[Federal Register Volume 79, Number 44 (Thursday, March 6, 2014)]
[Rules and Regulations]
[Pages 12726-12809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03991]



[[Page 12725]]

Vol. 79

Thursday,

No. 44

March 6, 2014

Part II





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1, 31, and 301





Withholding of Tax on Certain U.S. Source Income Paid to Foreign 
Persons, Information Reporting and Backup Withholding on Payments Made 
to Certain U.S. Persons, and Portfolio Interest Treatment; Final Rule

  Federal Register / Vol. 79 , No. 44 / Thursday, March 6, 2014 / Rules 
and Regulations  

[[Page 12726]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 31, and 301

[TD 9658]
RIN 1545-BL18


Withholding of Tax on Certain U.S. Source Income Paid to Foreign 
Persons, Information Reporting and Backup Withholding on Payments Made 
to Certain U.S. Persons, and Portfolio Interest Treatment

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations that 
revise certain provisions of the final regulations regarding 
withholding of tax on certain U.S. source income paid to foreign 
persons, information reporting and backup withholding with respect to 
payments made to certain U.S. persons, portfolio interest paid to 
nonresident alien individuals and foreign corporations, and the 
associated requirements governing collection, refunds, and credits of 
withheld amounts under these rules. The revisions are necessary to 
coordinate these regulations with the documentation, withholding, and 
reporting provisions included in regulations regarding information 
reporting by foreign financial institutions (FFIs) with respect to U.S. 
accounts and withholding on certain payments to FFIs and other foreign 
entities under chapter 4 of Subtitle A of the Internal Revenue Code 
(Code). The temporary regulations also revise certain provisions of the 
final regulations relating to the statutory exemption for portfolio 
interest in light of amendments to the statute. Moreover, these 
temporary regulations remove certain transitional documentation rules 
from the regulations relating to withholding of tax on certain U.S. 
source income paid to foreign persons. These temporary regulations 
affect persons making payments of U.S. source income to foreign 
persons, persons making payments to certain U.S. persons subject to 
reporting, and foreign persons making claims for refund or credit of 
income tax withheld or claiming the exclusion from tax provided for 
portfolio interest. The text of these temporary regulations also serves 
as the text of the proposed regulations (REG-134361-12) set forth in 
the Proposed Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on March 6, 
2014.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.1441-1(g), 1.1441-3(j), 1.1441-4(g)(3), 1.1441-5(g)(3), 1.1441-
6(i)(3), 1.1441-7(h), 1.1461-1(i), 1.1461-2(e), 1.6041-1(j)(2), 1.6041-
4(d)(2), 1.6042-3(b)(5)(ii), 1.6045-1(c)(3)(xv), 1.6049-4(h), 1.6049-
5(g)(2).

FOR FURTHER INFORMATION CONTACT: John Sweeney, (202) 317-6942 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under sections 871, 1441, 1461, 6041, 6042, 6045, and 6049 
of the Code, the Employment Tax Regulations (26 CFR part 31) under 
section 3406 of the Code, and the Procedure and Administration 
Regulations (26 CFR part 301) under section 6402 of the Code. These 
temporary regulations are necessary to coordinate the final regulations 
under chapters 3 and 61 with the final regulations under chapter 4. 
Certain of the revisions to the final regulations under chapters 3 and 
61 contained in these temporary regulations were previewed in Notice 
2013-69, 2013-46 IRB 503 (November 12, 2013), Rev. Proc. 2014-13, 2014-
3 IRB 419 (January 13, 2014), and draft forms related to chapter 4.

Information Reporting and Withholding Regimes

A. Chapters 3 and 61
    On October 14, 1997, the IRS and the Treasury Department published 
final and temporary regulations (TD 8734) in the Federal Register (62 
FR 53387) dealing with the withholding of tax under sections 1441, 
1442, and 1443 (contained in chapter 3 of Subtitle A of the Code) on 
certain U.S. source income paid to foreign persons, the related tax 
deposit and reporting requirements under section 1461, and the 
statutory exemptions for portfolio interest under sections 871(h) and 
881(c) (1997 final regulations). In addition, the 1997 final 
regulations finalized changes that were included in proposed 
regulations applicable to the reporting provisions of sections 6041, 
6042, 6044, 6045, and 6049 under chapter 61 of the Code. On May 22, 
2000, the IRS and the Treasury Department published final regulations 
(TD 8881) in the Federal Register (65 FR 32152) amending certain 
provisions of the 1997 final regulations under sections 1441, 1442, 
1443, 6041, 6041A, 6042, 6045, and 6049 (collectively the final 
regulations under chapters 3 and 61 are referred to herein as the final 
regulations).
1. Chapter 3
    Generally, under sections 871(a) and 881(a), foreign persons are 
subject to tax at a 30-percent rate on the gross amount of certain 
payments of U.S. source fixed or determinable annual or periodical 
(FDAP) income, which includes, among other things, interest, dividends, 
and other similar types of investment income, unless the beneficial 
owner of the payment is entitled to a reduced rate of, or exemption 
from, withholding tax under domestic law, including an income tax 
treaty. This substantive tax liability generally is collected through a 
withholding tax imposed at source pursuant to chapter 3 and the 
regulations under chapter 3. The chapter 3 regulations provide 
comprehensive rules for withholding agents to identify the proper 
treatment of a payee for information reporting and withholding tax 
purposes based on documentation provided by the payee. The regulations 
under chapter 3 generally allow withholding agents to rely on a 
withholding certificate (for example, Form W-8BEN, ``Certificate of 
Foreign Status of Beneficial Owner for United States Tax Withholding'') 
furnished by a payee that certifies the payee's status as a foreign 
person, and whether such person is entitled to a reduction in or 
exemption from withholding. The chapter 3 regulations recognize that 
foreign intermediaries and flow-through entities that receive U.S. 
source FDAP income payments on behalf of their customers, partners, or 
beneficiaries may have privacy and competitiveness concerns about 
sharing beneficial ownership information with other intermediaries (or 
chains of intermediaries) and competing financial institutions. 
Accordingly, the chapter 3 regulations permit certain types of foreign 
persons to assume primary withholding and reporting responsibility with 
respect to U.S. source FDAP income that is subject to chapter 3 
withholding by becoming, respectively, qualified intermediaries, 
withholding foreign partnerships, or withholding foreign trusts.
    A withholding agent generally is required to file an annual income 
tax return on Form 1042, ``Annual Withholding Tax Return for U.S. 
Source Income of Foreign Persons,'' to report amounts that are actually 
withheld under chapter 3, or that would have been withheld but for an 
applicable exception, and, with respect to each recipient, to file an 
information return on Form 1042-S, ``Foreign Person's U.S. Source 
Income Subject to Withholding,''

[[Page 12727]]

to report each recipient's identifying information, the amount paid, 
and tax withheld, if any. A copy of Form 1042-S generally is required 
to be furnished to the recipient. The withholding and information 
reporting rules under chapter 3 facilitate the compliance of foreign 
persons with their U.S. tax obligations.
2. Chapter 61 and Section 3406
    U.S. persons are subject to U.S. income tax at graduated rates on 
their worldwide income, regardless of source, and irrespective of 
whether such U.S. persons reside within or without the United States. 
Generally, under chapter 61, a payor must report to the IRS certain 
payments or transactions with respect to U.S. persons that are not 
exempt recipients (U.S. non-exempt recipients, generally U.S. 
individuals, partnerships, estates, and trusts) using the appropriate 
form in the 1099 series (Form 1099) and furnish a copy to the payee. 
The scope of payments subject to reporting under chapter 61 depends, in 
part, on whether the payor is a U.S. payor (as defined in Sec.  1.6049-
5(c)(5), which generally includes U.S. persons and their foreign 
branches, as well as controlled foreign corporations within the meaning 
of section 957(a)) or non-U.S. payor (which is a payor other than a 
U.S. payor). For a U.S. payor, payments subject to reporting generally 
include certain gross income, such as dividends and interest (including 
short-term original issue discount and bank deposit interest), from 
U.S. and non-U.S. sources, and gross proceeds from, among other things, 
the disposition of certain securities through a broker. A non-U.S. 
payor generally is required to report only on payments of certain U.S. 
source income and, under narrow circumstances, foreign source income 
and gross proceeds from broker transactions.
    Similar to the chapter 3 information reporting and withholding 
regime, the chapter 61 regime provides comprehensive rules for a payor 
to identify the proper treatment of a payee for information reporting 
purposes, which generally are based on documentation or information 
about the payee. Additionally, a payor that does not have sufficient 
information with respect to a payee to satisfy its reporting 
obligations under chapter 61, such as a U.S. taxpayer identification 
number (TIN), may be required to backup withhold on a payment made to 
the payee at the statutory backup withholding rate (currently 28 
percent) under section 3406.
    A payor must file an annual income tax return on Form 945, ``Annual 
Return of Withheld Federal Income Tax,'' to report amounts withheld 
under section 3406. A payor must also file a Form 1099 to report 
payments made to a U.S. non-exempt recipient and any amounts withheld 
under section 3406. A copy of the Form 1099 must be furnished to the 
payee.
    These information reporting rules assist U.S. taxpayers in 
complying with their income tax obligations. The information reported 
under chapter 61 and section 3406 is also an integral part of IRS 
compliance efforts to identify U.S. taxpayers who fail to properly 
report income.
B. Chapter 4
    On March 18, 2010, the Hiring Incentives to Restore Employment Act 
of 2010, Public Law 111-147 (the HIRE Act), added to the Code chapter 4 
of Subtitle A, comprised of sections 1471 through 1474 (commonly known 
as FATCA). Chapter 4 generally requires withholding agents to withhold 
30 percent on withholdable payments (as defined in Sec.  1.1471-
1(b)(136) and sometimes referred to herein as chapter 4 withholdable 
payments) made to FFIs that do not agree to report certain information 
to the IRS regarding their U.S. accounts (as defined in Sec.  1.1471-
1(b)(134), which generally includes accounts held by specified U.S. 
persons and U.S. owned foreign entities, as defined in Sec.  1.1471-
1(b)(141) and Sec.  1.1471-1(b)(138), respectively), and on 
withholdable payments made to passive non-financial foreign entities 
(passive NFFEs, as defined in Sec.  1.1471-1(b)(94)) that do not 
provide information on their substantial U.S. owners (as defined in 
Sec.  1.1471-1(b)(128)) to withholding agents. Chapter 4 thus extends 
the scope of the U.S. information reporting regime to include FFIs that 
maintain U.S. accounts. In order to avoid withholding tax under chapter 
4, FFIs generally must agree to perform prescribed due diligence 
procedures to identify the chapter 4 status of their account holders, 
report information on U.S. accounts, and, in certain circumstances, 
withhold tax on certain account holders. Chapter 4 also imposes on 
withholding agents certain withholding, documentation, and information 
reporting requirements with respect to withholdable payments made to 
passive NFFEs. Amounts withheld under chapter 4 generally may be 
credited against the U.S. income tax liability of the beneficial owner 
of the payment to which the withholding is attributable, or refunded to 
the extent there is an overpayment of tax.
    On February 15, 2012, the IRS and the Treasury Department published 
a notice of proposed rulemaking (REG-121647-10) in the Federal Register 
(77 FR 9022) addressing FATCA's due diligence, withholding, reporting, 
and associated requirements. On October 24, 2012, the IRS and the 
Treasury Department advance released Announcement 2012-42, 2012-47 IRB 
561 (November 19, 2012) which announced the intention to amend certain 
provisions of the proposed chapter 4 regulations in final regulations. 
On January 28, 2013, the IRS and the Treasury Department published 
final regulations under chapter 4 (TD 9610) in the Federal Register (78 
FR 5874), and on September 10, 2013, published correcting amendments to 
these regulations (78 FR 55202) (final chapter 4 regulations). The 
final chapter 4 regulations include comprehensive due diligence, 
withholding, and reporting requirements for withholding agents and FFIs 
that were to begin on January 1, 2014. On July 12, 2013, the IRS and 
the Treasury Department published Notice 2013-43, 2013-31 I.R.B. 113, 
which announced, among other things, that withholding agents generally 
will be required to begin chapter 4 withholding on withholdable 
payments made after June 30, 2014, and that the requirements of 
participating FFIs (as defined in Sec.  1.1471-1(b)(91), which includes 
reporting Model 2 FFIs) under the agreement described in Sec.  1.1471-4 
(FFI agreement) will begin after June 30, 2014. On October 29, 2013, 
the IRS and the Treasury Department published Notice 2013-69 containing 
a draft of the FFI agreement, which an FFI may enter into with the IRS 
in order to be treated as a participating FFI that is generally exempt 
from FATCA withholding under chapter 4. Notice 2013-69 also previewed 
some of the changes to the final regulations that, among other things, 
would coordinate the information reporting and backup withholding rules 
in chapter 61 and section 3406 with the rules under chapter 4. On 
January 13, 2014, the IRS and the Treasury Department published the 
final FFI agreement in Revenue Procedure 2014-13. In addition, 
temporary regulations (temporary chapter 4 regulations) amending the 
final chapter 4 regulations are being published contemporaneously with 
these temporary regulations. The temporary chapter 4 regulations amend 
and revise the final chapter 4 regulations, in part, to coordinate with 
these temporary regulations.
    To address situations where foreign law would prevent an FFI from 
reporting directly to the IRS the information required by chapter 4, 
the

