[Federal Register Volume 66, Number 67 (Friday, April 6, 2001)]
[Rules and Regulations]
[Pages 18187-18190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8136]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8881]
RIN 1545-AX53; 1545-AV27; 1545-AV41


Revisions to Regulations Relating to Withholding of Tax on 
Certain U.S. Source Income Paid to Foreign Persons and Revisions of 
Information Reporting Regulations; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains corrections to final regulations (TD 
8881) which were published in the Federal Register on Monday, May 22, 
2000 (65 FR 32152). The final regulations relate to withholding of tax 
on certain U.S. source income paid to foreign persons and related 
requirements governing the collection, deposit, refunds, and credits of 
withheld amounts under sections 1461 through 1463.

DATES: This correction is effective January 1, 2001.

FOR FURTHER INFORMATION CONTACT: Carl Cooper, Laurie Hatten-Boyd, or 
Kate Hwa (202) 622-3840 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations that are subject to these corrections are 
under section 1441 of the Internal Revenue Code.

[[Page 18188]]

Need for Correction

    As published, final regulations (TD 8881) contain errors that may 
prove to be misleading and are in need of clarification.

Correction of Publication

    Accordingly, the publication of final regulations (TD 8881), which 
were the subject of FR Doc. 00-11937, is corrected as follows:


Sec. 1.1441-1  [Corrected]

    1. On page 32174, columns 1 and 2, Sec. 1.1441(b)(3)(ii)(C) is 
corrected to read as follows:


Sec. 1.1441-1  Requirement for the deduction and withholding of tax on 
payments to foreign persons.

* * * * *
    (b) * * *
    (3) * * *
    (ii) * * *
    (C) Documentary evidence furnished for offshore account. If the 
withholding agent receives valid documentary evidence, as described in 
Sec. 1.6049-5(c)(1) or (4), with respect to an offshore account from an 
entity but the documentary evidence does not establish the entity's 
classification as a corporation, trust, estate, or partnership, the 
withholding agent may presume (in the absence of actual knowledge 
otherwise) that the entity is the type of person enumerated under 
Sec. 1.6049-4 (c)(1)(ii)(B) through (Q) if it can be so treated under 
any one of those paragraphs without the need to furnish documentation. 
If the withholding agent cannot treat a payee as a person described in 
Sec. 1.6049-4(c)(1)(ii)(B) through (Q), then the payee shall be 
presumed to be a corporation unless the withholding agent knows, or has 
reason to know, that the entity is not classified as a corporation for 
U.S. tax purposes. If a payee is, or is presumed to be, a corporation 
under this paragraph (b)(3)(ii)(C) and a foreign person under paragraph 
(b)(3)(iii) of this section, a withholding agent shall not treat the 
payee as the beneficial owner of income if the withholding agent knows, 
or has reason to know, that the payee is not the beneficial owner of 
the income. For this purpose, a withholding agent shall have reason to 
know that the payee is not a beneficial owner if the documentary 
evidence indicates that the payee is a bank, broker, intermediary, 
custodian, or other agent, or is treated under Sec. 1.6049-
4(c)(1)(ii)(B) through (Q) as such a person. A withholding agent may, 
however, treat such a person as a beneficial owner if the foreign 
person provides a statement, in writing and signed by a person with 
authority to sign the statement, that is attached to the documentary 
evidence stating it is the beneficial owner of the income.
* * * * *

    2. On page 32175, column 2, Sec. 1.1441-1(b)(3)(vi), line 5, the 
language ``this section that has not agreed to be'' is corrected to 
read ``this section that has provided a withholding certificate as 
described in paragraph (e)(3)(v) of this section on which it has not 
agreed to be''.

    3. On page 32175, column 2, Sec. 1.1441-1(b)(3)(vii)(B), line 9, 
the language ``defined in Sec. 1.6059-5(e)) to an offshore'' is 
corrected to read ``defined in Sec. 1.6049-5(e)) to an offshore''.

    4. On page 32176, column 3, Sec. 1.1441-1(c)(14), line 3, the 
language ``intermediary that is not a qualified'' is corrected to read 
``intermediary that is not a U.S. person and not a qualified''.

