debtor • The use of property. mined over the period to which such compen- indebtedness or whether the payment is • Office and equipment leases. sation is attributable. effectively connected with a • Software licenses. U.S. trade or business. • Transportation. Scholarships, fellowships, and grants. • Freight. Scholarships, fellowships, and grants are • Gambling winnings. sourced according to the residence of the Fixed or Determinable • Awards, prizes, and scholarships. payer. Those made by entities created or domi- Annual or Periodical • Interest on outstanding accounts payable ciled in the United States are generally treated arising from the acquisition of goods or as income from sources within the United (FDAP) Income services. States. However, see Activities outside the Uni- FDAP income is all income except: ted States next. Those made by entities created Gains from the sale of property (not includ- Periodic or lump-sum payments. Income or domiciled in a foreign country are treated as • ing original issue discount and certain can be FDAP income whether it is paid in a ser- income from foreign sources. gains that are referred to in Amounts Sub- ies of repeated payments or in a single lump Activities outside the United States. A ject to Chapter 3 Withholding, earlier); and sum. For example, $5,000 in royalty income scholarship, fellowship, grant, targeted grant, or • Items of income excluded from gross in- would be FDAP income whether paid in 10 pay- an achievement award received by a nonresi- come without regard to U.S. or foreign sta- ments of $500 each or in one payment of dent alien for activities conducted outside the tus of the owner of the income, such as $5,000. United States is treated as foreign source in- tax-exempt municipal bond interest and come. qualified scholarship income. Insurance proceeds. Income derived by an insured nonresident alien from U.S. sources Pension payments. The source of pension The following items are examples of FDAP upon the surrender of, or at the maturity of, a life payments is determined by the part of the distri- income. insurance policy, is FDAP income and is sub- bution that constitutes the compensation ele- • Compensation for personal services paid ject to chapter 3 of the Internal Revenue Code ment (employer contributions) and the part that to an individual or a sole proprietorship. withholding and is a withholdable payment. This constitutes the earnings element (the invest- • Dividends and dividend equivalent pay- includes income derived under a life insurance ment income). ments. contract issued by a foreign branch of a U.S. life • Interest.

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insurance company. The proceeds are income • Whether the activities of that trade or busi- the conduct of a trade or business in the United to the extent they exceed the cost of the policy. ness were a material factor in the States is not a withholdable payment under However, certain payments received under realization of the income. chapter 4 of the Internal Revenue Code and a life insurance contract on the life of a termi- thus is not subject to withholding for chapter 4 nally or chronically ill individual before death Income from securities. There is a special purposes. You do not need to withhold tax un- (accelerated death benefits) may not be subject rule determining whether income from securi- der chapter 4 if you receive a Form W-8ECI on to tax. This also applies to certain payments re- ties is effectively connected with the active con- which a foreign payee makes the representa- ceived for the sale or assignment of any part of duct of a U.S. banking, financing, or similar tions described in Withholding exemptions, ear- the death benefit under contract to a viatical business. lier. settlement provider. For more information, see If the foreign person's U.S. office actively Pub. 525. and materially participates in soliciting, negoti- Notional principal contract income. Certain ating, or performing other activities required to payments attributable to a notional principal Racing purses (for purposes of chapter 3 arrange the acquisition of securities, the U.S. contract are not subject to withholding regard- withholding). Racing purses are FDAP in- source interest or dividend income from the se- less of whether a Form W-8ECI is provided. come and racetrack operators must withhold curities, gain or loss from their sale or ex- However, payments of dividend equivalents 30% on any purse paid to a nonresident alien change, income or gain economically equiva- that are not effectively connected with the con- racehorse owner in the absence of definite in- lent to such amounts, or amounts received for duct of a trade or business in the United States, formation contained in a statement filed to- providing a guarantee of indebtedness, is attrib- pursuant to a specified notional principal con- gether with a Form W-8 that the owner has not utable to the U.S. office and is effectively con- tract (described later under Dividend equivalent raced, or does not intend to enter, a horse in nected income. payments) are subject to withholding. another race in the United States during the tax Income from a notional principal contract is year. If available information indicates that the Withholding exemption. In most cases, you subject to reporting on Form 1042-S if it is ef- racehorse owner has raced a horse in another do not need to withhold tax on income for pur- fectively connected with the conduct of a trade race in the United States during the tax year, poses of chapter 3 or 4 if you receive a Form or business in the United States. You must treat then the statement and Form W-8 filed for that W-8ECI on which a foreign payee represents the income as effectively connected with a U.S. year are ineffective. The owner may be exempt that: trade or business if you pay the income to, or to from withholding of tax at 30% on the purses if • The foreign payee is the beneficial owner the account of, a qualified business unit (a the owner gives you Form W-8ECI, which pro- of the income; branch) of a foreign person located in the Uni- vides that the income is effectively connected • The income is effectively connected with ted States or a qualified business unit located with the conduct of a U.S. trade or business and the conduct of a trade or business in the outside the United States and you know, or that the income is includible in the owner's United States; and have reason to know, the income is effectively gross income. • For purposes of chapter 3 withholding, the connected with the conduct of a U.S. trade or income is includible in the payee's gross business. You do not need to treat notional prin- Covenant not to compete. Payment received income. cipal contract income as effectively connected if for a promise not to compete is generally FDAP This withholding exemption applies to in- you receive a Form W-8BEN-E that represents income. Its source is the place where the prom- come for services performed by a foreign part- that the income is not effectively connected with isor forfeited his or her right to act. Amounts nership or foreign corporation (unless item (4) the conduct of a U.S. trade or business or if the paid to a nonresident alien for his or her prom- below applies to the corporation). The exemp- payee provides a representation in a master ise not to compete in the United States are sub- tion does not apply, however, to: agreement or in the confirmation on the particu- ject to chapter 3 withholding and are withholda- lar notional principal contract transaction that ble payments. 1. Pay for personal services performed by an the payee is a U.S. person or a non-U.S. branch individual for purposes of chapter 3 (see of a foreign person. Pay for Personal Services Performed, Withholding on later), Income paid to U.S. branch of foreign bank or insurance company. A payment to a U.S. 2. Effectively connected taxable income of a Specific Income branch of a foreign bank or a foreign insurance partnership that is allocable to its foreign company that is subject to U.S. regulation by partners (see Partnership Withholding on Different kinds of income are subject to different the Federal Reserve or state insurance authori- Effectively Connected Income, later), withholding requirements. ties is presumed to be effectively connected 3. Income from the disposition of a U.S. real with the conduct of a trade or business in the Effectively property interest (see U.S. Real Property United States if you have an EIN for the branch, Interest, later), or unless the branch provides a Form W-8BEN-E Connected Income or Form W-8IMY for the income. If a U.S. 4. Payments to a foreign corporation for per- branch of a foreign bank or insurance company sonal services if all of the following apply. In most cases, when a foreign person engages receives income that the payer did not withhold in a trade or business in the United States, all a. The foreign corporation otherwise upon because of the presumption that the in- income from sources in the United States con- qualifies as a personal holding com- come was effectively connected with the U.S. nected with the conduct of that trade or busi- pany for income tax purposes; branch's trade or business, the U.S. branch is ness is considered effectively connected with a required to withhold on the income if it is in fact b. The foreign corporation receives U.S. business. FDAP income may or may not not effectively connected with the conduct of its amounts under a contract for personal be effectively connected with a U.S. business. trade or business in the United States. With- services of an individual whom the For example, effectively connected income in- holding is required whether the payment was corporation has no right to designate; cludes rents from real property if the alien choo- collected on behalf of other persons or on be- ses to treat that income as effectively connec- c. 25% or more in value of the outstand- half of another branch of the same entity. ted with a U.S. trade or business. ing stock of the foreign corporation at The factors to be considered in establishing some time during the tax year is owned, directly or indirectly, by or for Income Not whether FDAP income and similar amounts are Effectively Connected effectively connected with a U.S. trade or busi- an individual who has performed, is to ness include: perform, or may be designated as the one to perform, the services called for This section discusses the specific types of in- • Whether the income is from assets used come that are subject to chapter 3 withholding in, or held for use in, the conduct of that under the contract. trade or business; or Withholding exemption for purposes of chapter 4. Income effectively connected with

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and where withholding under chapter 4 is re- definition of withholdable payments in Regula- Chart C. Withholding Tax Rates quired. The income codes contained in this sec- tions section 1.1473-1(a). for Purposes of chapter 3 tion correspond to the income codes used on the 2021 Form 1042-S (discussed later). Original issue discount (Income Code 30). Note. You must withhold tax at the following Original issue discount paid on the redemption rates on payments of income unless a reduced For purposes of chapter 3, you must with- of an obligation is subject to chapter 3 withhold- rate or exemption is authorized under a tax hold tax at the statutory rates shown in Chart C ing and is a withholdable payment (except treaty. The President may apply higher tax rates unless a reduced rate or exemption under a tax when paid with respect to a grandfathered obli- on income paid to residents or corporations of treaty applies. For U.S. source gross income gation). Original issue discount paid as part of foreign countries that impose burdensome or that is not effectively connected with a U.S. the purchase price of an obligation sold or ex- discriminatory taxes on U.S. persons. trade or business, the rate is usually 30%. In changed, other than in a redemption, is not sub- IF you paid the following type THEN you must most cases, you must withhold the tax at the ject to chapter 3 withholding unless the pur- of income... generally time you pay the income to the foreign person. chase is part of a plan the principal purpose of withhold at the See When to withhold, earlier. which is to avoid tax and the withholding agent following rate... has actual knowledge or reason to know of the Taxable part of U.S. scholarship or Interest plan. However, such original issue discount is a fellowship grant paid to holder of withholdable payment (except when paid with “F,” “J,” “M,” or “Q” visa (see Interest from U.S. sources paid to foreign pay- respect to a grandfathered obligation). With- Scholarships and Fellowship ees is subject to chapter 3 withholding and is a holding is required by a person other than the Grants, later) 14% withholdable payment (except when the interest issuer of an obligation (or the issuer's agent). Gross investment income from is paid with respect to a grandfathered obliga- The original issue discount that is subject to interest, dividends, rents, and tion or another exemption under chapter 4 ap- chapter 3 withholding and is a withholdable royalties paid to a foreign private plies). When making a payment on an inter- payment (except when paid with respect to a foundation 4% est-bearing obligation, you must withhold on the grandfathered obligation) is the taxable amount Pensions—part paid for personal Graduated rates in gross amount of stated interest payable on the of original issue discount. The taxable amount services (see Pensions, Annuities, Circular A or interest payment date, even if the payment or a for both Chapters 3 and 4 withholding purposes and Alimony, later) Circular E part of the payment may be a return of capital is the original issue discount that accrued while Wages paid to a nonresident alien Graduated rates in rather than interest. the obligation was held by the foreign beneficial employee (see Pay for Personal Circular A or owner up to the time the obligation was sold or Services Performed, later) Circular E A substitute interest payment made to the exchanged or a payment was made, reduced Each foreign partner's share of 37% for transferor of a security in a securities lending by any original issue discount that was previ- effectively connected income of noncorporate transaction or a sale-repurchase transaction is ously taxed. If a payment was made, the tax the partnership (see Partnership partners; treated the same as the interest on the transfer- due on the original issue discount may not ex- Withholding on Effectively 21% for corporate Connected Income, later) partners red security. Use Income Code 33 to report ceed the payment reduced by the tax imposed these substitute payments. on the part of the payment that is qualified sta- Distributions of effectively 37% for ted interest. connected income to foreign noncorporate partners by publicly traded partners; Interest paid by U.S. obligors—general (In- If you cannot determine the taxable amount, come Code 1). With specific exceptions, such partnerships (see Publicly Traded 21% for corporate you must withhold on the entire amount of origi- Partnerships, later) partners as portfolio interest (for purposes of chapter 3), nal issue discount accrued from the date of is- Dispositions of U.S. real property you must withhold on interest paid or credited sue until the date of redemption (or sale or ex- on bonds, debentures, notes, open account in- interests (see U.S. Real Property change, if subject to chapter 3 withholding or a Interest, later) 15%* debtedness, governmental obligations, certain withholdable payment) determined on the basis deferred payment arrangements (as provided in of the most recently published Pub. 1212. Dispositions of partnership interests under section 1446(f) 10% section 483 of the Internal Revenue Code), or For more information on original issue dis- other evidences of indebtedness of U.S. obli- count, see Pub. 550. Dividends paid to Puerto Rican gors. U.S. obligors include the U.S. Govern- corporation 10% ment or its agencies or instrumentalities, any All other income subject to U.S. citizen or resident, any U.S. corporation, withholding 30% and any U.S. partnership. If, in a sale of a corporation's property, pay- *21% in the case of certain distributions by corporations, ment of the bonds or other obligations of the partnerships, trusts, or estates. corporation is assumed by the buyer, that buyer, whether an individual, partnership, or corporation, must deduct and withhold the Reduced Rates of taxes that would be required to be withheld by Withholding on Interest the selling corporation as if there had been no sale or transfer. Also, if interest coupons are in Notwithstanding the exception from default, the tax must be withheld on the gross ! withholding under chapter 3 on interest amount of interest whether or not the payment CAUTION described under this heading, with- is a return of capital or the payment of income. holding may still apply under chapter 4 when the payment is a withholdable payment and an A resident alien paying interest on a margin exception from withholding under chapter 4 account maintained with a foreign brokerage does not apply. firm must withhold from the interest whether the interest is paid directly or constructively. Interest on bonds of a U.S. corporation paid Certain interest is subject to a reduced rate of, to a foreign corporation not engaged in a trade or exemption from, withholding. or business in the United States is subject to withholding even if the interest is guaranteed by Portfolio interest exempt from chapter 3 a foreign corporation. withholding. Interest and original issue dis- Domestic corporations must withhold on in- count that qualifies as portfolio interest is ex- terest credited to foreign subsidiaries or foreign empt from chapter 3 withholding. However, parents. these amounts are not exempt from withholding under chapter 4 when the interest is a withhold- For withholding under chapter 4 on the inter- able payment, unless an exception from est payments described in this section, see the

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chapter 4 withholding applies. To qualify as obligation is transferable only through a Interest on such obligations is not a with- portfolio interest, the interest must be paid on book-entry system maintained by the clearing holdable payment under chapter 4, except obligations issued after July 18, 1984, and oth- organization or its agent. when the instrument is materially modified after erwise subject to chapter 3 withholding. These bonds are considered to be in regis- March 18, 2012. tered form if the holder may only obtain a physi- Note. The rules for determining whether in- cal certificate in bearer form when (1) the clear- Interest that does not qualify as portfolio terest is portfolio interest changed for obliga- ing organization that maintains the book-entry interest. Payments to certain persons and tions issued after March 18, 2012. Before system goes out of business without a succes- payments of contingent interest do not qualify March 19, 2012, portfolio interest included inter- sor, (2) the issuer defaults, or (3) definitive se- as portfolio interest. You must withhold at the est on certain registered and nonregistered curities are issued at the issuer’s request upon statutory rate on such payments unless some (bearer) bonds if the obligations meet the re- a change in tax law adverse to the issuer. See other exception, such as a treaty provision, ap- quirements described below. Notice 2012-20 for more information on regis- plies and withholding under chapter 4 does not For obligations issued after March 18, 2012, tered form requirements. apply. portfolio interest does not include interest paid on debt that is not in registered form, except for Foreign-targeted registered obligations. Contingent interest. Portfolio interest gen- interest paid on foreign-targeted registered obli- A registered bond issued after March 18, 2012, erally does not include contingent interest. Con- gations issued before January 1, 2016, as de- and before January 1, 2016, will also be consid- tingent interest is interest that is determined by scribed in Foreign-targeted registered obliga- ered to be in registered form if it is targeted to reference to any of the following. tions, later. foreign markets, and portfolio interest treatment • Any receipts, sales, or other cash flow of may apply even when you do not receive docu- the debtor or a related person. Obligations in registered form. Portfolio mentation regarding the beneficial owner of the • Income or profits of the debtor or a related interest includes interest paid on an obligation bond. person. that is in registered form, and for which you If the registered obligation is not targeted to • Any change in value of any property of the have received documentation that the beneficial foreign markets, you must receive documenta- debtor or a related person. owner of the obligation is not a U.S. person. tion on which you may rely to treat the payee as • Any dividend, partnership distributions, or Generally, an obligation is in registered form a foreign person that is the beneficial owner of similar payments made by the debtor or a if (i) the obligation is registered as to both princi- the interest. A registered obligation is targeted related person. pal and any stated interest with the issuer (or its to foreign markets if it is sold (or resold in con- • Any amount that is a dividend equivalent. agent) and any transfer of the obligation may be nection with its original issuance) only to foreign The term “related person” is defined in sec- effected only by surrender of the old obligation persons or to foreign branches of U.S. financial tion 871(h)(4)(B) of the Internal Revenue Code. and reissuance to the new holder, (ii) the right institutions in accordance with procedures simi- to principal and stated interest with respect to lar to those provided in Regulations section The contingent interest rule does not apply the obligation may be transferred only through a 1.163-5(c)(2)(i). However, the procedure that to any interest paid or accrued on any indebted- book entry system maintained by the issuer or requires the obligation to be offered for sale (or ness with a fixed term that was issued: its agent, or (iii) the obligation is registered as to resale) only outside the United States does not • On or before April 7, 1993; or both principal and stated interest with the issuer apply if the registered obligation is offered for • After April 7, 1993, pursuant to a written or its agent and can be transferred both by sur- sale through a public auction. Also, the proce- binding contract in effect on that date and render and reissuance and through a book en- dure that requires the obligation to be delivered at all times thereafter before that indebted- try system. outside the United States does not apply if the ness was issued. An obligation that would otherwise be con- obligation is considered registered because it sidered to be in registered form is not consid- may be transferred only through a book-entry 10% owners. Interest paid to a foreign per- ered to be in registered form as of a particular system and the obligation is offered for sale son that owns 10% or more of the total com- time if it can be converted at any time in the fu- through a public auction. The documentation bined voting power of all classes of stock of a ture into an obligation that is not in registered needed depends on whether the interest is paid corporation, or 10% or more of the capital or form, except as otherwise provided in Notice to a financial institution, a member of a clearing profits interest in a partnership, that issued the 2012-20, 2012-13 I.R.B. 574, available at organization, or to some other foreign person. obligation on which the interest is paid is not IRS.gov/irb/ 2012-13_IRB#NOT-2012-20, as See Notice 2012-20 and Regulations section portfolio interest. To determine 10% ownership, described in the following section. 1.871-14(e) for more information on foreign-tar- see Regulations section 1.871-14(g). geted registered obligations. Dematerialized book-entry systems and Banks. Except in the case of interest paid effectively immobilized obligations. An ob- Obligations not in registered form and on an obligation of the United States, interest ligation will be considered to be in registered obligations issued before March 19, 2012. paid to a bank on an extension of credit made form if it is issued through either a dematerial- For obligations issued before March 19, 2012, pursuant to a loan agreement entered into in the ized book entry system maintained by a clear- interest on an obligation that is not in registered ordinary course of the bank's trade or business ing organization (or agent thereof) or a clearing form (bearer obligation) is portfolio interest if the does not qualify as portfolio interest. system in which the obligation (including a obligation is foreign targeted. A bearer obliga- global obligation in bearer form) is effectively tion is foreign targeted if: Controlled foreign corporations. Interest immobilized. See Notice 2012-20, amplified by • There are arrangements to ensure that the paid to a controlled foreign corporation from a Notice 2013-43, 2013-31 I.R.B. 113, available obligation will be sold, or resold in connec- person related to the controlled foreign corpora- at IRS.gov/irb/2013-31_IRB#NOT-2013-43. tion with the original issue, only to a person tion is not portfolio interest. Under dematerialized book-entry systems, who is not a U.S. person; Reduced rate or exemption from chapter 3 bonds are required to be represented only by • Interest on the obligation is payable only withholding for interest on real property book entries, and no physical certificates are is- outside the United States and its posses- mortgages (Income Code 2). Certain treaties sued or transferred. The bonds are transferred sions; and permit a reduced rate or exemption for interest only by book entries. • The face of the obligation contains a state- paid or credited on real property mortgages. An obligation will be considered to be effec- ment that any U.S. person who holds the This is interest paid on any type of debt instru- tively immobilized if (1) it is represented by one obligation will be subject to limits under the ment that is secured by a mortgage or deed of or more global securities in physical form that U.S. income tax laws. are issued to and held by a clearing organiza- trust on real property located in the United Documentation is not required for interest on tion (or by a custodian or depository acting as States, regardless of whether the mortgagor (or bearer obligations to qualify as portfolio interest. an agent of the clearing organization) for the grantor) is a U.S. citizen or a U.S. business en- In some cases, however, you may need docu- benefit of purchasers and under arrangements tity. mentation for purposes of Form 1099 reporting that prohibit transfer except to a successor and backup withholding. REMIC excess inclusions. A domestic clearing organization subject to the same terms, partnership must separately state a partner's al- and (2) beneficial interest in the underlying locable share of REMIC taxable income or net

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loss and the excess inclusion amount on an applicable withholding exception. In addi- Deposits include certificates of deposit, Schedule K-1 (Form 1065). If the partnership al- tion, if “allocable interest” exceeds the branch open account time deposits, Eurodollar certifi- locates all or some part of its allocable share of interest paid, the excess interest is also subject cates of deposit, and other deposit arrange- REMIC taxable income to a foreign partner, the to tax and reported on the foreign corporation's ments. partner must include the partner's allocated income tax return, Form 1120-F. See the You may have to file Form 1042-S to report amount in income as if that amount was re- Instructions for Form 1120-F for more informa- certain payments of interest on deposits. See ceived on the earlier of the following dates. tion. Deposit interest paid to certain nonresident 1. The date of distribution by the partnership. If there is no treaty provision that reduces alien individuals under Returns Required, later. the rate of withholding on branch interest, you You may also have to file Form 1042-S when 2. The date the foreign partner disposed of must withhold tax under chapter 3 at the statu- the deposit interest is a withholdable payment its indirect interest in the REMIC residual tory rate of 30% on the interest paid by a foreign to which withholding applies (or was applied) to interest. corporation's U.S. trade or business and you chapter 4. 3. The last day of the partnership's tax year. must withhold under chapter 4 when otherwise applicable and without regard to a treaty provi- Obligations issued before August 10, 2010. For purposes of item (2), the disposition sion. Interest received from a resident alien individual may occur as a result of: or a domestic corporation is not subject to • A termination of the REMIC, In general, payees of interest from a U.S. chapter 3 withholding and is not a withholdable • A disposition of the partnership's residual trade or business of a foreign corporation are payment if the interest meets all of the following interest in the REMIC, entitled to reduced rates of, or exemption from, requirements. • A disposition of the foreign partner's inter- tax under a treaty in the same manner and sub- • At least 80% of the payer’s gross income est in the partnership, or ject to the same conditions as if they had re- from all sources has been from active for- • Any other reduction in the foreign partner's ceived the interest from a domestic corporation. eign business for the 3 tax years of the allocable share of the partnership's part of However, a foreign corporation that receives in- payer before the year in which the interest the REMIC net income or deduction. terest paid by a U.S. trade or business of a for- is paid, or for the applicable part of those 3 eign corporation must also be a qualified resi- years. The partnership must withhold tax on the dent of its country of residence to be entitled to • The recipient is not a related person. Use part of the REMIC amount that is an excess in- benefits under that country's tax treaty. If the rules similar to those in section 954(d)(3) clusion. Excess inclusion income is treated as payee foreign corporation is a resident of a of the Internal Revenue Code to determine income from sources in the United States and is country that has entered into an income tax if the recipient is a related person. not eligible for any reduction in withholding tax treaty since 1987 that contains a limitation on • The interest is paid on an obligation issued (by treaty or otherwise). It is also a withholdable benefits article, the foreign corporation need before August 10, 2010. payment for chapter 4 purposes. only satisfy the limitation on benefits article in • The obligation has not been significantly An excess inclusion allocated to the follow- that treaty to qualify for a reduced rate of tax. modified since August 10, 2010. ing foreign persons must be included in that person's income at the same time as other in- Alternatively, a payee may be entitled to Interest from foreign business arrange- come from the entity is included in income. treaty benefits under the payer's treaty if there ments. In certain cases, interest received from Shareholder of a real estate investment • is a provision in that treaty that applies specifi- a domestic payer most of whose gross income trust (REIT). cally to interest paid by the payer foreign corpo- is active foreign business income is not subject Shareholder of a regulated investment • ration. This provision may exempt all or a part of to chapter 3 withholding and is not a withholda- company (RIC). this interest. Some treaties provide for an ex- ble payment. Participant in a common trust fund. • emption regardless of the payee's residence or Active foreign business income is gross in- Patron of a subchapter T cooperative or- • citizenship, while others provide for an exemp- come which is: ganization. tion according to the payee's status as a resi- • Derived from sources outside the United The entity must withhold on the excess in- dent or citizen of the payer's country. States, and clusion. • Attributable to the active conduct of a trade For information on the taxation and reporting A foreign corporation that pays interest must or business in a foreign country or posses- of excess inclusion income by REITs, RICs, and be a qualified resident (under section 884 of the sion of the United States by the domestic other pass-through entities, see Notice Internal Revenue Code) of its country of resi- payer. 2006-97, 2006-46 I.R.B. 904, available at dence for the payer's treaty to exempt pay- IRS.gov/irb/2006-46_IRB#NOT-2006-97. ments from tax by the foreign corporation. How- Corporations existing on January 1, 2011. ever, if the foreign corporation is a resident of a Certain interest received from a domestic cor- Reduced rate or exemption from chapter 3 country that has entered into an income tax poration that is an existing 80/20 company is withholding for interest paid to controlling treaty since 1987 that contains a limitation on not subject to withholding. An existing 80/20 foreign corporations (Income Code 3). A benefits article, the foreign corporation need company must meet all of the following require- treaty may permit a reduced rate or exemption only satisfy the limitation on benefits article in ments. for interest paid by a domestic corporation to a that treaty to qualify for the exemption. • It was in existence on January 1, 2011. controlling foreign corporation. The interest may • For the 3 tax years beginning before Janu- be on any type of debt, including open or unse- Interest on deposits (Income Code 29). For- ary 1, 2011 (or for its years of existence if cured accounts payable, notes, certificates, eign persons are not subject to chapter 3 with- the corporation was in existence for less bonds, or other evidences of indebtedness. holding on interest that is not connected with a than 3 tax years), at least 80% of its gross U.S. trade or business if it is from: income from all sources was active foreign Reduced rate or exemption from chapter 3 • Deposits with persons carrying on the business income. withholding for interest paid by foreign cor- banking business; • It continues to meet the 80% test for every porations (Income Code 4). If a foreign cor- • Deposits or withdrawable accounts with tax year beginning after December 31, poration is engaged in a U.S. trade or business, savings institutions chartered and super- 2010. any interest paid by the foreign corporation's vised under federal or state law as savings • It has not added a substantial line of busi- trade or business in the United States (branch and loan or similar associations, such as ness after August 10, 2010. interest) is subject to chapter 3 withholding as if credit unions, if the interest is or would be paid by a domestic corporation (without consid- deductible by the institutions; or Transitional rule for active foreign business ering the “payer having income from abroad” • Amounts left with an insurance company income. In most cases, the domestic corpora- exception) and is a withholdable payment. As a under an agreement to pay interest on tion determines its active foreign business in- result, the interest paid to foreign payees is them. come by combining its income and the income generally subject to chapter 3 withholding and of any subsidiary in which it owns, directly or in- withholding may apply under chapter 4 absent directly, 50% or more of the stock. However, if