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Treasury Department, in collaboration with certain foreign governments, 
developed two alternative model intergovernmental agreements (IGAs) 
that facilitate the effective and efficient implementation of FATCA 
information reporting in a manner that removes foreign law impediments 
to compliance, fulfills the information reporting objectives of chapter 
4, and further reduces burdens on FFIs located in partner 
jurisdictions. Specifically, a partner jurisdiction signing an 
agreement with the United States based on the first model (Model 1 IGA) 
generally agrees to adopt rules to require all relevant FFIs located in 
the jurisdiction (reporting Model 1 FFIs, as defined in Sec.  1.1471-
1(b)(114)) to identify U.S. accounts pursuant to due diligence rules 
specified in the agreement and to report the information required under 
FATCA for U.S. accounts to the partner jurisdiction, which, in turn, 
will report the information to the IRS. A partner jurisdiction signing 
an agreement based on the second model (Model 2 IGA) agrees to direct 
all relevant FFIs located in the jurisdiction (reporting Model 2 FFIs, 
as defined in Sec.  1.1471-1(b)(115)) to follow the terms of an FFI 
Agreement by reporting information about U.S. accounts directly to the 
IRS in a manner consistent with the final chapter 4 regulations, except 
as expressly modified by the Model 2 IGA. Under a Model 2 IGA, the 
information reported to the IRS directly by FFIs is supplemented by 
government-to-government exchange of information in order to overcome 
legal impediments to direct FFI reporting with respect to account 
holders that refuse to consent to having their information reported.
    Under the final chapter 4 regulations, a participating FFI 
(including a reporting Model 2 FFI) generally is required to report 
information on U.S. accounts to the IRS on Form 8966, ``FATCA Report,'' 
including the account number, certain payment information, and account 
balance and, in the case of an account held by a U.S. person, the U.S. 
person's name, address, and TIN, or, in the case of an account held by 
a U.S. owned foreign entity, the name of the entity and the name, 
address, and TIN of each substantial U.S. owner. With respect to 
accounts held by a U.S. person, an FFI may instead elect to satisfy its 
chapter 4 reporting obligations by electing to report on Form 1099 the 
information required under chapter 61, as modified to include the 
account number. A payor that makes the election must report under 
chapter 61 as if it were a U.S. payor and each holder of a U.S. account 
was a U.S. citizen and without regard to whether a payment was made on 
the account.
    Chapter 4 also requires withholding agents to report on Form 8966 
information on withholdable payments to passive NFFEs with substantial 
U.S. owners. A copy of Form 8966 is not currently required to be 
furnished to the account holder or passive NFFE. Additionally, a 
withholding agent that withholds on a payment under chapter 4 generally 
is required to file an annual income tax return on Form 1042 to report 
the payment and amount of tax withheld, and an information return on 
Form 1042-S to report, with respect to each recipient or pool, the 
payment and amount of tax withheld. A copy of Form 1042-S generally is 
required to be furnished to the recipient, except in cases where the 
chapter 4 rules allow pooled reporting on Form 1042-S.
    The information reporting regime implemented under the final 
chapter 4 regulations and the IGAs will enhance IRS compliance efforts 
by enlisting the FFIs, which are in the best position to provide 
information on their accounts, to report on offshore accounts held by 
U.S. persons and by passive foreign entities with substantial U.S. 
owners. Like the Form 1099 reporting that already occurs primarily with 
respect to domestic accounts, this new information reporting will help 
the IRS identify U.S. taxpayers that may have failed to properly report 
and pay taxes on income earned or hidden offshore. This new enforcement 
tool will also strengthen the integrity of the U.S. voluntary tax 
compliance system by reassuring compliant taxpayers that the IRS will 
be able to enforce our tax laws on those who would attempt to avoid 
paying their fair share of taxes through the use of offshore accounts 
or offshore entities.

Explanation of Provisions

I. Overview of Changes To Coordinate Chapter 4 (Including Information 
Reporting Provided by FFIs Under an IGA) With the Regulations Under 
Chapters 3 and 61

    Payors of payments that are subject to the information reporting 
and withholding regimes under chapters 3, 4, and 61 and section 3406 
play an important role in U.S. tax compliance by providing information 
about payments made to, and income earned by, U.S. and foreign 
taxpayers. These temporary regulations provide guidance necessary to 
coordinate the regulations under chapters 3 and 61 and section 3406 
with the final chapter 4 regulations and the IGAs. The preexisting 
regimes under chapters 3 and 61 were already coordinated to establish 
an integrated set of rules that enabled payors to identify payments and 
payees subject to reporting and to determine which of the two 
information reporting and withholding regimes, chapter 3 (information 
reporting and withholding on foreign persons) or chapter 61 and section 
3406 (information reporting and backup withholding on U.S. non-exempt 
recipients), applied to a particular payment. The regulations under 
chapter 4 also provide comprehensive rules for withholding agents and 
FFIs with respect to the identification of payees and account holders, 
withholding, and information reporting. The IGAs similarly set forth a 
framework for FFIs to identify account holders and determine which 
accounts must be reported as U.S. accounts. These temporary regulations 
provide guidance coordinating the requirements under chapters 3 and 61 
and section 3406 with the requirements under chapter 4 in order to 
develop a more integrated set of rules that reduces burdens (including 
certain duplicative information reporting obligations) and conforms the 
due diligence, withholding, and reporting rules under these provisions 
to the extent appropriate in light of the separate objectives of each 
chapter or section.
    The remainder of this overview discusses the three main areas in 
which these temporary regulations revise the final regulations under 
chapters 3 and 61 and section 3406 in order to coordinate with the 
final chapter 4 regulations.
A. Identification of Payee Status
    The documentation requirements (including the applicable 
presumption rules in the absence of documentation) for withholding 
agents, participating FFIs (including reporting Model 2 FFIs), and 
registered deemed-compliant FFIs (as defined in Sec.  1.1471-1(b)(111), 
which includes reporting Model 1 FFIs) under the final chapter 4 
regulations or an applicable IGA differ in certain respects from the 
corresponding documentation requirements for withholding agents under 
the final chapter 3 regulations for determining when chapter 3 
withholding is required, and from the documentation requirements of 
payors and middlemen under the final chapter 61 regulations for 
determining when payments are made to persons for which reporting is 
required. These temporary regulations remove inconsistencies in the 
documentation requirements (including inconsistencies regarding 
presumption rules in the absence of

[[Page 12729]]

valid documentation) based, in part, on stakeholder comments to the 
final chapter 4 regulations. Examples of such coordination rules, 
discussed in greater detail in sections II and III later in this 
preamble, include rules that conform the requirements of a valid 
withholding certificate by requiring that a global intermediary 
identification number (GIIN) be included on the form if the payee is an 
FFI (when applicable); provide for indefinite validity periods for 
certain withholding certificates and extended periods of validity for 
certain documentation; conform the rules for electronic transmission of 
withholding certificates and statements; coordinate rules regarding the 
required content of a withholding statement provided by an FFI or flow-
through entity; revise the presumption rules applicable to joint 
accounts; and provide uniform limits on when a withholding agent will 
be treated as having reason to know of a payee's U.S. or foreign 
status.
B. Information Reporting With Respect to U.S. Persons
    The final chapter 4 regulations require participating FFIs 
(including reporting Model 2 FFIs) and, when applicable, registered 
deemed-compliant FFIs, but excluding reporting Model 1 FFIs, to report 
their U.S. accounts on Form 8966, irrespective of the type of payments 
made to the account holders. This reporting and similar reporting 
received pursuant to Model 1 IGAs may in some cases be duplicative of 
the information required to be reported on Form 1099 for payments made 
to the same account holders if they are U.S. non-exempt recipients 
under chapter 61. As discussed in the Background section of this 
preamble, FFIs may be able to mitigate this duplication by electing to 
satisfy their chapter 4 reporting obligations with respect to such 
accounts by reporting on Form 1099 the information required under 
chapter 61, as modified to include certain information required under 
chapter 4. This election, however, is not expected to relieve burden 
for FFIs that are required to report on U.S. accounts pursuant to local 
laws implementing a Model 1 IGA. As previewed in Notice 2013-69, in 
order to further reduce burdens and mitigate instances of duplicative 
reporting under chapters 4 and 61 and based, in part, on stakeholder 
comments requesting relief, these temporary regulations provide that 
non-U.S. payors that are also participating FFIs (including reporting 
Model 2 FFIs) or registered deemed-compliant FFIs (including reporting 
Model 1 FFIs) are excepted from the requirement to report on payments 
made to accounts held by U.S. non-exempt recipients under chapter 61 to 
the extent the payor reports on the account under chapter 4 or an 
applicable IGA.
    These temporary regulations do not provide a similar exception to 
reporting under chapter 61 for U.S. payors that are FFIs required to 
report under chapter 4. While some of the information reported on Form 
8966 and Form 1099 may overlap, there are also significant differences. 
Most notably, the requirement under chapter 61 to furnish a copy of 
Form 1099 to the payee facilitates voluntary compliance, and there is 
no equivalent requirement for payee statements under chapter 4. 
Moreover, U.S. payors generally have well-established systems for 
reporting and are subject to reporting on a broader range of payments 
under chapter 61 than non-U.S. payors. In light of these differences, 
the benefits of chapter 61 reporting by U.S. payors to the voluntary 
compliance system outweigh the reduction in burden that would be 
achieved by eliminating this reporting for U.S. payors that report on 
the same account under chapter 4 or an applicable IGA.
    These temporary regulations do provide a limited exception to 
reporting under chapter 61 for both U.S. payors and for non-U.S. payors 
that are FFIs required to report under chapter 4 or an applicable IGA 
with respect to payments that are not subject to withholding under 
chapter 3 or section 3406 and that are made to an account holder that 
is a presumed (but not known) U.S. non-exempt recipient. FFIs that are 
required to report under chapter 4 or an applicable IGA will provide 
information regarding account holders who are presumed U.S. non-exempt 
recipients. Moreover, such presumed U.S. non-exempt recipients may not 
actually be U.S. persons for whom the recipient copy of Form 1099 would 
be relevant to facilitate voluntary compliance. As a result, the IRS 
and the Treasury Department believe that reporting under chapter 61 
should be eliminated on payments to account holders who are presumed 
U.S. non-exempt recipients and for whom there is FATCA reporting.
    These temporary regulations also provide a new exception from 
reporting under chapter 61 that will generally benefit U.S. persons 
acting as stock transfer agents or paying agents of certain passive 
foreign investment companies (PFICs). This exception is based, in part, 
on comments suggesting ways to reduce duplicative reporting with 
respect to PFIC shareholders without significantly impacting taxpayer 
compliance. Comments indicated that, due to the manner in which 
shareholders of PFICs are taxed under sections 1291 through 1298, the 
current Form 1099 reporting performed by transfer agents or paying 
agents of a PFIC generally does not assist taxpayers in properly 
reporting PFIC income on their tax returns, although it could remind 
taxpayers that they may have had a taxable event with respect to the 
PFIC. In light of the limited benefit of such 1099 reporting and the 
burden reduction that would result from its elimination, the IRS and 
the Treasury Department have concluded that this reporting should be 
eliminated to the extent the PFIC will report information with respect 
to the payment (or the account to which the payment is made) under 
chapter 4 or an applicable IGA.
C. Withholding
    In certain cases, the payments subject to withholding under chapter 
4 are also payments that could be subject to either withholding under 
chapter 3 or backup withholding under section 3406. These temporary 
regulations provide rules to address the potential for overwithholding 
to ensure that payments are not subject to withholding under both 
chapters 3 and 4, or under both chapter 4 and section 3406. 
Additionally, as previewed in Notice 2013-69, these temporary 
regulations also allow participating FFIs (including reporting Model 2 
FFIs) and registered deemed-compliant FFIs to satisfy their chapter 4 
withholding requirements by electing to continue to perform backup 
withholding under section 3406 at the statutory backup withholding rate 
(28 percent) in certain circumstances. A participating FFI (including a 
reporting Model 2 FFI) or registered deemed-compliant FFI may make the 
election to continue to apply backup withholding under section 3406 
only if it complies with the requirements of chapter 61 and section 
3406 with respect to the payment. Thus, for example, if an FFI is 
unable to report the information required with respect to a payment 
because local law prohibits payee specific reporting without the 
consent of the account holder and such consent is not given, the FFI 
cannot elect to report under chapter 61 or apply backup withholding 
with respect to such payment. When available, the election allows 
payors that have preexisting backup withholding systems to continue to 
perform backup withholding under such systems rather than to switch 
between withholding systems under chapter 4 and section 3406.
    In addition to amending and revising the regulations under chapters 
3 and 61

[[Page 12730]]

and section 3406 to coordinate with the final chapter 4 regulations, 
other revisions are included in the temporary regulations. For example, 
these temporary regulations amend the regulations under section 871 
(and make conforming changes to the withholding requirements of the 
regulations under section 1441) in response to the HIRE Act's repeal of 
section 163(f)(2)(B) with respect to registration-required obligations 
and amendment of section 871(h)(2), the regulations under which 
provided when interest with respect to obligations not in registered 
form and targeted to foreign markets qualified as deductible interest 
and portfolio interest.