    5. On page 32179, column 1, Sec. 1.1441-1(e)(3)(iii)(D), line 7, 
the language ``(e)(3)(iii) or paragraph (e)(3)(iv) of this'' is 
corrected to read ``(e)(3)(iii) or paragraph (e)(5)(iv) of this''.

    6. On page 32180, column 1, Sec. 1.1441-1(e)(3)(iv)(C)(1), line 8, 
the language ``intermediary to the withholding agent'' is corrected to 
read ``intermediary and provided to the withholding agent''.

    7. On page 32180, column 2, Sec. 1.1441-1(e)(3)(iv)(C)(2), line 5 
from the top of the column, the language ``person), the withholding 
certificate'' is corrected to read ``person), the withholding 
statement''.

    8. On page 32180, column 3, Sec. 1.1441-1(e)(3)(iv)(D)(2), line 3, 
the language ``(e)(3)(iv)(B)(2) of this section allocating'' is 
corrected to read ``(e)(3)(iv)(C)(2) of this section allocating''.

    9. On page 32180, column 3, Sec. 1.1441-1(e)(3)(iv)(D)(2), line 11, 
the language ``(e)(3)(iv)(B) of this section. Further, each'' is 
corrected to read ``(e)(3)(iv)(C) of this section. Further, each''.

    10. On page 32180, column 3, Sec. 1.1441-1(e)(3)(iv)(D)(2), line 
25, the language ``(e)(3)(iv)(B) of this section (other than'' is 
corrected to read ``(e)(3)(iv)(C) of this section (other than''.

    11. On page 32181, column1, Sec. 1.1441-1(e)(3)(iv)(D)(3), line 6, 
the language ``payee (including U.S. non-exempt'' is corrected to read 
``payee (including U.S. exempt''.

    12. On page 32186, columns 1 and 2, Sec. 1.1441-1(e)(5)(v)(C)(2), 
is corrected to read as follows:


Sec. 1.1441-1  Requirement for the deduction and withholding of tax on 
payments to foreign persons.

* * * * *
    (e) * * *
    (5) * * *
    (v) * * *
    (C) * * *
    (2) Alternative procedure for U.S. non-exempt recipients. If 
permitted under its agreement with the IRS, a qualified intermediary 
may, by mutual agreement with a withholding agent, establish a single 
zero withholding rate pool that includes U.S. non-exempt recipient 
account holders for whom the qualified intermediary has provided Forms 
W-9 prior to the withholding agent paying any reportable payments, as 
defined in the qualified intermediary agreement, and a separate 
withholding rate pool (subject to 31-percent withholding) that includes 
only U.S. non-exempt recipient account holders for whom a qualified 
intermediary has not provided Forms W-9 prior to the withholding agent 
paying any reportable payments. If a qualified intermediary chooses the 
alternative procedure of this paragraph (e)(5)(v)(C)(2), the qualified 
intermediary must provide the information required by its qualified 
intermediary agreement to the withholding agent no later than January 
15 of the year following the year in which the payments are paid. 
Failure to provide such information will result in the application of 
penalties to the qualified intermediary under sections 6721 and 6722, 
as well as any other applicable penalties, and may result in the 
termination of the qualified intermediary's withholding agreement with 
the IRS. A withholding agent shall not be liable for tax, interest, or 
penalties for failure to backup withhold or report information under 
chapter 61 of the Internal Revenue Code due solely to the errors or 
omissions of the qualified intermediary. If a qualified intermediary 
fails to provide the allocation information required by this paragraph 
(e)(5)(v)(C)(2), with respect to U.S. non-exempt recipients, the 
withholding agent shall report the unallocated amount paid from the 
withholding rate pool to an unknown recipient, or otherwise in 
accordance with the appropriate Form 1099 and the instructions 
accompanying the form.
* * * * *


Sec. 1.1441-5  [Corrected]

    12a. On page 32193, column 2, Sec. 1.1441-5(e)(5), paragraph 
(e)(5)(ii) is correctly designated as paragraph (e)(5)(ii).

