[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Proposed Rules]
[Pages 1105-1108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-82]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[REG-146097-09]
RIN 1545-BJ01


Guidance on Reporting Interest Paid to Nonresident Aliens

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking; notice of public hearing; and 
withdrawal of previously proposed rulemaking.

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SUMMARY: This document contains proposed regulations that provide 
guidance on the reporting requirements for interest on deposits 
maintained at U.S. offices of certain financial institutions and paid 
to nonresident alien individuals. These proposed regulations affect 
persons making payments of interest with respect to such deposits. This 
document also provides a notice of public hearing on these proposed 
regulations and withdraws the notice of proposed rulemaking published 
on August 2, 2002 (67 FR 50386).

DATES: Written or electronic comments must be received by April 7, 
2011. Outlines of topics to be discussed at the public hearing 
scheduled for April 28, 2011, at 10 a.m. must be received by April 8, 
2011. The proposed rule published on August 2, 2002 is withdrawn as of 
January 7, 2011.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-146097-09), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
146097-09), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20224 or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
146097-09). The public hearing will be held in auditorium of the 
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, 
DC.

[[Page 1106]]


FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Kathryn Holman, (202) 622-3840; concerning submissions of comments, the 
hearing, and/or to be placed on the building access list to attend the 
hearing, [email protected], (202) 622-7180 (not toll 
free numbers).

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Attn: Desk Office for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by March 8, 2011. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance and purchase of service to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.6049-4(b)(5)(i) and Sec.  1.6049-6(e)(4)(i) and (ii). This 
information is required to determine if taxpayers have properly 
reported amounts received as income. The collection of information is 
mandatory. The likely respondents are businesses and other for-profit 
institutions.
    Estimated total annual reporting burden: 500 hours.
    The estimated annual burden per respondent: 15 minutes.
    Estimated number of respondents: 2,000.
    Estimated annual frequency of responses: Annually.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a 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.

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    On January 17, 2001, the IRS and Treasury Department published a 
notice of proposed rulemaking (REG 126100-00) in the Federal Register 
(66 FR 3925, corrected by 66 FR 15820 and 66 FR 16019) under Section 
6049 (the 2001 proposed regulations), which would provide that U.S. 
bank deposit interest paid to any nonresident alien individual must be 
reported annually to the IRS. On August 2, 2002, the Treasury 
Department and the IRS published a notice of proposed rulemaking (REG-
133254-02) in the Federal Register (67 FR 50386) which withdrew these 
regulations and proposed narrower regulations (the 2002 regulations) 
that would require reporting only on interest payments to nonresident 
alien individuals that are residents of certain designated countries 
or, at the option of the payor, on interest payments to all nonresident 
alien recipients of bank deposit interest. Under the 2002 regulations 
currently in effect, reporting of U.S. bank deposit interest is 
required only if the interest is paid to a U.S. person or a nonresident 
alien individual who is a resident of Canada. These proposed 
regulations withdraw the 2002 regulations and provide new proposed 
regulations that extend the information reporting requirement to 
include bank deposit interest paid to nonresident alien individuals who 
are residents of any foreign country.
    This extension is appropriate for several reasons. First, since the 
2002 proposed regulations were released, there is a growing global 
consensus regarding the importance of cooperative information exchange 
for tax purposes that has developed. Significant agreements have been 
reached on international standards for the exchange of information, 
including, for example, the understanding that information exchange 
will not be limited by bank secrecy or the absence of a domestic tax 
interest. Second, requiring routine reporting to the IRS of all U.S. 
bank deposit interest paid to any nonresident alien individual will 
further strengthen the United States exchange of information program, 
consistent with adequate provisions for reciprocity, usability, and 
confidentiality in respect of this information. Finally, this extension 
will help to improve voluntary compliance by U.S. taxpayers by making 
it more difficult to avoid the U.S. information reporting system (such 
as through false claims of foreign status).
    In addition to requiring reporting of U.S. bank deposit interest 
paid to any nonresident alien individual, the proposed regulations also 
make the following minor changes and clarifications. Section 1.6049-6 
provides that a copy of Form 1042-S, ``Foreign Person's U.S. Source 
Income Subject to Withholding'', must be furnished to the recipient for 
interest paid on deposits maintained at a bank's office within the 
United States. Section 1.6049-6(e)(4) has been revised to clarify that 
the payor or middleman can satisfy this requirement by furnishing a 
copy of Form 1042-S either in person or to the last known address of 
the recipient.