II. Changes to Chapter 3 Withholding Provisions

A. U.S. Agent of a Foreign Person
    Under Sec.  1.1441-1(b)(2)(ii) of the final regulations, a 
withholding agent making a payment to a U.S. person, and who has actual 
knowledge that the U.S. person receives the payment on behalf of a 
foreign person, must treat the payment as made to the foreign person, 
unless the U.S. person is a financial institution (as defined in Sec.  
1.165-12(c)(1)(iv)) and the withholding agent has no reason to believe 
the financial institution will not comply with its obligation to 
withhold. A similar payee provision is included in the chapter 4 
regulations. These temporary regulations revise the scope of U.S. 
persons that are financial institutions under Sec.  1.1441-1(b)(2)(ii) 
and that the withholding agent may treat as payees by defining the term 
financial institution consistent with the chapter 4 definition of a 
financial institution, which, in addition to depository and custodial 
institutions, includes certain investment entities and certain 
insurance companies.
B. U.S. Branch Treated as a U.S. Person
    For purposes of the withholding requirements of chapter 3, a U.S. 
branch of a regulated foreign bank or foreign insurance company 
(including a territory financial institution) may agree to be treated 
as a U.S. person if it meets the requirements of Sec.  1.1441-
1(b)(2)(iv) of the final regulations. Under the chapter 4 regulations, 
a U.S. branch of an FFI may be treated as a U.S. person only if it is 
also a branch of a participating FFI (including a reporting Model 2 
FFI) or registered deemed-compliant FFI (including a reporting Model 1 
FFI) and it meets the requirements of Sec.  1.1441-1(b)(2)(iv). To be 
consistent with the chapter 4 regulations, these temporary regulations 
add a new requirement in Sec.  1.1441-1(b)(2)(iv) that a U.S. branch of 
an FFI must be a branch of a participating FFI or registered deemed-
compliant FFI in order for it to be treated as a U.S. person for 
purposes of chapter 3. In addition, these temporary regulations clarify 
that a territory financial institution that is a flow-through entity 
receiving a payment on behalf of its owners or partners may also be 
treated as a U.S. person (in addition to a territory financial 
institution that is acting as an intermediary on behalf of third-
parties). These temporary regulations also provide a requirement that 
if a U.S. branch is treated as a U.S. person for purposes of chapter 3, 
it must also be treated as a U.S. person for purposes of chapter 4. 
Moreover, as a result of the account documentation requirements in the 
chapter 4 regulations that apply to a participating FFI (including a 
reporting Model 2 FFI) that is not treated as a U.S. person, these 
temporary regulations provide that a U.S. branch that agrees to be 
treated as a U.S. person must be treated as a U.S. person with respect 
to all withholding agents from which it receives payments.
    Under Sec.  1.1441-1(b)(2)(iv)(B)(3) of the final regulations, a 
withholding agent that makes a payment to a U.S. branch of a foreign 
person must treat the payment as a payment to a foreign person of 
income effectively connected with a U.S. trade or business if it cannot 
reliably associate the payment with a withholding certificate from the 
branch or with other documentation from another person. These temporary 
regulations add a requirement that a withholding agent obtain an 
employment identification number (EIN) from a U.S. branch before it may 
treat a payment to the branch as effectively connected income. For 
payments to which this presumption does not apply because no EIN is 
provided, these temporary regulations require that the withholding 
agent treat the payment as made to a foreign person of income that is 
not effectively connected with the conduct of a trade or business in 
the United States. Further, these temporary regulations include a 
similar provision under Sec.  1.1441-4 that requires a withholding 
agent to obtain an EIN from a U.S. branch in order to presume the 
payment to the branch is effectively connected income. The requirement 
to obtain an EIN from a U.S. branch is consistent with the requirements 
under chapter 4.
C. Other Payees (Authorized Foreign Agents)
    Under Sec.  1.1441-1(b)(2)(vi) of the final regulations, an 
authorized foreign agent (as described in Sec.  1.1441-7(c)(2) of the 
final regulations) of a withholding agent is treated as a payee. The 
chapter 4 regulations do not have a special provision to treat a 
foreign agent of a withholding agent as a payee with respect to 
payments it collects on behalf of the withholding agent. See Sec.  
1.1474-1(a)(3). Accordingly, these temporary regulations remove the 
rules under Sec.  1.1441-1(b)(2)(vi) that treat an authorized foreign 
agent as a payee, consistent with chapter 4, and the person to whom the 
authorized agent (as defined in Sec.  1.1441-7(c)(2) of these temporary 
regulations) is making the payment on behalf of the withholding agent 
is treated as a payee by applying the payee rules under Sec.  1.1441-
1(b)(2) to such person. A series of other revisions have been made by 
these temporary regulations with respect to the use of authorized 
agents consistent with chapter 4 and are discussed throughout this 
preamble. In particular, see section II.S of this preamble for a 
description of changes to a withholding agent's use of an authorized 
agent.
D. Reliable Association With Documentation
    Section 1.1441-1(b)(2)(vii)(A) of the final regulations generally 
describes the situations in which a withholding agent can reliably 
associate a payment with valid documentation to determine when 
withholding applies. Sections 1.1441-1(b)(2)(vii)(B) through 
(b)(2)(vii)(F) of the final regulations provide special rules for 
situations in which a withholding agent can reliably associate a 
payment with documentation for a payment made to a foreign intermediary 
(including a qualified intermediary). These temporary regulations 
revise Sec.  1.1441-1(b)(2)(vii)(B) through (b)(2)(vii)(F) and the 
examples under those sections consistent with the documentation and 
withholding requirements of chapter 4.
    With respect to nonqualified intermediaries, these temporary 
regulations revise the rules for reliable association to allow a 
withholding agent to associate a withholdable payment with a chapter 4 
withholding rate pool (as defined in Sec.  1.1441-1(c)(48)) consistent 
with the reliable association requirements of withholding statements 
provided by nonqualified intermediaries for chapter 4 purposes. 
Accordingly, these temporary regulations provide that a withholding 
agent need not associate a payment with documentation for payees 
included in any chapter 4 withholding rate pool. These temporary 
regulations also revise the examples relating to when a withholding 
agent can reliably associate payments to

[[Page 12731]]

nonqualified intermediaries with valid documentation and clarify that 
each example refers to a payment that is not a withholdable payment 
under chapter 4. These temporary regulations add an example under Sec.  
1.1441-1(e)(3)(iv)(C) that illustrates the requirements of a 
withholding statement provided by a nonqualified intermediary for a 
withholdable payment under chapter 4 that is also a payment subject to 
withholding under chapter 3.
    With respect to qualified intermediaries, these temporary 
regulations revise the rules for reliable association to allow a 
withholding agent to associate a withholdable payment with a chapter 4 
withholding rate pool (in addition to the withholding rate pools 
provided for chapter 3 purposes) consistent with the reliable 
association requirements of withholding statements provided by 
qualified intermediaries for chapter 4 purposes. Under the revised 
rule, a withholding agent may reliably associate a payment with a 
chapter 4 withholding rate pool of U.S. payees in a case in which the 
qualified intermediary does not assume primary Form 1099 and backup 
withholding responsibilities. A withholding agent that makes a payment 
to a qualified intermediary that does not elect to assume primary Form 
1099 and backup withholding responsibilities must continue to reliably 
associate the payment to the qualified intermediary with Forms W-9, 
``Request for Taxpayer Identification Number and Certification,'' for 
each U.S. non-exempt recipient not included in a chapter 4 withholding 
rate pool of U.S. payees on whose behalf the qualified intermediary is 
receiving the payment. The revised rule further provides that a 
withholding agent that makes a payment to a qualified intermediary that 
assumes primary Form 1099 and backup withholding responsibilities and 
primary withholding responsibility for purposes of both chapters 3 and 
4 need not obtain any withholding statement from the qualified 
intermediary. These temporary regulations also add an example in Sec.  
1.1441-1(e)(5)(v)(D) to illustrate when a withholding agent can 
reliably associate payments made to qualified intermediaries providing 
chapter 4 withholding rate pools with respect to a withholdable 
payments under chapter 4.
E. Presumption Rules and Joint Payees
    Section 1.1441-1(b)(3) of the final regulations provides 
presumption rules for withholding agents that apply in the absence of 
valid documentation and provides that a payment made to an exempt 
recipient (as determined based on the indicia of such status described 
in Sec.  1.6049-4(c)(1)(ii) or similar provision under chapter 61 for a 
payment other than interest) generally is presumed made to a U.S. 
person unless one of the indicia of foreign status described in Sec.  
1.1441-1(b)(3)(iii)(A) is present. These temporary regulations modify 
what constitutes indicia of foreign status for purposes of the 
presumption rule applicable to exempt recipients. In particular, these 
temporary regulations provide that references to the terms corporation 
or company in the name of the payee are not indications that the payee 
is an entity included on the list of per se corporations under Sec.  
301.7701-2(b)(8)(i) for purposes of treating the payee as a foreign 
person. These temporary regulations also remove the term a payment made 
outside the U.S. under new Sec.  1.1441-1(b)(3)(iii)(A)(1)(iv) and 
replace it with the term a payment made with respect to an offshore 
obligation. These temporary regulations further coordinate the 
regulations under chapters 3 and 61 with the regulations under chapter 
4 by making a similar change to the term used in Sec.  1.6049-5(c)(1).
    In addition, these temporary regulations add a presumption rule 
under Sec.  1.1441-1(b)(3)(iii)(A)(2) consistent with chapter 4 to 
provide that a payment that is also a withholdable payment under 
chapter 4 made to specified classes of exempt recipients (that is, 
generally those without an apparent U.S. status) will be presumed made 
to a foreign payee absent documentary evidence establishing U.S. 
status. This presumption will not apply, however, to a withholdable 
payment made with respect to a preexisting obligation determined by a 
withholding agent prior to July 1, 2014, to be held by a U.S. exempt 
recipient. A withholding agent will be allowed to apply this rule to 
all payments (including payments other than withholdable payments) made 
with respect to an obligation.
    These temporary regulations also modify the presumption rules 
applicable to payments made to certain payees to coordinate with 
presumptions that apply under the chapter 4 regulations. These 
temporary regulations modify Sec.  1.1441-1(b)(3)(iii) to coordinate 
with the presumptions under Sec.  1.1471-3(f) for withholding agents 
making withholdable payments subject to the presumption rules of Sec.  
1.1441-1(b)(3) and chapter 4. Section 1.1441-1(b)(3)(iii) of the 
temporary regulations provides that in the case of a withholdable 
payment under chapter 4, a withholding agent must apply the presumption 
rules under Sec.  1.1471-3(f) to determine the payee's status for 
chapter 4 purposes. Furthermore, Sec.  1.1441-1(b)(3)(v)(B) provides 
that a withholding agent making a withholdable payment to a foreign 
intermediary should apply the presumption rules of Sec.  1.1471-3(f)(5) 
to determine whether withholding applies under chapter 4 (instead of 
applying the presumption rules in Sec.  1.1441-1(b)(3)). For example, 
if a withholding agent makes a withholdable payment to a foreign 
intermediary and cannot reliably associate the payment with 
documentation for a payee, the withholding agent must apply the 
presumption rule of Sec.  1.1471-3(f)(5) to treat the unidentified 
payee as a nonparticipating FFI (as defined in Sec.  1.1471-1(b)(82)) 
and withhold on the payment at a 30-percent rate under chapter 4. 
Accordingly, no withholding or reporting under chapter 3 would be 
required to apply with respect to the payment.
    Consistent with the chapter 4 presumption rules, these temporary 
regulations also provide that if a withholding agent makes a 
withholdable payment to joint payees and one or more of the payees does 
not appear, by name or other information in the account file, to be an 
individual, then the payment will be presumed to be made to a 
nonparticipating FFI. See Sec.  1.1471-3(f)(7).
F. Grace Period
    Under Sec.  1.1441-1(b)(3)(iv) of the final regulations, a 
withholding agent may apply the 90-day grace period provided under 
Sec.  1.6049-5(d)(2)(ii) to amounts described in Sec. Sec.  1.1441-
6(c)(2) and 1.1441-4(b)(2)(ii) to treat a payee as an undocumented 
foreign person, and withhold under chapter 3, while waiting for new 
documentation. The chapter 4 regulations allow a withholding agent to 
apply a 90-day grace period following a change in circumstances during 
which the withholding agent may rely on the payee's claimed chapter 4 
status. These temporary regulations do not provide a similar allowance 
for chapter 3 purposes to avoid potential deficits in withholding that 
could apply during the grace period allowed under chapter 4 because of 
the different objectives between chapters 3 and 4. These temporary 
regulations remove the requirement that a withholding agent withhold on 
payments during the grace period when a form is received by facsimile 
since these temporary regulations also provide that such forms may be 
generally relied upon under Sec.  1.1441-1(e)(4)(iv)(C).