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the testing period includes 1 or more tax years However, a distributing corporation or interme- a. Derived from sources outside the Uni- beginning before January 1, 2011, the corpora- diary may elect to not withhold on the part of the ted States, and tion can use only its gross income for any tax distribution that: b. Attributable to the active conduct of a year beginning before January 1, 2011, and will 1. Represents a nontaxable distribution pay- trade or business in a foreign country meet the 80% test if the weighted average per- able in stock or stock rights; or possession of the United States by centage of active foreign business income is the corporation. more than 80%. 2. Represents a distribution in part or full A foreign beneficial owner does not need to payment in exchange for stock; 3. It continues to meet the 80% test for every tax year beginning after December 31, provide a Form W-8 or documentary evidence 3. Is not paid out of current or accumulated 2010. for this exception. However, documentation earnings and profits, based on a reasona- may be required for purposes of Form 1099 re- ble estimate of the anticipated amount of 4. It has not added a substantial line of busi- porting and backup withholding. earnings and profits for the tax year of the ness after August 10, 2010. distribution made at a time reasonably Sales of bonds between interest dates. close to the date of the distribution; Transitional rule for item (2). In most ca- Amounts paid as part of the purchase price of ses, the domestic corporation determines its an obligation sold or exchanged between inter- 4. Represents a capital gain dividend (use active foreign business income by combining its est payment dates is not subject to chapter 3 Income Code 36) or an exempt interest income and the income of any subsidiary in withholding. In addition, such a payment is not a dividend by a RIC; or which it owns, directly or indirectly, 50% or withholdable payment. This does not apply if 5. Is subject to withholding under section more of the stock. However, if the testing period the sale or exchange is part of a plan the princi- 1445 of the Internal Revenue Code (with- includes 1 or more tax years beginning before pal purpose of which is to avoid tax and you holding of tax on dispositions of U.S. real January 1, 2011, the corporation can use only have actual knowledge or reason to know of the property interests) and the distributing cor- its gross income for any tax year beginning be- plan. The exemption from chapter 3 withholding poration is a U.S. real property holding fore January 1, 2011, and will meet the 80% and from withholdable payments applies even if corporation or a qualified investment entity test if the weighted average percentage of ac- you do not have any documentation from the (QIE). tive foreign business income is more than 80%. payee. However, documentation may be re- The active foreign business percentage is quired for purposes of Form 1099 reporting and The election is made by actually reducing found by dividing the corporation’s active for- backup withholding. the amount of withholding at the time the distri- eign business income for the testing period by bution is paid. the corporation’s total gross income for that pe- Short-term obligations. Interest and original riod. The testing period is the 3 tax years before issue discount paid on an obligation that is pay- Dividends paid by a QIE (Income Code the year in which the dividends are declared (or able 183 days or less from the date of its origi- 24). A QIE is: shorter period if the corporation was not in exis- nal issue (without regard to the period held by 1. Any REIT, or tence for 3 years). If the corporation has no the taxpayer) that satisfy other requirements in- gross income for that 3-year period, the testing tended to ensure that the debt is not held by a 2. Any RIC that is a U.S. real property hold- period is the tax year in which the dividend is U.S. nonexempt person are not subject to chap- ing corporation. paid. ter 3 withholding. In addition, such a payment is A distribution by a QIE to a nonresident alien not a withholdable payment. These exemptions Consent dividends. If you receive a Form or a foreign corporation is treated as a dividend 972, Consent of Shareholder To Include Spe- apply even if you do not have any documenta- and is not subject to withholding under section tion from the payee. However, documentation cific Amount in Gross Income, from a nonresi- 1445 of the Internal Revenue Code as a gain dent alien individual or other foreign share- may be required for purposes of Form 1099 re- from the sale or exchange of a U.S. real prop- porting and backup withholding. holder who agrees to treat the amount as a erty interest if: taxable dividend, you must pay and report on • The distribution is on stock regularly traded Income from U.S. Savings Bonds of resi- Form 1042 and Form 1042-S any withholding on a securities market in the United States, dents of the Ryukyu Islands or the Trust tax you would have withheld if the dividend ac- and Territory of the Pacific Islands. Interest from tually had been paid. • The individual or corporation did not own a Series E, Series EE, Series H, or Series HH more than 10% of such stock in the case of U.S. Savings Bond is not subject to chapter 3 Interest-related dividends and short-term a REIT or 5% of such stock in case of a withholding if the nonresident alien individual capital gain dividends received from mutual RIC at any time during the 1-year period acquired the bond while a resident of the Ryu- funds. Certain interest-related dividends and ending on the date of distribution. kyu Islands or the Trust Territory of the Pacific short-term capital gain dividends paid by a mu- Islands. Certain distributions by a REIT may be trea- tual fund or other RIC are exempt from chap- ted as a dividend and are not subject to with- ter 3 withholding. Dividends holding under section 1445 of the Internal Rev- enue Code as a gain from the sale or exchange Dividends qualifying for direct dividend rate (Income Code 7). A treaty may reduce The following types of dividends paid to foreign of a U.S. real property interest. See Qualified in- the rate of withholding on dividends from that payees are generally subject to chapter 3 with- vestment entities (QIEs) under U.S. Real Prop- which generally applies under the treaty if the holding and are generally withholdable pay- erty Interest, later. shareholder owns a certain percentage of the ments such that withholding chapter 4 applies Dividends paid by a domestic corpora- voting stock of the corporation when withhold- absent an exception available under chapter 4. tion (an existing “80/20” company). The ac- ing under chapter 4 does not apply. In most ca- tive foreign business percentage of any divi- ses, this preferential rate applies only if the Dividends paid by U.S. corporations—gen- dend paid by a domestic corporation that is an shareholder directly owns the required percent- eral (Income Code 6). This category includes existing 80/20 company is not subject to with- age, although some treaties permit the percent- all distributions of domestic corporations (other holding. A domestic corporation is an existing age to be met by direct or indirect ownership. than dividends qualifying for direct dividend 80/20 company if it satisfies all of the following. The preferential rate may apply to the payment rate—Income Code 7). 1. It was in existence on January 1, 2011. of a deemed dividend under section 304(a)(1) A corporation making a distribution with re- of the Internal Revenue Code. Under some spect to its stock, or any intermediary making a 2. For the 3 tax years beginning before Janu- treaties, the preferential rate for dividends quali- payment of such a distribution, is required to ary 1, 2011 (or for all years of existence if fying for the direct dividend rate applies only if withhold on the entire amount of the distribution it was in existence for less than 3 tax no more than a certain percentage of the paying at the rate applicable under chapter 3 when years), at least 80% of its gross income corporation's gross income for a certain period withholding under chapter 4 does not apply. from all sources was active foreign busi- consists of dividends and interest other than ness income. Active foreign business dividends and interest from subsidiaries or from income is gross income that is:

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the active conduct of a banking, financing, or in- withholding rules do apply for withholdable pay- NPCs entered into before January 1, surance business. A foreign person should ments made to territory financial institutions and 2017. claim the direct dividend rate by filing the appro- nonfinancial entities. See the chapter 4 regula- For transactions entered into before January priate Form W-8. tions for information on these special require- 1, 2017, a SNPC is any NPC if: ments. • In connection with entering into the con- Consent dividends. If you receive a Form tract, any long party to the contract trans- 972 from a foreign shareholder qualifying for the Dividend Equivalents fers the underlying security to any short direct dividend rate, you must pay and report on party to the contract; Form 1042 and Form 1042-S any withholding Dividend equivalent payments. Dividend • In connection with the termination of the tax you would have withheld if the dividend ac- contract, any short party to the contract tually had been paid. equivalent payments are treated as U.S. source dividends such that withholding under chapter 3 transfers the underlying security to any may apply. Use Income Code 34 or 40 to report long party to the contract; Dividends paid by foreign corporations (In- • The underlying security is not readily trade- come Code 8). Dividends paid by a foreign dividend equivalent payments. Dividend equiv- alent payments are withholdable payments ex- able on an established securities market; corporation generally are not subject to chap- or ter 3 withholding and are not withholdable pay- cept when an exception applies for chapter 4 purposes. • In connection with entering into the con- ments. This exception does not require a Form tract, the underlying security is posted as W-8. However, a Form W-8 may be required for A dividend equivalent is a payment (as de- fined in Regulations section 1.871-15(c)) that, collateral by any short party to the contract purposes of Form 1099 reporting and backup with any long party to the contract. withholding. directly or indirectly, is contingent on, or deter- The payment to a foreign corporation by a mined by reference to, the payment of a divi- For more information regarding dividend foreign corporation of a deemed dividend under dend from U.S. sources. Dividend equivalent equivalents, see Regulations section 1.871-15 section 304(a)(1) of the Internal Revenue Code payments include the following payments. and Notice 2020-2. is subject to chapter 3 withholding and may be 1. A substitute dividend made under a secur- Amounts paid to qualified securities a withholdable payment except to the extent it ities lending or sale-repurchase transac- lenders (QSLs) For 2017, a withholding agent can be clearly determined to be from foreign tion involving a U.S. stock. that made payments of substitute dividends to a sources. 2. A payment that references the payment of QSL could treat the QSL as the recipient. Be- Corporation subject to branch profits a dividend from an underlying security ginning January 1, 2019, QSLs can no longer tax. If a foreign corporation is subject to branch made under a specified notional principal be treated as the recipient, except that a QSL profits tax for any tax year, withholding is not re- contract. may be treated as a recipient for substitute divi- quired on any dividends paid by the corporation dend payments made before January 1, 2023. 3. A payment that references the payment of out of its earnings and profits for that tax year. See Notice 2020-2. a dividend from an underlying security Dividends may be subject to withholding if they made to a specified equity-linked instru- Amounts paid to QDDs. Only an eligible are attributable to any earnings and profits ment. entity that has entered into a QI agreement can when the branch profits tax is prohibited by a be a QDD. An eligible entity is a home office or tax treaty. 4. Any payment determined by regulations to branch that is a QI and that is: A foreign person may claim a treaty benefit be substantially similar to a payment in (1) on dividends paid by a foreign corporation to or (2) above. 1. A dealer in equity derivatives that is sub- the extent the dividends are paid out of earn- ject to regulatory supervision as a dealer ings and profits in a year in which the foreign Substitute dividend (Income Code 34). by a governmental authority in the jurisdic- corporation was not subject to the branch prof- A substitute dividend is any payment made un- tion in which it was organized or operates; der a securities lending or sale-repurchase its tax. However, you may apply a reduced rate 2. A bank or bank holding company that is of withholding under an income tax treaty only transaction that (directly or indirectly) is contin- gent upon, or determined by reference to, the subject to regulatory supervision as a under rules similar to the rules that apply to bank or bank holding company (as appli- treaty benefits claimed on branch interest paid payment of a dividend from sources in the Uni- ted States. cable) by a governmental authority in the by a foreign corporation. You should check the jurisdiction in which it was organized or specific treaty provision. Specified notional principal contracts operates; (SNPCs) and specified equity-linked instru- 3. An entity that is wholly owned (directly or Dividends paid to Puerto Rican corpora- ments (SELIs) (Income Code 40). indirectly) by a bank or bank holding com- tion. For chapter 3 purposes, the tax rate on pany subject to regulatory supervision as dividends paid to a corporation created or or- Transactions entered into on or after Janu- a bank or bank holding company (as appli- ganized in, or under the law of, the Common- ary 1, 2017. cable) by a governmental authority in the wealth of Puerto Rico is 10%, rather than 30%, For transactions entered into on or after Jan- jurisdiction in which the bank or bank hold- if: uary 1, 2017 (including as a result of a deemed ing company (as applicable) was organ- • At all times during the tax year less than exchange pursuant to section 1001 of the Inter- ized or operates and that entity, in its ca- 25% in value of the Puerto Rican corpora- nal Revenue Code), a SNPC or SELI is a no- pacity as a dealer in equity derivatives: tion's stock is owned, directly or indirectly, tional principal contract (NPC) or equity linked by foreign persons; instrument, respectively, with a delta of 0.8 or a. Issues potential section 871(m) trans- At least 65% of the Puerto Rican corpora- • greater if it is a simple contract under Regula- actions to customers; and tion's gross income is effectively connec- tions section 1.871-15(a)(14)(i), or it meets the b. Receives dividends with respect to ted with the conduct of a trade or business substantial equivalence test if it is a complex stock or dividend equivalent pay- in Puerto Rico or the United States for the contract under Regulations section 1.871-15(a) ments pursuant to potential section 3-year period ending with the close of the (14)(ii). See Regulations section 1.871-15(g) for 871(m) transactions that hedge po- tax year of that corporation (or the period the delta test and Regulations section tential section 871(m) transactions the corporation or any predecessor has 1.871-15(h) for the substantial equivalence test. that it issued; been in existence, if less); and Notwithstanding the preceding paragraph, No substantial part of the income of the • for transactions entered into prior to January 1, 4. A foreign branch of a U.S. financial institu- Puerto Rican corporation is used, directly 2023, transition relief provides that, subject to tion if the foreign branch would be descri- or indirectly, to satisfy obligations to a per- an anti-abuse rule, only delta-one transactions bed in (1), (2), or (3) had it been a sepa- son who is not a bona fide resident of Pu- will be treated as SNPCs and SELIs. See No- rate entity; or erto Rico or the United States. tice 2020-2, 2020-3 I.R.B. 327, available at 5. Any person otherwise acceptable to the No special rules apply to Puerto Rican cor- IRS.gov/irb/2020-03_IRB#NOT-2020-2. IRS. porations for chapter 4 purposes, but special

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A QDD is liable for tax under section 881 of chapter 4 purposes, royalties are nonfinancial lump-sum payments. See, for example, Article the Internal Revenue Code on its section payments and are therefore excluded as with- 17(2) of the United States–United Kingdom in- 871(m) amount for each dividend on each un- holdable payments. come tax treaty. In addition, it does not apply to derlying security. The section 871(m) amount is payments treated as deferred compensation, Most treaties have more than one with- described in Regulations section 1.871-15(q) which is often treated as income from employ- holding rate on royalties, which varies (3). ! ment. CAUTION by the classification of the payment in For more information on amounts paid to For purposes of chapter 3 withholding, in the that treaty. Be sure to check your particular QDDs, see the chapter 3 regulations issued absence of a treaty exemption, you must with- treaty for the specific rate that applies to you. with the section 871(m) regulations. You can hold at the statutory rate of 30% on the entire view the regulations at IRS.gov/irb/ distribution that is from sources within the Uni- 2017-09_IRB#TD-9815. Industrial royalties (Income Code 10). This ted States. You may, however, apply withhold- category of income includes royalties for the ing at graduated rates to the part of a distribu- Gains use of, or the right to use, patents, trademarks, tion that arises from the performance of secret processes and formulas, goodwill, services in the United States after December You generally do not need to withhold under franchises, “know-how,” and similar rights. It 31, 1986. chapter 3 or 4 on any gain from the sale of real may also include payments for the use of, or Employer contributions to a defined benefit or personal property because it is not FDAP in- right to use, industrial, commercial, and scien- plan covering more than one individual are not come. However, see U.S. Real Property Inter- tific equipment, when this is included in the made for the benefit of a specific participant, est, later. treaty definition of royalties. but are made based on the total liabilities to all participants. All funds held under the plan are Capital gains (Income Code 9). You must Motion picture or television copyright royal- available to provide benefits to any participant. withhold at 30%, or if applicable, a reduced ties (Income Code 11). This category refers If the distribution is from such a plan, you can treaty rate, on the gross amount of the following to royalties paid for the use of motion picture use the method in Revenue Procedure 2004-37 items. and television copyrights. to allocate the distribution to sources in the Uni- • Gains on the disposal of timber, coal, or ted States. Other royalties (for example, copyright, re- domestic iron ore with a retained economic The withholding rules that apply to pay- cording, publishing) (Income Code 12). interest, unless an election is made to treat ments to foreign persons generally take prece- This category refers to the royalties paid for the those gains as income effectively connec- dence over any other withholding rules that use of copyrights on books, periodicals, arti- ted with a U.S. trade or business. would apply to distributions from qualified plans cles, etc., except motion picture and television • Gains on contingent payments received and other qualified retirement arrangements. copyrights. from the sale or exchange after October 4, Foreign pension plans are exempt from ap- 1966, of patents, copyrights, secret pro- plying withholding under chapter 4 when they cesses and formulas, goodwill, trade- Real Property Income and are exempt beneficial owners under Regula- marks, trade brands, franchises, and other Natural Resources Royalties tions section 1.1471-6(f). A payment from a like property. (Income Code 14) U.S. pension plan to a foreign individual benefi- • Gains on certain transfers of all substantial ciary in the plan is not subject to withholding un- rights to, or an undivided interest in, pat- You must withhold tax under chapter 3 on in- der chapter 4. ents if the transfers were made before Oc- come (such as rents and royalties) from real tober 5, 1966. property located in the United States and held No withholding. Do not withhold tax on an an- • Certain gains from the sale or exchange of for the production of income, unless the foreign nuity payment to a nonresident alien if at the original issue discount obligations issued payee elects to treat this income as effectively time of the first payment from the plan, 90% or after March 31, 1972. For more on with- connected with a U.S. trade or business. If the more of the employees eligible for benefits un- holding on original issue discount obliga- foreign payee chooses to treat this income as der the plan are citizens or residents of the Uni- tions, see Interest, earlier. effectively connected, the payee must give you ted States and the payment is: Form W-8ECI (discussed earlier). This real If you do not know the amount of the gain, property income includes royalties from mines, 1. For the nonresident's personal services you must withhold an amount necessary to en- wells, or other natural deposits, as well as ordi- performed outside the United States; or sure that the tax withheld will not be less than nary rents for the use of real property. For chap- 30% of the recognized gain. The amount to be 2. For personal services by a nonresident in- ter 4 purposes, income from real property is ei- withheld, however, must not be more than 30% dividual present in the United States for 90 ther a nonfinancial payment (and therefore not of the amount payable because of the transac- days or less during each tax year, whose a withholdable payment) or is excluded as a tion. pay for those services did not exceed withholdable payment because it is effectively Unless you have reason to believe other- $3,000, and the personal services were connected income. For withholding that applies performed for: wise, you may rely upon the written statement to the disposition of U.S. real property interests, of the person entitled to the income as to the see U.S. Real Property Interest, later. a. A nonresident alien individual, foreign amount of gain. The Form W-8 or documentary partnership, or foreign corporation not evidence must show the beneficial owner's ba- engaged in a trade or business in the sis in the property giving rise to the gain. Pensions, Annuities, and United States; or Alimony (Income Code 15) Tax treaties. Many tax treaties exempt certain b. An office or place of business of a types of gains from U.S. income tax. Be sure to The following rules apply to withholding on pen- U.S. resident or citizen which was carefully check the provision of the treaty that sions, annuities, and alimony of foreign payees. maintained outside the United States. applies before allowing an exemption from with- If the payment otherwise qualifies under holding. Pensions and annuities. In most cases, you must withhold tax on the gross amount of pen- these rules, but less than 90% of the employees sions and annuities that you pay that are from eligible for benefits are citizens or residents of Royalties sources within the United States. This includes the United States, you still need not withhold tax amounts paid under an annuity contract issued on the payment if: In general, you must withhold tax under chap- by a foreign branch of a U.S. life insurance • The recipient is a resident of a country that ter 3 on the payment of royalties from sources company. gives a substantially equal exclusion to in the United States. However, certain types of U.S. citizens and residents, or Most tax treaties provide an exemption from royalties are given reduced rates or exemptions • The recipient is a resident of a beneficiary tax on non-government pensions and annuities. under some tax treaties. Accordingly, these dif- developing country under the Trade Act of See the specific treaty rules for government ferent types of royalties are treated as separate 1974. categories for withholding purposes. For pensions. The exemption may not apply to

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The foreign person entitled to the payments present in the United States in “F,” “J,” “M,” or After receipt and acceptance of the Form must provide you with a Form W-8BEN that “Q” nonimmigrant status. Payments made to W-4, the payer must withhold at the graduated contains the TIN of the foreign person. nonresident alien individuals in any other immi- rates in Pub. 15-T as if the grant or scholarship gration status are subject to 30% withholding. income were wages. The gross amount of the Alimony payments. In most cases, alimony income is reduced by the total amount of any payments made by U.S. resident aliens to non- Nondegree candidate. If the person receiving deductions on the Form W-4 and the withhold- resident aliens are taxable and subject to chap- the scholarship or fellowship grant is not a can- ing tax is figured on the rest. ter 3 withholding whether the recipients are re- didate for a degree, and is present in the United siding abroad or are temporarily present in the States in “F,” “J,” “M,” or “Q” nonimmigrant sta- Pay for services rendered. Pay for services United States. tus, you must withhold tax at 14% on the total rendered as an employee by an alien who is Many tax treaties, however, provide for an amount of the grant that is from U.S. sources if also the recipient of a scholarship or fellowship exemption from withholding for alimony pay- the following requirements are met. grant is usually subject to graduated withhold- ing under chapter 3 according to the rules dis- ments. See Tax Treaties, later, for information 1. The grant must be for study, training, or re- cussed later in Wages Paid to Employees— about treaty benefits. search in the United States. Alimony payments made to a nonresident Graduated Withholding. This includes taxable alien by a U.S. ancillary administrator of a non- 2. The grant must be made by: amounts an individual who is a candidate for a degree receives for teaching, doing research, resident alien estate are from foreign sources a. A tax-exempt organization operated and carrying out other part-time employment re- and are not subject to withholding. Alimony pay- for charitable, religious, educational, quired as a condition for receiving the scholar- ments are not subject to chapter 4 withholding. etc. purposes; ship or fellowship grant (that is, compensatory Note. Under section 11051 of P.L. 115-97 b. A foreign government; scholarship or fellowship income). Grants given to students, trainees, or re- (TCJA), alimony is no longer considered in- c. A federal, state, or local government searchers which require the performance of come if the divorce or separation agreement is agency; or executed after December 31, 2018, or if execu- personal services as a necessary condition for ted before January 1, 2019, but modified after d. An international organization, or a bi- disbursing the grant do not qualify as scholar- December 31, 2018, the modification must national or multinational educational ship or fellowship grants. Instead, they are com- state that section 11051 of P.L. 115-97 applies or cultural organization created or pensation for personal services considered to to the modification. continued by the Mutual Educational be wages. It does not matter what term is used and Cultural Exchange Act of 1961 to describe the grant (for example, stipend, Scholarships and Fellowship (known as the Fulbright-Hays Act). scholarship, fellowship, etc.). Grants Subject to Chapter 3 If the grant does not meet both (1) and (2) Withholding agents who pay grants Withholding (Income Code 16) above, you must withhold at 30% on the ! that are in fact wages must report such amount of the grant that is from U.S. sources. CAUTION grants on Forms 941 and W-2 and A scholarship or fellowship grant is an amount withhold income tax on them at the graduated given to an individual for study, training, or re- Alternate withholding procedure. You may rates. Withholding agents may not allow tax search, and which does not constitute compen- choose to treat the taxable part of a U.S. source treaty exemptions that apply to scholarships sation for personal services. For information grant or scholarship as wages. The student or and fellowships to be applied to grants that are about withholding on scholarship and fellowship grantee must have been admitted into the Uni- really wages. It is the responsibility of the with- grants that is treated as compensation for serv- ted States on an “F,” “J,” “M,” or “Q” visa. The holding agent to determine whether a grant is ices, see Pay for services rendered, later. student or grantee will know that you are using “wages” or a “scholarship or fellowship,” and to Whether a fellowship grant from U.S. sources is this alternate withholding procedure when you report and withhold on the grant accordingly. An subject to chapter 3 withholding depends on the ask for a Form W-4. alien student, trainee, or researcher may not nature of the payments and whether the recipi- The student or grantee must complete Form claim a scholarship or fellowship treaty exemp- ent is a candidate for a degree. These amounts W-4 annually following the instructions given tion against income that has been reported to are not subject to chapter 4 withholding. See here and forward it to you, the payer of the him or her on Form W-2 as wages. Scholarships, fellowships, and grants under scholarship, or your designated withholding Source of Income, earlier. agent. You may rely on the information on Form Per diem paid by the U.S. Government. Per W-4 unless you know or have reason to know it diem for subsistence paid by the U.S. Govern- Candidate for a degree. Do not withhold on a is incorrect. You must file a Form 1042-S (dis- ment (directly or by contract) to a nonresident qualified scholarship from U.S. sources granted cussed later) for each student or grantee who alien engaged in a training program in the Uni- and paid to a candidate for a degree. A quali- gives you, or your withholding agent, a Form ted States funded by the U.S. Agency for Inter- fied scholarship means any amount paid to an W-4. national Development are not subject to 14% or individual as a scholarship or fellowship grant to Each student or grantee who files a Form 30% withholding. This is true even if the alien is the extent that, in accordance with the condi- W-4 must file an annual U.S. income tax return subject to income tax on those amounts. tions of the grant, the amount is to be used for to take the deductions claimed on that form. If the following expenses. the individual is in the United States during Tax treaties. Many treaties contain exemp- Tuition and fees required for enrollment or • more than 1 tax year, he or she must attach a tions from U.S. taxation for scholarships and fel- attendance at an educational organization. statement to the annual Form W-4 indicating lowships. Although usually found in the student Fees, books, supplies, and equipment re- • that the individual has filed a U.S. income tax articles of the tax treaties, many of these ex- quired for courses of instruction at the edu- return for the previous year. If he or she has not emptions also apply to research grants re- cational organization. been in the United States long enough to have ceived by researchers who are not students. The payment of a qualified scholarship to a to file a return, the individual must attach a See Tax Treaties, later, for information about nonresident alien is not reportable and is not statement to the Form W-4 saying that a timely treaty benefits. The treaty provision usually ex- subject to withholding. However, the part of a U.S. income tax return will be filed. empts the entire scholarship or fellowship scholarship or fellowship paid to a nonresident The payer of the grant or scholarship must amount, regardless of whether the grant is a alien which does not constitute a qualified review the Form W-4 to make sure all the nec- “qualified scholarship” under U.S. law. scholarship is reportable on Form 1042-S and essary and required information is provided. If An alien student, trainee, or researcher may is subject to withholding. For example, those the withholding agent knows or has reason to claim a treaty exemption for a scholarship or fel- parts of a scholarship devoted to travel, room, know that the amounts shown on the Form W-4 lowship by submitting Form W-8BEN to the and board are subject to withholding and are re- may be false, the withholding agent must reject payer of the grant. However, a scholarship or ported on Form 1042-S. The withholding rate is the Form W-4 and withhold at the appropriate fellowship recipient who receives both wages 14% on taxable scholarship and fellowship statutory rate (14% or 30%). and a scholarship or fellowship from the same grants paid to nonresident aliens temporarily

