[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Rules and Regulations]
[Pages 17572-17575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9456]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31 and 602
[TD 8664]
RIN 1545-AL99
Information Reporting and Backup Withholding
Agency: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that provide rules
regarding the reporting on Form 1042-S of certain bank deposit interest
paid with respect to a United States bank account to an individual who
is a nonresident alien of the United States and a resident of Canada.
The IRS has determined that information concerning those deposits would
be of significant use in furthering its compliance efforts, which
include exchange of tax information with Canada.
EFFECTIVE DATE: January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Teresa Burridge Hughes, (202) 622-3880
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this final regulation
has been reviewed and approved by the Office of Management and Budget
in accordance with the requirements of the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-0096. Responses to this
collection of information are mandatory.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent/recordkeeper is
approximately .10 hour, depending on individual circumstances.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be directed to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP, Washington
DC 20224, and the Office of Management and Budget, Attn: Desk Officer
for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains final regulations to be added to the Income
Tax Regulations (26 CFR part 1) under section 6049 of the Internal
Revenue Code (Code). The final regulations provide rules regarding
reporting on Form 1042-S of certain bank deposit interest paid with
respect to a United States bank account to a nonresident alien
individual who is a resident of Canada.
Proposed regulations on this subject were set forth, at
Secs. 1.6049-5(e)(2), 1.6049-6(e)(6), and 31.3406(a)-3(b)(1), in a
notice of proposed rulemaking published in the Federal Register (53 FR
5991) on February 29, 1988 [INTL-52-86 (1988-1 C.B. 892)]. The IRS
received comments on the proposed regulations and held a public hearing
on June 15, 1989. Having considered the comments and the statements
made at the hearing, the IRS and the Treasury Department adopt the
proposed regulations as modified by this Treasury decision.
Explanation of Provisions
A. Reporting of Payments to Canadians
This Treasury decision requires reporting on a Form 1042-S of
certain interest paid on deposits maintained at a bank's office within
the United States when paid to a nonresident alien individual who is a
resident of Canada. However, interest on certain bearer certificates of
deposit targeted to foreign persons is excepted from the reporting
requirement if the interest is paid outside the United States. This
final regulation makes an exception to the current rule, based on
Sec. 1.6049-5(b), that certain interest amounts paid to non-U.S.
persons is not subject to reporting if a statement certifying non-U.S.
status is furnished to the payor or middleman on a Form W-8
(Certificate of Foreign Status), as described in Sec. 1.6049-
5(b)(2)(iv). However, although bank deposit interest paid to Canadians
is made subject to reporting under this final regulation, backup
withholding
[[Page 17573]]
under section 3406 is not required. Further, in response to suggestions
from commentators that segregating interest amounts on the basis of
residence would be burdensome, this final regulation allows payors
voluntarily to report on a Form 1042-S payments to all foreign persons
receiving bank deposit interest without segregating on the basis of
residency.
The payor determines whether a payee is a Canadian resident based
on the address in the country of permanent residence required to be
provided on the Form W-8. However, if the payor has actual knowledge
that the payee is a U.S. person, Form 1099 reporting provisions apply.
See proposed regulations published elsewhere in this issue of the
Federal Register regarding proposed changes to the notice of proposed
rulemaking published in the Federal Register on February 29, 1988.
B. Comments on Canadian Reporting Provisions
Commentors stated that imposing information reporting with respect
to deposits of nonresident aliens may undercut the competitiveness of
U.S. banks. The IRS and Treasury considered these comments but, in
light of our obligations under the United States-Canada income tax
treaty and the reporting by Canadian banks of U.S. depositor interest
to Canadian tax authorities, have decided to finalize these proposed
regulations.
In response to comments that the reporting requirement be delayed,
or at least that a transition period be allowed, because of the time
required to identify Canadian account holders and to modify processing
systems for reporting purposes, the new reporting requirement will be
phased in over a three-year period, starting with payments made on or
after January 1, 1997. On or after that date, payors will identify
Canadian account holders as Forms W-8 are received from new depositors
or renewed by existing depositors. Upon identifying account holders as
Canadians, payors must begin reporting bank deposit interest paid to
those persons.
Commentors also requested that the IRS develop and permit Form
1042-S reporting on magnetic diskette, as is allowed for Form 1099
filings; permit the Form 1042-S to be the transmittal document for the
Form 1042-S filing; and allow financial institutions to file separate
tapes or diskettes for each area of the bank, rather than bank-wide.
These filing changes have previously been made by the IRS and require
no further action.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required.
Drafting Information
The principal author of these regulations is Teresa Burridge
Hughes, Office of Associate Chief Counsel (International). However,
other personnel from the IRS and Treasury Department participated in
their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 31 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority for part 1 is amended by adding entries
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 1.6049-4 also issued under 26 U.S.C. 6049 (a), (b),
(c), and (d).