[[Page 12732]]

G. Exemptions From Chapter 3 Withholding
    Section 1.1441-1(b)(4) of the final regulations specifies certain 
types of payments that may be fully or partially exempt from 
withholding under chapter 3. To distinguish these exemptions from the 
withholding exemptions that apply for purposes of chapter 4, these 
temporary regulations add language to clarify that the exemptions 
specified under Sec.  1.1441-1(b)(4) apply only for purposes of chapter 
3 and that withholding under chapter 4 may still apply. In addition, 
these temporary regulations add the applicable sunset dates to the 
descriptions of payments that are portfolio interest to coordinate with 
the elimination of portfolio interest treatment for foreign-targeted 
bearer obligations under section 502 of the HIRE Act (for obligations 
issued after March 18, 2012) and the elimination of portfolio interest 
treatment for foreign-targeted registered obligations under Sec.  
1.871-14(e) for obligations issued on or after January 1, 2016.
H. Establishing Foreign Status Under Chapter 61
    These temporary regulations add section 6050W to the list of 
provisions referenced in Sec.  1.1441-1(b)(5) for which the foreign 
status of a payee may be established for chapter 61 purposes based on 
the documentation provided for chapter 3 purposes.
I. Curing Late or Incomplete Documentation
    Section 1.1441-1(b)(2) of the final regulations provides that a 
withholding agent must reliably associate a payment with documentation 
by the date of the payment. Notwithstanding the general rule under 
Sec.  1.1441-1(b)(2), Sec.  1.1441-1(b)(7) of the final regulations 
allows a withholding agent to rely on documentation obtained after the 
date of a payment to avoid liability for underwithholding during the 
period that the withholding agent had no documentation. The final 
regulations also specify that the IRS may require a withholding agent 
to obtain additional documentation, however, when the IRS determines 
that delays in obtaining the documentation affect its reliability. The 
chapter 4 regulations specify the documentation that must be obtained 
by a withholding agent after the date of a payment to determine a 
payee's chapter 4 status, depending on the length of the delay. 
Consistent with the chapter 4 regulations, these temporary regulations 
incorporate the chapter 4 requirements for documentation obtained after 
the date of the payment (including documentation to support a claim for 
treaty benefits). These temporary regulations also add a provision 
consistent with the chapter 4 regulations that permits a withholding 
agent to cure a withholding certificate containing inconsequential 
errors with respect to a claim of status for chapter 3 purposes.
J. Definitions
    Section 1.1441-1(c) of the final regulations provides definitions 
used for purposes of the chapter 3 regulations. First, these temporary 
regulations modify the definitions in Sec.  1.1441-1(c)(1) through 
(c)(30) as appropriate to provide consistency with certain definitions 
in the chapter 4 regulations. For example, the term financial 
institution in Sec.  1.1441-1(c)(5) is amended to be consistent the 
term financial institution in the chapter 4 regulations.
    Second, these temporary regulations also add new terms that are 
referenced for chapter 3 purposes. These terms are added to Sec.  
1.1441-1(c) of these temporary regulations in order to help navigate 
the regulations and to reflect more completely the terms used 
throughout these regulations. Finally, these temporary regulations also 
add new definitions adopted from chapter 4 that are relevant for 
chapter 3 purposes. For example, Sec.  1.1441-1(c)(48) of these 
temporary regulations incorporates the term chapter 4 withholding rate 
pool (modified as appropriate for chapter 3 purposes with respect to 
the chapter 4 withholding rate pool of U.S. payees) in order to provide 
for situations in which intermediaries may provide withholding 
statements to withholding agents that include these pools rather than 
the documentation otherwise required for chapter 3 purposes.
K. Withholding Certificates
1. Beneficial Owner Withholding Certificate
    Section 1.1441-1(e)(2)(ii) of the final regulations provides the 
requirements of a valid beneficial owner withholding certificate. For a 
payment made to an entity that is a beneficial owner of a withholdable 
payment, these temporary regulations provide that the withholding 
certificate must also include the chapter 4 status of the entity on the 
same form to coordinate with the requirements of the certification 
provided for chapter 4 purposes.
2. Withholding Certificate Provided by a Qualified Intermediary or 
Nonqualified Intermediary
    Sections 1.1441-1(e)(3)(ii) and (e)(3)(iii) of the final 
regulations provide the requirements of a valid qualified intermediary 
(QI) or nonqualified intermediary (NQI) withholding certificate, 
respectively. These temporary regulations amend these sections to 
include the information required for purposes of chapter 4 with respect 
to a QI or an NQI that receives a withholdable payment. Additionally, 
these temporary regulations add a requirement that a QI or an NQI 
certify its chapter 4 status and provide its GIIN (if applicable) on 
the withholding certificate. A GIIN will be required, for example, when 
a QI or an NQI is also a participating FFI (including a reporting Model 
2 FFI) or a registered deemed-compliant FFI (including a reporting 
Model 1 FFI). These temporary regulations also require a QI or an NQI 
to certify that it is fulfilling its reporting obligations under 
chapter 4 with respect to any U.S. persons included in a chapter 4 
withholding rate pool of U.S. payees on a withholding statement 
provided to the withholding agent.
3. Withholding Certificate Provided by a U.S. Branch or Territory 
Financial Institution
    As discussed in section II.B of this preamble, the requirements for 
a U.S. branch or territory financial institution to be treated as a 
U.S. person under Sec.  1.1441-1(b)(2)(iv) are modified by these 
temporary regulations consistent with the chapter 4 regulations. To 
further coordinate with chapter 4, these temporary regulations amend 
Sec.  1.1441-1(e)(3)(v), which provides the requirements for a valid 
U.S. branch withholding certificate provided by a U.S. branch (or 
territory financial institution treated as a U.S. branch under Sec.  
1.1441-1(b)(2)(iv)) that is not the beneficial owner of the income, as 
well as the requirements for when a withholding agent may treat the 
branch as a U.S. person. For example, a U.S. branch of an FFI will be 
required to provide a GIIN on the withholding certificate to certify to 
its chapter 4 status in order to be treated as a U.S. person when 
receiving a withholdable payment. In addition, a U.S. branch or 
territory financial institution will be required to provide its EIN on 
a withholding certificate in order to be treated as a U.S. person.
4. Who May Sign Withholding Certificates
    The chapter 4 regulations provide examples in Sec.  1.1471-
3(c)(6)(i) of persons authorized to sign a withholding certificate. To 
clarify the persons authorized to sign a withholding certificate for 
chapter 3

[[Page 12733]]

purposes consistent with the chapter 4 regulations, these temporary 
regulations incorporate into Sec.  1.1441-1(e)(4)(i) the examples of 
persons described in Sec.  1.1471-3(c)(6)(i). The list of persons 
authorized to sign a withholding certificate includes an officer or 
director of a corporation, a partner of a partnership, a trustee of a 
trust, an executor of an estate, any foreign equivalent of the 
foregoing titles, and any other person authorized in writing to sign 
documentation on behalf of the individual or entity named on the 
certificate.
5. Period of Validity of Withholding Certificates
    Section 1.1441-1(e)(4)(ii)(A) of the final regulations provides 
that a withholding certificate or documentary evidence generally 
remains valid until the last day of the third calendar year following 
the year in which the withholding certificate is signed or documentary 
evidence is provided to the withholding agent, or until a change in 
circumstances makes any information on the withholding certificate 
incorrect.
    Under certain circumstances described in Sec.  1.1441-
1(e)(4)(ii)(B) of the final regulations, a withholding certificate or 
documentary evidence may remain valid indefinitely until a withholding 
agent knows or has reason to know of a change in circumstances that 
makes any information on the withholding certificate incorrect. These 
circumstance include when a withholding agent obtains a TIN for a payee 
and reports a payment to the payee annually on Form 1042-S, as well as 
withholding certificates provided by certain foreign entities such as 
intermediaries, flow-through entities, foreign central banks, and 
integral parts of foreign governments.
    These temporary regulations modify Sec.  1.1441-1(e)(4)(ii)(B) in 
appropriate cases to coordinate the chapter 3 regulations with the 
chapter 4 regulations and expand the circumstances under which a 
withholding agent may treat documentation as having indefinite validity 
for chapter 3 purposes. These temporary regulations also provide that 
certain types of documentary evidence may remain valid for purposes of 
establishing a payee's foreign status for a longer period if the 
documentary evidence contains an expiration date that is beyond the 
three-year period, in which case the documentary evidence will remain 
valid until the expiration date. Because of the changes to the rules 
for indefinite validity, these temporary regulations remove and replace 
the allowance that permits a withholding agent to treat a withholding 
certificate with a TIN as being valid indefinitely provided that the 
withholding agent reports a payment each year on a Form 1042-S with 
respect to the person providing the certificate.
    Consistent with the chapter 4 regulations and in response to 
comments requesting further transitional relief during the period when 
withholding agents will be obtaining documentation for preexisting 
accounts for both chapter 4 and chapter 3 purposes, these temporary 
regulations provide that a withholding certificate or documentary 
evidence that would otherwise expire under Sec.  1.1441-1(e)(4)(ii)(A) 
on December 31, 2013, will not be treated as invalid until January 1, 
2015, unless a change in circumstances occurs before that date. See 
Sec.  1.1441-1(e)(4)(ii)(D).
6. Change in Circumstances
    As discussed in section II.K.5 of this preamble, under Sec.  
1.1441-1(e)(4)(ii)(D) of the final regulations, a withholding agent may 
no longer rely on a withholding certificate or documentation when the 
withholding agent knows or has reason to know of a change in 
circumstances that makes the withholding certificate or documentation 
incorrect. The regulations under chapter 4 adopt a similar requirement 
for documentation provided for chapter 4 purposes and further provide 
that an intermediary (including a U.S. branch or territory financial 
institution not treated as a U.S. person) that becomes aware of a 
change in circumstances with respect to a person for whom it furnishes 
documentation to a withholding agent must notify the withholding agent 
within 30 days of the date the intermediary knows or has reason to know 
of the change in circumstances. Consistent with the chapter 4 
regulations, these temporary regulations revise Sec.  1.1441-
1(e)(4)(ii)(D) to adopt this 30-day requirement.
7. Retention of Withholding Certificates or Documentary Evidence
    Section 1.1441-1(e)(4)(iii) of the final regulations requires a 
withholding agent to retain a withholding certificate or documentation 
for as long as it may be relevant for purposes of determining the 
withholding agent's liability under section 1461. This paragraph is 
amended to be consistent with retention requirements applicable to a 
withholding agent under chapter 4 by permitting a withholding agent to 
retain an original, certified copy, or scanned version of a withholding 
certificate. A withholding agent may also retain a withholding 
certificate by other means (such as microfiche) provided that the 
withholding agent is able to a produce a hard copy of the form or 
document and maintains a record of the receipt of the document. For 
documentary evidence, this paragraph cross references the retention 
requirements provided in Sec.  1.6049-5(c)(1) (as amended by these 
temporary regulations), which coordinate with chapter 4 by permitting a 
withholding agent to retain a photocopy of the documentary evidence.
8. Electronic and Other Transmission of Forms and Documentation
    The chapter 4 regulations required a withholding agent to 
authenticate the identity of a person furnishing a withholding 
certificate or documentary evidence in the form of a facsimile or 
scanned documentation. In response to comments, these temporary 
regulations do not incorporate this requirement. These temporary 
regulations instead provide that a withholding agent may rely on a 
signed form or a document received by facsimile or scanned and sent by 
email unless the withholding agent knows that the person transmitting 
the form or documentary evidence is not authorized to do so. This rule 
is intended to apply to a withholding agent that does not receive the 
document as part of a system established by a withholding agent 
described in Sec.  1.1441-1(e)(4)(iv)(B), the requirements for which 
are unchanged by these temporary regulations except for a provision 
clarifying that the IRS may provide written guidance to its examiners 
regarding the requirements acceptable for the system. This same rule 
applies for chapter 4 purposes under a revision made by the temporary 
chapter 4 regulations (to cross-reference this paragraph).
9. Substitute Certification Forms
    A withholding agent may substitute its own certification form for 
an official Form W-8 or Form 8233, ``Exemption From Withholding on 
Compensation for Independent (and Certain Dependent) Personal Services 
of a Nonresident Alien Individual,'' so long as the substitute form 
satisfies the requirements described in Sec.  1.1441-1(e)(4)(vi) of the 
final regulations. Consistent with the chapter 4 regulations, these 
temporary regulations allow a withholding agent to use a substitute 
form written and completed in a language other than English, provided 
that an English translation is available upon request. In addition, 
these temporary regulations clarify that, consistent with the current 
regulations,