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institution can claim treaty exemptions on both The grantor must not intend the amount to be performing dependent personal services are kinds of income on Form 8233. given to the grantee for the purpose of aiding subject to the same reporting and withholding the grantee to perform study, training, or re- obligations that apply to U.S. citizens who re- The scholarship or fellowship recipient who search. ceive the same kind of income. is claiming a treaty exemption must provide you with a foreign TIN on Form W-8BEN or, in the Prizes and awards. Prizes and awards are Form 8233. This form is used by a nonresident case of a recipient who also received wages amounts received primarily in recognition of reli- alien individual to claim a tax treaty exemption from the same institution, a U.S. TIN on Form gious, charitable, scientific, educational, artistic, from withholding on some or all compensation 8233, or you cannot allow the treaty exemption. literary, or civic achievement, or are received as paid for: A copy of a completed Form W-7, showing that the result of entering a contest. A prize or award • Independent personal services (self-em- a TIN has been applied for, can be given to you is taxable to the recipient unless all of the fol- ployment), with a Form 8233. See Form 8233, later, under lowing conditions are met. • Dependent personal services, or Pay for Personal Services Performed. • The recipient was selected without any ac- • Personal services income and noncom- tion on his or her part to enter the contest pensatory scholarship or fellowship in- Nonresident alien who becomes a resi- or proceeding. come from the same withholding agent. dent alien. In most cases, only a nonresident • The recipient is not required to render sub- A withholding agent that receives Form alien individual may use the terms of a tax treaty stantial future services as a condition to re- 8233 from a nonresident alien individual claim- to reduce or eliminate U.S. tax on income from ceive the prize or award. ing a tax treaty exemption must review the form, a scholarship or fellowship grant. A student (in- • The prize or award is transferred by the sign to indicate its acceptance, and forward the cluding a trainee or business apprentice) or re- payer to a governmental unit or tax-exempt form to the IRS within 5 days of its acceptance. searcher who has become a resident alien for charitable organization as designated by U.S. tax purposes may not use the terms of a the recipient. COVID-19 medical condition travel excep- tax treaty due to a provision known as a “saving tion (Rev. Proc. 2020-20 exception). The clause.” However, an exception to the saving Targeted grants and achievement awards. IRS has provided relief from withholding on clause may permit an exemption from tax to Targeted grants and achievement awards re- compensation for certain dependent personal continue for scholarship or fellowship grant in- ceived by nonresident aliens for activities con- services for individuals who were unable to come even after the recipient has otherwise be- ducted outside the United States are treated as leave the United States due to the global health come a U.S. resident alien for tax purposes. In income from foreign sources. Targeted grants emergency caused by COVID-19. For more in- this situation, the individual must give you a and achievement awards are issued by exempt formation, including guidance for withholding Form W-9 and an attachment that includes all organizations or by the United States (or one of agents, see the Instructions for Form 8233. the following information. its instruments or agencies), a state (or a politi- • The treaty country. cal subdivision of a state), or the District of Co- Form W-4. This form is used by a person pro- • The treaty article addressing the income. lumbia for an activity (or past activity in the case viding dependent personal services to claim • The article number (or location) in the tax of an achievement award) undertaken in the withholding allowances, but not a tax treaty ex- treaty that contains the saving clause and public interest. emption. Nonresident alien individuals are sub- its exceptions. ject to special instructions for completing the • The type and amount of income that quali- Form W-4. See the discussion under Wages fies for the exemption from tax. Pay for Personal Services Performed Paid to Employees—Graduated Withholding, • Sufficient facts to justify the exemption later. from tax under the terms of the treaty arti- This section explains the rules for withholding cle. Pay for independent personal services (In- tax from pay for personal services. You must come Code 17). Independent personal serv- generally withhold tax at the 30% rate on com- Example. Article 20 of the U.S.–China in- ices (a term commonly used in tax treaties) are pensation you pay to a nonresident alien indi- come tax treaty allows an exemption from tax personal services performed by an independent vidual for labor or personal services performed for scholarship income received by a Chinese nonresident alien contractor as contrasted with in the United States, unless that pay is specifi- student temporarily present in the United those performed by an employee. This category cally exempted from withholding or subject to States. Under the Internal Revenue Code, a of pay includes payments for professional serv- graduated withholding. This rule applies regard- student may become a resident alien for tax ices, such as fees of an attorney, physician, or less of your place of residence, the place where purposes if his or her stay in the United States accountant made directly to the person per- the contract for service was made, or the place exceeds 5 calendar years. However, the treaty forming the services. It also includes honoraria of payment. allows the provisions of Article 20 to continue to paid by colleges and universities to visiting apply even after the Chinese student becomes teachers, lecturers, and researchers. a resident alien of the United States. Payments for personal services are not with- holdable payments under chapter 4 when they Pay for independent personal services is are nonfinancial payments. See Regulations subject to chapter 3 withholding and reporting Other Grants, Prizes, and Awards section 1.1473-1(a)(4)(iii) for a description of as follows. Subject to Chapter 3 Withholding these payments and their exclusion as with- 30% rate. You must withhold at the statu- holdable payments. Other grants, prizes, and awards made by gran- tory rate of 30% on all payments unless the alien enters into a withholding agreement or re- tors that reside in the United States are treated Illegal aliens. Foreign workers who are illegal ceives a final payment exemption (discussed as income from sources within the United aliens are subject to U.S. taxes in spite of their later). States. Those made for activities conducted illegal status. U.S. employers or payers who outside the United States by a foreign person or hire illegal aliens may be subject to various Withholding agreements. Pay for per- by grantors that reside outside the United fines, penalties, and sanctions imposed by U.S. sonal services of a nonresident alien who is en- States are treated as income from foreign sour- Immigration and Customs Enforcement. If such gaged during the tax year in the conduct of a ces. These provisions do not apply to salaries employers or payers choose to hire illegal ali- U.S. trade or business may be wholly or parti- or other pay for services. ens, the payments made to those aliens are ally exempted from withholding at the statutory subject to the same tax withholding and report- rate if an agreement has been reached between Grant. The purpose of a grant must be to ach- ing obligations that apply to other classes of ali- the Commissioner or his delegate and the alien ieve a specific objective, produce a report or ens. Illegal aliens who are nonresident aliens as to the amount of withholding required. This other similar product, or improve or enhance a and who receive income from performing inde- agreement will be effective for payments cov- literary, artistic, musical, scientific, teaching, or pendent personal services are subject to 30% ered by the agreement that are made after the other similar capacity, skill, or talent of the withholding unless exempt under some provi- agreement is executed by all parties. The alien grantee. A grant must also be an amount which sion of law or a tax treaty. Illegal aliens who are does not qualify as a scholarship or fellowship. resident aliens and who receive income from

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must agree to timely file an income tax return for withholding agent, stating the amount of the fi- Also, the 30% withholding does not apply to the current tax year. nal payment of compensation for personal serv- pay for personal services performed as an em- ices that is exempt from withholding, and the ployee for an employer if it is effectively connec- Final payment exemption. The final pay- amount that would otherwise be withheld that ted with the conduct of a U.S. trade or business ment of compensation for independent per- may be paid to the alien due to the exemption. and is specifically exempted from the definition sonal services may be wholly or partially ex- The amount of pay exempt from withholding of wages. chapter 4 withholding does not apply empt from withholding at the statutory rate. This cannot be more than $5,000. The alien must to these payments. See Pay that is not wages, exemption applies to the last payment of com- give two copies of the letter to you and must later. pensation, other than wages, for personal serv- also attach a copy of the letter to his or her in- ices rendered in the United States that the alien come tax return for the tax year for which the Special rule for certain agricultural work- expects to receive from any withholding agent exemption is effective. ers. The 30% withholding does not apply to during the tax year. pay for personal services performed by a for- To obtain the final payment exemption, the Travel expenses. If you pay or reimburse eign agricultural worker in the United States on alien, or the alien's agent, must file the forms the travel expenses of a nonresident alien, the an H-2A visa. However, if the total wages are and provide the information required by the payments are not reportable to the IRS and are $600 or more and the worker does not give you Commissioner or his delegate. This information not subject to chapter 3 withholding if the pay- a TIN, you may need to backup withhold. You includes, but is not limited to, the following ments are made under an accountable plan, as may withhold at graduated rates if the em- items. described in Regulations section 1.62-2. This ployee asks you to by giving you a completed • A statement by each withholding agent treatment applies only to that part of a payment Form W-4. from whom amounts of gross income ef- that represents the payment of travel and lodg- Pay for personal services that is not subject fectively connected with the conduct of a ing expenses and not to that part that repre- to withholding is not subject to reporting on U.S. trade or business have been received sents compensation for independent personal Form 1042-S. If the compensation is more than by the alien during the tax year. It must services. $600, report it on Form W-2 (if the employee show the amount of income paid and the gave you a TIN) or on Form 1099-MISC, Mis- amount of tax withheld. The withholding Tax treaties. Under some tax treaties, pay for independent personal services performed in cellaneous Information (if the employee did not agent must sign the statement and include give you a TIN). a declaration that it is made under penal- the United States is treated as business income For more information on withholding on for- ties of perjury. and taxed according to the treaty provisions for eign agricultural workers, go to IRS.gov and en- • A statement by the withholding agent from business profits. ter “agricultural workers” in the search box. whom the final payment of compensation Under other tax treaties, pay for independ- for personal services will be received ent personal services performed in the United Employer–employee relationship. For pay showing the amount of final payment and States is exempt from U.S. income tax only if for personal services to qualify as wages, there the amount that would be withheld if a final the independent nonresident alien contractor must be an employer–employee relationship. payment exemption is not granted. The performs the services during a period of tempo- withholding agent must sign the statement rary presence in the United States (usually not Under the common law rules, every individ- and include a declaration that it is made more than 183 days) and is a resident of the ual who performs services subject to the will under penalties of perjury. treaty country. and control of an employer, both as to what • A statement by the alien that he or she Independent nonresident alien contractors shall be done and how it shall be done, is an does not intend to receive any other use Form 8233 to claim an exemption from employee. It does not matter that the employer amounts of gross income effectively con- withholding under a tax treaty. For more infor- allows the employee considerable discretion nected with the conduct of a U.S. trade or mation, see Form 8233, earlier. and freedom of action, as long as the employer business during the current tax year. has the legal right to control both the method Form 8233 should be used to claim a and the result of the services. • The amount of tax that has been withheld TIP treaty benefit based on a business If an employer–employee relationship exists, (or paid) under any other provision of the profits provision or an independent per- it does not matter what the parties call the rela- Internal Revenue Code or regulations for sonal services provision. any income effectively connected with the tionship. It does not matter if the employee is conduct of a U.S. trade or business during Often, you must withhold under the statutory called a partner, coadventurer, agent, or inde- the current tax year. rules on payments made to a treaty country res- pendent contractor. It does not matter how the • The amount of any outstanding tax liabili- ident contractor for services performed in the pay is measured, how the individual is paid, or ties, including any interest and penalties, United States. This is because the factors on what the payments are called. Nor does it mat- from the current tax year or prior tax peri- which the treaty exemption is based may not be ter whether the individual works full time or part ods. determinable until after the close of the tax time. • The provision of any income tax treaty un- year. The contractor must then file a U.S. in- The existence of the employer–employee der which a partial or complete exemption come tax return (Form 1040-NR) to recover any relationship under the usual common law rules from withholding may be claimed, the overwithheld tax by providing the IRS with proof will be determined, in doubtful cases, by an ex- country of the alien's residence, and a that he or she is entitled to a treaty exemption. amination of the facts of each case. statement of sufficient facts to justify an ex- Employee. An employee generally in- emption under that treaty. Wages Paid to Employees— cludes any individual who performs services if The alien must give a statement, signed and Graduated Withholding the relationship between the individual and the verified by a declaration that it is made under person for whom the services are performed is Salaries, wages, bonuses, or any other pay for penalties of perjury, that all the information pro- the legal relationship of employer and em- personal services (referred to collectively as vided is true, and that to his or her knowledge ployee. This includes an individual who re- wages) paid to nonresident alien employees are no relevant information has been omitted. ceives a supplemental unemployment pay ben- subject to graduated withholding in the same If satisfied with the information provided, the efit that is treated as wages. way as for U.S. citizens and residents if the wa- Commissioner or his delegate will determine ges are effectively connected with the conduct the amount of the alien's tentative income tax No distinction is made between classes of a U.S. trade or business. for the tax year on gross income effectively con- of employees. Superintendents, managers, and other supervisory personnel are employ- nected with the conduct of a U.S. trade or busi- Note. Any wages paid to a nonresident ees. In most cases, an officer of a corporation is ness. Ordinary and necessary business expen- alien for personal services performed as an em- an employee, but a director acting in this ca- ses may be taken into account if proved to the ployee for an employer are generally not sub- pacity is not. An officer who does not perform satisfaction of the Commissioner or his dele- ject to the 30% withholding if the wages are any services, or only minor services, and nei- gate. subject to graduated withholding. The Commissioner or his delegate will pro- ther receives nor is entitled to receive any pay is vide the alien with a letter to you, the not considered an employee.

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Employer. An employer is any person or • Services performed as an employee of a does not apply to students and business ap- organization for whom an individual performs or foreign government, without regard to citi- prentices from India. has performed any service, of whatever nature, zenship, residence, or where services are Do not include the additional amount as an employee. The term “employer” includes performed. These include services per- on the employee's Form W-2, Wage not only individuals and organizations in a trade formed by ambassadors, other diplomatic and Tax Statement. or business, but organizations exempt from in- and consular officers and employees, and come tax, such as religious and charitable or- nondiplomatic representatives. They do ganizations, educational institutions, clubs, so- not include services for a U.S. or Puerto Reporting requirements for wages and cial organizations, and societies. It also Rican corporation owned by a foreign gov- withheld taxes paid to nonresident aliens. includes the governments of the United States, ernment. The employer must report the amount of wages the States, Puerto Rico, and the District of Co- • Services performed within or outside the and deposits of withheld income and social se- lumbia, as well as their agencies, instrumentali- United States by an employee or officer curity and Medicare taxes by filing Form 941. ties, and political subdivisions. (regardless of citizenship or residence) of Household employers should see Pub. 926, for Two special definitions of employer that may an international organization designated information on reporting and paying employ- have considerable application to nonresident under the International Organizations Im- ment taxes on wages paid to household em- aliens are: munities Act. ployees. • An employer includes any person paying • Services performed by a duly ordained, Form W-2. The employer must also report wages for a nonresident alien individual, commissioned, or licensed minister of a on Form W-2 the wages subject to chapter 3 foreign partnership, or foreign corporation church, but only if performed in the exer- withholding and the withheld taxes. You must not engaged in trade or business in the cise of the ministry and not as an em- give copies of this form to the employee. If the United States (including Puerto Rico as if a ployee of the United States, a U.S. posses- employee submits Form 8233 to claim exemp- part of the United States), and sion, or a foreign government, or any of tion from withholding under a tax treaty, the wa- • An employer includes any person who has their political subdivisions. These also in- ges are reported on Form 1042-S and not in control of the payment of wages for serv- clude services performed by a member of box 1 of Form W-2. Wages exempt under a tax ices that are performed for another person a religious order in carrying out duties re- treaty may still be reported in the state and local who does not have that control. quired by that order. wages boxes of Form W-2 if such wages are • Tips paid to an employee if they are paid in For example, if a trust pays wages, such as subject to state and local taxation. For more in- any medium other than cash or, if in cash, certain types of pensions, supplemental unem- formation, see the instructions for these forms. ployment pay, or retired pay, and the person for they amount to less than $20 in any calen- dar month in the course of employment. whom the services were performed has no legal Trust fund recovery penalty. If you are a per- control over the payment of the wages, the trust Services performed outside the United son responsible for withholding, accounting for, is the employer. States. Compensation paid to a nonresident or depositing or paying employment taxes, and These special definitions have no effect alien (other than a resident of Puerto Rico, dis- willfully fail to do so, you can be held liable for a upon the relationship between an alien em- cussed later) for services performed outside the penalty equal to the full amount of the unpaid ployee and the actual employer when determin- United States is not considered wages and is trust fund tax, plus interest. A responsible per- ing whether the pay received is considered to not subject to withholding. son for this purpose can be an officer of a cor- be wages. poration, a partner, a sole proprietor, or an em- Special instructions for Form W-4. A ployee of any form of business. A trustee or If an employer–employee relationship exists, nonresident alien subject to wage withholding agent with authority over the funds of the busi- the employer ordinarily must withhold the in- must give the employer a completed Form W-4 ness can also be held responsible for the pen- come tax from wage payments by using the to enable the employer to figure how much in- alty. percentage method or wage bracket tables as come tax to withhold. “Willfully” in this case means voluntarily, shown in Pub. 15-T. A nonresident alien cannot claim ex- consciously, and intentionally. You are acting ! emption from withholding on Form willfully if you pay other expenses of the busi- Pay that is not wages. Employment for which CAUTION W-4. Use Form 8233 to claim a tax ness instead of the withholding taxes. the pay is not considered wages (for graduated treaty exemption from withholding. See Form income tax withholding) includes, but is not limi- 8233, earlier. Social security and Medicare tax. The em- ted to, the following items. ployer generally must also withhold Federal In- • Agricultural labor if the total cash wages In completing Form W-4, nonresident aliens surance Contributions Act (FICA) tax and file paid to an individual worker during the year should use the following instructions instead of Form 941. In certain cases, wages paid to stu- is less than $150 and the total paid to all the instructions on Form W-4. dents and railroad and agricultural workers are workers during the year is less than 1. Check “Single or Married filing separately” exempt from FICA tax. Wages paid to nonresi- $2,500. But even if the total amount paid to on Step 1(c) (regardless of actual marital dent alien students, teachers, researchers, all workers is $2,500 or more, wages of status). trainees, and other nonresident aliens in “F-1,” less than $150 per year paid to a worker “J-1,”“ M-1,” or “Q” nonimmigrant status are not are not subject to income tax withholding if 2. Write “Nonresident Alien” or “NRA” in the subject to FICA. See Pub. 15-T for the rules on certain conditions are met. For these con- space below Step 4(c). withholding. ditions, see Pub. 51 (Circular A). For more information see Notice 1392. In addition to withholding Medicare tax at • Services of a household nature performed 1.45%, you must withhold a 0.9% Additional in or about the private home of an em- Nonresident alien employees are not Medicare Tax from wages you pay in excess of ployer, or in or about the clubrooms or TIP required to request an additional with- $200,000 in a calendar year. See Pub.15 for house of a local college club, fraternity, or holding amount, but they can choose to more information. sorority. A local college club, fraternity, or have an additional amount withheld. sorority does not include an alumni club or Federal unemployment tax (FUTA). The em- chapter and may not be operated primarily Determining amount to withhold. Employers ployer must pay FUTA tax and file Form 940. as a business enterprise. Examples of are required to add an amount to the wages of a Only the employer pays this tax; it is not deduc- these services include those performed as nonresident alien employee solely for the pur- ted from the employee's wages. In certain ca- a cook, janitor, housekeeper, governess, pose of calculating income tax withholding. The ses, wages paid to students and railroad and gardener, or houseparent. specific amounts depend on the payroll period. agricultural workers are exempt from FUTA tax. • Certain services performed outside the These amounts can be found in Withholding For more information, see the instructions for course of the employer's trade or business Adjustment for Nonresident Alien Employees in Form 940. for which cash payment is less than $50 for the Introduction of Pub. 15-T . This adjustment Wages paid to nonresident alien students, the calendar quarter. teachers, researchers, trainees, and other