    13. On page 32193, column 3, Sec. 1.1441-5(e)(5)(ii), the last 2 
lines of

[[Page 18189]]

the paragraph, the language ``having to identify any partner's 
distributive share of the payment.'' is corrected to read ``having to 
identify any beneficiary's or grantor's distributive share of the 
payment.''.


Sec. 1.1441-7  [Corrected]

    14. On page 32198, columns 1 and 2, Sec. 1.1441-7(b)(4)(i) is 
corrected to read as follows:


Sec. 1.1441-7  General provisions relating to withholding agents.

* * * * *
    (b) * * *
    (4) * * * (i) In general. A withholding agent has reason to know 
that a beneficial owner withholding certificate provided by a direct 
account holder in connection with a payment of an amount described in 
Sec. 1.1441-6(c)(2) is unreliable or incorrect if the withholding 
certificate is incomplete with respect to any item on the certificate 
that is relevant to the claims made by the direct account holder, the 
withholding certificate contains any information that is inconsistent 
with the direct account holder's claim, the withholding agent has other 
account information that is inconsistent with the direct account 
holder's claim, or the withholding certificate lacks information 
necessary to establish entitlement to a reduced rate of withholding. 
For purposes of establishing a direct account holder's status as a 
foreign person or resident of a treaty country a withholding 
certificate shall be considered unreliable or inconsistent with an 
account holder's claims only if it is not reliable under the rules of 
paragraphs (b)(5) and (6) of this section. A withholding agent that 
relies on an agent to review and maintain a withholding certificate is 
considered to know or have reason to know the facts within the 
knowledge of the agent.
* * * * *
    15. On page 32198, column 3, Sec. 1.1441-7(b)(5)(i)(A)(1), lines 4 
and 5, the language ``address) that is no more than three years old, 
the documentary evidence supports'' is corrected to read ``address) 
that has been provided within the past three years, was valid at the 
time it was provided, the documentary evidence supports''.

    16. On page 32201, column 1, Sec. 1.1441-7(b)(10)(ii), line 21, the 
language ``withholding certificate relates. A'' is corrected to read 
``withholding certificate. A''.


Sec. 1.1461-1  [Corrected]

    17. On page 32201, column 3, Sec. 1.1461-1, in the section heading, 
the language ``Payment and returns of tax withhold'' is corrected to 
read ``Payment and returns of tax withheld''.

    18. On page 32202, column 1, Sec. 1.1461-1(c)(1)(ii)(A)(1), line 2, 
the language ``paragraph (c)(6) of this section,'' is corrected to read 
``Sec. 1.1441-1(c)(6),''.

    19. On page 32202, column 3, Sec. 1.1461-1(c)(2)(i) is corrected by 
adding the language ``and'' at the end of the last line of paragraph 
(c)(2)(i)(L), removing paragraph (c)(2)(i)(M), and correctly 
designating paragraph (c)(2)(i)(N) as paragraph (c)(2)(i)(M).

    20. On page 32203, column 1, Sec. 1.1461-1(c)(2)(ii)(H) is 
corrected to read as follows:


Sec. 1.1461-1  Payment and returns of tax withheld.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (H) Interest (including original issue discount) paid with respect 
to foreign-targeted registered obligations described in Sec. 1.871-
14(e)(2) to the extent the documentation requirements described in 
Sec. 1.871-14(e)(3) and (4) are required to be satisfied (taking into 
account the provisions of Sec. 1.871-14(e)(4)(ii), if applicable;
* * * * *


Sec. 1.6045-1  [Corrected]

    21. On page 32206, column 2, Sec. 1.6045-1(g)(3)(iv), lines 6 and 
7, the language ``broker has actual knowledge or reason to know (within 
the meaning of'' is corrected to read ``broker has actual knowledge 
(within the meaning of''.


Sec. 1.6049-5  [Corrected]

    22. On page 32207, column 3, Sec. 1.6049-5(c)(4) introductory text, 
lines 2 and 3, the language ``modifies the provisions of this paragraph 
(c) for payments to offshore'' is corrected to read ``modifies the 
provisions of paragraph (c)(1) of this section for payments to 
offshore''.

    23. On page 32208, columns 2 and 3, Sec. 1.6049-5(d)(2)(i), is 
corrected to read as follows:


Sec. 1.6049-5  Interest and original issue discount subject to 
reporting after December 31, 1982.