[[Page 12734]]

a substitute form may omit provisions that are not relevant to the 
transaction or purpose for which the form is furnished, and 
specifically provide that a substitute form need not contain a chapter 
4 status for a payee when the withholding agent is not required to 
determine a payee's chapter 4 status. See Sec.  1.1471-3(c)(6)(v). 
Although the chapter 4 regulations also allow a withholding agent to 
rely on a non-IRS form in lieu of Forms W-8 or substitute forms for a 
payee who is an individual, this provision is not incorporated into 
these temporary regulations for chapter 3 purposes. The IRS and the 
Treasury Department have determined that an official Form W-8 or Form 
8233 (or acceptable substitute form or acceptable documentary evidence 
when permitted) should be required for a payment subject to chapter 3 
withholding.
10. TIN Requirement for Withholding Certificate
    In the circumstances described in Sec.  1.1441-1(e)(4)(vii) of the 
final regulations, a withholding certificate must include a TIN in 
order for a withholding agent to treat the withholding certificate as 
valid for purposes of chapter 3, such as a withholding certificate 
provided for purposes of claiming treaty benefits (other than treaty 
benefits with respect to publicly traded securities) or a withholding 
certificate provided by a beneficial owner claiming the income is 
effectively connected with a U.S. trade or business. To update these 
circumstances to reflect guidance issued for purposes of chapter 3 
after the effective date of the current regulations, these temporary 
regulations add to the list of withholding certificates requiring a TIN 
a withholding certificate provided by a withholding foreign trust or by 
an entity acting as a qualified securities lender with respect to a 
substitute dividend paid in a securities lending or similar 
transaction. See Notice 2010-46, 2010-24 IRB 757 (June 14, 2010). These 
temporary regulations also provide in Sec.  1.1441-6(c)(2) an exception 
from the TIN requirement for a withholding certificate on which a 
beneficial owner claims treaty benefits and instead provides its 
foreign TIN, as an alternative to providing a U.S. TIN for this 
purpose.
11. Coordinated Account Information Systems
    Section 1.1441-1(e)(4)(ix) of the final regulations generally 
requires a withholding agent that is a financial institution to obtain 
documentation (including withholding certificates) on an account-by-
account basis subject to certain exceptions. Section 1.1441-
1(e)(4)(ix)(A) of the final regulations allows a withholding agent to 
rely on documentation provided by a customer for another account held 
at the same branch location. If the accounts are not located at the 
same branch location, Sec.  1.1441-1(e)(4)(ix)(A) of the final 
regulations allows a withholding agent to rely on documentation for an 
account held at another branch location of the withholding agent or a 
related person provided that the withholding agent and related person 
are part of the same universal account system or a system described in 
Sec.  1.1441-1(e)(4)(ix)(A)(3).
    The final chapter 4 regulations generally incorporate the 
provisions of Sec.  1.1441-1(e)(4)(ix)(A) of the final regulations but 
modify certain of the requirements for account systems. The final 
chapter 4 regulations require that the withholding agent treat the 
accounts as consolidated obligations, a requirement not described in 
the final regulations, for documentation shared at the same branch 
location or through a universal account system. For universal account 
systems and shared account systems, the final chapter 4 regulations 
require that the withholding agent and the branch with which it is 
sharing information be part of the same expanded affiliated group 
(rather than be related persons as under the final regulations). In 
addition, the final chapter 4 regulations require a withholding agent 
to produce upon request any documentation upon which it relies for 
purposes of determining the status of the payee and clarify that a 
withholding agent is liable for any underwithholding attributable to 
failing to assign the correct status to the payee based on the 
available information. Finally, although the final chapter 4 
regulations do not require a withholding agent to document how and when 
it accesses the shared account system, the withholding agent is 
required to be able to obtain a copy of the documentation.
    To provide consistent standards for when withholding agents may 
share documentation for purposes of both chapters 3 and 4, these 
temporary regulations delete the existing text of Sec.  1.1441-
1(e)(4)(ix) and replace it with a cross-reference to the requirements 
for documentation sharing in the final chapter 4 regulations. These 
temporary regulations also replace Sec.  1.1441-1(e)(4)(ix)(A)(4) with 
the rule under the chapter 4 regulations for documentation collected by 
an agent of the withholding agent. The revised requirements apply to a 
shared account system other than a shared account system in use by a 
withholding agent as of July 1, 2014. Section 1.1441-1(e)(4)(ix)(B) 
allows for a single withholding certificate for shares in multiple 
mutual funds that have a common investment advisor or common principal 
underwriter with respect to shares owned or acquired in any of the 
funds. The chapter 4 regulations address this issue to achieve a 
similar result through the general principal-agent rule of Sec.  
1.1471-3(c)(9)(i), which is incorporated into these temporary 
regulations.
    The final regulations provide other exceptions to the requirement 
to obtain a withholding certificate for each account that allow a 
withholding agent to rely on a certification from a U.S. broker stating 
that the broker holds beneficial owner withholding certificates of 
payees for which the broker acts as an agent with respect to any 
readily tradable instrument. The final chapter 4 regulations also 
provide a similar exception that permits a withholding agent to rely on 
a certification from a qualified intermediary in addition to a U.S. 
broker. To coordinate with the final chapter 4 regulations, these 
temporary regulations add a provision allowing a withholding agent to 
rely for chapter 3 purposes on a similar certification from a qualified 
intermediary that receives a payment from the withholding agent.
    With respect to accounts acquired in mergers and bulk acquisitions 
for value, these temporary regulations add a new Sec.  1.1441-
1(e)(4)(ix)(D) to clarify that a withholding agent may rely on valid 
documentation collected by a predecessor or transferor, consistent with 
the rule that applies for purposes of chapter 4. Also consistent with 
the chapter 4 regulations, these temporary regulations allow a 
withholding agent that acquires accounts in a merger or bulk 
acquisition for value from an unrelated person to rely on the 
predecessor's or transferor's determination of an account holder's 
chapter 3 status for a transition period of six months, subject to 
certain requirements that apply at the end of the transition period. 
However, this provision is modified to require the predecessor or 
transferor to be a U.S. withholding agent or qualified intermediary 
rather than a participating FFI as provided in the chapter 4 
regulations in light of the different purposes of chapters 3 and 4.
    Finally, the final chapter 4 regulations allow a withholding agent 
to rely upon documentation collected by a third-party data provider in 
order to establish the chapter 4 status of an entity. The IRS and the 
Treasury Department do not believe that this allowance is appropriate 
for purposes of chapter 3 and instead expect withholding agents

[[Page 12735]]

to utilize the other document sharing provisions discussed earlier in 
this section II.K.11. However, see Sec.  1.1441-7 of these temporary 
regulations for rules permitting a withholding agent (acting as a 
principal) to rely on documentation collected by an agent, subject to 
the qualification that as principal it remains liable for its agent's 
performance.
L. Withholding Statement of a Nonqualified Intermediary
1. General Requirements Other Than Alternative Procedures
    Section 1.1441-1(e)(3)(iv) of the final regulations describes the 
requirements of a withholding statement provided by an NQI (NQI 
withholding statement) to a withholding agent with respect to 
reportable amounts (including amounts subject to chapter 3 
withholding). This provision is amended by these temporary regulations 
to coordinate with the chapter 4 requirements for withholding 
statements when an NQI receives a withholdable payment by permitting 
the NQI to include chapter 4 withholding rate pools on the statement in 
lieu of payee-specific information. To coordinate with the chapter 4 
requirements for reporting on Form 1042-S, this provision is further 
modified to require an NQI receiving a withholdable payment to provide 
on the withholding statement the chapter 4 status of each payee that is 
a foreign person not included in a chapter 4 withholding rate pool.
    For reportable amounts received by an NQI (including reportable 
amounts that are not withholdable payments under chapter 4), the 
requirements for an NQI withholding statement are modified to specify 
when an NQI may provide to a withholding agent a withholding statement 
that includes an allocation of the payment to a chapter 4 withholding 
rate pool of U.S. payees in lieu of providing Forms W-9 for each U.S. 
non-exempt recipient and identifying each such recipient on the 
statement. For this purpose, an NQI that is a participating FFI or 
registered deemed-compliant FFI may include a U.S. payee in the pool to 
the extent permitted under Sec.  1.6049-4(c)(iii), which coordinates 
with the allowance for when an NQI that has reporting obligations under 
chapter 4 need not also report under chapter 61 with respect to a 
payment.
    These temporary regulations also add an example to illustrate when 
a withholding agent can reliably associate a withholdable payment with 
a chapter 4 withholding statement that allocates the payment (or 
portion of the payment) to one or more chapter 4 withholding rate 
pools.
2. Alternative Procedures for an NQI Withholding Statement
    An NQI generally is required to provide payee-specific information 
(treating a chapter 4 withholding rate pool as a payee) to a 
withholding agent at the time of payment, as described in section 
II.L.1 of this preamble. However, the alternative procedures described 
in Sec.  1.1441-1(e)(3)(iv)(D) of the final regulations permit an NQI 
to provide a withholding agent with pooled information (by withholding 
rate) prior to receiving the payment if the NQI will provide 
information sufficient to allocate the payment to specific payees by 
January 31 of the year following the payment. These temporary 
regulations retain the alternative procedures but expand the 
circumstances under which the procedures may be used in order to 
coordinate with when a chapter 4 withholding rate pool may be included 
on a withholding statement provided by an NQI. Section 1.1441-
1(e)(3)(iv)(D) of the final regulations is modified in the case of an 
NQI receiving a reportable amount that is also a chapter 4 withholdable 
payment to permit the NQI to include payees that are nonparticipating 
FFIs or recalcitrant account holders includable in a chapter 4 
withholding rate pool in a single withholding rate pool that includes 
payees subject to withholding under chapter 3 at a 30-percent rate for 
reporting to a withholding agent. Similarly, payees includable in a 
chapter 4 withholding rate pool of U.S. payees may be included in a 
zero-percent rate pool with other payees to which no withholding 
applies. Thus, an NQI may provide withholding rate pools under 
alternative procedures irrespective of whether withholding is applied 
under chapter 3 or chapter 4 or when withholding is excepted under 
chapters 3 and 4 and section 3406.
    Because of the allowance to include payees in withholding rate 
pools under the alternative procedures for purposes of both chapters 3 
and 4, these temporary regulations add a provision that, in addition to 
the allocation information required to be provided by the NQI for each 
payee for chapter 3 purposes by January 31 following the year of the 
payment, the NQI must provide the withholding agent with sufficient 
information to allocate the income to each applicable chapter 4 
withholding rate pool and may treat each such pool as a payee for the 
purpose of determining whether an NQI has provided a withholding agent 
with sufficient information to allocate the income by such date. See 
Sec.  1.1441-1(e)(3)(iv)(D)(3) and (e)(3)(iv)(D)(4). Any payments 
allocated to a specific payee for whom documentation has not been 
provided shall be allocated to an undocumented payee in accordance with 
the presumption rules, and these temporary regulations add a reference 
to the presumption rule in Sec.  1.1471-3(f)(5) for a case in which an 
NQI fails to allocate a withholdable payment in the time prescribed.
3. Electronic Transmission of NQI Withholding Statement
    As discussed in section II.K.8 of this preamble, these temporary 
regulations provide new procedures allowing the electronic transmission 
of withholding certificates and documentary evidence. Section 1.1441-
1(e)(3)(iv)(B) is amended to provide that a withholding statement may 
also be transmitted by email or facsimile under the same procedures 
provided in Sec.  1.1441-1(e)(4)(iv)(C) for withholding certificates 
and documentary evidence when the statement is not provided as part of 
a system established by the NQI or withholding agent.
M. Qualified Intermediaries
1. In General
    Section 1.1441-1(e)(5) of the final regulations provides rules for 
entering into a qualified intermediary agreement (QI agreement) with 
the IRS, generally describes the requirements of the QI agreement, 
provides the requirements of a QI withholding statement, and 
establishes the persons eligible to enter into the QI agreement. 
Consistent with the intent of chapter 4 that a QI's reporting of U.S. 
account holders be expanded from the present requirements to report as 
a payor or middleman for chapter 61 purposes, these temporary 
regulations provide that, in order to enter into a QI agreement, a QI 
that is an FFI must assume the chapter 4 reporting obligations of a 
participating FFI (including a reporting Model 2 FFI), registered 
deemed-compliant FFI (including a reporting Model 1 FFI), or an FFI 
treated as certified deemed-compliant pursuant an applicable IGA and 
that is subject to due diligence and reporting requirements with 
respect to its accounts similar to those of registered deemed-compliant 
FFIs under the chapter 4 regulations. Under this new requirement, a QI 
will be required to report its U.S. accounts without regard to whether 
the QI designates the account as an account covered by the QI agreement 
(as applicable under the current QI agreement). Subject to IRS 
approval, an NFFE may also become a

[[Page 12736]]