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nonresident aliens in “F-1,” “J-1,” “M-1,” or “Q” from U.S. income tax. For this purpose, a for- for an employer other than the United nonimmigrant status are not subject to FUTA eign employer means: States or one of its agencies. tax. • A nonresident alien individual, foreign part- • Services performed outside the United nership, or foreign corporation; or States by a nonresident alien who is a resi- Pay for dependent personal services (In- • An office or place of business maintained dent of Puerto Rico, as an employee of the come Code 18). Dependent personal services in a foreign country or in a U.S. possession United States or any of its agencies. are personal services performed in the United by a domestic corporation, a domestic To qualify for the exemption from withhold- States by a nonresident alien individual as an partnership, or an individual U.S. citizen or ing for any tax year, the employee must give the employee rather than as an independent con- resident. employer a statement showing the employee's tractor. name and address and certifying that the em- You can exempt the payment from withhold- Pay for dependent personal services is sub- ployee: ing if you can reliably associate the payment ject to chapter 3 withholding and reporting as • Is not a citizen or resident of the United with a Form W-8BEN containing the TIN of the follows. States, and payee. Graduated rates. Ordinarily, you must • Is a resident of Puerto Rico who does not withhold on pay (wages) for dependent per- Exception 3. Compensation paid to certain expect to be a resident for that entire tax sonal services using graduated rates. The non- residents of Canada or Mexico who enter or year. resident alien must complete Form W-4, as dis- leave the United States at frequent intervals is The statement must be signed and dated by cussed earlier under Special instructions for not subject to withholding. These aliens must the employee and contain a written declaration Form W-4, and you must report wages and in- either: that it is made under penalties of perjury. come tax withheld on Form W-2. However, you • Perform duties in transportation services do not have to withhold if any of the following (such as a railroad, bus, truck, ferry, Tax treaties. Pay for dependent personal four exceptions applies. steamboat, aircraft, or other type) between services under some tax treaties is exempt from the United States and Canada or Mexico; U.S. income tax only if both the employer and Exception 1. Compensation paid for labor or the employee are treaty country residents and or personal services performed in the United • Perform duties connected with an interna- the nonresident alien employee performs the States is deemed not to be income from sour- tional project, relating to the construction, services while temporarily living in the United ces within the United States and is exempt from maintenance, or operation of a waterway, States (usually for not more than 183 days). U.S. income tax if: viaduct, dam, or bridge crossed by, or Other treaties provide for exemption from U.S. 1. The labor or services are performed by a crossing, the boundary between the United tax on pay for dependent personal services if nonresident alien temporarily present in States and Canada or the boundary be- the employer is any foreign resident and the the United States for a period or periods tween the United States and Mexico. employee is a treaty country resident and the nonresident alien employee performs the serv- not exceeding a total of 90 days during the To qualify for the exemption from withhold- ices while temporarily in the United States. See tax year; ing during a tax year, a Canadian or Mexican Tax Treaties, later, for information about treaty resident must give the employer a statement 2. The total pay does not exceed $3,000; benefits. and with the employee's name, address, and identi- fication number, and certifying that the resident: 3. The pay is for labor or services performed Pay for teaching (Income Code 19). This • Is not a U.S. citizen or resident; category is given a separate income code num- as an employee of, or under a contract • Is a resident of Canada or Mexico, which- with: ber because some tax treaties exempt a ever applies; and teacher from tax for a limited number of years. a. A nonresident alien individual, foreign • Expects to perform the described duties Pay for teaching means payments to a nonresi- partnership, or foreign corporation during the tax year in question. dent alien professor, teacher, or researcher by that is not engaged in a trade or busi- The statement can be in any form, but it a U.S. university or other accredited educa- ness in the United States; or must be dated and signed by the employee and tional institution for teaching or research work at b. A U.S. citizen or resident alien individ- must include a written declaration that it is the institution. made under penalties of perjury. ual, a domestic partnership, or a do- Graduated rates. Graduated withholding mestic corporation, if the labor or Canadian and Mexican residents em- of income tax usually applies to all wages, sal- services are performed for an office or ployed entirely within the United States. aries, and other pay for teaching and research place of business maintained in a for- Neither the transportation service exception nor paid by a U.S. educational institution during the eign country or in a possession of the the international projects exception applies to period the nonresident alien is teaching or per- United States by this individual, part- the pay of a resident of Canada or Mexico who forming research at the institution. nership, or corporation. is employed entirely within the United States Social security and Medicare tax. A non- If the total pay is more than $3,000, the en- and who commutes from a home in Canada or Mexico to work in the United States. If an indi- resident alien temporarily in the United States tire amount is income from sources in the Uni- on an “F-1,” “J-1,” “M-1,” or “Q-1” visa is not ted States and is subject to U.S. tax. vidual works at a fixed point or points in the Uni- ted States (such as a factory, store, office, or subject to social security and Medicare taxes designated area or areas), the wages for serv- on pay for services performed to carry out the Also, compensation paid for labor or serv- purpose for which the alien was admitted to the ices performed in the United States by a non- ices performed as an employee for an employer are subject to graduated withholding. United States. Social security and Medicare resident alien in connection with the individual's taxes should not be withheld or paid on this temporary presence in the United States as a Exception 4. Compensation paid for serv- amount. regular member of the crew of a foreign vessel ices performed in Puerto Rico by a nonresident engaged in transportation between the United alien who is a resident of Puerto Rico for an em- Example. A nonresident alien is issued a States and a foreign country or a U.S. posses- ployer (other than the United States or one of its visa to teach for a university. While in the United sion is not income from sources within the Uni- agencies) is not subject to withholding. States, he takes a part-time job working for a ted States. Compensation paid for either of the follow- chemical company. The wages earned while Exception 2. Compensation paid by a for- ing types of services is not subject to withhold- teaching at the university are exempt from so- eign employer to a nonresident alien for the pe- ing if the alien does not expect to be a resident cial security and Medicare taxes. The wages riod the alien is temporarily present in the Uni- of Puerto Rico during the entire tax year. earned at the chemical company are subject to ted States on an “F,” “J,” or “Q” visa is exempt • Services performed outside the United social security and Medicare taxes. States but not in Puerto Rico by a nonresi- If an alien is considered a resident alien, as dent alien who is a resident of Puerto Rico discussed earlier, that pay is subject to social security and Medicare taxes even though the

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alien is still in one of the nonimmigrant statuses Example. A nonresident alien is admitted Income Code 43. NRAAEs who perform or mentioned above. This rule also applies to to the United States to study surveying. As part participate in events in the United States can re- FUTA (unemployment) taxes paid by the em- of her course, she apprentices to a surveyor. quest a CWA for a lower rate of withholding. A ployer. Teachers, researchers, and other em- She also works part-time at a restaurant to sup- CWA is an agreement entered into by the ath- ployees temporarily present in the United plement her income. The wages she earns as lete or entertainer, a designated withholding States on other nonimmigrant visas or in refu- an apprentice are not subject to social security agent, and the IRS. Under no circumstances gee or asylee immigration status are fully liable and Medicare taxes. The wages and tips she will a CWA reduce taxes withheld to less than for social security and Medicare taxes unless earns at the restaurant are subject to social se- the anticipated amount of income tax liability. an exemption applies from one of the totaliza- curity and Medicare taxes. We’ve temporarily waived the income re- tion agreements in force between the United If an alien is considered a resident alien, as quirement for which form to use when applying States and several other nations. discussed earlier, that pay is subject to social for a CWA. Form 13930-A is currently unavaila- security and Medicare taxes even though the The Social Security Administration ble. While the waiver is in effect, individuals with alien is still in one of the nonimmigrant statuses (SSA) publishes the complete texts income below $10,000 can apply for a CWA us- mentioned above. This rule also applies to and explanatory pamphlets of the total- ing Form 13930, Instructions on How to Apply FUTA (unemployment) taxes paid by the em- ization agreements, which are available by call- for a Central Withholding Agreement PDF. For ployer. ing 800-772-1213 or by going to SSA.gov/ more information on how to apply for a CWA, Any student who is enrolled and regularly at- international/totalization_agreements.html. see Form 13930. tending classes at a school may be exempt For more information on the CWA program, from social security, Medicare, and FUTA taxes Tax treaties. Under most tax treaties, pay go to IRS.gov/Individuals/International- on pay for services performed for that school. Taxpayers/Central-Withholding-Agreements. for teaching or research is exempt from U.S. in- See Pub.15. come tax and from withholding for a specified Tax treaties. Under many tax treaties, com- period of time when paid to a professor, Tax treaties. Certain tax treaties provide a pensation paid to public entertainers or athletes teacher, or researcher who was a resident of limited exemption from U.S. income tax and for services performed in the United States is the treaty country immediately prior to entry into from withholding on compensation paid to non- exempt from U.S. income tax if the artist or ath- the United States and who is not a citizen of the resident alien students or trainees during train- lete derives receipts for the tax year concerned, United States. The U.S. educational institution ing in the United States for a limited period. In including expenses reimbursed to him/her or paying the compensation must report the addition, some treaties provide an exemption borne on his/her behalf, not in excess of amount of compensation paid each year that is from tax and withholding for compensation paid $10,000, or in more recent treaties, $20,000. exempt from tax under a tax treaty on Form by the U.S. Government or its contractor to a See Tax Treaties, later, for information about 1042-S. See Tax Treaties, later, for information nonresident alien student or trainee who is tem- treaty benefits. about treaty benefits. The employer should also porarily present in the United States as a partic- report the compensation in the state and local ipant in a program sponsored by the U.S. Gov- Employees and independent contractors wages boxes of Form W-2 if the wages are sub- ernment. See Tax Treaties, later, for information may claim an exemption from withholding under ject to state and local taxes, or in the social se- about treaty benefits. However, a withholding a tax treaty by filing Form 8233. Often, however, curity and Medicare wages boxes of Form W-2 agent who is a U.S. resident, a U.S. Govern- you will have to withhold at the statutory rates if the wages are subject to social security and ment agency, or its contractor must report the on the total payments to the entertainer or ath- Medicare taxes. amount of pay on Form 1042-S. lete. This is because the exemption may be Claimants must give you either Form Claimants must give you either Form based upon factors that cannot be determined W-8BEN or Form 8233, as applicable, to obtain W-8BEN or Form 8233, as applicable, to obtain until after the end of the year. these treaty benefits. these treaty benefits. Other Income Pay during studying and training (Income Artists and Athletes Code 20). This category refers to pay (as con- For the discussion of Income Codes 24, 25, and trasted with remittances, allowances, or other (Income Codes 42 and 43) 26, see U.S. Real Property Interest, later. For forms of scholarships or fellowship grants—see the discussion of Income Code 27, see Publicly Scholarships and Fellowship Grants Subject to Because many tax treaties contain a provision Traded Partnerships, later. Chapter 3 Withholding, earlier) for personal for pay to artists and athletes, a separate cate- services performed while a nonresident alien is gory is assigned these payments for chapter 3 Gambling winnings (Income Code 28). In temporarily in the United States as a student, withholding purposes. This category includes general, nonresident aliens are subject to chap- trainee, or apprentice, or while acquiring techni- payments made for performances by public en- ter 3 withholding at 30% on the gross proceeds cal, professional, or business experience. tertainers (such as theater, motion picture, ra- from gambling won in the United States if that dio, or television artists, or musicians) or ath- income is not effectively connected with a U.S. Graduated rates. Wages, salaries, or letes. trade or business and is not exempted by other compensation paid to a nonresident alien treaty. The tax withheld and winnings are re- student, trainee, or apprentice for labor or per- Use Income Code 42 to report payments to portable on Forms 1042 and 1042-S. chapter 4 sonal services performed in the United States nonresident alien athletes and entertainers withholding does not apply to these proceeds. are subject to graduated withholding. (NRAAEs) who have not signed a central with- No tax is imposed on nonbusiness gambling Social security and Medicare tax. A holding agreement (CWA), discussed later. Use income a nonresident alien wins playing black- nonresident alien temporarily in the United Income Code 43 to report payments to artists jack, baccarat, craps, roulette, or big-6 wheel in States on an “F-1,” “J-1,” “M-1,” or “Q-1” visa is and athletes who have signed a CWA. the United States. A Form W-8BEN is not re- not subject to social security and Medicare quired to obtain the exemption from withhold- taxes on pay for services performed to carry out Income Code 42. You must withhold tax at a ing, but a Form W-8BEN may be required for the purpose for which the alien was admitted to 30% rate on payments to artists and athletes for purposes of Form 1099 reporting and backup the United States. Social security and Medicare services performed as independent contractors. withholding. Gambling income that is not sub- taxes should not be withheld or paid on this See Pay for independent personal services, ject to chapter 3 withholding is not subject to re- amount. This exemption from social security earlier, for more information. You must withhold porting on Form 1042-S. tax at graduated rates on payments to artists and Medicare taxes also applies to employment Nonresident aliens are taxed at graduated and athletes for services performed as employ- performed under Curricular Practical Training rates on net gambling income won in the United ees. See Pay for dependent personal services, and Optional Practical Training, on or off cam- States that is effectively connected with a U.S. earlier, for more information. However, in any pus, by foreign students in “F-1,” “J-1,” “M-1,” or trade or business. “Q” status as long as the employment is author- situation where the nature of the relationship ized by the U.S. Citizenship and Immigration between the payer of the income and the artist Tax treaties. Gambling income of resi- Services. or athlete is not ascertainable, you should with- dents (as defined by treaty) of the following hold at a rate of 30%.

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foreign countries is not taxable by the United Payments to certain expatriates. Certain that is not reportable under any of the other in- States: Austria, Belgium, Bulgaria, Czech Re- payments to nonresident aliens who are cov- come categories. Examples of income that may public, Denmark, Finland, France, Germany, ered expatriates under section 877A(g)(1) of be reportable under this category are commis- Hungary, Iceland, Ireland, Italy, Japan, Latvia, the Internal Revenue Code are subject to with- sions, insurance proceeds, patronage distribu- Lithuania, Luxembourg, Netherlands, Russia, holding at 30%. In general, nonresident aliens tions, prizes, and racing purses. Slovak Republic, Slovenia, South Africa, Spain, are covered expatriates if they were U.S. citi- As discussed earlier under Amounts Subject Sweden, Tunisia, Turkey, Ukraine, and the Uni- zens or long-term residents who renounced to Chapter 3 Withholding, every kind of FDAP ted Kingdom. their citizenship or ceased to be long-term resi- income from U.S. sources that is not effectively Gambling income of residents of Malta is dents for U.S. tax purposes after June 16, 2008, connected with a U.S. trade or business is sub- taxed at 10%. and satisfied other tests for average annual net ject to chapter 3 withholding unless the income Claimants must give you a Form W-8BEN income tax or net worth. For more information is specifically exempt under the Internal Reve- (with a U.S. or foreign TIN) to claim treaty bene- on the definition of covered expatriates, see the nue Code or a tax treaty. You must generally fits on gambling income that is not effectively Instructions for Form 8854. withhold at the 30% rate on this income. As a connected with a U.S. trade or business. See A covered expatriate should have provided payment of U.S. source FDAP is generally a U.S. or Foreign TINs, later, for when you can you with Form W-8CE notifying you of their cov- withholdable payment, you should review Reg- accept a Form W-8BEN without a TIN. ered expatriate status and the fact that they ulations section 1.1473-1(a) (definition of with- may be subject to special tax rules with respect holdable payment) to determine if the payment Transportation income. U.S. source gross to certain items. For more information, see the is excluded from the definition of a withholdable transportation income (USSGTI), as defined in Instructions for Form W-8CE. payment. section 887 of the Internal Revenue Code, is not subject to 30% gross withholding tax, and Eligible deferred compensation items chapter 4 withholding does not apply to this in- (Income Code 38). In general, you must with- Foreign Governments come. Transportation income is income from hold tax at a 30% rate on any payment of an eli- the use of a vessel or aircraft, whether owned, gible deferred compensation item paid to a cov- and Certain Other hired, or leased, or from the performance of ered expatriate. The amount subject to tax is services directly related to the use of a vessel the amount of the payment that would have Foreign Organizations or aircraft. U.S. source gross transportation in- been included in the nonresident alien's U.S. come includes 50% of all transportation income gross income if he had continued to be taxed as Investment income earned by a foreign govern- from transportation that either begins or ends in a U.S. citizen or resident. ment is not included in the gross income of the the United States. USSGTI does not include foreign government and is not subject to chap- Distributions from a nongrantor trust transportation income of a foreign corporation ter 3 withholding. Investment income means in- (Income Code 39). In general, you must with- taxable in a U.S. possession. The recipient of come from investments in the United States in hold tax at a 30% rate on any direct or indirect USSGTI must pay tax on it annually at the rate stocks, bonds, or other domestic securities, fi- distribution from a nongrantor trust. The amount of 4% on Section I of Form 1120-F, unless the nancial instruments held in the execution of subject to tax is the part of the distribution that income is effectively connected with the con- governmental financial or monetary policy, and would have been included in the nonresident duct of a U.S. trade or business and is reporta- interest on money deposited by a foreign gov- alien's U.S. gross income if he had continued to ble on Section II of Form 1120-F. Special rules ernment in banks in the United States. A foreign be taxed as a U.S. citizen or resident. If the non- apply to determine if a foreign corporation's government must provide a Form W-8EXP or, resident alien was not a beneficiary of the non- USSGTI is effectively connected with a U.S. in the case of a payment made outside the Uni- grantor trust on the day before he gave up his trade or business. ted States to an offshore account, documentary U.S. citizenship or long-term residence, you do evidence to obtain this exemption. Investment Canadian truck and rail income. Under not have to withhold tax. See section 7 of No- income paid to a foreign government is subject Article VIII (Transportation) of the U.S.–Canada tice 2009-85, 2009-45 I.R.B. 598, available at to reporting on Form 1042-S. treaty, any U.S. source income derived by a IRS.gov/irb/2009-45_IRB#NOT-2009-85. Canadian company engaged in the operation of The following types of income received by a trucks or a railway as a common carrier or con- Guarantee of indebtedness (Income Code foreign government are subject to chapter 3 tract carrier, and attributable to the transporta- 41). An amount paid to a foreign payee for the withholding. provision of a guarantee of indebtedness is- tion of property between Canada and the Uni- 1. Income (including investment income) re- sued after September 27, 2010, may be subject ted States, is exempt from tax in the United ceived from the conduct of a commercial to chapter 3 withholding. The amounts must be States, provided the company is otherwise eligi- activity or from sources other than those paid by one of the following. ble for treaty benefits. Payments for the use of stated above. trucks (including trailers) or railway rolling stock, 1. A noncorporate U.S. resident. or from the use, maintenance, or rental of con- 2. Income received from a controlled com- tainers (including trailers and related equipment 2. A domestic corporation. mercial entity (including gain from the dis- for the transport of containers) used to transport 3. Any foreign person if the amount paid is position of any interest in a controlled property between Canada and the United connected with income that is effectively commercial entity) and income received States are also exempt from U.S. tax, provided connected, or treated as effectively con- by a controlled commercial entity. the company is otherwise eligible for treaty ben- nected, with a U.S. trade or business. If the foreign government is a partner in efits. Canadian companies must file Form a partnership carrying on a trade or busi- 1120-F and Form 8833 to claim an exemption An indirect payment includes a payment by ness in the United States, the effectively from tax for profits from their operating income. a foreign bank to a foreign corporation for the connected income allocable to the foreign Canadian corporations are subject to chapter 3 foreign corporation's guarantee of indebtedness government is considered derived from a withholding on rental payments for the use of owed to the foreign bank by the foreign corpo- controlled commercial activity and is sub- such equipment in the United States and may ration's domestic subsidiary, where the cost of ject to withholding under section 1446 of claim an exemption on Form W8-BEN-E. the guarantee fee is passed on to the domestic the Internal Revenue Code. subsidiary through additional interest charged 3. Gain derived from the disposition of a U.S. Foreign freight charges or rental of on the indebtedness. real property interest. Withholding on equipment used outside the United States. The amounts described above for a guaran- Payments for transportation of property, these gains is discussed later under U.S. tee of indebtedness are withholdable pay- Real Property Interest. whether by ship, air, or truck, solely between ments, such that chapter 4 withholding may ap- points outside the United States or rental of tan- ply absent an exclusion from withholding under For chapter 4 purposes, payments to a for- gible property in connection with transportation chapter 4. eign government (other than earnings inuring to solely for use between points outside the United the benefit of a private person) are not pay- States is not U.S. source income and not sub- Other income (Income Code 23). Use this ments to which chapter 4 withholding applies ject to chapter 3 withholding. category to report U.S. source FDAP income

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unless the payment is made to a controlled en- exemption from withholding under an income from a person claiming to be any of the follow- tity of the foreign government that is engaged in tax treaty, or the income is unrelated business ing. a commercial financial activity. See Regulations taxable income, the organization must provide a • QI. section 1.1471-6(h) for a description of a com- Form W-8BEN-E or W-8ECI. Income paid to • Withholding foreign partnership. mercial financial activity. See Regulations sec- foreign tax-exempt organizations is subject to • Withholding foreign trust. tion 1.1471-3(d)(9) for the documentation re- reporting on Form 1042-S. If the organization is • An organization claiming an exemption or quired to establish an entity’s chapter 4 status a partner in a partnership carrying on a trade or reduced rate of withholding based solely as a foreign government. Similar rules apply for business in the United States, the effectively on a claim of tax-exempt status under sec- chapter 4 purposes to a payment to a foreign connected income allocable to the organization tion 501(c) of the Internal Revenue Code central bank of issue. is subject to withholding under section 1446 of or private foundation status. A government of a U.S. possession is ex- the Internal Revenue Code. • U.S. branch of a foreign person treated as empt from U.S. tax on all U.S. source income. a U.S. person (see Regulations section This income is not subject to chapter 3 with- Foreign financial institutions. For payments 1.1441-1(b)(2)(iv)), and a U.S. branch of holding, and chapter 4 withholding does not ap- made to a reporting Model 1 FFI or reporting an FFI acting as an intermediary that is not ply to income paid to a government of a U.S. Model 2 FFI, see the applicable IGA for defini- treated as a U.S person. possession. See Regulations section tions of entities described under this heading. • U.S. person. 1.1471-3(d)(9) for the documentation required You may generally rely on documentation provi- to establish an entity’s chapter 4 status as a ded by such an FFI to treat an entity as descri- Exceptions to U.S. TIN requirement. A for- government of a U.S. possession. These gov- bed under this heading (included under the eign person does not have to provide a U.S. ernments should use Form W-8EXP to claim class of a nonreporting IGA FFI). See the TIN to claim a reduced rate of withholding under this exemption for both Chapters 3 and 4 purpo- Instructions for Form W-8BEN-E. a tax treaty if the requirements for the following ses (as required). exceptions are met. Instead of requesting a U.S. TIN from a foreign payee, you may request International organizations. International or- U.S. or Foreign TINs a foreign TIN issued by the payee’s country of ganizations are exempt from U.S. tax on all U.S. residence except when the payee is a nonresi- source income. Income paid to an international As the withholding agent, in many cases you dent alien individual claiming an exemption organization (within the meaning of section must request that the payee provide you with its from withholding on Form 8233. 7701(a)(18) of the Internal Revenue Code) is U.S. TIN. You must in such a case include the • Income from marketable securities (dis- not subject to chapter 3 withholding. Interna- payee's TIN on forms, statements, and other cussed earlier under Beneficial Owners). tional organizations are not required to provide tax documents. The payee's TIN may be any of • Unexpected payment to an individual in a Form W-8 or documentary evidence to re- the following. the case of a payment made by a U.S. fi- ceive the exemption if the name of the payee is • An individual may have a social security nancial institution to an account main- one that is designated as an international or- number (SSN). If the individual does not tained at a U.S. office (discussed next). ganization by executive order. have and is eligible for an SSN, he or she Unexpected payment. A Form W-8BEN Payments made to an international organi- must use Form SS-5, Application for a So- or a Form 8233 provided by a nonresident alien zation, as defined for chapter 4 purposes, are cial Security Card, to get an SSN. The SSA to get treaty benefits does not need a U.S. TIN not payments to which chapter 4 withholding will tell the individual if he or she is eligible if you, the withholding agent, meet all the follow- applies. An international organization for purpo- to get an SSN. ing requirements. ses of chapter 4 means any entity described in • An individual may have an IRS individual • You are an acceptance agent. section 7701(a)(18) of the Internal Revenue taxpayer identification number (ITIN). If the • You can request an ITIN for a payee on an Code. The term also includes any intergovern- individual does not have and is not eligible expedited basis. mental or supranational organization that is for an SSN, he or she must apply for an • You are required to make an unexpected comprised primarily of foreign governments, ITIN by using Form W-7. payment to the nonresident alien. that is recognized as an intergovernmental or • Any person other than an individual, and • You cannot get the ITIN because the IRS is supranational organization under certain foreign any individual who is an employer or who not issuing ITINs at the time you make the laws, or that has in effect a headquarters agree- is engaged in a U.S. trade or business as a payment or at any earlier time after you ment with a foreign government, and whose in- sole proprietor, must have an employer know you have to make the payment. come does not inure to the benefit of private identification number (EIN). Use Form • You cannot reasonably delay making the persons. See Regulations section 1.1471-3(d) SS-4 to get an EIN. unexpected payment. (9) for the documentation required to establish Under certain circumstances, a finan- • You submit a completed Form W-7 for the an entity’s chapter 4 status as an international cial institution may be required to get a payee, with a certification that you have re- organization. ! CAUTION GIIN for purposes of chapter 4. See viewed the required documentation and Global Intermediary Identification Numbers, have no actual knowledge or reason to Foreign tax-exempt organizations. A for- later. See the Instructions for Form 8957 for in- know that the documentation is not com- eign organization that is a tax-exempt organiza- formation on whether a GIIN is needed. plete or accurate, to the IRS during the first tion under section 501(c) of the Internal Reve- business day after you made the payment. nue Code is not subject to a withholding tax on A U.S. or foreign TIN (as applicable) must amounts that are not income includible under An acceptance agent is a person who, un- be on a withholding certificate if the beneficial section 512 of the Internal Revenue Code as der a written agreement with the IRS, is author- owner is claiming any of the following. unrelated business taxable income. In addition, ized to help alien individuals and other foreign • Tax treaty benefits (see Exceptions to TIN withholdable payments made to a tax-exempt persons get ITINs or EINs. For information on requirement, later). organization under section 501(c) of the Internal the application procedures for becoming an ac- • Income is effectively connected with a U.S. Revenue Code are not payments to which ceptance agent, go to IRS.gov/Individuals/New- trade or business. chapter 4 withholding applies. ITIN-Acceptance-Agent-Program-Changes. • Exemption for certain annuities (see Pen- However, if a foreign organization is a for- sions, Annuities, and Alimony, earlier). Note. All acceptance agents will be re- eign private foundation, it is subject to a 4% • Exemption based on exempt organization quired to adhere to new quality standards es- withholding tax on all U.S. source investment in- or private foundation status. tablished and monitored by the IRS. come. For a foreign tax-exempt organization to A payment is unexpected if you or the bene- claim an exemption from withholding under A foreign TIN may also be required for cer- ficial owner could not have reasonably anticipa- chapter 3 or 4 because of its tax-exempt status tain account holders (see Foreign TIN require- ted the payment during a time when an ITIN under section 501(c) of the Internal Revenue ment for account holders, later). In addition, a could be obtained. This could be due to the na- Code, or to claim withholding at a 4% rate, it U.S. TIN must be on a withholding certificate ture of the payment or the circumstances in must provide you with a Form W-8EXP. which the payment is made. A payment is not However, if a foreign organization is claiming an