Proposed Effective Date

    These regulations are proposed to apply to payments made after 
December 31 of the year in which they are published as final 
regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore a regulatory assessment is not required. It has also 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to this regulation.
    These regulations impose a collection of information on small 
entities, and the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
applies. This rule regulates commercial banks, savings institutions, 
credit unions, and securities brokerages. The Small Business 
Administration (SBA) has established size standards for types of 
economic activities which are classified based on the North American 
Industry Classification Codes (NAICS). The regulations specifying size 
standards are set forth in Title 13, Code of Federal Regulations, part 
121 (13 CFR part 121), Small Business Size Regulations. The NAICS Code 
for small commercial banks, savings institutions, credit unions, and 
securities brokerages

[[Page 1107]]

is specified at 13 CFR 121.201. Pursuant to subsectors 522110, 522120, 
and 522130 of NAICS 2007, a small commercial bank, savings institution, 
or credit union is one with $175 million or less in assets. Pursuant to 
subsector 523120 of NAICS 2007, a small securities brokerage is one 
with receipts of less than $7 million. Because this rule will affect 
all institutions that maintain accounts for nonresident alien 
individuals, this rule may affect a substantial number of small 
entities.
    The U.S. Census Bureau American FactFinder provides data based on 
the 2007 Economic Census released November 24, 2009 including the 
number of establishments and the annual revenue of the establishments 
within each NAICS Code. According to this data, for Sector 52: 
ECO752I1: Finance and Insurance Industry Series, there were 94,192 
commercial banking establishments with revenue of approximately 
$609,748,098,000, 16,098 savings institutions with revenue of 
approximately $91,626,050,000, 17,984 credit unions with revenue of 
approximately $55,521,199,000, and 30,989 NAICS Code securities 
brokerages with revenue of approximately $167,337,807,000. It is 
estimated that approximately 25,000 commercial banks, 4,000 savings 
banks, and 4,000 credit unions with less than $175,000,000 in assets, 
and 15,000 securities brokerages with receipts of less than $7,000,000 
that would be classified as small businesses.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. Section 605, the Chief Counsel certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities. This conclusion is based on all of the following. The 
depository accounts, the interest on which is subject to reporting 
under these regulations, tend to be with larger financial institutions 
operating in the United States, and therefore the number of small 
entities that will be required to undertake this collection of 
information is expected to be limited. Banks are already required to 
gather the underlying information from nonresident aliens on Form W-8, 
so there will be no change in the collection of information. Currently 
under the 2002 regulations, banks, including small financial 
institutions, are required to report this information to the IRS with 
respect to Canadian account holders. This rule would simply extend the 
reporting requirement to all nonresident aliens. The reporting required 
by this rule would be done on Form 1042 and Form 1042-S. This rule also 
requires that institutions prepare and deliver a statement to 
nonresident alien individuals to the effect that the information on the 
1042 form is being furnished to the IRS and may be furnished to the 
government of the foreign country where the recipient resides. The 
amount of time required to complete the Form 1042 and Form 1042-S is 
brief, and the statement that is required to be collected is brief.
    The IRS requests information regarding the economic impact of this 
rule on small commercial banks, savings institutions, credit unions, 
and small securities brokerages engaged in business involving payment 
of bank deposit interest to a nonresident alien. The IRS invites 
specific comments on the economic impact of compliance from members of 
the public who believe there will be a significant economic impact on 
small businesses that are regulated by this rule. Pursuant to section 
7805(f) of the Internal Revenue Code, this regulation has been 
submitted to the Chief Counsel of Advocacy of the Small Business 
Administration for comment on its impact on small businesses.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and Treasury Department request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for April 28, 2011, beginning 
at 10 a.m. in the auditorium of the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit electronic or 
written comments and an outline of the topics to be discussed and the 
time to be devoted to each topic (signed original and eight (8) copies) 
by April 8, 2011. A period of 10 minutes will be allotted to each 
person for making comments. An agenda showing the scheduling of the 
speakers will be prepared after the deadline for receiving outlines has 
passed. Copies of the agenda will be available free of charge at the 
hearing.

Drafting Information

    The principal author of the regulations is Kathryn Holman, 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.

Withdrawal of Proposed Amendments

    Accordingly, under the authority of 26 U.S.C. 7805, the proposed 
amendment to 26 CFR parts 1 and 31 that was published in the Federal 
Register on Friday, August 2, 2002 (67 FR 50386) is withdrawn.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 31 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

     Paragraph 1. The authority citation for part 1 continues to read 
in part as follows:

    Authority:  26 U.S.C. 7805 * * *

    Par. 2. In Sec.  1.6049-4, paragraph (b)(5) is revised to 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) * * *
    (5) Interest payments to nonresident alien individuals--(i) General 
rule. In the case of interest aggregating $10 or more paid to a 
nonresident alien individual (as defined in section 7701(b)(1)(B)) that 
is reportable under Sec.  1.6049-8(a), the payor shall make an 
information return on Form 1042-S, ``Foreign Person's U.S. Source 
Income Subject to Withholding'', for the calendar year in which the 
interest is paid. The payor or middleman shall prepare and file Form 
1042-S at the

[[Page 1108]]