QI for purposes of presenting claims of benefits under an income tax 
treaty on behalf of its shareholders or when acting as an intermediary 
for persons other than its shareholders.
    Section 1.1441-1(e)(5)(iii) of these temporary regulations reflects 
changes to the requirements of the QI agreement. Specifically, these 
temporary regulations provide that the QI agreement will provide the 
requirements for a QI acting as a qualified securities lender with 
respect to the payment of U.S. source substitute dividends. Moreover, 
to provide compliance procedures generally similar to those applicable 
to a participating FFI under chapter 4, the QI agreement will provide 
that the QI must establish procedures to ensure compliance with its 
agreement, arrange for a periodic review, and provide certain factual 
information to the IRS. Furthermore, in appropriate cases, the IRS may 
require that an approved auditor perform review procedures concerning 
the QI's compliance with its QI agreement in addition to the review 
procedures performed under the periodic review. In such a case, the IRS 
may conduct a review of the auditor's findings.
2. Assumption of Primary Withholding Responsibility
    The current regulations provide that a QI may assume the primary 
obligation to withhold, deposit, and report amounts under chapter 3 or 
under chapter 61 and section 3406 (or under both chapters 3 and 61, 
including backup withholding under section 3406). These temporary 
regulations coordinate with chapter 4 with respect to both a QI's 
chapter 3 and chapter 61 requirements. First, to coordinate with the 
withholding requirements of chapter 4, a QI assuming primary 
withholding responsibility under chapter 3 with respect to an account 
will also be required to assume such responsibility for purposes of 
chapter 4 with respect to the account. Second, a QI that is an FFI may 
represent on a withholding certificate provided to a withholding agent 
that it assumes primary chapter 61 reporting and section 3406 
responsibility for an account that it maintains if the QI complies with 
its obligations as a participating FFI (including a reporting Model 2 
FFI) or registered deemed-compliant FFI (including a reporting Model 1 
FFI) under the chapter 4 regulations or an applicable IGA. See Sec.  
1.6049-4(c)(4)(i) and (c)(4)(ii) of these temporary regulations for 
when an FFI that reports an account under chapter 4 is not required to 
report a payment made to the account under chapter 61.
3. Withholding Statement Provided by a QI
    Section 1.1441-1(e)(5)(v) of the final regulations provides the 
requirements of a withholding statement provided by a QI. These 
temporary regulations permit a QI that assumes primary reporting and 
withholding responsibility under chapters 3, 4, and 61 and section 3406 
to provide an intermediary withholding certificate without attaching a 
withholding statement (including under the circumstances described 
above when a QI reports under chapter 4). However, if a QI does not 
assume primary reporting and withholding responsibility under chapters 
3 and 4 or under chapter 61 and section 3406, then the QI is required 
to provide a withholding statement. A QI may provide a withholding 
statement to allocate the payment to a chapter 4 withholding rate pool 
of U.S. payees to the extent permitted for a NQI when the QI does not 
assume primary chapter 61 reporting and backup withholding 
responsibilities. See section II.L.1 of this preamble.
    These temporary regulations modify the requirements for a 
withholding statement provided by a QI with respect to a withholdable 
payment. These temporary regulations permit pooled information (for 
each chapter 3 withholding rate pool by applicable chapter 4 exemption 
code based on Form 1042-S and the related instructions) with respect to 
foreign payees subject to withholding under chapter 3 and not subject 
to chapter 4 withholding. For payments to which chapter 4 withholding 
applies, these temporary regulations permit a QI that is an FFI to 
report chapter 4 withholding rate pools for nonparticipating FFIs and 
recalcitrant account holders on an FFI withholding statement (as 
described in 1.1471-3(c)(3)(iii)(B)(2)), and, for a QI other than an 
FFI, permit the QI to provide a chapter 4 withholding statement to 
report payees that are nonparticipating FFIs in a chapter 4 withholding 
rate pool. The revised QI agreement will further provide the 
circumstances in which a QI may provide a chapter 4 withholding rate 
pool on a withholding statement, including a chapter 4 withholding rate 
pool provided to the QI by another intermediary or flow-through entity.
4. Electronic Transmission of QI Withholding Statement
    These temporary regulations provide the same allowances for the 
electronic transmission of a QI withholding statement as for an NQI 
withholding statement. See section II.L.3 of this preamble regarding 
the electronic transmission of an NQI withholding statement.
N. Coordination of Sec.  1.1441-3 With Chapter 4 Withholding
    Section 1.1441-3 of the final regulations provides rules for 
determining the amount to be withheld for purposes of section 1441. 
These temporary regulations add provisions to coordinate withholding 
under chapters 3 and 4 by providing that when a payment is both a 
chapter 4 withholdable payment and an amount subject to withholding 
under chapter 3, a withholding agent must apply the withholding 
provisions of chapter 4 to determine whether withholding is required 
under chapter 4 (and does not need to withhold under chapter 3 to the 
extent that it has withheld under chapter 4). The coordination rule 
cross references Sec.  1.1474-6(b)(1), which allows a withholding agent 
to credit withholding applied on a payment under chapter 4 against any 
tax liability due under chapter 3 with respect to such payment, and 
cross references Sec.  1.1474-6(b)(2) for determining when withholding 
is considered applied by a withholding agent.
    These temporary regulations do not, however, include provisions 
specifically addressing a credit for taxes withheld under chapter 4 in 
a series of securities lending transactions using the same underlying 
security. Notice 2010-46 outlines a proposed regulatory framework to 
address potential overwithholding that may occur in such transactions 
and provides transition rules applicable until the issuance of 
regulations to ensure that the withholding does not exceed 30 percent 
in the aggregate. Under the transition rules, a withholding agent that 
is obligated to make a substitute dividend payment pursuant to a 
securities lending transaction may presume that U.S. tax has been paid 
in an amount equal to the amount implied by the net payment received by 
the withholding agent provided certain conditions are satisfied, 
including that the withholding agent does not know or have reason to 
know that tax was not withheld and deposited or paid. For purposes of 
the transition rules and pending further guidance, the IRS will permit 
a withholding agent to apply this presumption absent information on 
whether the net payment resulted from taxes withheld under chapter 3 or 
chapter 4. The IRS will, however, treat a withholding agent as having 
reason to

[[Page 12737]]

know that the tax was not withheld and deposited or paid to the extent 
that (i) the withholding agent knows that withholding was applied under 
chapter 4 to a dividend or substitute dividend paid to a 
nonparticipating FFI (which may be the withholding agent) that is 
entitled to a refund of the tax, and (ii) the nonparticipating FFI 
participated in such transaction with a purpose of reducing the 
aggregate amount of gross basis tax that would have otherwise been due 
had it not participated in the series of transactions. See section 
1474(b)(2).
    Section 1.1441-3(c)(4) of the final regulations provides rules that 
coordinate withholding under section 1441 (or 1442 or 1443) with 
withholding under section 1445 on distributions by U.S. real property 
holding companies and real estate investment trusts. Under these 
temporary regulations, the coordination rules also apply to 
distributions made by qualified investment entities (as defined under 
section 897(h)(4)). These temporary regulations also clarify that to 
the extent a payment is subject to withholding under section 1441 
(rather than section 1445) under these coordination rules, a 
withholding agent must apply the withholding provisions of chapter 4 
before determining whether withholding is required under chapter 3 
(and, therefore, will not need to withhold under this section if 
withholding is applied under chapter 4).
    Section 1.1441-3(d) of the final regulations permits a withholding 
agent making a payment of an undetermined amount of income to make a 
reasonable estimate of the amount from U.S. sources or of the taxable 
amount and place a corresponding amount in escrow until the amount from 
U.S. sources or the taxable amount can be determined. To coordinate 
with the chapter 4 regulations, this rule is modified to state that a 
withholding agent may retain 30 percent of a payment of an undetermined 
amount of income in escrow until the earlier of the date that the 
amount from U.S. sources or the taxable amount can be determined or one 
year from the date the amount is placed in escrow. Upon such date, the 
withholding becomes due or, to the extent that withholding under 
chapter 3 has been determined not to apply, the escrowed amount must be 
paid to the payee.
O. Presumption Rule for Payments to U.S. Branches and Removal of 
Transitional Documentation Rules
    Section 1.1441-4 of the final regulations provides an exception to 
withholding under section 1441 on income that is (or is deemed to be) 
effectively connected with the conduct of a trade or business within 
the United States. A presumption rule under the final regulations 
allows a withholding agent to treat a payment of income as effectively 
connected income when it is made to a U.S. branch of a foreign bank or 
foreign insurance company described in Sec.  1.1441-2(b)(iv)(A). These 
temporary regulations revise the presumption rule to require a 
withholding agent to obtain an EIN for a U.S. branch before it may 
presume the payment to the U.S. branch is a payment of effectively 
connected income. In addition, these temporary regulations remove the 
transitional documentation provisions that applied to payments made 
before January 1, 2001.
P. Coordination of Sec.  1.1441-5 With Chapter 4 Withholding and 
Removal of Transitional Documentation Rules
    These temporary regulations revise Sec.  1.1441-5 to coordinate 
with the documentation, withholding, and reporting requirements of 
chapter 4 that apply to U.S. and foreign partnerships, trusts, and 
estates, and they remove a transition rule applicable to withholding 
certificates.
    Section 1.1441-5(b) of the final regulations prescribes withholding 
rules for U.S. partnerships, trusts, and estates with respect to their 
partners, beneficiaries, and owners. These temporary regulations add a 
coordination rule in Sec.  1.1441-5(b) to clarify that a U.S. 
partnership, trust, or estate that makes a payment of U.S. source FDAP 
income that is a withholdable payment subject to chapter 4 withholding 
must apply the special rules included in the final chapter 4 
regulations for determining when an amount that is a chapter 4 
withholdable payment is treated as paid to a partner, beneficiary, or 
owner. These temporary regulations also cross reference the general 
rule coordinating withholding under chapter 3 with withholding under 
chapter 4 to clarify that, for payments included in the gross income of 
a partner, beneficiary, or owner, a withholding agent must apply the 
withholding provisions of chapter 4 before determining whether 
withholding is required under chapter 3 (and, therefore, does not need 
to withhold under this section when withholding is applied under 
chapter 4).
    Sections 1.1441-5(c) and (e) of the final regulations include 
requirements for withholding agents to determine the status of a payee 
of a payment made to a foreign partnership or to a foreign simple or 
grantor trust, including the requirements for withholding certificates 
and withholding statements provided by such entities, the requirements 
for determining when reduced withholding applies with respect to 
payments made to such entities, and the presumption rules that apply in 
the absence of reliable documentation. These temporary regulations 
amend Sec.  1.1441-5(c) and (e) to include revised rules for 
determining the status of a partner, beneficiary, or owner as a payee 
of a payment (and when reduced withholding applies). These temporary 
regulations also amend Sec.  1.1441-5(c) and (e) consistent with the 
allowance in the chapter 4 regulations for both nonqualified and 
qualified intermediaries that are foreign partnerships or trusts to 
provide withholding statements that report chapter 4 withholding rate 
pools instead of specific payee information. In addition, these 
temporary regulations amend Sec.  1.1441-5(c) and (e) to coordinate 
withholding under chapter 3 with withholding applied under chapter 4 on 
payments made to foreign partnerships and trusts by permitting a 
withholding agent that has withheld on a withholdable payment made to 
the partnership or trust under chapter 4 to not also withhold on the 
payment under chapter 3. The partnership or trust is also not required 
to withhold with respect to a partner, beneficiary, or owner if 
withholding under chapter 4 was applied by a withholding agent based on 
the status of the partnership or trust for chapter 4 purposes.
    Sections 1.1441-5(c) and (e) of the final regulations also describe 
the requirements of withholding foreign partnerships (WPs) and 
withholding foreign trusts (WTs). These temporary regulations revise 
these rules to coordinate with the requirements applicable to these 
entities under the final chapter 4 regulations by requiring WPs and WTs 
to assume chapter 4 withholding responsibilities (in addition to their 
chapter 3 withholding responsibilities) with respect to their partners, 
beneficiaries, and owners. The temporary regulations also add the 
requirement that a WP or WT that is an FFI obtain status as a 
participating FFI, registered deemed-compliant FFI, or an FFI treated 
as a deemed-compliant FFI under an applicable IGA that is subject to 
due diligence and reporting requirements with respect to its accounts 
similar to those applicable to a registered deemed-compliant FFI under 
Sec.  1.1471-5(f)(1). The requirements for withholding certificates 
provided by WPs and WTs are amended by these temporary regulations to 
provide that an FFI that