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considered unexpected solely because the valid Forms W-8 that were signed before Janu- set aside the amount withheld in escrow until amount of the payment is not fixed. ary 1, 2018. the date that the account ceases to be a dor- mant account. In such case, the tax withheld Example. Mary, a citizen and resident of becomes due 90 days following the date that Ireland, visits the United States and wins Global Intermediary the account ceases to be a dormant account if $5,000 playing a slot machine in a casino. Un- Identification Numbers the account holder does not provide the re- der the treaty with Ireland, the winnings are not (GIINs) quired documentation, or becomes refundable subject to U.S. tax. Mary claims the treaty bene- to the account holder if the account holder pro- fits by providing a Form W-8BEN to the casino If you make a withholdable payment to an entity vides documentation establishing that withhold- upon winning at the slot machine. However, she claiming certain chapter 4 statuses, you may be ing does not apply. does not have an ITIN or foreign TIN. The ca- required to obtain and verify the entity’s GIIN A withholding agent that withholds tax under sino is an acceptance agent that can request an against the published IRS FFI list within 90 days chapter 3 on certain payments that include an ITIN on an expedited basis. to rely on such a claim. See GIIN Verification undetermined amount of income may retain Situation 1. Assume that Mary won the under Standards of Knowledge for Purposes of 30% of the payment to hold in escrow in ac- money on Sunday. Since the IRS does not is- chapter 4, earlier, for which chapter 4 statuses cordance with Regulations section 1.1441-3(d). sue ITINs on Sunday, the casino can pay require a GIIN. Similarly, if a withholding agent is unable to de- $5,000 to Mary without withholding U.S. tax. termine whether the payment is a withholdable The casino must, on the following Monday, fax payment because the source or character of the a completed Form W-7 for Mary, including the Depositing payment is unknown, the withholding agent required certification, to the IRS for an expedi- may retain 30% of the payment to hold in es- ted ITIN. Withheld Taxes crow for chapter 4 purposes in accordance with Situation 2. Assume that Mary won the Regulations section 1.1471-2(a)(5). money on Monday. To pay the winnings without This section discusses the rules for depositing withholding U.S. tax, the casino must apply for income tax withheld on FDAP income, including Electronic deposit requirement. You must and get an ITIN for Mary because an expedited tax withheld pursuant to chapter 4. The deposit deposit all withheld taxes under chapter 3 or 4 ITIN is available from the IRS at the time of the rules discussed here do not apply to the follow- by electronic funds transfer. In most cases, payment. ing items. electronic funds transfers are made using the • Taxes on pay subject to graduated with- Electronic Federal Tax Payment System Foreign TIN requirement for account hold- holding, as discussed earlier. (See Form (EFTPS). If you do not want to use EFTPS, you ers. If you are a U.S. office or branch of a de- 941 for the deposit rules.) can arrange for your tax professional, financial pository institution, custodial institution, invest- • Tax withheld on pensions and annuities institution, or other trusted third party to make ment entity, or specified insurance company subject to graduated withholding or the deposits on your behalf. You may also arrange (each as defined in Regulations section 10% tax on nonperiodic distributions. (See for your financial institution to initiate a 1.1471-5(e)) documenting an account holder Form 945 for the deposit rules.) same-day wire payment on your behalf. EFTPS (as defined in Regulations section 1.1471-5(a) • Tax withheld on a foreign partner's share is a free service provided by the Department of (3)) of an account that is a financial account (as of effectively connected income of a part- Treasury. Services provided by your tax profes- defined in Regulations section 1.1471-5(b)), nership, other than a publicly traded part- sional, financial institution, or other third party you must obtain the account holder’s TIN for its nership. See Partnership Withholding on may have a fee. For more information about jurisdiction of tax residence (foreign TIN) on a Effectively Connected Income, later. EFTPS or to enroll in EFTPS, visit EFTPS.gov Form W-8 that is a beneficial owner withholding • Tax withheld on dispositions of U.S. real or call 800-555-4477. Additional information certificate in order for the form to not be invalid property interests by foreign persons. See about EFTPS is also available in Pub. 966. for a payment of U.S. source income reportable U.S. Real Property Interest, later. on Form 1042-S, unless: • Taxes on household employees. See Qualified business taxpayers that re- • The account holder is a resident of a juris- Schedule H (Form 1040) to report social TIP quest an EIN will automatically be en- diction that is not listed in section 3 of Rev- security and Medicare taxes, and any in- rolled in EFTPS. They will receive infor- enue Procedure 2019-23, 2019-38 I.R.B. come tax withheld, on wages paid to a mation on how to activate their account. 725, available at IRS.gov/irb/ nonresident alien household employee. 2019-38_IRB#REV-PROC-2019-23, which Note. All payments should be stated in may be further updated in future published U.S. dollars and should be made in U.S. dol- guidance; When Deposits lars. • The account holder is a resident in a juris- Are Required diction that has been identified by the IRS Penalty for failure to make deposits on on a list of jurisdictions that do not issue A deposit required for any period occurring in 1 time. If you fail to make a required deposit foreign TINs. See IRS.gov/businesses/ calendar year must be made separately from a within the time prescribed, a penalty is imposed corporations/list-of-jurisdictions-that-do- deposit for any period occurring in another cal- on the underpayment (the excess of the re- not-issue-foreign-tins; endar year. A deposit of this tax must be made quired deposit over any actual timely deposit for • The account holder is a government, inter- separately from a deposit of any other type of a period). You can avoid the penalty if you can national organization, foreign central bank tax, but you need not identify whether the de- show that the failure to deposit was for reasona- of issue, or resident of a U.S. territory; or posit is of tax withheld under chapter 3 or 4. ble cause and not because of willful neglect. • You obtain a reasonable explanation for Also, the IRS may waive the penalty if certain why the account holder has not been is- The amount of tax you are required to with- requirements are met. sued a foreign TIN. hold determines the frequency of your deposits. For more information, see Deposit Require- Depositing on time. For deposits made by A reasonable explanation that an account ments in the Instructions for Form 1042. EFTPS to be on time, you must initiate the de- holder does not have a foreign TIN must ad- posit by 8 p.m. Eastern time the day before the dress why the account holder was not issued a Escrow in lieu of deposit. Under certain cir- date the deposit is due. If you use a third party foreign TIN to the extent provided in the instruc- cumstances, a withholding agent may be per- to make deposits on your behalf, they may have tions for the applicable Form W-8. If an account mitted to set aside a withheld amount in escrow different cutoff times. holder provides an explanation other than the rather than depositing the tax. A participating one described in the instructions for the appli- FFI that withholds tax on a withholdable pay- Penalty rate. If the deposit is: cable Form W-8, you must determine whether ment not otherwise subject to chapter 3 with- • 1 to 5 days late, the penalty is 2% of the the explanation is reasonable. See Regulations holding or backup withholding under section underpayment; section 1.1441-1(e)(2((ii)(B) for transitional 3406 of the Internal Revenue Code made to a • 6 to 15 days late, the penalty is 5%; or rules for withholding agents to obtain foreign recalcitrant account holder of a dormant ac- • 16 or more days late, the penalty is 10%. TINs for accounts documented with otherwise count may, in lieu of depositing the tax withheld,

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However, if the deposit is not made within allocable to a foreign partner (see Partner- You must furnish a Form 1042-S for each re- 10 days after the IRS issues the first notice de- ship Withholding on Effectively Connected cipient even if you did not withhold tax because manding payment, the penalty is 15%. Income, later). you repaid the tax withheld to the recipient or • Dispositions of U.S. real property interests because the income payment was exempt from If you owe a penalty for failing to deposit tax by foreign persons (see U.S. Real Property tax under the Internal Revenue Code or under a for more than one deposit period, and you Interest, later). U.S. income tax treaty (except for a withholda- make a deposit, your deposit is applied to the • Pensions, annuities, and certain other de- ble payment that is not a chapter 4 reportable most recent period to which the deposit relates ferred income reported on Form 1099. amount). unless you designate the deposit period or peri- • Income, social security, and Medicare You can use a substitute Form 1042-S if it ods to which your deposit is to be applied. You taxes on wages paid to a household em- meets the requirements listed in Pub. 1179. Pa- can make this designation only during a 90-day ployee reported on Schedule H (Form per substitutes that totally conform to the format period that begins on the date of the penalty no- 1040). and size of the official form may be used with- tice. The notice contains instructions on how to • Amounts subject to backup withholding un- out prior approval from the IRS. Get Pub. 1179 make this designation. der section 3406 of the Internal Revenue for more information. Code, including withholdable payments If you are reporting amounts withheld by an- Adjustment for that are reportable payments and that are other withholding agent, Form 1042-S requests Overwithholding paid to a recalcitrant account holder of a the name and EIN of the withholding agent that participating FFI or registered withheld the tax to the extent required in the In- deemed-compliant FFI that has elected on structions for Form 1042-S. What to do if you overwithheld tax depends on its withholding statement for withholding when you discover the overwithholding. under section 3406 of the Internal Reve- If you file a substitute for Copy A with nue Code to apply instead of withholding ! the IRS that does not conform to the Overwithholding discovered by March 15 of under chapter 4. CAUTION specifications in Pub. 1179, you may the following calendar year. If you discover be subject to a penalty for failing to file a correct that you overwithheld tax under chapter 3 or 4 Forms 1042 and 1042-S must be filed return. See Penalties, later. by March 15 of the following calendar year, you DUE by March 15 of the year following the may use the undeposited amount of tax to calendar year in which the income sub- Joint owners. If there are joint owners of make any necessary adjustments between you ject to reporting was paid. If March 15 falls on a the withholdable payment, see Payments di- and the recipient of the income. However, if the Saturday, Sunday, or legal holiday, the due rectly to beneficial owners under Payments to undeposited amount is not enough to make any date is the next business day. Recipients in the Instructions for Form 1042-S. adjustments, or if you discover the overwith- Electronic reporting. For information holding after the entire amount of tax has been Form 1042. Every U.S. and foreign withhold- about the Form 1042-S electronic reporting re- deposited, you can use either the reimburse- ing agent that is required to file a Form 1042-S quirements for withholding agents or their ment procedure or the set-off procedure to ad- must also file an annual return on Form 1042. agents, and partnerships with a Form 1042-S just the overwithholding. You must file Form 1042 even if you were not filing requirement, including the threshold return required to withhold any income tax under If March 15 is a Saturday, Sunday, or limits, see Electronic Reporting in the Instruc- chapter 3 on the payment, or if the payment is a TIP legal holiday, the next business day is tions for Form 1042-S. chapter 4 reportable amount. the final date for these actions. A completed Form 4419 should be filed at For more information on the reimbursement You must file Form 1042 with the: least 30 days before the due date of the return. procedure and set-off procedure, and what to Returns may not be filed electronically until the application has been approved by the IRS. do if you discover the overwithholding after Ogden Service Center For additional information and instructions March 15 of the following calendar year, see P.O. Box 409101 on filing Forms 1042-S electronically, get Pub. Adjustment for Overwithholding in the Instruc- Ogden, UT 84409 tions for Form 1042. 1187. If you file electronically, you will use the Filing Information Returns Electronically (FIRE) system at FIRE.IRS.gov. Form 1042-S. Every U.S. and foreign with- Returns Required holding agent must file a Form 1042-S for Form 1042-T. If Form 1042-S is filed on paper, amounts subject to chapter 3 withholding and it must be filed with Form 1042-T. You may Every withholding agent, whether U.S. or for- chapter 4 reportable amounts unless an excep- need to file more than one Form 1042-T. See eign, must file Forms 1042 and 1042-S to re- tion applies. The form can be filed electronically the instructions for that form for more informa- port: or on paper. A separate Form 1042-S is re- tion. • Amounts subject to chapter 3 withholding quired for each recipient of income to whom paid to foreign persons (including persons you made payments during the preceding cal- Deposit interest paid to certain nonresident presumed to be foreign), even if no amount endar year regardless of whether you withheld alien individuals. Interest earned by residents is deducted and withheld from the pay- or were required to withhold tax. However, if of certain foreign countries is subject to infor- ment under chapter 3, and you make a withholdable payment to an NQI or mation reporting. Deposit interest of $10 or • Payments to which chapter 4 withholding a flow-through entity that is allocable to a chap- more paid to any nonresident alien individual is applied or which are allocated on an ap- ter 4 withholding rate pool, as indicated on a who is a resident of a foreign country with which plicable withholding statement provided by withholding statement upon which you may rely the United States has agreed to exchange tax a participating FFI or registered with respect to the payment allocable to such a information pursuant to an income tax treaty or deemed-compliant FFI to a chapter 4 with- pool, you should complete a separate Form other convention or bilateral agreement, must holding rate pool of U.S. payees (chapter 4 1042-S for each chapter 4 withholding rate pool be reported on Form 1042-S. reportable amounts). (that is, pool of recalcitrant account holders, Revenue Procedure 2019-23, identifies Do not use Forms 1042 and 1042-S to report pool of nonparticipating FFIs, pool of payees those countries for which reporting of deposit tax withheld on the following. that are U.S. persons), treating the intermediary interest is required with respect to a resident of • Wages, salaries, or other compensation or flow-through entity as the recipient (and the any such country. reported on Form W-2 (see Wages Paid to applicable pool as the chapter 4 status of the Employees—Graduated Withholding, ear- recipient). You need not issue a Form 1042-S to Note. You may elect to report interest paid lier, under Pay for Personal Services Per- each recipient included in such pool. You must to any nonresident alien. formed). use a separate Form 1042-S for each type of in- • Any part of a U.S. or foreign partnership's come that you paid to the same recipient. See Statements to recipients. You must furnish a (other than a publicly traded partnership) Statements to recipients, later. statement to each recipient for whom you are effectively connected taxable income filing a Form 1042-S by the due date for filing

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Forms 1042 and 1042-S with the IRS. You may Extension to file Form 1042. You can get an sions) is usually 5% of the unpaid tax for each use a copy of the official Form 1042-S for this automatic 6-month extension of time to file month or part of a month the return is late, but purpose. Any substitute forms must comply with Form 1042 by filing Form 7004. File Form 7004 not more than 25% of the unpaid tax. the rules set out in Pub. 1179. You must furnish on or before the due date of Form 1042. Form a separate substitute Form 1042-S for each 7004 does not extend the time for payment of Failure to file correct Form 1042-S. A pen- type of income or payment. The withholding tax. alty may be imposed for failure to file Form agent must ensure that any substitute Form 1042-S when due (including extensions) or for Form 7004 extends only the due date 1042-S copies B, C, and D, which are furnished failure to furnish complete and correct informa- for filing the returns with the IRS. It to the recipient, conforms in format and size to ! tion. CAUTION does not extend the due date for fur- the official Form 1042-S and contains the exact For more information on the penalty for fail- nishing statements to recipients. same information as the copy filed with the IRS ure to file a correct Form 1042-S to a recipient, or submitted electronically. However, the size of see Penalties in the 2021 Instructions for Form a substitute Form 1042-S, copies B, C, and D, Extension to file Form 1042-S with the IRS. 1042-S . may be adjusted if the substitute form is presen- You can get an automatic 30-day extension of ted on a landscape-oriented page instead of time to file Form 1042-S by filing Form 8809. Failure to furnish Form 1042-S to recipient. portrait. Only one Form 1042-S may be submit- You should request an extension as soon as For more information on the penalty for failure ted per page, regardless of orientation. you are aware that an extension is necessary, to furnish Form 1042-S to a recipient, see Pen- but no later than the due date for filing Form alties in the 2021 Instructions for Form 1042-S. 1042-S. You may request one additional exten- Form 8966 sion of 30 days by submitting a second Form Penalty for intentional disregard of require- 8809 before the end of the first extension pe- ments to file or furnish returns. If you inten- A withholding agent that makes a withholdable riod. Requests for an additional extension are tionally disregard the requirement to file Form payment to a passive NFFE with one or more not automatically granted. Approval or denial is 1042-S when due, to furnish Form 1042-S to substantial U.S. owners (or, in the case of a re- based on administrative criteria and guidelines. the recipient when due, or to report correct in- porting Model 2 FFI, controlling persons of such The IRS will send you a letter of explanation ap- formation, the penalty is the greater of $560 or an entity) or an owner-documented FFI with a proving or denying your request for an addi- 10% of the total amount of the items that must specified U.S. person owning certain equity or tional extension. be reported, with no maximum penalty. debt interests in the FFI must report the pay- ment and each such substantial U.S. owner (or If you are requesting extensions of time Failure to file electronically. If you are re- controlling person, as applicable) or specified to file for more than one withholding quired to file Form 1042-S electronically but you U.S. person owner of the passive NFFE or agent or payer, you must submit the fail to do so, and you do not have an approved owner-documented FFI, respectively, on Form extension request electronically. waiver, penalties may apply unless you estab- 8966 (in addition to reporting the payment and lish reasonable cause for your failure. tax (if any) on Forms 1042 and 1042-S when Extension to furnish statements to recipi- For more information on failure to file elec- the payment is an amount subject to chapter 3 ents. You may request an extension of time to tronically, see Penalties in the 2021 Instructions withholding). An exception to the requirement to furnish the statements to recipients by faxing a for Form 1042-S. report on Form 8966 applies when the payment letter to: is made to an account reported by an FFI as a U.S. account under the FFI’s applicable chap- Internal Revenue Service Technical Partnership Withholding ter 4 requirements or the requirements of an ap- Services Operation plicable IGA. Attn: Extension of Time Coordinator on Effectively Fax: 866-477-0572 Connected Income Form 8966 must be filed by March 31 of the (International: 304-589-4151) year following the calendar year in which the Under section 1446(a) of the Internal Revenue payment is made. An automatic 90-day exten- The letter must include the following: Code, a partnership (foreign or domestic) that sion of time to file Form 8966 may be reques- • Payer name, has income effectively connected with a U.S. ted. To request an automatic 90-day extension • Payer TIN, trade or business (or income treated as effec- of time to file Form 8966, file Form 8809-I. See • Payer address, tively connected) must pay a withholding tax on the Instructions for Form 8809-I for where to file • Type of return (for example, Form 1042-S), the effectively connected taxable income that is that form. You should request an extension as • A statement that your extension request is allocable to its foreign partners. A publicly tra- soon as you are aware that an extension is nec- for providing statements to recipients, ded partnership must withhold tax on actual dis- essary, but no later than the due date for filing • Reason for delay, and tributions of effectively connected income. See Form 8966. Under certain hardship conditions, • The signature of the payer or authorized Publicly Traded Partnerships, later. chapter 4 the IRS may grant an additional 90-day exten- agent. withholding does not apply to this income. sion to file Form 8966. To request an additional 90-day extension of time to file Form 8966, file a Your request must be received no later than the This withholding tax does not apply to in- second Form 8809-I before the end of the initial date on which the statements are due to the re- come that is not effectively connected with the extended due date. cipients. If your request for an extension is ap- proved, you will generally be granted a maxi- partnership's U.S. trade or business. That in- come may be subject to Chapter 3 withholding Electronic filing requirement for Form 8966. mum of 30 extra days (15 days for Forms W-2) tax, as discussed earlier in this publication. For information about the Form 8966 electronic to furnish the recipient statements. reporting requirements, including the threshold Requests for extensions of time to file infor- return limits, for financial institutions and all mation returns must be made using Form 8809. Who Must Withhold other entities with a Form 8966 filing require- ment, see Electronic filing requirement and How Penalties The partnership, or a withholding agent for the to file electronically in the Instructions for Form partnership, must pay the withholding tax. A 8966. If you do not file a correct and complete Form partnership that must pay the withholding tax 1042 or Form 1042-S with the IRS on time or if but fails to do so may be liable for the payment Extensions of Time To File you do not provide a correct and complete of the tax and any penalties and interest. Form 1042-S to the recipient on time, you may be subject to a penalty. The partnership must determine whether a You can request extensions of time to file partner is a foreign partner. A foreign partner Forms 1042 and 1042-S with the IRS and addi- Failure to file Form 1042. The penalty for not can be a nonresident alien individual, foreign tional extensions to furnish Forms 1042-S to re- filing Form 1042 when due (including exten- corporation, foreign partnership, foreign estate cipients.

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or trust, foreign tax-exempt organization, or for- Chart D. Documentation for To certify the deductions and losses, a part- eign government. Foreign Partners* ner must submit to the partnership Form 8804-C. U.S. partner. A partner that is a U.S. person THEN provide to If the partner's investment in the partnership should provide Form W-9 to the partnership. the partnership is the only activity producing effectively connec- A partnership may rely on a partner's certifi- IF you are a... Form... ted income and the section 1446 of the Internal cation of nonforeign status and assume that a Revenue Code tax is less than $1,000, no with- partner is not a foreign partner unless the form: nonresident alien W-8BEN. holding is required. The partner must provide • Does not give the partner's name, U.S. foreign corporation W-8BEN-E. Form 8804-C to the partnership to receive the TIN, and address; or exemption from withholding. foreign partnership W-8IMY. • Is not signed under penalties of perjury A foreign partner may submit a Form and dated. foreign government W-8EXP. 8804-C to a partnership at any time during the The partnership must keep the certification foreign grantor partnership's year and prior to the partnership's for as long as it may be relevant to the partner- trust** W-8IMY. filing of its Form 8804. An updated certificate is ship's liability for tax under section 1446 of the required when the facts or representations certain foreign trust Internal Revenue Code. made in the original certificate have changed or or foreign estate W-8BEN. The partnership may not rely on the certifi- a status report is required. cation if it has actual knowledge or has reason foreign tax-exempt For more information, see the Instructions to know that any information on the form is in- organization for Form 8804-C. correct or unreliable. (including a private If a partnership does not receive a Form foundation) W-8EXP. Tax rate. The withholding tax rate on a part- W-9 (or similar documentation), the partnership ner's share of effectively connected income is nominee W-8 used by must presume that the partner is a foreign per- 37% for noncorporate partners and 21% for cor- beneficial owner. son. porate partners. However, the partnership may * A partnership may substitute its own form for the withhold at the highest rate applicable to a par- official version of Form W-8 to ascertain the ticular type of income allocated to a partner pro- Foreign Partner vided the partnership received the appropriate identity of its partners. documentation. See Regulations section A partner that is a foreign person should pro- ** A domestic grantor trust must provide a 1.1446-3(a)(2)(ii). vide the appropriate Form W-8 (as shown in statement as shown in Regulations section Chart D) to the partnership. 1.1446-1(c)(2)(ii)(E), and documentation for its Installment payments. A partnership must grantor. make installment payments of withholding tax Partners who have otherwise provided Form on its foreign partners' share of effectively con- W-8 to a partnership for purposes of section nected taxable income whether or not distribu- 1441 or 1442 of the Internal Revenue Code, as Amount of Withholding Tax tions are made during the partnership's tax discussed earlier, can use the same form for year. The amount of a partnership's installment purposes of section 1446(a) of the Internal Rev- The amount a partnership must withhold is payment is the sum of the installment payments enue Code if they meet the requirements dis- based on its effectively connected taxable in- for each of its foreign partners. The amount of cussed earlier under Documentation. However, come that is allocable to its foreign partners for each installment payment can be figured by us- a foreign simple trust that has provided docu- the partnership's tax year. However, see Pub- ing Form 8804-W. mentation for its beneficiaries for purposes of licly Traded Partnerships, later. section 1441 of the Internal Revenue Code Date payments are due. Payments of must provide a Form W-8 on its own behalf for DUE withholding tax must be made during Reduction of withholding. The foreign part- purposes of section 1446 of the Internal Reve- the partnership's tax year in which the ner's share of the partnership's gross effectively nue Code. effectively connected taxable income is de- connected income is reduced by the following. rived. A partnership must pay the IRS a part of The partner's share of partnership deduc- The partnership may not rely on the certifi- • the annual withholding tax for its foreign part- tions connected to that income for the cation if it has actual knowledge or has reason ners by the 15th day of the 4th, 6th, 9th, and year. to know that any information on the form is in- 12th months of its tax year for U.S. income tax The partner's tax treaty benefits related to correct or unreliable. • purposes. Any additional amounts due are to be that income (see Chart D. Documentation paid with Form 8804, the annual partnership The partnership must keep the certification for Foreign Partners for documentation). for as long as it may be relevant to the partner- withholding tax return, discussed later. ship's liability for section 1446 of the Internal The partnership may reduce the foreign Revenue Code tax. partner's share of partnership gross effectively connected income by the following. A foreign partner's share of withholding tax paid by a partnership is treated as distributed to 1. State and local income taxes the partner- the partner on the earliest of: ship withholds and pays on behalf of the • The day on which the tax was paid by the partner on current year effectively connec- partnership, ted taxable income allocated to the part- • The last day of the partnership's tax year ner. for which the tax was paid, or 2. The foreign partner's partner-level deduc- • The last day on which the partner owned tions and losses that the partner certifies an interest in the partnership during that to the partnership as: year.

a. Carried forward from a prior year, The amount treated as distributed to the b. Properly allocated to gross effectively partner resulting from an installment payment is connected income of the partner's generally treated as an advance or draw under trade or business in the United States, Regulations section 1.731-1(a)(1)(ii) to the ex- and tent of the partner's share of income for the partnership year. c. Reasonably expected to be available and claimed on the partner's U.S. in- Notification to partners. In most cases, a come tax return. partnership must notify each foreign partner of the tax withheld on its behalf within 10 days of