Section 1.6049-5 also issued under 26 U.S.C. 6049 (a), (b), (c),
and (d). * * *
Par. 2. Section 1.6049-4 is amended by:
1. Removing the reference ``(b)(3)'' and adding ``(b)(3) and
(b)(5)'' in its place in the first sentence of paragraphs (b)(1) and
(b)(2) introductory text.
2. Revising the first sentence of paragraphs (b)(3) and (b)(4).
3. Adding paragraph (b)(5).
4. Removing the authority citation at the end of the section.
The revisions and addition read as follows:
Sec. 1.6049-4 Return of information as to interest paid and original
issue discount includible in gross income after December 31, 1982.
* * * * *
(b) * * *
(3) * * * Except as provided in paragraph (b)(5) of this section,
every person acting as a middleman (as defined in paragraph (f)(4) of
this section) shall make an information return on Forms 1096 and 1099
for the calendar year. * * *
(4) * * * Except as provided in paragraph (b)(5) of this section,
every person carrying on the banking business who makes payments of
interest to another person (whether or not aggregating $10 or more)
during a calendar year with respect to a certificate of deposit issued
in bearer form shall make an information return on Forms 1096 and 1099.
* * *
(5) Interest payments to Canadian nonresident alien individuals--
(i) General rule. In the case of interest paid to a Canadian
nonresident alien individual (as described in Sec. 1.6049-8(a)), the
payor or middleman shall make an information return on Form 1042-S for
the calendar year in which the interest is paid. The payor or middleman
shall prepare and transmit Form 1042-S at the time and in the manner
prescribed by section 1461 and the regulations under that section and
by the form and its accompanying instructions. See Sec. 1.6049-6(e)(4)
for furnishing a copy of the Form 1042-S to the payee. To determine
whether an information return is required for original issue discount,
see Secs. 1.6049-5(c) and 1.6049-8(a).
(ii) Effective date. Paragraph (b)(5)(i) of this section shall be
effective for payments made after December 31, 1996 with respect to a
Form W-8 (Certificate of Foreign Status) furnished to the payor or
middleman after that date.
* * * * *
Par. 3. Section 1.6049-5 is amended by:
1. Revising the introductory text of paragraph (b)(1).
2. Revising the last sentence in paragraph (c).
3. Removing authority citation at the end of the section.
The revisions read as follows:
Sec. 1.6049-5 Interest and original issue discount subject to
reporting after December 31, 1982.
* * * * *
(b) * * * (1) * * * Subject to the provisions of Sec. 1.6049-8, the
term interest does not include:
* * * * *
[[Page 17574]]
(c) * * * Original issue discount on an obligation (including an
obligation with a maturity of not more than 6 months from the date of
original issue) held by a nonresident alien individual or foreign
corporation is interest described in paragraph (b)(1)(vi) (A) or (B) of
this section and, therefore is not interest subject to reporting under
section 6049 unless it is described in Sec. 1.6049-8(a) (relating to
bank deposit interest paid to a Canadian nonresident alien individual).
Par. 4. Section 1.6049-6 is amended by:
1. Redesignating paragraph (e)(4) as paragraph (e)(5).
2. Adding new paragraph (e)(4).
The addition reads as follows:
Sec. 1.6049-6 Statements to recipients of interest payments and
holders of obligations for attributed original issue discount.
* * * * *
(e) * * *
(4) Special rule for amounts described in Sec. 1.6049-8(a) paid
after December 31, 1996. In the case of amounts described in
Sec. 1.6049-8(a) (relating to payments of interest to Canadian
nonresident alien individuals) paid after December 31, 1996, any person
who makes a Form 1042-S under section 6049(a) and Sec. 1.6049-4(b)(5)
shall furnish a statement to the recipient. The statement shall include
a copy of the Form 1042-S required to be prepared pursuant to
Sec. 1.6049-4(b)(5) and a statement to the effect that the information
on the Form is being furnished to the United States Internal Revenue
Service and may be furnished to Canada.
* * * * *
Par. 5. Section 1.6049-8 is added to read as follows:
Sec. 1.6049-8 Interest and original issue discount paid to residents
of Canada.
(a) Interest subject to reporting requirement. For purposes of
Secs. 1.6049-4, 1.6049-6 and this section and except as provided in
paragraph (b) of this section, the term interest means interest paid to
a Canadian nonresident alien individual after December 31, 1996, where
the interest is described in section 871(i)(2)(A) with respect to a
deposit maintained at an office within the United States. For purposes
of the regulations under section 6049, a Canadian nonresident alien
individual is an individual who resides in Canada and is not a United
States citizen. The payor or middleman may rely upon the permanent
residence address (as defined in section 1441 and the regulations under
that section) as stated on the Form W-8 (described in section 6049 and
the regulations under that section) in order to determine whether the
payment is made to a Canadian nonresident alien individual. Amounts
described in this paragraph (a) are not subject to backup withholding
under section 3406. See Sec. 31.3406(g)-1(d) of this chapter.