[[Page 12738]]

is a WP or WT receiving a withholdable payment must include its chapter 
4 status and GIIN (if applicable) on the certificate, in addition to 
its WP-EIN or WT-EIN. The temporary regulations also reference certain 
compliance-related provisions that will be included in the revised WP 
and WT agreements.
    The presumption rules for determining a payee's status applicable 
to foreign partnerships and trusts in Sec.  1.1441-5(c) and (e) of the 
final regulations are amended by these temporary regulations consistent 
with the chapter 4 presumption rules that apply to a withholdable 
payment made to a partnership or trust. Section 1.1441-5(e)(6)(ii) of 
the final regulations is also amended to provide a revised presumption 
rule for determining the classification of a foreign trust. The current 
presumption rule generally provides that a withholding agent may 
presume a foreign entity to be a complex trust when it cannot determine 
the status of the trust. Under the revised rule, a withholding agent 
that has the U.S. TIN and U.S. address for the settlor of a trust must 
presume such trust to be a U.S. grantor trust when the settlor is a 
U.S. person. In such a case, the withholding agent would issue an 
applicable Form 1099 to the U.S. settlor rather than withhold and 
report the payment under the requirements of chapter 3.
    These temporary regulations remove the transition rule in Sec.  
1.1441-5(g)(2), for withholding certifications obtained before January 
1, 2001.
Q. Coordination With Chapter 4 Withholding for Payments Subject to 
Reduced Withholding Under an Income Tax Treaty
    Section 1.1441-6 of the final regulations specifies the conditions 
under which withholding under sections 1441, 1442, and 1443 on a 
payment to a foreign person may be applied at a reduced rate under the 
terms of an applicable income tax treaty. These temporary regulations 
add certain provisions to this section to coordinate with withholding 
and documentation retention requirements applicable under the final 
chapter 4 regulations.
    First, the allowance for reduced withholding at source under Sec.  
1.1441-6 of the final regulations is revised to state that even if the 
requirements of this section are met, withholding under chapter 4 may 
still apply to payments that are withholdable payments. Second, for 
payments to fiscally transparent entities, language is added to 
indicate that a withholding agent must apply the rules of chapter 4 to 
determine the payee of a withholdable payment for purposes of 
determining its withholding obligations under chapter 4. This provision 
clarifies that even when the interest holders of a fiscally transparent 
entity are eligible for reduced withholding under an applicable treaty, 
chapter 4 withholding may still apply to a payment made to such entity 
depending on its chapter 4 status. Finally, based on comments received, 
the rules regarding the maintenance of documentary evidence for 
purposes of this section are revised to clarify that a withholding 
agent maintains the reviewed documents by retaining the original, 
certified copy, or photocopy of such documents, without regard to 
whether the withholding agent notes the person who reviewed the 
documentation. The revised rule conforms to the documentation-
maintenance requirements applicable under the final chapter 4 
regulations and the new rules in these temporary regulations for 
maintaining documentary evidence under Sec.  1.6049-5(c).
R. U.S. TIN Requirement and Removal of Transitional Documentation Rules
    For payments of certain types of income, Sec.  1.1441-6 of the 
final regulations provides that a withholding agent can reliably 
associate a payment with a beneficial owner withholding certificate to 
support a claim for treaty benefits only if the certificate contains 
the beneficial owner's U.S. TIN. These temporary regulations revise 
this rule to allow a withholding agent to rely on a withholding 
certificate that contains the beneficial owner's foreign TIN issued by 
a country with which the United States has in effect an income tax 
treaty or tax information exchange agreement. The Treasury and the IRS 
believe that, in such cases, a foreign TIN is an effective alternative 
to a U.S. TIN for purposes of supporting a claim for treaty benefits 
with respect to income for which a TIN is required. In addition, these 
temporary regulations remove the transitional documentation provisions 
that applied to payments made before January 1, 2001.
S. Coordination of Sec.  1.1441-7 With Chapter 4 Withholding
    Section 1.1441-7 of the final regulations provides general 
provisions regarding when a withholding agent has reason to know that 
it cannot rely on a claim of status for chapter 3 purposes. These 
temporary regulations revise Sec.  1.1441-7, primarily to coordinate 
with the standards of knowledge applicable to withholding agents and 
participating FFIs for purposes of determining the foreign status of a 
payee under chapter 4.
    Section 1.1441-7(b)(3) of the final regulations provides reason to 
know standards for financial institutions, which limit when a 
withholding agent that is a financial institution has a reason to know 
that documentation is unreliable or incorrect to when certain U.S. 
indicia are associated with the account holder based on the 
institution's account information. These temporary regulations define a 
financial institution for this purpose by reference to the definition 
of financial institution that applies for chapter 4 purposes. In 
addition, the temporary regulations define account information to 
include documentation collected for purposes of AML due diligence (as 
defined under Sec.  1.1471-1(b)(4)), but provide that a withholding 
agent will not be considered to have reason to know that documentation 
collected for AML due diligence conflicts with the account holder's 
claim until the date that is 30 days after the obligation is executed 
(or the account is opened, in the case of an obligation that is an 
account with a financial institution). These temporary regulations also 
add Sec.  1.1441-7(b)(3)(ii) to provide that a withholding agent that 
has previously documented a preexisting obligation for purposes of 
chapter 3 or chapter 61 before July 1, 2014 will not be required to 
review such documentation or the account information associated with 
the obligation to search for U.S. indicia. If, however, a withholding 
agent reviews such documentation and it contains a U.S. place of birth 
for the account holder, or if there is a change in circumstances, the 
withholding agent will then have reason to know as of the date of the 
review or change in circumstances that the documentation is unreliable 
or incorrect and that it must cure such U.S. indicia in order to 
continue to treat the account holder as a foreign person. This rule 
therefore provides withholding agents a transition period to address 
new U.S. indicia, such as a U.S birthplace for an account holder, which 
were added in the chapter 4 regulations and are incorporated in these 
temporary regulations.
    Sections 1.1441-7(b)(5) through (b)(9) of the final regulations 
describe the scope of review by a withholding agent that is a financial 
institution of withholding certificates and documentary evidence, and 
are revised to incorporate the same U.S. indicia referenced in the 
final chapter 4 regulations and the same cures specified in those 
regulations in order for a withholding agent to continue to treat a

[[Page 12739]]

payee as a foreign person notwithstanding such U.S. indicia. Section 
1.1441-7(b)(5) of the final regulations describes when a withholding 
certificate furnished by a direct account holder is unreliable or 
incorrect for establishing foreign status and is revised to add new 
U.S. indicia for this purpose. The new indicia are a withholding 
agent's classification of the account holder as a U.S. person in the 
withholding agent's account files and a current telephone number for 
the person in the United States (and no telephone number for the person 
outside of the United States). The cures to treat a payee as a foreign 
person notwithstanding these indicia conform to the cures provided 
under chapter 4 and are the same cures that are applicable to a U.S. 
address. Specifically, Sec.  1.1441-7(b)(5)(i)(A) and (b)(5)(i)(B) are 
revised to adopt the chapter 4 definition of documentary evidence 
required to treat a payee as a foreign person notwithstanding U.S. 
indicia. For a payment made with respect to an offshore obligation, 
these temporary regulations modify Sec.  1.1441-7(b)(5)(i)(A)(2) to 
coordinate with the chapter 4 cure rules pertaining to participating 
FFIs (including reporting Model 2 FFIs) by adding that a withholding 
agent may treat an account holder as a foreign person if the 
withholding agent obtains documentary evidence establishing foreign 
status, even if the documentary evidence contains a U.S. address.
    These temporary regulations add Sec.  1.1441-7(b)(5)(ii) to provide 
that a withholding agent has reason to know that a withholding 
certificate claiming foreign status provided by an individual is 
unreliable or incorrect if the withholding agent has an unambiguous 
indication of a place of birth for the individual in the United States. 
Section 1.1441-7(b)(5)(ii) is consistent with the chapter 4 rules in 
providing the same documentation requirements as those provided in 
Sec.  1.1471-4(c)(5)(iv)(B)(2)(ii) applicable to a participating FFI 
(including a reporting Model 2 FFI) to cure a U.S. place of birth in 
order to treat an account holder as a foreign person.
    To coordinate with the chapter 4 regulations, Sec.  1.1441-
7(b)(5)(iii) of these temporary regulations (formerly Sec.  1.1441-
7(b)(5)(ii)) is revised to allow documentary evidence establishing 
foreign status as an alternative to providing a reasonable explanation 
to cure standing instructions with respect to an offshore obligation 
directing the withholding agent to pay amounts to an address or an 
account maintained in the United States. Similarly, for purposes of an 
account holder's claim for treaty benefits, Sec.  1.1441-7(b)(6)(iii) 
is revised to add documentary evidence establishing residence in a 
treaty country as a cure for standing instructions provided with 
respect to an offshore obligation directing the withholding agent to 
pay amounts to an address or an account maintained outside the country 
in which the account holder claims benefits under an income tax treaty.
    Section 1.1441-7(b)(8) of the final regulations provides the 
standards of knowledge applicable to documentary evidence used to 
establish a payee's foreign status. Under Sec.  1.1441-7(b)(8) of the 
final regulations, a withholding agent may not rely on documentary 
evidence to treat a payee as a foreign person if the withholding agent 
has U.S. indicia for the payee. These temporary regulations revise 
Sec.  1.1441-7(b)(8)(ii), consistent with the chapter 4 regulations, to 
include as U.S. indicia: (i) a classification in the withholding 
agent's account files that the recipient is a U.S. person, and (ii) a 
current telephone number for the person in the United States as part of 
the withholding agent's customer information, provided that the 
customer information does not include a telephone number for the person 
outside of the United States. In addition, these temporary regulations 
revise Sec.  1.1441-7(b)(8)(iii) to add a U.S. place of birth as U.S. 
indicia. Section 1.1441-7(b)(8)(iii) also provides the same 
documentation requirements as those in the chapter 4 regulations for 
treating an account holder as a foreign person notwithstanding a U.S. 
place of birth. These temporary regulations also add Sec.  1.1441-
7(b)(8)(iv) (formerly Sec.  1.1441-7(b)(8)(iii) of the final 
regulations) and (b)(9)(ii), which treat standing instructions to pay 
amounts to an address or account maintained in the United States or 
outside of a treaty country as U.S. indicia, to coordinate with the 
chapter 4 regulations by allowing the account holder to cure the U.S. 
indicia by providing a valid beneficial owner withholding certificate 
to establish foreign status or residence in a treaty country (as 
applicable).
    These temporary regulations add Sec.  1.1441-7(b)(11) to provide 
limits on reason to know for withholding agents that are financial 
institutions in the case of multiple obligations belonging to a single 
person, which limits are consistent with those provided in the chapter 
4 regulations. Also, in response to comments seeking clarification, 
Sec.  1.1441-7(b)(12) is added to define what constitutes a reasonable 
explanation supporting a claim of foreign status (which also applies 
under the chapter 4 regulations).
    Section 1.1441-7(c) of the final regulations provides that a 
withholding agent may designate an agent to fulfill its obligations 
under chapter 3. These temporary regulations revise Sec.  1.1441-7(c) 
to harmonize with the chapter 4 regulations for the requirements of a 
withholding agent's use of an agent to fulfill its withholding 
obligations. The revised rules allow a withholding agent to appoint an 
agent (including a foreign person) if there is a written agreement 
between the withholding agent and the person acting as agent, the books 
and records of the agent are available to the withholding agent, and 
the agent files Form 8655, ``Reporting Agent Authorization,'' with the 
IRS if the agent (including any sub-agent) is acting as a reporting 
agent for purposes of filing Form 1042 or making tax deposits and 
payments. These rules replace the rules that pertained to authorized 
foreign agents, which required that the foreign agent's books and 
records be available to the IRS for examination and that the 
withholding agent notify the IRS of its appointment of a foreign agent. 
Under the new rules, the withholding agent remains liable for the acts 
of its agent (including a foreign agent) and thus the withholding 
agent, rather than its agent, is required to substantiate its 
compliance with its withholding obligations.
T. Coordination of Sec.  1.1461-1 With Chapter 4 Withholding
    Section 1.1461-1(b) of the final regulations provides requirements 
for making an income tax return on Form 1042 for income paid that the 
withholding agent is required to report on an information return on 
Form 1042-S. These temporary regulations revise Sec.  1.1461-1(b) 
consistent with chapter 4 to allow a withholding agent to file a single 
Form 1042 to report amounts under chapters 3 and 4.
    Section 1.1461-1(c)(1)(i) of the final regulations provides 
requirements regarding the manner in which withholding agents report 
information about payments made to foreign persons for purposes of 
chapter 3. This section states that the Form 1042-S shall be prepared 
in such manner as the form and accompanying instructions prescribe. The 
instructions to Form 1042-S (as previewed in draft form on November 1, 
2013) are being revised to incorporate the requirements for reporting 
on Form 1042-S for chapter 4 purposes and to remove language that 
currently permits a withholding agent to include more than one type of 
income or other payment on a recipient copy of