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the installment payment date. No particular ments must be made in U.S. currency by the rules do not apply to a PTP treated as a corpo- form is required for this notification. For more in- payment dates (see Date payments are due, ration under section 7704 of the Internal Reve- formation on the substance of the notification earlier). See the Instructions for Form 8804-C nue Code. and exceptions, see Regulations section for when you must attach a copy of that form to 1.1446-3(d)(1)(i). Form 8813. Foreign partner. The partnership determines whether a partner is a foreign partner using the Real property gains. If a domestic partner- Penalties. A penalty may be imposed for fail- rules discussed earlier under Foreign Partner. ship disposes of a U.S. real property interest, ure to file Form 8804 when due (including ex- the gain is treated as effectively connected in- tensions). It is generally the same as the pen- Nominee. The withholding agent under this come and the partnership or withholding agent alty for not filing Form 1042, discussed earlier section can be the PTP or a nominee. For this must withhold following the rules discussed under Failure to file Form 1042. purpose, a nominee is a domestic person that here. A domestic partnership's compliance with A penalty may be imposed for failure to file holds an interest in a PTP on behalf of a foreign these rules satisfies the requirements for with- Form 8805 when due (including extensions) or person. The nominee is treated as the withhold- holding on the disposition of U.S. real property for failure to provide complete and correct infor- ing agent only to the extent of the amount speci- interests (discussed later). mation. The amount of the penalty depends on fied in the qualified notice given to the nominee If a foreign partnership disposes of a U.S. when you file a correct Form 8805. The penalty by the PTP. If a nominee is designated as the property interest, the transferee must withhold for each Form 8805 is generally the same as withholding agent, the obligation to withhold is under section 1445(a) of the Internal Revenue the penalty for not filing Form 1042-S. For more imposed solely on the nominee. The nominee Code, although the gain is also treated as effec- information, see Penalties in the 2021 Instruc- must report the distributions and withheld tively connected income. The foreign partner- tions for Form 1042-S. amounts on Forms 1042 and 1042-S. For more ship may credit the amount withheld under sec- If you fail to provide a complete and correct information, see Regulations sections tion 1445(a) of the Internal Revenue Code that Form 8805 to each partner when due (including 1.1446-4(b) and (d). is allocable to foreign partners against its tax li- extensions), a penalty may be imposed. The ability under section 1446 of the Internal Reve- amount of the penalty depends on when you Distributions subject to withholding. The nue Code. provide the correct Form 8805. The penalty for partnership or nominee must withhold tax on each Form 8805 is generally the same as the any actual distributions of money or property to Reporting and Paying the Tax penalty for not providing a correct and complete foreign partners. The amount of the distribution Form 1042-S. For more information, see Penal- includes the amount of any tax under section 1446 of the Internal Revenue Code required to Three forms are required for reporting and pay- ties in the 2021 Instructions for Form 1042-S. be withheld. In the case of a partnership that re- ing over tax withheld on effectively connected Exception. No penalty is imposed if you ceives a partnership distribution from another income allocable to foreign partners. This does meet certain requirements. The rules are the partnership (a tiered partnership), the distribu- not apply to publicly traded partnerships, dis- same as for Form 1042-S. However if a filer in- tion also includes the tax withheld from that dis- cussed later. tentionally disregards the requirement to file tribution. Form 8805 when due, to furnish Form 8805 to Form 8804. The withholding tax liability of the If the distribution is in property other than the recipient when due, or to report correct in- partnership for its tax year is reported on Form money, the partnership cannot release the formation, the penalty for each Form 8805 (or 8804. Form 8804 is also a transmittal form for property until it has enough funds to pay over statement to recipient) may be higher. Forms 8805. the withholding tax. For more information, see Penalties in the A PTP that complies with these withholding Any additional withholding tax owed for the 2021 Instructions for Form 1042-S. partnership's tax year is paid (in U.S. currency) requirements satisfies the requirements dis- with Form 8804. cussed later under U.S. Real Property Interest. Identification numbers. A partnership that Distributions subject to withholding include: File Form 8804 by the 15th day of the has not been assigned a U.S. EIN must obtain • Amounts subject to withholding under sec- DUE 3rd month after the close of the part- one. If a number has not been assigned by the tion 1445(e)(1) of the Internal Revenue nership's tax year. If you need more due date of the first withholding tax payment, Code on distributions pursuant to an elec- time to file Form 8804, file Form 7004 to request the partnership should enter the date the num- tion under Regulations section 1.1445-5(c) an extension of time to file. Form 7004 does not ber was applied for on Form 8813 when making (3), and extend the time to pay the tax. its payment. As soon as the partnership re- • Amounts not subject to withholding under ceives its EIN, it must immediately provide that section 1445 of the Internal Revenue Code number to the IRS. Form 8805. This form is used to show the because the distributee is a partnership or amount of effectively connected taxable income To ensure proper crediting of the withhold- is a foreign corporation that has made an and any withholding tax payments allocable to a ing tax when reporting to the IRS, the partner- election to be treated as a domestic corpo- foreign partner for the partnership's tax year. At ship must include each partner's U.S. TIN on ration. the end of the partnership's tax year, Form 8805 Form 8805. If there are partners in the partner- Ordering rules. Partnership distributions must be sent to each foreign partner on whose ship without identification numbers, the partner- are considered to be paid out of the following behalf tax under section 1446 of the Internal ship should inform them of the need to get a types of income in the order listed. Revenue Code was withheld or whose Form number. See U.S. or Foreign TINs, earlier. 8804-C the partnership considered, whether or 1. Amounts of noneffectively connected in- not any withholding tax is paid. It must be deliv- Publicly Traded Partnerships come distributed by the partnership and ered to the foreign partner by the due date of (PTPs) subject to chapter 3 withholding under the partnership return (including extensions). A section 1441 or 1442 of the Internal Reve- copy of Form 8805 for each foreign partner nue Code, as discussed earlier. A PTP that has effectively connected taxable in- must also be attached to Form 8804 when it is come must pay withholding tax on any distribu- 2. Amounts of effectively connected income filed. Also attach the most recent Form 8804-C, tions of that income made to its foreign part- not subject to withholding under section discussed earlier, to the Form 8805 filed for the ners. A PTP must use Forms 1042 and 1042-S 1446 of the Internal Revenue Code (for partnership's tax year in which the Form 8804-C (Income Code 27) to report withholding from example, amounts exempt by treaty). was considered. distributions. The rate of withholding is 37% for 3. Amounts subject to withholding under A copy of Form 8805 must be attached to noncorporate partners and 21% for corporate these rules. the foreign partner's U.S. income tax return to partners. take a credit on its Form 1040-NR or Form 4. Amounts not listed in (1) through (3). 1120-F. A publicly traded partnership (PTP) is any partnership an interest in which is regularly tra- Depositing taxes a PTP withholds under Form 8813. This form is used to make pay- ded on an established securities market or is section 1446. The general rules for making ments of withheld tax to the U.S. Treasury. Pay- readily tradable on a secondary market. These

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payments of taxes withheld under section 1446 regulations revised certain provisions in Regu- (8)-1(c) as of the determination date of the Internal Revenue Code do not apply to lations section 1.1446-4 for withholding under either: the partnership would have no PTPs. Instead, apply the rules discussed, ear- section 1446(a) of the Internal Revenue Code effectively connected gain (or the net lier, under Depositing Withheld Taxes. on PTP distributions. These revisions apply to amount of its effectively connected PTP distributions made on or after January 1, gain would be less than 10% of the to- 2022. Notices 2018-8 and 2018-29 apply to tal net gain) on all its assets; or the Section 1446(f) transfers that occur before the effective date of transferor’s distributive share of net the final regulations or, as previously described, effectively connected gain resulting Withholding taxpayers may apply the proposed regulations from the deemed sale would be less to transfers of non-PTP interests during this than 10% of the transferor’s distribu- Section 13501 of the TCJA added section time. tive share of the total net gain; or 1446(f) of the Internal Revenue Code effective b. The partnership was not engaged in a for transfers of partnership interests occurring Exceptions to withholding on transfers of trade or business within the United on or after January 1, 2018. It generally requires non-PTP interests. A transferee, including a States at any time during the taxable that a transferee of an interest in a partnership partnership when the partner is a distributee, is year of the partnership until the date withhold 10% of the amount realized on the dis- not required to withhold on the transfer of a of transfer. See Regulations section position if any portion of the gain (if any) would non-PTP interest if it properly relies on one of 1.1446(f)-2(b)(4). be treated under section 864(c)(8) of the Inter- the following six certifications, the requirements nal Revenue Code as effectively connected of which are more fully described in the refer- 4. Certification of Less Than 10 Percent with the conduct of a trade or business within enced regulations. A transferee may not rely on Effectively Connected Income. The the United States. A transfer can occur when a a certification if it has actual knowledge that the transferor provides a certification that: partnership distribution results in gain under certification is incorrect or unreliable. A partner- a. The transferor was a partner in the section 731 of the Internal Revenue Code. Un- ship that is a transferee because it makes a dis- partnership for the transferor’s imme- der section 1446(f)(4) of the Internal Revenue tribution may not rely on its books and records if diately prior tax year (for which it has Code, if the transferee fails to withhold any re- it knows, or has reason to know, that the infor- already received a Schedule K-1) and quired amount, the partnership must deduct mation is incorrect or unreliable. A certification the 2 preceding tax years (the look and withhold from distributions to the transferee must provide the name and address of the per- back period) and had a distributive the amount that the transferee failed to withhold son providing it, be signed under penalties of share of gross income from the part- (plus interest). perjury, and generally include the taxpayer nership in each of these years; identification number of the transferor. See Notice 2018-08, 2018-07 I.R.B. 352 availa- Regulations sections 1.1446(f)-1(c)(2)(i) and b. The transferor’s distributive share of ble at IRS.gov/irb/2018-07_IRB#NOT-2018-08, 1.1446(f)-2(b)(1). Also, separate rules apply if gross effectively connected income temporarily suspended the application of sec- the transfer results from a partnership distribu- (ECI) from the partnership, and any tion 1446(f) of the Internal Revenue Code to the tion. Only the certification in exception six must persons related to the transferor, as disposition of certain PTP interests. be submitted to the IRS. reported on a Schedule K-1 (Form The certifications in several of the excep- 1065) or other statement required by Notice 2018-29, 2018-16 I.R.B. 495, availa- tions are based on a determination date. The the partnership, was less than $1 mil- ble at IRS.gov/irb/2018-16_IRB#NOT-2018-29, determination date must be one of the follow- lion for each of the tax years during provides interim guidance regarding withhold- ing: (a) the date of the transfer; (b) any date no the look back period; ing of U.S. tax related to transfers of interests in more than 60 days before the date of the trans- c. The transferor’s distributive share of partnerships, other than PTPs, under section fer; or (c) if the transferor is not a controlling 1446(f) of the Internal Revenue Code. It also partnership gross ECI, as reported on partner, as defined in Regulations section a Schedule K-1 (Form 1065) or other temporarily suspended withholding under sec- 1.1446(f)-1(b)(2), the later of (i) the first day of tion 1446(f)(4) of the Internal Revenue Code. statement required by the partnership, the partnership’s taxable year in which the for each year during the look-back pe- transfer occurs, or (ii) the date before the trans- On May 7, 2019, the Department of Treas- riod, was less than 10% of its total dis- fer of the partnership’s most recent capital ac- ury and the IRS issued proposed regulations tributive share of partnership gross in- count revaluation event. See Regulations sec- under section 1446(f) of the Internal Revenue come; and tion 1.1446(f)-1(c)(4). Code (84 FR 21198) for transfers of both d. For each year during the look-back non-PTP and PTP interests. During the period 1. Certification of non-foreign status. The period, the transferor’s distributive that Notice 2018-29 applies, instead of applying transferor provides a certification of share of partnership effectively con- the rules described in the Notice, taxpayers and non-foreign status signed under penalties nected income or gain (or losses other affected persons may choose to apply of perjury that states that the transferor is properly allocated and apportioned to Regulations sections 1.1446(f)-1, 1.1446(f)-2, not a foreign person, and provides the that income) has been timely reported and 1.1446(f)-5 of the proposed regulations in transferor’s name, TIN, and address. A on a federal income tax return of the their entirety to all transfers as if they were final certificate of non-foreign status includes a transferor (or if the transferor was a regulations. Form W-9. See Regulations section partnership, its direct or indirect non- 1.1446(f)-2(b)(2). resident alien and foreign corporate On November 30, 2020, the Department of partners) and any tax due with re- Treasury and the IRS issued final regulations 2. Certification of no realized gain. The spect to such amounts have been under section 1446(f) of the Internal Revenue transferor provides a certification that timely paid, provided the return was Code (85 FR 76910) for transfers of both there was no realized gain on the transfer required to be filed when the trans- non-PTP and PTP interests. The final regula- of the partnership interest (including no or- feror furnishes the certification. See tions require any transferee to withhold a tax dinary income arising from the application Regulations section 1.1446(f)-2(b)(5). equal to 10% of the amount realized on any of section 751 of the Internal Revenue transfer of a partnership interest (other than cer- Code and Regulations section 1.751-1) as 5. Certification of nonrecognition. The tain PTP interests) under section 1446(f)(1) of of the determination date. See Regula- transferor provides a certification that it is the Internal Revenue Code, unless an excep- tions section 1.1446(f)-2(b)(3). not required to recognize any gain or loss tion to withholding applies. These regulations 3. Certification of less than 10% effec- with respect to the transfer by reason of generally apply to transfers that occur on or af- tively connected gain. The partnership the operation of a nonrecognition provi- ter January 29, 2021. However, the rules rela- provides a certification stating that: sion of the Internal Revenue Code. The ted to withholding under section 1446(f)(4) of certification must briefly describe the the Internal Revenue Code and to transfers of a. On the deemed sale of the partner- transfer and provide the relevant law and PTP interests apply to transfers occurring on or ship assets in the manner described facts relating to the certification. This after January 1, 2022. Additionally, the final in Regulations section 1.864(c) exception does not apply if only a portion

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of the gain is not recognized. Regulations purpose, a presumed foreign taxable person is of the value of its gross assets consist of U.S. section 1.1446(f)-2(b)(6). any person that has not provided a certificate of real property interests plus any cash or cash non-foreign status, as previously described in equivalents. The transfer of a partnership inter- 6. Certification that an income tax treaty the Exception 1 to withholding, or a certification est may also be subject to withholding under applies.The transferor provides a certifi- that pursuant to a tax treaty no portion of the section 1446(f)(1) of the Internal Revenue Code cation using Form W-8BEN or W-8BEN-E, foreign taxable person’s gain is subject to tax. and Regulations section 1.1446(f)-2 if the part- as applicable, or applicable substitute The certification the transferor foreign partner- nership also holds other property used in the form that meets the requirements under ship provides does not need to be submitted to conduct of a trade or business within the United Regulations section 1.1446-1(c)(5) that the IRS. See Regulations section 1.1446(f)-2(c) States. If both sections 1445(e)(5) and 1446(f) the transferor is not subject to tax on any (iv). (1) of the Internal Revenue Code could apply to gain from the transfer pursuant to an in- the same transfer, the transfer is subject to the come tax treaty. The transferor may not Lack of money or property or lack of payment and reporting requirements of section provide this certification if any portion of knowledge regarding liabilities. Under cer- 1445 of the Internal Revenue Code only, and the gain is subject to tax. The form should tain circumstances, the amount the transferee not section 1446(f)(1) of the Internal Revenue contain the information necessary to sup- must withhold equals the entire amount real- Code. However, if the transferor has applied for port the claim for treaty benefits. Within 30 ized, rather than 10% of the amount realized, a withholding certificate under the last sentence days after the date of the transfer, the but the amount realized is determined without of Regulations section 1.1445-11T(d)(1), the transferee must mail certain information, regard to any decrease in the transferor’s share transferee must withhold the greater of the plus a copy of the certificate, to the IRS, at of partnership liabilities. These circumstances amounts required under section 1445(e)(5) or the address in the Instructions for Form are if: 1446(f)(1) of the Internal Revenue Code. A 8288. See Regulations section transferee that has complied with the withhold- 1.1446(f)-2(b)(7). 1. The amount otherwise required to be with- held would exceed the amount realized ing requirements under either section 1445(e) See the discussion, later, regarding determined without regard to the decrease (5) or 1446(f)(1) of the Internal Revenue Code, ! certification of maximum tax lability if a in the transferor’s share of partnership lia- as described under this paragraph, will be CAUTION nonrecognition provision applies to bilities; or deemed to satisfy its withholding requirement. only a portion of the gain realized on the trans- 2. The transferee is unable to determine the fer or only a portion of the gain on the transfer is Forms for paying and reporting section amount realized because it does not have not subject to tax pursuant to an income tax 1446(f) withholding. To meet the withhold- actual knowledge of the transferor’s share treaty. ing, payment, and reporting requirements under of partnership liabilities (and has not re- section 1446(f) of the Internal Revenue Code A non-PTP making a distribution to a partner ceived or cannot rely on a certification of for transfers of interests in partnerships other may generally rely on any of the above excep- the transferor’s share of partnership liabili- than PTPs, taxpayers must use Forms 8288 tions, with certain additional considerations: ties received from the transferor (including and 8288-A and follow the instructions for those • In Exception 2, the no realized gain excep- the most recent Schedule K-1) or a certifi- forms. tion, a distributing partnership generally cation of the transferor’s share of liabilities Forms 8288 and 8288-A will be revised to may rely on its books and records or on a received from the partnership). See Regu- reflect section 1446(f)(4) of the Internal Reve- certification from the distributee partner. lations section 1.1446(f)-2(c)(3). nue Code withholding. However, as the Form • In Exception 4, the less than 10% effec- Certification of maximum tax liability. A 8288 instructions provide, when using current tively connected income exception, a dis- Forms 8288 and 8288-A to report section tributing partnership may generally rely on transferor that meets certain requirements can certify its maximum tax liability to the transferee. 1446(f)(1) withholding, you must write Section its books and records but must also obtain 1446(f)(1) withholding at the top of both forms a representation from the distributee part- The maximum tax liability is the amount of the transferor’s effectively connected gain multi- until the revised version of these forms are ner stating that the distributee partner sat- available. A new form, Form 8288-C, for report- isfies the reporting and tax payment re- plied by the applicable percentage under Regu- lations section 1.1446-3(a)(2). The applicable ing under section 1446(f)(4) of the Internal Rev- quirements with respect to the enue Code will be provided in the future when partnership’s ECI for the look-back period. percentage for foreign corporations is the high- est rate of tax under section 11(b) of the Internal withholding under that provision is effective. The time for filing Forms 8288 and 8288-A Determining the amount to withhold. In Revenue Code and for non-corporations is the to report section 1446(f) of the Internal Revenue general, the transferee must withhold 10% of highest rate of tax under section 1 of the Inter- Code withholding is the same as for section the amount realized. The amount realized in- nal Revenue Code. See Regulations section 1445 of the Internal Revenue Code withholding. cludes the cash paid, the fair market value of 1.1446(f)-2(c)(4) for further information. The The same rules for filing Forms 8288 and property transferred, plus the assumption of certificate does not need to and should not be 8288-A by transferees withholding tax under and relief from liabilities, and liabilities to which submitted to the IRS for approval. section 1445 of the Internal Revenue Code ap- the partnership interest is subject. See Regula- Effect of withholding on transferor. A ply to transferees withholding tax under section tions section 1.1446(f)-2(c)(2)(i). If certain re- transferee’s withholding of tax under section 1446(f) of the Internal Revenue Code. The quirements are met, the transferee may rely on 1446(f) of the Internal Revenue Code does not same rules for claiming a credit for withholding a certification of the amount of the transferor's relieve a foreign person from filing a U.S. tax re- of tax under section 1445 of the Internal Reve- share of partnership liabilities reported on the turn with respect to the transfer. Further, it does nue Code apply to transferors receiving Form most recent Schedule K-1 (Form 1065) issued not relieve a nonresident alien individual or for- 8288-A claiming credit for withholding under by the partnership or a certification from a part- eign corporation subject to tax on gain by rea- section 1446(f) of the Internal Revenue Code. nership that provides the amount of the trans- son of section 864(c)(8) of the Internal Revenue The rules relating to Forms 8288 and 8288-A feror's share of partnership liabilities as of the Code from paying with the return any tax due discussed in this paragraph are described, determination date. See Regulations section that has not been fully satisfied through with- later, in this Pub. under U.S Real Property Inter- 1.1446(f)-2(c)(2)(ii) and (iii). holding. est, Reporting and Paying the Tax and in the Modified amount realized. If a foreign Instructions for Form 8288. partnership is the transferor, separate rules may Transfers of partnership interests subject apply to determine a modified amount realized. to withholding under sections 1445(e)(5) Transferee reporting to partnership. No The modified amount realized is determined by and 1446(f) of the Internal Revenue Code. later than 10 days after the transfer, a trans- multiplying the amount realized by the aggre- The transfer of a partnership interest may be feree (other than a partnership that is a trans- gate percentage computed as of the determina- subject to withholding under section 1445(e)(5) feree because it made a distribution) must cer- tion date. The aggregate percentage is the per- of the Internal Revenue Code or Regulations tify to the partnership the extent to which it has centage of the gain (if any) arising from the section 1.1445-11T(d)(1) if 50% or more of the satisfied its withholding obligation. See Regula- transfer that would be allocated to any pre- value of the partnership’s gross assets consist tions section 1.1446(f)-2(d)(2) for the documen- sumed foreign taxable persons. For this of U.S. real property interests, and 90% or more tation required for making this certification.

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as a U.S. real property interest if the beneficial any part of the distribution represents a re- owner did not own more than 5% of the total fair turn of basis or capital gain. If a reduced U.S. Real market value of that class of interests, or 10% of tax rate applies under an income tax Property Interest the total fair market value of that class of inter- treaty, see Regulations section ests in the case of a REIT at any time during the 1.1441-3T(c)(4)(i)(A) for the minimum with- shorter of the applicable periods. Certain con- holding rate that may be applicable. The disposition of a U.S. real property interest structive ownership rules apply for purposes of • Apply chapter 3 withholding to the part of by a foreign person (the transferor) is subject to determining whether any person meets the the distribution that the USRPHC esti- income tax withholding under section 1445 of above ownership threshold of any class of mates is a dividend. Then, withhold 15% the Internal Revenue Code. If you are the trans- stock. See section 897(c)(6)(C) of the Internal on the remainder of the distribution (or on a feree, you must find out if the transferor is a for- Revenue Code for more information on the con- smaller amount if a withholding certificate eign person. If the transferor is a foreign person structive ownership rules. is obtained and the amount of the distribu- and you fail to withhold, you may be held liable tion that is a return of capital is estab- for the tax. Amount to withhold. The transferee must de- lished). duct and withhold a tax on the total amount real- Foreign person. A foreign person is a nonresi- The same procedure must be used for all ized by the foreign person on the disposition. dent alien individual, or a foreign corporation distributions made during the year. A different The rate of withholding is generally 15%. that has not made an election under section procedure may be used each year. 897(i) of the Internal Revenue Code to be trea- The amount realized is the sum of: ted as a domestic corporation, foreign partner- • The cash paid, or to be paid (principal Partnerships. If a domestic or foreign part- ship, foreign trust, or foreign estate. It does not only); nership with any foreign partners disposes of a include a resident alien individual or, in certain • The fair market value of other property U.S. real property interest at a gain, the gain is cases, a qualified foreign pension fund. See transferred, or to be transferred; and treated as effectively connected income and is Retirement and pension funds, later. • The amount of any liability assumed by the generally subject to the rules explained earlier transferee or to which the property is sub- under Partnership Withholding on Effectively Transferor. A transferor is any foreign person ject immediately before and after the trans- Connected Income. A foreign partnership that that disposes of a U.S. real property interest by fer. disposes of a U.S. real property interest may credit the taxes withheld by the transferee sale, exchange, gift, or any other transfer. A If the property transferred was owned jointly against the tax liability determined under the transfer includes distributions to shareholders by U.S. and foreign persons, the amount real- of a corporation and beneficiaries of a trust or ized is allocated between the transferors based partnership withholding on effectively connec- estate. on the capital contribution of each transferor. ted income rules. If a foreign person disposes of an interest in The owner of a disregarded entity, not the a partnership in which 50% or more of the value entity, is treated as the transferor of the property Residences. This rule applies when the prop- of the gross assets consist of U.S. real property transferred by the disregarded entity. erty disposed of is acquired by the transferee for use by the transferee as a residence. If the interests and 90% or more of the value of the Transferee. A transferee is any person, for- amount realized on such disposition does not gross assets consist of U.S. real property inter- eign or domestic, that acquires a U.S. real prop- exceed $300,000, no withholding is required. ests plus any cash or cash equivalents, the erty interest by purchase, exchange, gift, or any Otherwise, the transferee must generally with- transferee of the partnership interest must de- other transfer. hold 10% of the amount realized by a foreign duct and withhold 15% of the amount realized person. The rate of withholding is 15% when on the disposition. U.S. real property interest. A U.S. real prop- the amount realized is in excess of $1,000,000. Trusts and estates. You are a withholding erty interest is an interest, other than as a cred- Foreign corporations. A foreign corpora- agent if you are a trustee, fiduciary, or executor itor, in real property (including an interest in a of a trust or estate having one or more foreign mine, well, or other natural deposit) located in tion that distributes a U.S. real property interest must withhold a tax equal to 21% of the gain it beneficiaries. You must establish a U.S. real the United States or the U.S. Virgin Islands, as property interest account. You enter in the ac- well as certain personal property that is associ- recognizes on the distribution to its sharehold- ers. count all gains and losses realized during the ated with the use of real property (such as farm- tax year of the trust or estate from dispositions ing machinery). It also means any interest, other Domestic corporations. A domestic cor- of U.S. real property interests. You must with- than as a creditor, in any domestic corporation poration must withhold tax on the fair market hold 21% on any distribution to a foreign benefi- unless it is established that the corporation was value of the property distributed to a foreign ciary that is attributable to the balance in the at no time a U.S. real property holding corpora- shareholder if: real property interest account on the day of the tion during the shorter of the period during • The shareholder's interest in the corpora- distribution. A distribution from a trust or estate which the interest was held, or the 5-year period tion is a U.S. real property interest, and to a beneficiary (foreign or domestic) will be ending on the date of disposition (applicable • The property distributed is either in re- treated as attributable first to any balance in the periods). An interest in a corporation is not a demption of stock or in liquidation of the U.S. real property interest account and then to U.S. real property interest if: corporation. other amounts. 1. Such corporation did not hold any U.S. The corporation must generally withhold A trust with more than 100 beneficiaries may real property interests on the date of dis- 15% of the amount realized by a foreign person. elect to withhold from each distribution 21% of position, the amount attributable to the foreign benefi- U.S. real property holding corporations. ciary's proportionate share of the current bal- 2. All the U.S. real property interests held by A distribution from a domestic corporation that ance of the trust's real property interest ac- such corporation at any time during the is a U.S. real property holding corporation count. This election does not apply to publicly shorter of the applicable periods were dis- (USRPHC) is generally subject to chapter 3 traded trusts or REITs. For more information posed of in transactions in which the full withholding and withholding under the U.S. real about this election, see Regulations section amount of any gain was recognized, and property interest provisions. This also applies to 1.1445-5(c). 3. Such corporation and any predecessor of a corporation that was a USRPHC at any time such corporation was not a RIC or a REIT during the shorter of the period during which the Publicly traded partnership and trust inter- during the shorter of the applicable peri- U.S. real property interest was held, or the ests. If any class of interest in a partnership or ods during which the interest was held. 5-year period ending on the date of disposition. a trust is regularly traded on an established se- A USRPHC can satisfy both withholding provi- curities market, any interest in such a partner- Exception for publicly traded stock. If, at sions if it withholds under one of the following ship or trust will be treated as an interest in a any time during the calendar year, any class of procedures. publicly traded corporation and will be subject stock of a domestic corporation is regularly tra- • Apply chapter 3 withholding on the full to the rules applicable to those interests. ded on an established securities market, an amount of the distribution, whether or not interest in such corporation will not be treated