* * * * *
    (d) * * *
    (2) * * * (i) In general. Except as otherwise provided in this 
paragraph (d)(2)(i), for purposes of this section (and other sections 
of regulations under this chapter to which this paragraph (d)(2) 
applies), the provisions of Sec. 1.1441-1(b)(3)(i) through (ix) and 
Sec. 1.1441-5(d) and (e)(6) shall apply (by applying the term payor 
instead of the term withholding agent) to determine the classification 
(e.g., individual, corporation, partnership, trust), status (i.e., a 
U.S. or a foreign person), and other relevant characteristics (e.g., 
beneficial owner or intermediary) of a payee if a payment cannot be 
reliably associated with valid documentation under Sec. 1.1441-
1(b)(2)(vii) irrespective of whether the payments are subject to 
withholding under chapter 3 of the Internal Revenue Code. The 
provisions of Sec. 1.1441-1(b)(3)(iii)(D) and (vii)(B) shall not apply, 
however, to payments to amounts that are not subject to withholding. 
The rules of Sec. 1.1441-1(b)(2)(vii) shall apply for purposes of 
determining when a payment can reliably be associated with 
documentation, by applying the term payor instead of the term 
withholding agent. For this purpose, the documentary evidence or 
statement described in paragraph (c)(4) of this section can be treated 
as documentation with which a payment can be associated.
* * * * *

    24. On page 32208, column 3, Sec. 1.6049-5(d)(2)(ii), line 11, the 
language ``described in Sec. 1.1441-6(c)(2) that are'' is corrected to 
read ``described in Sec. 1.1441-6(c)(2) (or credits an account with 
broker proceeds from securities described in Sec. 1.1441-6(c)(2)), that 
are''.

    25. On page 32209, column 2, Sec. 1.6049-5(d)(3)(i), line 11 from 
the top of the column, the language ``determine the payees status for'' 
is corrected to read ``determine the payee's status for''.

    26. On page 32209, column 2, Sec. 1.6049-5(d)(3)(ii), the last line 
in the paragraph, the language ``an exempt recipient.'' is corrected to 
read ``an exempt recipient and has actual knowledge of the amount 
allocable to such a person.''.

    27. On page 32209, column 2, Sec. 1.6049-5(d)(3)(iii)(A), line 13, 
the language ``Sec. 1.1441-1(b)(3)(ii)(C) or (v)(A) shall be'' is 
corrected to read ``Sec. 1.1441-1(b)(3)(ii)(C), (v)(A), Sec. 1.1441-
5(d) or (e), shall be''.

    28. On page 32209, column 3, Sec. 1.6049-5(d)(3)(iii)(B), line 4 
from the top of the column, the language ``under Sec. 1.1441-
3(b)(ii)(C) or (v)(A) for'' is corrected to read ``as an intermediary 
for''.

PART 1--[CORRECTED]

    29. On page 32212, the table in amendatory instruction Par. 18 is

[[Page 18190]]

corrected by adding two entries in numerical order to read as follows:

------------------------------------------------------------------------
           Section                   Remove                  Add
------------------------------------------------------------------------
 
      *         *         *         *         *         *         *
1.6045-1(g)(1)(i), first      or presumed to be     or presumed to be
 sentence.                     made to a foreign     made to a foreign
                               payee under Sec.      payee under Sec.
                               1.6049-5(d)(2),       1.6049-5(d)(2) or
                               (3), (4), or (5).     (3).
 
      *         *         *         *         *         *         *
1.6049-5(b)(12), first        or presumed to be     or presumed to be
 sentence.                     made to a foreign     made to a foreign
                               payee under           payee under
                               paragraph (d)(2),     paragraph (d)(2) or
                               (3), (4), or (5) of   (3) of this section
                               this section.
 
      *         *         *         *         *         *         *
------------------------------------------------------------------------


LaNita VanDyke,
Acting Chief, Regulations Unit, Office of Special Counsel 
(Modernization & Strategic Planning).
[FR Doc. 01-8136 Filed 4-5-01; 8:45 am]
BILLING CODE 4830-01-P