(b) Interest excluded from reporting requirement. The term interest
does not include an amount that is paid by the issuer or its agent
outside the United States with respect to an obligation that is
described in paragraph (b) (1) or (2) of this section.
(1)(i) The obligation is not in registered form (within the meaning
of section 163(f) and the regulations thereunder); is part of a larger
single public offering of securities; and is described in section
163(f)(2)(B).
(ii) Unless it has actual knowledge to the contrary, a middleman
may treat an obligation as if it is described in section 163(f)(2)(B)
if the obligation or coupon therefrom, whichever is presented for
payment, contains the statement described in section
163(f)(2)(B)(ii)(II) and the regulations thereunder.
(2)(i) The obligation has a face or principal amount of not less
than $500,000, and satisfies the requirements described in paragraphs
(b)(2)(i) (A), (B), and (C) of this section.
(A) The obligation satisfies the requirements of sections
163(f)(2)(B) (i) and (ii)(I) and the regulations thereunder (as if it
were a registration-required obligation within the meaning of section
163(f)(2)(A)) and is issued in accordance with the procedures of
Sec. 1.163-5(c)(2)(i)(D)).
(B) If the obligation is in registered form, it is registered in
the name of an exempt recipient described in Sec. 1.6049-4(c)(1)(ii).
(C) The obligation has on its face and on any detachable coupons
the following statement (or a similar statement having the same
effect): ``By accepting this obligation or coupon, the holder
represents and warrants that it is not a United States person (other
than an exempt recipient described in the regulations under section
6049(b)(4) of the Internal Revenue Code and the regulations thereunder)
and that it is not acting for or on behalf of a United States person
(other than an exempt recipient described in the regulations under
section 6049(b)(4) of the Internal Revenue Code and the regulations
thereunder).''
(ii) Unless the middleman has actual knowledge to the contrary, it
may treat an obligation as satisfying the requirements of sections
163(f)(2)(B) (i) and (ii)(I) and the regulations thereunder if the
obligation or a coupon therefrom, whichever is presented for payment,
contains the statement in paragraph (b)(2)(i)(C) of this section.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Par. 5a. The authority for part 31 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 31.3406(g)-1 is amended by adding paragraph (d) to
read as follows:
Sec. 31.3406(g)-1 Exception for payments to certain payees and certain
other payments.
* * * * *
(d) Reportable payments made to Canadian nonresident alien
individuals. A payment of interest made to a Canadian nonresident alien
individual under Sec. 1.6049-8(a) of this chapter is not subject to
withholding under section 3406.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 7. The authority for part 602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 8. Section 602.101, paragraph (c) is amended by removing the
entry ``Sec. 31.3406(a)-1-Sec. 31.3406(i)-1'' and adding entries to the
table in numerical order to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
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* * * * *
1. 6049-6.................................................. 1545-0096
* * * * *
31.3406(a)-1............................................... 1545-0112
31.3406(a)-2............................................... 1545-0112
31.3406(a)-3............................................... 1545-0112
31.3406(a)-4............................................... 1545-0112
31.3406(b)(2)-1............................................ 1545-0112
31.3406(b)(2)-2............................................ 1545-0112
31.3406(b)(2)-3............................................ 1545-0112
31.3406(b)(2)-4............................................ 1545-0112
31.3406(b)(2)-5............................................ 1545-0112
31.3406(b)(3)-1............................................ 1545-0112
31.3406(b)(3)-2............................................ 1545-0112
31.3406(b)(3)-3............................................ 1545-0112
31.3406(b)(3)-4............................................ 1545-0112
31.3406(b)(4)-1............................................ 1545-0112
31.3406(c)-1............................................... 1545-0112
31.3406(d)-1............................................... 1545-0112
31.3406(d)-2............................................... 1545-0112
31.3406(d)-3............................................... 1545-0112
31.3406(d)-4............................................... 1545-0112
[[Page 17575]]
31.3406(e)-1............................................... 1545-0112
31.3406(f)-1............................................... 1545-0112
31.3406(g)-1............................................... 1545-0096
1545-0112
31.3406(g)-2............................................... 1545-0112
31.3406(g)-3............................................... 1545-0112
31.3406(h)-1............................................... 1545-0112
31.3406(h)-2............................................... 1545-0112
31.3406(h)-3............................................... 1545-0112
31.3406(i)-1............................................... 1545-0112
* * * * *
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Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: March 27, 1996
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc 96-9456 Filed 4-15-96; 10:14 am]
BILLING CODE 4830-01-P