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Qualified investment entities (QIEs). Spe- b. Such other QIE is a RIC that issues ses, the corporation can make this certifi- cial rules apply to QIEs. A QIE is: certain redeemable securities. cation only if either of the following is true. • During the previous 5 years (or, if 1. A REIT, or Notwithstanding the above, the stock shorter, the period the interest was 2. A RIC that is a U.S. real property holding of the QIE will be treated as held by a U.S. held by its present owner), the corpo- corporation. person if such other QIE is domestically ration was not a USRPHC. controlled. • As of the date of disposition, the inter- Look-through rule for QIEs. In most ca- 3. Stock in a QIE that is held by any other est in the corporation is not a U.S. ses, any distribution from a QIE to a nonresi- QIE not described above will be treated as real property interest by reason of dent alien, foreign corporation, or other QIE that held by a U.S. person in proportion to the section 897(c)(1)(B) of the Internal is attributable to the QIE's gain from the sale or stock ownership of such other QIE which Revenue Code. The certification must exchange of a U.S. real property interest is trea- is (or is treated as) held by a U.S. person. be dated not more than 30 days be- ted as gain recognized by the nonresident alien, fore the date of transfer. foreign corporation, or other QIE from the sale If a foreign shareholder in a domestically or exchange of a U.S. real property interest. controlled QIE disposes of an interest in the QIE 4. The transferor gives you a certification A distribution by a QIE to a nonresident alien in an applicable wash sale transaction, special stating, under penalties of perjury, that the or foreign corporation that is treated as gain rules apply. See section 897 of the Internal Rev- transferor is not a foreign person and con- from the sale or exchange of a U.S. real prop- enue Code. taining the transferor's name, U.S. TIN, erty interest by the shareholder is subject to and home address (or office address, in withholding at 21%. Retirement and pension funds. A qualified the case of an entity). Certain exceptions apply to the look-through foreign pension fund or any entity wholly owned The transferor can give the certification rule for distributions by QIEs. Any distribution by by such qualified foreign pension fund will not to a qualified substitute. The qualified sub- a QIE with respect to stock regularly traded on be treated as a foreign person for dispositions stitute gives you a statement, under penal- an established securities market in the United of U.S. real property interest or distributions re- ties of perjury, that the certification is in the States is not treated as gain from the sale or ex- ceived from a REIT. Qualified foreign pension possession of the qualified substitute. For change of a U.S. real property interest if the funds are described in section 897(l)(2) of the this purpose, a qualified substitute is (a) shareholder did not own more than 5% of that Internal Revenue Code. the person (including any attorney or title stock (or more than 10% of that stock in the company) responsible for closing the case of REITs) at any time during the 1-year pe- Additional information. For additional infor- transaction, other than the transferor's riod ending on the date of the distribution. A dis- mation on the withholding rules that apply to agent, and (b) the transferee's agent. tribution by a REIT generally is not treated as corporations, trusts, estates, and qualified in- 5. You receive a withholding certificate from gain from the sale or exchange of a U.S. real vestment entities, see section 1445 of the Inter- the IRS that excuses withholding. See property interest if the shareholder is a qualified nal Revenue Code and the related regulations. Withholding Certificates, later. shareholder (as described in section 897(k)(3)) For additional information on the withholding of the Internal Revenue Code). These distribu- rules that apply to partnerships, see the previ- 6. The transferor gives you written notice that tions may be included in the shareholder's ous discussion. no recognition of any gain or loss on the gross income as a dividend from the QIE, not as You may also write to the: transfer is required because of a nonre- long-term capital gain. cognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty. Disposition of REIT stock. Disposition of Internal Revenue Service You must file a copy of the notice by the stock in a REIT that is held directly (or indirectly Philadelphia, PA 19255-0725 20th day after the date of transfer with the through one or more partnerships) by a quali- Ogden Service Center, P.O. Box 409101, fied shareholder may not be subject to withhold- Ogden, UT 84409. ing. See section 897(k)(2) of the Internal Reve- nue Code for more information. 7. The amount the transferor realizes on the Exceptions. You do not have to withhold if any transfer of a U.S. real property interest is Domestically controlled QIE. The sale of of the following apply. zero. an interest in a domestically controlled QIE is 1. You (the transferee) acquire the property not the sale of a U.S. real property interest. The 8. The property is acquired by the United for use as a residence and the amount re- entity is domestically controlled if at all times States, a U.S. state or possession, a politi- alized (sales price) is not more than during the testing period less than 50% in value cal subdivision, or the District of Columbia. $300,000. You or a member of your family of its stock was held, directly or indirectly, by must have definite plans to reside at the 9. The grantor realizes an amount on the foreign persons. The testing period is the property for at least 50% of the number of grant or lapse of an option to acquire a shorter of (a) the 5-year period ending on the days the property is used by any person U.S. real property interest. However, you date of disposition, or (b) the period during during each of the first two 12-month peri- must withhold on the sale, exchange, or which the entity was in existence. ods following the date of transfer. When exercise of that option. For the purpose of determining whether a counting the number of days the property QIE is domestically controlled, the following 10. The disposition is of an interest in a pub- is used, do not count the days the property rules apply. licly traded partnership or trust. However, will be vacant. For this exception, the this exception does not apply to certain 1. A person holding less than 5% of any transferee must be an individual. dispositions of substantial amounts of class of stock of a QIE which is regularly 2. The property disposed of is an interest in a non-publicly traded interests in publicly traded on an established securities market domestic corporation and any class of traded partnerships or trusts. in the United States at all times during the stock of the corporation is regularly traded testing period will be treated as a U.S. per- Late filing of certifications or notices. If on an established securities market. How- son unless the QIE has actual knowledge you become aware that you have failed to ever, this exception does not apply to cer- that such person is not a U.S. person. timely file certain certifications or notices, you tain dispositions of substantial amounts of still may be able to file them. See Revenue Pro- 2. Any stock in a QIE that is held by another non-publicly traded interests in publicly cedure 2008-27, 2008-21 I.R.B. 1014 available, QIE will be treated as held by a foreign traded corporations. at IRS.gov/irb/2008-21_IRB#RP-2008-27. person if: 3. The disposition is of an interest in a do- Complete the required certification or notice a. Any class of stock of such other QIE mestic corporation and that corporation and file it with the appropriate person or the is regularly traded on an established furnishes you a certification stating, under IRS. Also include the following. securities market, or penalties of perjury, that the interest is not • A statement at the top of the document(s) a U.S. real property interest. In most ca- that it is “FILED PURSUANT TO Revenue Procedure 2008-27.”

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• An explanation describing why the failure corporation that is treated as a dividend, as dis- the parties to the transaction. A transferor that was due to reasonable cause. Within the cussed earlier under Qualified investment enti- applies for a withholding certificate must notify explanation, provide that you filed with, or ties (QIEs). the transferee, in writing, that the certificate has obtained from, an appropriate person the been applied for on the day of or the day before required certification or notice. Form 8288. The tax withheld on the acquisi- the transfer. tion of a U.S. real property interest from a for- The completed certification or notice at- eign person is reported and paid over using A withholding certificate may be issued due tached to the explanation must be sent to the Form 8288. Form 8288 also serves as the to: Ogden Service Center, P.O. Box 409101, Og- transmittal form for copies A and B of Form den, UT 84409. 1. A determination by the IRS that reduced 8288-A. withholding is appropriate because either: Certifications. The certifications in items In most cases, you must file Form 8288 (3) and (4) are not effective if you (or the quali- a. The amount that must be withheld DUE by the 20th day after the date of the would be more than the transferor's fied substitute) have actual knowledge, or re- transfer. ceive a notice from an agent (or substitute), that maximum tax liability, or they are false. This also applies to the qualified If an application for a withholding certificate b. Withholding of the reduced amount substitute's statement under item (4). (discussed later) is submitted to the IRS before would not jeopardize collection of the If you (or the substitute) are required by reg- or on the date of a transfer and the application tax; ulations to furnish a copy of the certification (or is still pending with the IRS on the date of trans- statement) to the IRS and you (or the substitute) 2. The exemption from U.S. tax of all gain re- fer, the correct withholding tax must be with- alized by the transferor; or fail to do so in the time and manner prescribed, held, but does not have to be reported and paid the certification (or statement) is not effective. over immediately. The amount withheld (or 3. An agreement for the payment of tax pro- viding security for the tax liability, entered Liability of agent or qualified substitute. lesser amount, as determined by the IRS) must into by the transferee or transferor. If you (or the substitute) receive a certification be reported and paid over within 20 days follow- discussed in item (3) or (4) or a statement in ing the day on which a copy of the withholding Applications for withholding certificates are item (4), and the agent, or substitute, has actual certificate or notice of denial is mailed by the divided into six basic categories. This categoriz- knowledge that the certification (or statement) is IRS. ing provides for specific information that is nee- false, or in the case of (3), that the corporation If the principal purpose of applying for a ded to process the applications. The six catego- is a foreign corporation, the agent (or substitute) withholding certificate is to delay paying over ries are: must notify you, or the agent (or substitute) will the withheld tax, the transferee will be subject to 1. Applications based on a claim that the be held liable for the tax. The agent's (or substi- interest and penalties. The interest and penal- tute's) liability is limited to the compensation the transferor is entitled to nonrecognition ties will be assessed for the period beginning treatment or is exempt from tax, agent (or substitute) gets from the transaction. on the 21st day after the date of transfer and An agent is any person who represents the ending on the day the payment is made. 2. Applications based solely on a calculation transferor or transferee in any negotiation with of the transferor's maximum tax liability, another person (or another person's agent) re- Form 8288-A. The withholding agent must lating to the transaction, or in settling the trans- 3. Applications under special installment prepare a Form 8288-A for each person from sales rules, action. A person is not treated as an agent if the whom tax has been withheld. Attach copies A person only performs one or more of the follow- and B of Form 8288-A to Form 8288. Keep 4. Applications based on an agreement for ing acts related to the transaction. copy C for your records. the payment of tax with conforming secur- • Receipt and disbursement of any part of The IRS will stamp copy B and send it to the ity, the consideration. person subject to withholding. That person • Recording of any document. 5. Applications for blanket withholding certifi- must file a U.S. income tax return and attach cates, and • Typing, copying, and other clerical tasks. the stamped Form 8288-A to receive credit for • Obtaining title insurance reports and re- any tax withheld. 6. Applications on any other basis. ports concerning the condition of the prop- erty. A stamped copy of Form 8288-A will The applicant must make available to • Transmitting documents between the par- ! not be provided to the transferor if the the IRS, within the time prescribed, all ties. CAUTION transferor's TIN is not included on that RECORDS information required to verify that rep- form. The IRS will send a letter to the transferor resentations relied upon in accepting the agree- requesting the TIN and providing instructions ment are accurate, and that the obligations as- Reporting and for how to get a TIN. When the transferor pro- sumed by the applicant will be performed Paying the Tax vides the IRS with a TIN, the IRS will provide pursuant to the agreement. Failure to provide the transferor with a stamped copy B of Form requested information promptly will usually re- Transferees must use Forms 8288 and 8288-A 8288-A. sult in rejection of the application, unless the to report and pay over any tax withheld on the IRS grants an extension of the target date. acquisition of U.S. real property interests. Form 1099-S. In most cases, the real estate These forms must also be used by corpora- broker or other person responsible for closing Categories (1), (2), and (3). Use Form tions, estates, and QIEs that must withhold tax the transaction must report the sale of the prop- 8288-B to apply for a withholding certificate. on distributions and other transactions involving erty to the IRS using Form 1099-S. For more in- Follow the instructions for the form. U.S. real property interests. You must include formation about Form 1099-S, see the the U.S. TIN of both the transferor and the Instructions for Form 1099-S and the General Categories (4), (5), and (6). Do not use Form transferee on the forms. Instructions for Certain Information Returns. 8288-B for applications under categories (4), For partnerships disposing of U.S. real prop- (5), and (6). For these categories, follow the in- erty interests, the manner of reporting and pay- structions given here and under the specific cat- ing over the tax withheld is the same as dis- Withholding Certificates egory. cussed earlier under Partnership Withholding All applications for withholding certificates The amount that must be withheld from the dis- on Effectively Connected Income. must use the following format. The information position of a U.S. real property interest can be must be provided in paragraphs labeled to cor- Publicly traded trusts must use Forms 1042 adjusted by a withholding certificate issued by respond with the numbers and letters set forth and 1042-S to report and pay over tax withheld the IRS. The transferee, the transferee's agent, below. If the information requested does not ap- on distributions from dispositions of U.S. real or the transferor may request a withholding cer- ply, place “N/A” in the relevant space. property interests. tificate. The IRS will generally act on these re- QIEs must use Forms 1042 and 1042-S for quests within 90 days after receipt of a 1. Information on the application category: a distribution to a nonresident alien or foreign complete application including the TINs of all

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a. State which category (4, 5, or 6) de- of attorney, such as Form 2848, attached). The Category (6) applications. These are non- scribes the application, person signing the application must verify under standard applications and may be of the follow- penalties of perjury that all representations are ing types. b. If a category (4) application: true, correct, and complete to that person's i. State whether the proposed knowledge and belief. If the application is Agreement for payment of tax with non- agreement secures (A) the trans- based in whole or in part on information provi- conforming security. An applicant seeking to feror's maximum tax liability, or ded by another party to the transaction, that in- enter into an agreement for the payment of tax (B) the amount that would other- formation must be supported by a written verifi- but wanting to provide a nonconforming type of wise have to be withheld; and cation signed under penalties of perjury by that security must include the following in the appli- party and attached to the application. cation. ii. State whether the proposed agreement and security instru- Send applications to the: 1. The information required for category (4) ment conform to the standard for- applications, discussed earlier. mats. Ogden Service Center 2. A description of the nonconforming secur- 2. Information on the transferee or transferor: P.O. Box 409101 ity proposed by the applicant. a. State the name, address, and TIN of Ogden, UT 84409 3. A memorandum of law and facts establish- the person applying for the withhold- ing that the proposed security is valid and enforceable and that it adequately pro- ing certificate (if this person does not Category (4) applications. If the application tects the government's interest. have a TIN and is eligible for an ITIN, is based on an agreement for the payment of he or she can apply for the ITIN by at- tax, the application must include: Other nonstandard applications. An ap- taching the application to a completed • Information establishing the transferor's plication for a withholding certificate not previ- Form W-7 and forwarding the pack- maximum tax liability, or the amount that ously described must explain in detail the pro- age to the address given in the Form otherwise has to be withheld; posed basis for the issuance of the certificate W-7 instructions); • A signed copy of the agreement proposed and set forth the reasons justifying the issuance b. State whether that person is the trans- by the applicant; and of a certificate on that basis. feree or transferor; and • A copy of the security instrument proposed by the applicant. c. State the name, address, and TIN of Amendments to Applications Either the transferee or the transferor may all other transferees and transferors of enter into an agreement for the payment of tax. An applicant for a withholding certificate may the U.S. real property interest for The agreement is a contract between the IRS amend an otherwise complete application by which the withholding certificate is and any other person and consists of two nec- sending an amending statement to the address sought. essary elements. Those elements are: shown earlier in Withholding Certificates. There 3. Information on the U.S. real property inter- • A detailed description of the rights and ob- is no particular form required, but the amending est for which the withholding certificate is ligations of each, and statement must provide the following informa- sought. State the: • A security instrument or other form of se- tion. curity acceptable to the Commissioner or • The name, address, and TIN of the person a. Type of interest (such as interest in his delegate. providing the amending statement specify- real property, in associated personal ing whether that person is the transferee or property, or in a domestic U.S. real For more information on the agreement for transferor. property holding corporation); the payment of tax, including a sample agree- The date of the original application for a ment, see section 5 of Revenue Procedure • b. Contract price; withholding certificate that is being amen- 2000-35, 2000–35 I.R.B. 211, available at ded. c. Date of transfer; IRS.gov/pub/irs-irbs/irb00-35.pdf. • A brief description of the real property in- There are four major types of security ac- d. Location and general description (if terest for which the original application for ceptable to the IRS. They are: an interest in real property); a withholding certificate was provided. Bond with surety or guarantor, • • The basis for the amendment including e. Class or type and amount of the inter- Bond with collateral, • any change in the facts supporting the est in a U.S. real property holding cor- Letter of credit, and • original application for a withholding certifi- poration; and Guarantee (corporate transferors). • cate and any change in the terms of the f. Whether in the 3 preceding tax years The IRS may, in unusual circumstances and withholding certificate. (1) U.S. income tax returns were filed at its discretion, accept any additional form of relating to the U.S. real property inter- security that it finds to be adequate. The statement must be signed and accom- est and, if so, when and where those For more information on acceptable security panied by a penalties of perjury statement. returns were filed and, if not, why re- instruments, including sample forms of these in- turns were not filed, and (2) U.S. in- struments, see section 6 of Revenue Procedure If an amending statement is provided, the come taxes were paid relating to the 2000-35. time in which the IRS must act upon the appli- U.S. real property interest and, if so, cation is extended by 30 days. If the amending the amount of tax paid. Category (5) applications. A blanket with- statement substantially changes the original ap- holding certificate may be issued if the trans- 4. Provide full information concerning the ba- plication, the time for acting upon the applica- feror holding the U.S. real property interests sis for the issuance of the withholding cer- tion is extended by 60 days. If an amending provides an irrevocable letter of credit or a guar- tificate. Although the information to be in- statement is received after the withholding cer- antee and enters into a tax payment and secur- cluded in this section of the application will tificate has been signed, but before it has been ity agreement with the IRS. A blanket withhold- vary from case to case, the rules shown mailed to the applicant, the IRS will have a ing certificate excuses withholding concerning under the specific category provide gen- 90-day extension of time in which to act. multiple dispositions of those property interests eral guidelines for the inclusion of appro- by the transferor or the transferor's legal repre- priate information for that category. sentative during a period of no more than 12 Definitions The application must be signed by the indi- months. vidual, a responsible officer in the case of a cor- For more information, see section 9 of Reve- Chapter 4 withholding rate pool. A “chap- poration, a general partner in the case of a part- nue Procedure 2000-35. ter 4 withholding rate pool” means a pool of nership, or a trustee, executor, or equivalent payees that are nonparticipating FFIs provided fiduciary in the case of a trust or estate, or a on a chapter 4 withholding statement (as de- duly authorized agent (with a copy of the power scribed in Regulations section 1.1471-3(c)(3)

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(iii)(B)(3)) to which a withholdable payment is jurisdictions treated as having an IGA in effect, U.S. financial institution, treated as a reporting allocated. The term also means a pool of pay- go to Treasury.gov/Resource-Center/Tax- financial institution under a Model 1 IGA. ees provided on an FFI withholding statement Policy/Treaties/Pages/FATCA.aspx. (as described in Regulations section Reporting Model 2 FFI. A “reporting Model 2 1.1471-3(c)(iii)(B)(2)) to which a withholdable Model 2 IGA. A “Model 2 IGA” means an FFI” is an FFI described in a Model 2 IGA that payment is allocated to (a) a pool of payees agreement or arrangement between the United has agreed to comply with the requirements of consisting of each class of recalcitrant account States or the Treasury Department and a for- an FFI agreement with respect to a branch. holders described in Regulations section eign government or one or more foreign agen- 1.1471-4(d)(6) (or with respect to an FFI that is cies to implement FATCA through reporting by Territory financial institution. A “territory fi- a QI, a single pool of recalcitrant account hold- financial institutions directly to the IRS in ac- nancial institution” is a financial institution that is ers), including a separate pool of account hold- cordance with the requirements of the FFI incorporated or organized under the laws of any ers to which the escrow procedures for dormant agreement, as modified by an applicable Model U.S. territory, excluding a territory entity that is a accounts apply; or (b) a pool of payees that are 2 IGA, supplemented by the exchange of infor- financial institution only because it is an invest- U.S. persons as described in Regulations sec- mation between such foreign government or ment entity, as defined in Regulations section tion 1.1471-3(c)(3)(iii)(B)(2) (including such a agency thereof and the IRS. For a list of juris- 1.1471-5(e)(4). pool allocated to a reportable amount on a with- dictions treated as having an IGA in effect, go to holding statement provided solely for chapter 3 Treasury.gov/Resource-Center/Tax-Policy/ Withholdable payment. A “withholdable pay- purposes). Treaties/Pages/FATCA.aspx. ment” is a payment described in Regulations section 1.1473-1(a). See Income Subject to Deemed-compliant FFI. A “deemed-compli- Non-financial foreign entity (NFFE). A Withholding, earlier, for a discussion of which ant FFI” means an FFI that is treated, pursuant “non-financial foreign entity” (NFFE) is a foreign payments qualify as withholdable payments. to section 1471(b)(2) of the Internal Revenue entity that is not a financial institution. An NFFE Code and Regulations section 1.1471-5(f), as includes a territory NFFE, as defined in Regula- meeting the requirements of section 1471(b) of tions section 1.1471-1(b)(132), and a foreign Tax Treaties the Internal Revenue Code. The term entity treated as an NFFE pursuant to a Model 1 “deemed-compliant FFI” includes a nonreport- IGA or Model 2 IGA. The United States has bilateral income tax trea- ing IGA FFI (as defined in Regulations section ties, also known as “conventions,” with a num- 1.1471-1(b)(83) ). Nonparticipating FFI. A “nonparticipating FFI” ber of foreign countries under which residents is an FFI other than a participating FFI, a (sometimes limited to citizens) of those coun- Dividend equivalents. Generally, a “dividend deemed-compliant FFI, or an exempt beneficial tries are taxed at a reduced rate or are exempt equivalent” is any payment that references the owner. from U.S. income taxes on certain income re- payment of a dividend from an underlying se- ceived from within the United States. curity pursuant to a securities lending or Participating FFI. A “participating FFI” is an sale-repurchase transaction, SNPC, or speci- FFI that has agreed to comply with the require- Income that is exempt under a treaty is not fied ELI. This applies without regard to whether ments of an FFI agreement with respect to all subject to withholding at source under the statu- there is an actual distribution of cash or prop- branches of the FFI, other than a branch that is tory rules discussed in this publication. erty. a reporting Model 1 FFI or a U.S. branch. The term "participating FFI" also includes a reporting Obtaining treaty information. You can obtain Exempt beneficial owner. An “exempt benefi- Model 2 FFI and a QI branch of a U.S. financial the full text of these treaties, and accompanying cial owner” is any person described in Regula- institution, unless such branch is a reporting technical explanations, at IRS.gov/Businesses/ tions sections 1.1471-6(b) through (g) and in- Model 1 FFI. International-Businesses/United-States- cludes any person treated as an exempt Income-Tax-Treaties-A-to-Z. beneficial owner under an applicable Model 1 Passive NFFE. A “passive NFFE” is an NFFE Detailed information about treaty provisions IGA or Model 2 IGA. that is not an excepted NFFE. With respect to a can be found at IRS.gov/Individuals/ reporting Model 2 FFI filing a Form 8966 to re- International-Taxpayers/Tax-Treaties. Financial institution (FI). A “financial institu- port its accounts and payees, a passive NFFE tion” (FI) is any institution that is a depository in- is an NFFE that is not an active NFFE (as de- Tax treaty tables. The tax treaty tables previ- stitution, custodial institution, investment entity, scribed in the applicable IGA). ously contained in this publication have been insurance company (or holding company of an updated and moved to IRS.gov/Individuals/ insurance company) that issues cash value in- Qualified derivatives dealer (QDD). A “quali- International-Taxpayers/Tax-Treaty-Tables. surance or annuity contracts, or a holding com- fied derivatives dealer” (QDD) is a QI that is an pany or treasury center that is part of an expan- eligible entity (as defined in Regulations section ded affiliated group of certain FFIs, and 1.1441-1(e)(6)(ii)) that agrees to meet the re- How To Get Tax Help includes a financial institution, as defined under quirements of Regulations section 1.1441-1(e) an applicable Model 1 IGA or Model 2 IGA. See (6)(i) and the QI agreement. If you have questions about a tax issue, need Regulations section 1.1471-5(e)(1). help preparing your tax return, or want to down- Recalcitrant account holder. A “recalcitrant load free publications, forms, or instructions, go Foreign financial institution (FFI). Except as account holder” is an account holder (other than to IRS.gov and find resources that can help you otherwise provided for certain foreign branches an account holder that is an FFI or is presumed right away. of a U.S. financial institution or territory financial to be an FFI) of a participating FFI or registered institutions, a “foreign financial institution” (FFI) deemed-compliant FFI that has failed to provide Preparing and filing your tax return. After means a financial institution that is a foreign en- the FFI maintaining its account with the informa- receiving all your wage and earnings state- tity. The term “FFI” also includes a foreign tion required under Regulations section ments (Form W-2, W-2G, 1099-R, 1099-MISC, branch of a U.S. financial institution with a QI 1.1471-5(g). 1099-NEC, etc.); unemployment compensation agreement in effect. statements (by mail or in a digital format) or Registered deemed-compliant FFI. A “regis- other government payment statements (Form Model 1 IGA. A “Model 1 IGA” means an tered deemed-compliant FFI” is an FFI descri- 1099-G); and interest, dividend, and retirement agreement between the United States or the bed in Regulations section 1.1471-5(f)(1) and statements from banks and investment firms Treasury Department and a foreign government includes a reporting Model 1 FFI and a QI (Forms 1099), you have several options to or one or more foreign agencies to implement branch of a U.S. financial institution that is a re- choose from to prepare and file your tax return. FATCA through reporting by financial institu- porting Model 1 FFI. You can prepare the tax return yourself, see if tions to such foreign government or agency you qualify for free tax preparation, or hire a tax thereof, followed by automatic exchange of the Reporting Model 1 FFI. A “reporting Model 1 professional to prepare your return. reported information with the IRS. For a list of FFI” is an FI, including a foreign branch of a