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. Sec.  1.1461-1(b) (rules regarding the preparation of a Form 
1042) and 1.6049-6(e)(4) (rules 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 Sec. Sec.  1.6049-5(f) and 1.6049-
8(a). The Commissioner may by ruling or other administrative 
pronouncement prescribe rules pursuant to a treaty or executive 
agreement for uniform formatting, standards for sharing information, 
and for usability, reciprocity, and confidentiality of taxpayer 
information.
    (ii) Effective/applicability date. Paragraph (b)(5)(i) of this 
section shall be effective for payments made after December 31 of the 
year in which the final regulations are published in the Federal 
Register. (For interest paid to a Canadian nonresident alien individual 
on or before December 31 of the year in which final regulations are 
published in the Federal Register, see paragraph (b)(5) of this section 
as in effect and contained in 26 CFR part 1 revised April 1, 2000.)
* * * * *
    Par. 3. Section 1.6049-5 is amended as follows:
    1. In paragraph (b)(12) the last sentence is revised.
    2. In paragraph (f) the last sentence is revised.
    The revisions read as follows:


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

* * * * *
    (b) * * *
    (12) * * * This paragraph (b)(12) does not apply to interest paid 
after December 31 of the year in which the final regulations are 
published in the Federal Register to a nonresident alien individual as 
provided in Sec.  1.6049-8.
* * * * *
    (f) * * * 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 after December 31 of the year in which the 
final regulations are published in the Federal Register to a 
nonresident alien individual).
* * * * *
    Par. 4. Section 1.6049-6 is amended as follows:
    1. Paragraph (e)(4) is revised.
    2. In paragraph (e)(5), the first sentence is revised and a new 
sentence is added at the end of the paragraph.
    The additions and revisions read 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). In the 
case of amounts described in Sec.  1.6049-8(a) (relating to payments of 
deposit interest to nonresident alien individuals) paid after December 
31 of the year in which the final regulations are published in the 
Federal Register, any person who makes a Form 1042-S, ``Foreign 
Person's U.S. Source Income Subject to Withholding'', under section 
6049(a) and Sec.  1.6049-4(b)(5) shall furnish a statement to the 
recipient either in person or by first class mail to the recipient's 
last known address. 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 the government of the foreign country where the recipient 
resides.
    (5) Effective/applicability date. Paragraph (e)(4) of this section 
applies to payee statements reporting payments of deposit interest to 
nonresident alien individuals paid after December 31 of the year in 
which the final regulations are published in the Federal Register. * * 
* (For interest paid to a Canadian nonresident alien individual on or 
before December 31 of the year in which final regulations are published 
in the Federal Register, see paragraph (e)(4) of this section as in 
effect and contained in 26 CFR part 1 revised April 1, 2000.)
    Par. 5. In Sec.  1.6049-8 the section heading and paragraph (a) are 
revised to read as follows:


Sec.  1.6049-8  Interest and original issue discount paid to 
nonresidents.

    (a) Interest subject to reporting requirement. For purposes of 
Sec. Sec.  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 nonresident alien individual after December 31 of the year in 
which the final regulations are published in the Federal Register, 
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 nonresident alien 
individual is a person described in section 7701(b)(1)(B). The payor or 
middleman may rely upon a valid Form W-8BEN, ``Beneficial Owners 
Certificate of Foreign Status for U.S. Tax Withholding'' to determine 
whether the payment is made to a nonresident alien individual. 
Generally, 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. However, if the payor or middleman does not have either a 
valid Form W-8BEN or valid Form W-9, ``Request for Taxpayer 
Identification Number and Certification'', the payor or middleman must 
report the payment as made to a U.S. non-exempt recipient if it must so 
treat the payee under the presumption rules of Sec.  1.6049-5(d)(2) and 
Sec.  1.1441-1(b)(3)(iii) and must also backup withhold under section 
3406. (For interest paid to a Canadian nonresident alien individual on 
or before December 31 of the year in which final regulations are 
published in the Federal Register, see paragraph (a) of this section as 
in effect and contained in 26 CFR part 1 revised April 1, 2000.)
* * * * *

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE 
SOURCE

    Par. 6. The authority citation for part 31 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *

    Par. 7. In Sec.  31.3406(g)-1, paragraph (d) is revised to read as 
follows:


Sec.  31.3406(g)-1  Exceptions for payments to certain payees and 
certain other payments.

* * * * *
    (d) Reportable payments made to nonresident alien individuals. A 
payment of interest that is reported on Form 1042-S, ``Foreign Person's 
U.S. Source Income Subject to Withholding,'' as paid to a nonresident 
alien individual under Sec.  1.6049-8(a) of this chapter is not subject 
to withholding under section 3406. (For interest paid to a Canadian 
nonresident alien individual on or before December 31 of the year in 
which final regulations are published in the Federal Register, see 
paragraph (d) of this section as in effect and contained in 26 CFR part 
1 revised April 1, 2000.)
* * * * *

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-82 Filed 1-6-11; 8:45 am]
BILLING CODE 4830-01-P