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Free options for tax preparation. Go to vides information on your repayments and changes, scam alerts, initiatives, products, and IRS.gov to see your options for preparing and account balance. services. At the IRS, privacy and security are filing your return online or in your local commun- • The Sales Tax Deduction Calculator paramount. We use these tools to share public ity, if you qualify, which include the following. (IRS.gov/SalesTax) figures the amount you information with you. Don’t post your SSN or • Free File. This program lets you prepare can claim if you itemize deductions on other confidential information on social media and file your federal individual income tax Schedule A (Form 1040). sites. Always protect your identity when using any social networking site. return for free using brand-name tax-prep- Getting answers to your tax ques- aration-and-filing software or Free File filla- tions. On IRS.gov, you can get The following IRS YouTube channels pro- ble forms. However, state tax preparation up-to-date information on current vide short, informative videos on various tax-re- may not be available through Free File. Go events and changes in tax law. lated topics in English, Spanish, and ASL. to IRS.gov/FreeFile to see if you qualify for • Youtube.com/irsvideos. free online federal tax preparation, e-filing, • IRS.gov/Help: A variety of tools to help you • Youtube.com/irsvideosmultilingua. and direct deposit or payment options. get answers to some of the most common • Youtube.com/irsvideosASL. • VITA. The Volunteer Income Tax Assis- tax questions. tance (VITA) program offers free tax help • IRS.gov/ITA: The Interactive Tax Assistant, Watching IRS videos. The IRS Video portal to people with low-to-moderate incomes, a tool that will ask you questions on a num- (IRSVideos.gov) contains video and audio pre- persons with disabilities, and limited-Eng- ber of tax law topics and provide answers. sentations for individuals, small businesses, lish-speaking taxpayers who need help • IRS.gov/Forms: Find forms, instructions, and tax professionals. preparing their own tax returns. Go to and publications. You will find details on IRS.gov/VITA, download the free IRS2Go 2020 tax changes and hundreds of interac- Online tax information in other languages. app, or call 800-906-9887 for information tive links to help you find answers to your You can find information on IRS.gov/Help/ on free tax return preparation. questions. Languages if English isn’t your native language. • TCE. The Tax Counseling for the Elderly • You may also be able to access tax law in- (TCE) program offers free tax help for all formation in your electronic filing software. Free interpreter service. Multilingual assis- taxpayers, particularly those who are 60 tance, provided by the IRS, is available at Tax- years of age and older. TCE volunteers payer Assistance Centers (TACs) and other specialize in answering questions about Need someone to prepare your tax return? IRS offices. Over-the-phone interpreter service pensions and retirement-related issues There are various types of tax return preparers, is accessible in more than 350 languages. unique to seniors. Go to IRS.gov/TCE, including tax preparers, enrolled agents, certi- download the free IRS2Go app, or call fied public accountants (CPAs), attorneys, and Getting tax forms and publications. Go to 888-227-7669 for information on free tax many others who don’t have professional cre- IRS.gov/Forms to view, download, or print all of return preparation. dentials. If you choose to have someone pre- the forms, instructions, and publications you • MilTax. Members of the U.S. Armed pare your tax return, choose that preparer may need. You can also download and view Forces and qualified veterans may use wisely. A paid tax preparer is: popular tax publications and instructions (in- MilTax, a free tax service offered by the • Primarily responsible for the overall sub- cluding the Instructions for Forms 1040 and Department of Defense through Military stantive accuracy of your return, 1040-SR) on mobile devices as an eBook at OneSource. • Required to sign the return, and IRS.gov/eBooks. Or you can go to IRS.gov/ Also, the IRS offers Free Fillable • Required to include their preparer tax iden- OrderForms to place an order. Forms, which can be completed online and tification number (PTIN). then filed electronically regardless of in- Although the tax preparer always signs Access your online account (individual tax- come. the return, you're ultimately responsible for payers only). Go to IRS.gov/Account to se- providing all the information required for curely access information about your federal tax Using online tools to help prepare your re- the preparer to accurately prepare your re- account. turn. Go to IRS.gov/Tools for the following. turn. Anyone paid to prepare tax returns for • View the amount you owe, pay online, or • The Earned Income Tax Credit Assistant others should have a thorough under- set up an online payment agreement. (IRS.gov/EITCAssistant) determines if standing of tax matters. For more informa- • Access your tax records online. you’re eligible for the earned income credit tion on how to choose a tax preparer, go to • Review your payment history. (EIC). Tips for Choosing a Tax Preparer on • Go to IRS.gov/SecureAccess to review the • The Online EIN Application (IRS.gov/EIN) IRS.gov. required identity authentication process. helps you get an employer identification number (EIN). Coronavirus. Go to IRS.govCoronavirus for Using direct deposit. The fastest way to re- • The Tax Withholding Estimator (IRS.gov/ links to information on the impact of the corona- ceive a tax refund is to file electronically and W4app) makes it easier for everyone to virus, as well as tax relief available for individu- choose direct deposit, which securely and elec- pay the correct amount of tax during the als and families, small and large businesses, tronically transfers your refund directly into your year. The tool is a convenient, online way and tax-exempt organizations. financial account. Direct deposit also avoids the to check and tailor your withholding. It’s possibility that your check could be lost, stolen, more user-friendly for taxpayers, including Tax reform. Tax reform legislation affects indi- or returned undeliverable to the IRS. Eight in 10 retirees and self-employed individuals. The viduals, businesses, and tax-exempt and gov- taxpayers use direct deposit to receive their re- features include the following. ernment entities. Go to IRS.gov/TaxReform for funds. The IRS issues more than 90% of re- – Easy to understand language. information and updates on how this legislation funds in less than 21 days. – The ability to switch between screens, affects your taxes. correct previous entries, and skip Getting a transcript of your return. The screens that don’t apply. Employers can register to use Business quickest way to get a copy of your tax transcript – Tips and links to help you determine if Services Online. The Social Security Adminis- is to go to IRS.gov/Transcripts. Click on either you qualify for tax credits and deduc- tration (SSA) offers online service at SSA.gov/ “Get Transcript Online” or “Get Transcript by tions. employer for fast, free, and secure online W-2 Mail” to order a free copy of your transcript. If – A progress tracker. filing options to CPAs, accountants, enrolled you prefer, you can order your transcript by call- – A self-employment tax feature. agents, and individuals who process Form W-2, ing 800-908-9946. – Automatic calculation of taxable social Wage and Tax Statement, and Form W-2c, security benefits. Corrected Wage and Tax Statement. Reporting and resolving your tax-related identity theft issues. • The First Time Homebuyer Credit Account IRS social media. Go to IRS.gov/SocialMedia • Tax-related identity theft happens when Look-up (IRS.gov/HomeBuyer) tool pro- to see the various social media tools the IRS someone steals your personal information uses to share the latest information on tax to commit tax fraud. Your taxes can be

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affected if your SSN is used to file a frau- tion. Contact your financial institution for How Can You Learn About Your dulent return or to claim a refund or credit. availability, cost, and cut-off times. Taxpayer Rights? • The IRS doesn’t initiate contact with tax- What if I can’t pay now? Go to IRS.gov/ payers by email, text messages, telephone The Taxpayer Bill of Rights describes 10 basic Payments for more information about your op- calls, or social media channels to request rights that all taxpayers have when dealing with tions. personal or financial information. This in- the IRS. Go to TaxpayerAdvocate.IRS.gov to Apply for an online payment agreement cludes requests for personal identification • help you understand what these rights mean to (IRS.gov/OPA) to meet your tax obligation numbers (PINs), passwords, or similar in- you and how they apply. These are your rights. in monthly installments if you can’t pay formation for credit cards, banks, or other Know them. Use them. your taxes in full today. Once you complete financial accounts. the online process, you will receive imme- • Go to IRS.gov/IdentityTheft, the IRS Iden- What Can TAS Do For You? diate notification of whether your agree- tity Theft Central webpage, for information ment has been approved. on identity theft and data security protec- TAS can help you resolve problems that you Use the Offer in Compromise Pre-Qualifier tion for taxpayers, tax professionals, and • can’t resolve with the IRS. And their service is to see if you can settle your tax debt for businesses. If your SSN has been lost or free. If you qualify for their assistance, you will less than the full amount you owe. For stolen or you suspect you’re a victim of be assigned to one advocate who will work with more information on the Offer in Compro- tax-related identity theft, you can learn you throughout the process and will do every- mise program, go to IRS.gov/OIC. what steps you should take. thing possible to resolve your issue. TAS can Get an Identity Protection PIN (IP PIN). IP help you if: • Filing an amended return. You can now file PINs are six-digit numbers assigned to eli- • Your problem is causing financial difficulty Form 1040-X electronically with tax filing soft- gible taxpayers to help prevent the misuse for you, your family, or your business; ware to amend 2019 Forms 1040 and 1040-SR. of their SSNs on fraudulent federal income • You face (or your business is facing) an To do so, you must have e-filed your original tax returns. When you have an IP PIN, it immediate threat of adverse action; or 2019 return. Amended returns for all prior years prevents someone else from filing a tax re- • You’ve tried repeatedly to contact the IRS must be mailed. See Tips for taxpayers who turn with your SSN. To learn more, go to but no one has responded, or the IRS need to file an amended tax return and go to IRS.gov/IPPIN. hasn’t responded by the date promised. IRS.gov/Form1040X for information and up- dates. Checking on the status of your refund. How Can You Reach TAS? Go to IRS.gov/Refunds. • Checking the status of your amended re- The IRS can’t issue refunds before • turn. Go to IRS.gov/WMAR to track the status TAS has offices in every state, the District of mid-February 2021 for returns that claimed of Form 1040-X amended returns. Please note Columbia, and Puerto Rico. Your local advo- the EIC or the additional child tax credit that it can take up to 3 weeks from the date you cate’s number is in your local directory and at (ACTC). This applies to the entire refund, filed your amended return for it to show up in TaxpayerAdvocate.IRS.gov/Contact-Us. You not just the portion associated with these our system, and processing it can take up to 16 can also call them at 877-777-4778. credits. weeks. • Download the official IRS2Go app to your mobile device to check your refund status. How Else Does TAS Help Understanding an IRS notice or letter Taxpayers? • Call the automated refund hotline at you’ve received. Go to IRS.gov/Notices to 800-829-1954. find additional information about responding to TAS works to resolve large-scale problems that an IRS notice or letter. affect many taxpayers. If you know of one of Making a tax payment. The IRS uses the lat- these broad issues, please report it to them at est encryption technology to ensure your elec- Contacting your local IRS office. Keep in IRS.gov/SAMS. tronic payments are safe and secure. You can mind, many questions can be answered on make electronic payments online, by phone, IRS.gov without visiting an IRS Taxpayer Assis- TAS for Tax Professionals and from a mobile device using the IRS2Go tance Center (TAC). Go to IRS.gov/LetUsHelp app. Paying electronically is quick, easy, and for the topics people ask about most. If you still TAS can provide a variety of information for tax faster than mailing in a check or money order. need help, IRS TACs provide tax help when a Go to IRS.gov/Payments for information on how professionals, including tax law updates and tax issue can’t be handled online or by phone. guidance, TAS programs, and ways to let TAS to make a payment using any of the following All TACs now provide service by appointment, options. know about systemic problems you’ve seen in so you’ll know in advance that you can get the your practice. • IRS Direct Pay: Pay your individual tax bill service you need without long wait times. Be- or estimated tax payment directly from fore you visit, go to IRS.gov/TACLocator to find your checking or savings account at no the nearest TAC and to check hours, available Low Income Taxpayer cost to you. services, and appointment options. Or, on the Clinics (LITCs) • Debit or Credit Card: Choose an approved IRS2Go app, under the Stay Connected tab, payment processor to pay online, by choose the Contact Us option and click on “Lo- LITCs are independent from the IRS. LITCs phone, or by mobile device. cal Offices.” • Electronic Funds Withdrawal: Offered only represent individuals whose income is below a when filing your federal taxes using tax re- certain level and need to resolve tax problems turn preparation software or through a tax The Taxpayer Advocate with the IRS, such as audits, appeals, and tax professional. collection disputes. In addition, clinics can pro- Service (TAS) Is Here To vide information about taxpayer rights and re- • Electronic Federal Tax Payment System: Help You Best option for businesses. Enrollment is sponsibilities in different languages for individu- required. What Is TAS? als who speak English as a second language. • Check or Money Order: Mail your payment Services are offered for free or a small fee for to the address listed on the notice or in- TAS is an independent organization within the eligible taxpayers. To find a clinic near you, visit structions. IRS that helps taxpayers and protects taxpayer TaxpayerAdvocate.IRS.gov/about/LITC or see • Cash: You may be able to pay your taxes rights. Their job is to ensure that every taxpayer IRS Pub. 4134, Low Income Taxpayer Clinic with cash at a participating retail store. is treated fairly and that you know and under- List. • Same-Day Wire: You may be able to do stand your rights under the Taxpayer Bill of same-day wire from your financial institu- Rights.

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To help us develop a more useful index, please let us know if you have ideas for index entries. Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

When to 41 Trusts, payee 6 Income code: 10% owners 28 Deposits 29 Foreign financial institution 01 27 501(c) organizations 39 Determining the amount to (FFI) 52 02 28 80/20 company 30 withhold 47 Foreign person 8 03 29 Disregarded entities 5 Form: 04 29 Dividend equivalent 1042 4, 16, 17, 42 06 30 A payments 31 1042-S 4, 16, 17, 42 07 30 Acceptance agent 40 Dividend Equivalents 31 1099 4 08 31 Accounts, offshore 11 Dividends: 1099-S 50 09 32 Alien: Direct dividend rate 30 4419 42 10 32 Defined 9 Domestic corporation 30 7004 43 11 32 Illegal 34 Foreign corporations 31 8233 34 12 32 Nonresident alien 9 In general 30 8288 50 14 32 Resident alien 9 Documentary evidence 11, 20, 8288-A 50 15 32 Alimony 32, 33 21 8288-B 50 16 33 American Samoa 9 Documentation 10–23 8804 45 17 34 Amount to withhold 3 For Chapter 3 10 8805 45 18 37 Amount to withhold Determining For Chapter 4 10 8813 45 19 37 the 47 From foreign beneficial owners 8833 11 20 38 Annuities 32 and U.S. payees 10 8966 4 24 50 Artists and athletes: From foreign intermediaries and 940 36 25 50 Earnings of 38 foreign flow-through 941 36 26 50 Special events and entities 12 972 30 27 45 promotions 38 Presumptions in the absence SS-4 40 28 38 Assistance (See Tax help) of 23 SS-5 40 29 29 Awards 34 W-2 36 30 27 W-4 33, 34, 36 42 38 E W-7 40 43 38 B Effectively connected income: W-8BEN 11 51 39 Backup withholding 4 Defined 26 W-8BEN-E 12 Independent personal services: Banks, interest received by 28 Foreign partners 43 W-8ECI 11, 12 Defined 34 Beneficial owner 11 Partnerships 4 W-8EXP 12 Exempt from withholding 34 Beneficiary of foreign trust 17 EFTPS 41 W-8IMY 12 Indirect account holders 21 Bonds sold between interest Electronic deposit rules 41 W-8 series 10 Installment payment 25, 44 dates 30 Employees 24, 35 W-9 10, 40 Insurance proceeds 25 Branch profits tax 31 Employer 36 Forms for paying and reporting Interest: Exceptions to withholding on section 1446(f) Contingent 28 transfers of non-PTP withholding. 47 Controlled foreign C interests. 46 FUTA 36 corporations 29 Canada 37, 42 Exempt beneficial owner 52 Deposits 29 Capital gains 32 Foreign business Central withholding G arrangements 29 agreements 38 F Gambling winnings 38 Foreign corporations 29 Chapter 3 withholding 3–9 FATCA report 4 Global intermediary identification Income 27 Income subject to 23 Federal unemployment tax 36 number (GIIN) 21, 41 Portfolio 27, 28 Payees 5 Fellowship grants 33 Graduated rates 38 Real property mortgages 28 Persons subject to 5 Fellowships 25 Graduated withholding 35 Intermediary: Chapter 4 withholding 4–9 Financial institution (FI) 52 Grants 25, 33, 34 Foreign 7 Payees 5 Financial institutions 7 Green card test 9 Nonqualified 7 Persons subject to 5 FIRPTA withholding 4, 48 Guam 9 Qualified 7, 13 Withholding rate pool 51 Fiscally transparent entity 6 International organizations 39 Withholding statement 13 Fixed or determinable annual or ITIN 40 Charitable organizations 9 periodic income 25 I Consent dividends 30, 31 Flow-through entities 5 Identification number, Contingent interest 28 Foreign: taxpayer 40, 45 K Controlled foreign corporations: 501(c) organizations 39 Important reminders 2 Knowledge, standards of 18 Interest paid to 28, 29 Bank 8, 26 Income: Covenant not to compete 26 Charitable organizations 9 Fixed or determinable annual or Crew members 25 Corporations 9 periodical 25 L Governments 39 Interest 27 Liability of withholding agent 3 Insurance company 8, 26 Notional principal contract 26 D Intermediary, payee 7 Other than effectively Deemed-compliant FFI 52 Organizations and connected 26 M Dependent personal services 37 associations 9 Pensions 25 Magnetic media reporting 42 Defined 37 Partner 43 Personal service 24 Marketable securities 11 Exempt from withholding 37 Partnerships, payee 6 Source of 24 Mexico 37 Depositing taxes: Private foundation 9, 39 Transportation 39 Model 1 IGA 52 How to 41 Status 19 Model 2 IGA 52

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Mortgages 28 Employees 35 Resident alien, defined 9 Foreign insurance company 8, Multi-level marketing 25 Exempt from withholding 34 Returns required 42 26 Independent personal Royalties 32 Foreign person 9 services 34 Ryukyu Islands 30 U.S. possession, resident of 9 N Salaries and wages 35 U.S. real property Non-financial foreign entity Scholarship or fellowship interest (See Real property (NFFE) 52 recipient 33 S interest) Nonparticipating FFI 52 Studying 38 Salaries 35 U.S. savings bonds 30 Nonqualified intermediary: Teaching 37 Saving clause 34 U.S. territorial limits 25 Alternative withholding Training 38 Scholarships 25, 33 U.S. Virgin Islands 9 procedure 15 Penalties: Section 1446(f) Withholding 46 Unexpected payment 40 Chapter 4 withholding rate Deposit 41 Section 1446(f) pool 15 Form 1042 43 withholding.Forms for paying Defined 7 Form 8804 45 and reporting 47 W For chapter 3 purposes 15 Form 8805 45 Securities 26 Wages: For chapter 4 purposes 15 Magnetic media 43 Securities, marketable 11 Paid to employees 35 For chapter 61 purposes 15 Trust fund recovery 36 Services performed outside the Pay that is not 36 Pooled withholding 15 Pensions 25, 32 U.S. 36 What's New 1 Withholding statement 14 Per diem 33 Short-term obligation 30 When to withhold 3 Non-registered obligations 28 Personal service income 24 Social security 38 Withhold, amount to 3 Nonresident alien: Pooled withholding Source of income 24 Withhold, when to 3 Defined 9 information 15 Standards of knowledge: Withholdable payment 4, 5, 52 Married to U.S. citizen or Portfolio interest 27, 28 For Chapter 3 18 Withholding: resident 9 Presumption rules: For Chapter 4 21 Agreements 34, 38 Who becomes a resident Corporation 23 Substantial presence test 9 Certificate 19, 21 alien 34 Individual 23 Chapter 3 3 Nonwage pay 36 Partnership 23 Chapter 4 4 Northern Mariana Islands 9 Trust 23 T In general 3 Notional principal contract Private foundation, foreign 9 Tax-exempt entities 39 On specific income 26 income 26 Prizes 34 Tax help 52 Rate pool 15, 51 Publications (See Tax help) Taxpayer identification number Real property 48 Puerto Rico 9, 37 (TIN) 40, 45 Reporting and paying 45 O Exceptions 40 Withholding agent 3 Obligations: Tax treaties (See Treaties) Liability 3 Not in registered form 28 Q Teachers 37 Returns required 42 Registered 28 QI agreement 7 Ten-percent owners 28 Tax deposit requirements 41 Offshore accounts 11 Qualified derivatives dealer Territorial limits 25 Withholding exemptions and Original issue discount 27 (QDD) 52 Territory financial institution 52 reductions: Overwithholding, adjustment Qualified intermediary: Totalization agreements 38 Dependent personal for 42 Agency option 14 Transfers of partnership services 37 Collective refund procedures 14 interests subject to Exemption 26 Defined 13 withholding under sections Final payment exemption 35 P Joint account treatment 14 1445(e)(5) and 1446(f) of the Foreign governments 39 Participating FFI 12, 52 Payee 7 Internal Revenue Code. 47 International organizations 39 Partner, foreign 43, 45 Reporting on Form 1042-S 14 Transportation income 39 Real property interest 50 Partnerships: Responsibilities and Travel expenses 35 Researchers 38 Effectively connected income of documentation 13 Treaties: Scholarships and fellowship foreign partners 43 Qualified investment entity (QIE): Claiming benefits for grants 33 Foreign payee 6 Distributions paid by 49 chapter 3 11 Students 38 Publicly traded 45 Dividends paid by 30 Dependent personal Withholding agreements 34, 38 Withholding foreign 8, 16 services 37 Withholding foreign partnership Passive NFFE 52 Entertainers and athletes 38 (WP): Payee: R Gains 32 Agency option 16 Charitable organizations 9 Racing purses 26 Independent personal Collective refund procedures 16 Fiscally transparent entity 6 Real property interest: services 35 Joint account treatment 16 Foreign flow-through entities 12 Disposition of 48 Rate tables 52 Not acting as WP 17 Foreign intermediaries 12 Withholding certificates 50 Students 33, 38 Withholding foreign trust (WT): Foreign partnerships 6 Withholding obligation 4 Teaching 38 Agency option 18 Foreign trusts 6 Reason to know 19 Trainees 38 Collective refund procedures 17 Identifying 5 Recalcitrant account holder 52 Trusts: Joint account treatment 18 Nonqualified intermediary 7 Registered deemed-compliant Foreign payee 6 Not acting as WT 18 Organizations and FFI 12, 52 Withholding foreign 8, 17 Reporting U.S. beneficiaries 17 associations 9 Registered obligations 28 Trust Territory of the Pacific Responsibilities of 17 Private foundations 9 Reminders: Islands 30 Withholding on transfers of Qualified intermediary 7 Central Withholding Agreement non-PTP interests. Exceptions U.S branches of foreign (CWA) simplified application to 46 persons 9 process. 2 U Withholding under sections Pay for personal services: Reporting and paying the tax 45 U.S. agent of foreign person 5 1445(e)(5) and 1446(f) of the Artists and athletes 38 Reporting Model 1 FFI 52 U.S. branch: Internal Revenue Dependent personal Reporting Model 2 FFI 52 Foreign bank 8, 26 Code.Transfers of partnership services 37 Researchers 38 interests subject to 47

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