[[Page 12740]]

the Form 1042-S. To allow sufficient time for withholding agents to 
adapt to these requirements, however, a withholding agent will be 
permitted to include more than one type of income or other payment on 
the recipient copy of the Form 1042-S for calendar year 2014. Starting 
with calendar year 2015, the Form 1042-S and accompanying instructions 
will require a separate Form 1042-S for each type of income or other 
payment.
    Section 1.1461-1(c)(1)(ii) of the final regulations lists 
categories of persons that are treated as recipients with respect to 
amounts subject to chapter 3 reporting and other categories of persons 
that are not treated as recipients of such amounts. These temporary 
regulations amend Sec.  1.1461-1(c)(1)(ii) consistent with chapter 4 to 
add as recipients: (i) territory financial institutions treated as U.S. 
persons under Sec.  1.1441-1(b)(2)(iv)(A); (ii) foreign intermediaries 
and nonwithholding foreign partnerships and trusts that are 
participating FFIs (including reporting Model 2 FFIs) or registered 
deemed-compliant FFIs (including reporting Model 1 FFIs) with respect 
to a chapter 4 withholding rate pool of U.S. payees; and (iii) 
participating FFIs (including reporting Model 2 FFIs) or registered 
deemed-compliant FFIs (including reporting Model 1 FFIs) that are 
recipients of withholdable payments under Sec.  1.1474-
1(d)(1)(ii)(A)(1)(iii). These temporary regulations amend Sec.  1.1461-
1(c)(1)(ii) consistent with chapter 4 to treat as persons that are not 
recipients: (i) payees included in chapter 3 and chapter 4 withholding 
rate pools; (ii) authorized foreign agents (to coordinate with revised 
rules for authorized agents under Sec.  1.1441-7(c) of these temporary 
regulations); (iii) NQIs and flow-through entities unless they are FFIs 
treated as recipients under Sec.  1.1474-1(d)(1)(ii)(A)(1)(iii) 
(because they have identified the payment as allocable to a chapter 4 
withholding rate pool); and (iv) certain territory financial 
institutions that are not treated as U.S. persons under Sec.  1.1441-
1(b)(2)(iv)(A). These temporary regulations also add new Sec.  1.1461-
1(c)(1)(ii)(C), which provides that, with respect to the reporting of a 
chapter 4 reportable amount, a withholding agent must report the 
chapter 4 status of the recipient consistent with Sec.  1.1474-
1(d)(1)(ii)(A).
    Section 1.1461-1(c)(3) of the final regulations describes the 
specific information required to be reported on Form 1042-S. These 
temporary regulations revise Sec.  1.1461-1(c)(3)(i) to require the 
reporting of a withholding agent's chapter 3 status code. The chapter 3 
status codes are listed in the instructions to Form 1042-S for calendar 
year 2014 and, with respect to an entity, the chapter 3 status code is 
generally the entity's classification for U.S. tax purposes. These 
temporary regulations also revise Sec.  1.1461-1(b)(3)(iii) to require 
that, in the case of a payment subject to withholding under chapter 3 
but not subject to withholding under chapter 4, a withholding agent 
must report the basis for exempting the payment from withholding under 
chapter 4. The instructions to Form 1042-S for calendar year 2014 will 
add chapter 4 exemption codes to Form 1042-S for this purpose.
    These temporary regulations also add provisions in Sec.  1.1461-
1(c)(4)(i) and (c)(4)(ii) to coordinate the reporting requirements for 
payments to intermediaries and flow-through entities when a withholding 
agent is provided information for a chapter 4 withholding rate pool. 
Also, Sec.  1.1461-1(c)(4)(i)(D) is removed by these temporary 
regulations to coordinate with the removal of the rules pertaining to 
authorized foreign agents in Sec.  1.1441-7 of these temporary 
regulations.
    Section 1.1461-1(c)(5) of the final regulations provides the 
magnetic media filing requirements for withholding agents filing Forms 
1042-S. These temporary regulations revise this rule for financial 
institutions consistent with chapter 4 to require financial 
institutions to file information reports on magnetic media without 
regard to whether the financial institution files 250 or more 
information returns annually. See Sec.  301.1474-1(a).

III. Changes to Information Reporting Provisions Under Chapter 61

A. General Coordination of Information Reporting Under Sec.  1.6049-4 
With Chapter 4
    Section 1.6049-4 of the final regulations provides rules for 
determining whether an information return is required under section 
6049 for a payment of interest or for certain original issue discount 
(OID) and includes definitions of terms used for purposes of section 
6049 and other sections of chapter 61.
1. Exceptions to Reporting Under Sec.  1.6049-4(c)(4) To Coordinate 
With Information Reporting Under FATCA
    Section 1.6049-4(c) of the final regulations provides exceptions 
with respect to whether an information return is required with respect 
to a payment of interest or certain OID. These temporary regulations 
add a new exception in Sec.  1.6049-4(c)(4)(i) for a non-U.S. payor 
that is also a participating FFI (including a reporting Model 2 FFI) or 
a registered deemed-compliant FFI (including a reporting Model 1 FFI) 
that reports an account holder of a U.S. account pursuant to the 
requirements under chapter 4 (or an applicable IGA), provided that such 
information includes the account holder's TIN. For the requirements to 
report an account as a U.S. account, see the FFI agreement for 
participating FFIs (including reporting Model 2 FFIs), Sec.  1.1471-
5(f)(1) for registered deemed-compliant FFIs, and the applicable Model 
1 IGA for reporting Model 1 FFIs.
    These temporary regulations also add a new exception in Sec.  
1.6049-4(c)(4)(ii) for a participating FFI (including a reporting Model 
2 FFI) or registered deemed-compliant FFI (including a reporting Model 
1FFI), regardless of whether the FFI is a U.S. payor or non-U.S. payor, 
from the requirement to report a payment of interest for the year in 
which the interest is paid. The exception applies if the account holder 
of an account maintained by the FFI receives a payment of interest that 
is not subject to withholding under chapter 3 or backup withholding 
under section 3406 and either the FFI reports the account consistent 
with the pools described in Sec.  1.1471-4(d)(6) (referring to 
recalcitrant account pools) or, in the case of a reporting Model 1 FFI, 
the account holder has not provided information sufficient for the FFI 
to confirm the U.S. or non-U.S. status of the account holder and the 
FFI treats and reports the account as a U.S. reportable account under 
an applicable IGA. This new exception to reporting may apply to 
payments made by an FFI to an account holder that it must presume to be 
a U.S. non-exempt recipient if the payment is not subject to 
withholding under chapter 3 and is not subject to backup withholding 
under section 3406 because the amount is paid outside the United States 
with respect to an offshore obligation.
    Finally, the temporary regulations add Sec.  1.6049-4(c)(4)(iii) to 
specify the circumstances in which an FFI may, on a withholding 
statement provided to a payor, allocate an interest payment to a U.S. 
non-exempt recipient within a pool (referred to as a ``U.S. payee 
pool''), in lieu of providing payee-specific information with respect 
to each U.S. non-exempt recipient, for purposes of applying the 
exceptions described in paragraphs Sec.  1.6049-4(c)(4)(i) and 
(c)(4)(ii). These temporary regulations provide that a participating 
FFI (including a reporting Model 2 FFI) or registered deemed-compliant 
FFI

[[Page 12741]]

(including a reporting Model 1 FFI) may allocate a payment to a chapter 
4 withholding rate pool of U.S. payees on an applicable withholding 
statement to the extent the FFI is excepted from reporting the payment 
under Sec.  1.6049-4(c)(4)(i) or both the FFI is excepted from 
reporting under Sec.  1.6049-4(c)(4)(ii) and the payment is not subject 
to withholding under chapter 4.
    The coordination rules in Sec.  1.6049-4(c)(4) that provide an 
exception from the requirement to report information with respect to 
certain account holders of an FFI also apply for purposes of 
information reporting under sections 6041, 6042, and 6045.
2. Additions and Revisions to Definitions in Sec.  1.6049-4(f) Related 
to Interest Reporting Under Sec. Sec.  1.6049-4 and 1.6049-5
    Section 1.6049-4(f) of the final regulations provides definitions 
that apply for purposes of section 6049 and that are also relevant for 
other sections of chapter 61. These temporary regulations amend certain 
of the definitions and add additional definitions to coordinate with 
terms used under chapter 4. First, these temporary regulations add to 
Sec.  1.6049-4(f) the terms chapter 4 withholding rate pool, 
participating FFI, registered deemed-compliant FFI, reporting Model 1 
FFI, reporting Model 2 FFI, recalcitrant account holder, non-consenting 
U.S. account, and intergovernmental agreement (IGA) to coordinate and 
provide helpful cross-references to navigate these rules.
    Second, these temporary regulations add the term offshore 
obligation, which includes accounts of banks and other financial 
institutions and obligations (other than such accounts) maintained 
outside the United States, in Sec.  1.6049-5(c)(1) (as discussed in 
section III.D of this preamble).
    Finally, these temporary regulations add to Sec.  1.6049-4(f)(16) 
the term paid and received outside the United States. The definition of 
paid and received outside the United States is relevant for purposes of 
determining the circumstances under which (i) a payment of interest 
from non-U.S. sources is reportable by a non-U.S. payor, (ii) the 
exception to backup withholding under Sec.  31.3406(g)-1(e) applies 
with respect to a payment of interest, and (iii) an agent of a payee 
(other than a U.S. middleman) is excluded from reporting a payment of 
interest on an obligation described in Sec.  1.6049-5(b)(10). This new 
term is largely based on the description of amounts paid outside the 
United States in Sec.  1.6049-5(e) of the final regulations. Section 
1.6049-5(e) (as modified by these temporary regulations) describes when 
a payment is made outside the United States, which is relevant for 
determining cases in which a payor may rely upon documentary evidence 
in lieu of an applicable withholding certificate to establish a payee's 
foreign status for a payment made with respect to an offshore 
obligation.
    The new definition of an amount paid and received outside the 
United States under Sec.  1.6049-4(f)(16) also applies for purposes of 
information reporting rules under sections 6041 and 6042 and for 
determining whether the exception to backup withholding under section 
3406 applies to payments reportable under sections 6041 and 6042 and to 
gross proceeds reportable under section 6045.
B. Further Coordination of Interest Reporting Under Sec.  1.6049-5(b) 
With Chapter 4
    Section 1.6049-5(b) of the final regulations describes payments 
that are not treated as interest or OID for purposes of section 6049. 
Accordingly, payments described in Sec.  1.6049-5(b) of the final 
regulations are not subject to reporting under section 6049. These 
temporary regulations modify the rule for payments with respect to 
foreign intermediaries (which has been renumbered as new Sec.  1.6049-
5(b)(15)) and add a new exception in Sec.  1.6049-5(b)(14) for certain 
payments that a payor or middleman can reliably associate with 
documentation or certain other information provided by a foreign 
intermediary or flow-through entity.
1. Exception to Reporting Interest Payments Made to Foreign 
Intermediary or Flow-Through Entity Under New Sec.  1.6049-5(b)(14)
    These temporary regulations add a new exception from reporting in 
Sec.  1.6049-5(b)(14). The exception applies to payments made by a 
payor or middleman that can be reliably associated with documentation 
to treat the payments as made to a foreign intermediary or flow-through 
entity, provided that the payor or middleman has obtained a withholding 
statement from the foreign intermediary or flow-through entity 
allocating the payment (or portion thereof) to a chapter 4 withholding 
rate pool or to specific payees to which withholding under chapter 4 
applies. This exception for payments made to a chapter 4 withholding 
rate pool coordinates with the requirements under the chapter 4 
regulations describing the circumstances under which a withholding 
agent may, with respect to a chapter 4 withholdable payment, rely on an 
FFI withholding statement (described in Sec.  1.1471-
3(c)(3)(iii)(B)(2)) that allocates the payment to a chapter 4 
withholding rate pool of nonparticipating FFIs and recalcitrant account 
holders or a chapter 4 withholding statement that allocates the payment 
to a chapter 4 withholding rate pool of nonparticipating FFIs, instead 
of requiring payee-specific information with respect to such payees and 
account holders. For purposes of applying this exception, these 
temporary regulations also provide that a payor or middleman may 
reliably associate a payment with a chapter 4 withholding rate pool of 
U.S. payees on a withholding statement provided by an FFI if the payor 
or middleman identifies the intermediary or flow-through entity 
receiving the payment as either a participating FFI (including a 
reporting Model 2 FFI) or a registered deemed-compliant FFI (including 
a reporting Model 1 FFI) (by applying the due diligence requirements 
described in Sec.  1.1471-3(d)(4)).
    The exception to reporting added by these temporary regulations in 
Sec.  1.6049-5(b)(14) shall also apply for purposes of information 
reporting under sections 6041 and 6042.
2. Exception to Reporting Interest Payments Made by a Foreign 
Intermediary Under Renumbered Sec.  1.6049-5(b)(15)
    These temporary regulations renumber the exception from reporting 
that was included in Sec.  1.6049-5(b)(14) of the final regulations as 
new Sec.  1.6049-5(b)(15) for a foreign intermediary (or a U.S. branch 
not treated as a U.S. person under Sec.  1.1441-1(b)(2)(iv)) receiving 
a payment from a payor, if the intermediary furnishes to the payor or 
middleman the information required for the payor or middleman to report 
the payment under section 6049. This exception does not apply to a 
foreign intermediary that knows that the payments are required to be 
reported by the payor or middleman under Sec.  1.6049-4 and were not so 
reported. These temporary regulations also clarify that a territory 
financial institution that is not treated as a U.S. person under Sec.  
1.1441-1(b)(2)(iv) is excepted from reporting under this paragraph if 
it provides the information required for the payor or middleman from 
which it is receiving a payment to report. These temporary regulations 
incorporate by cross-reference the exception from reporting provided in 
Sec.  1.6049-4(c)(4) (referring to rules that exempt certain FFIs that 
are non-U.S. payors from reporting under chapter 61 if the payments are 
made to account holders that will be reported by the FFI and, in

[[Page 12742]]

narrower circumstances, rules that exempt certain FFIs that are U.S. or 
non-U.S. payors from reporting under chapter 61 on certain presumed 
U.S. non-exempt recipients), such that an intermediary need not report 
under this paragraph if the payment is not required to be reported 
under Sec.  1.6049-4(c)(4).
    The exception to reporting in Sec.  1.6049-5(b)(15) also applies 
for purposes of information reporting under sections 6041, 6042, and 
6045. (For a discussion of the applicable exemptions from reporting 
under sections 6041, 6042, and 6045 for certain FFIs that report 
information about their account holders under chapter 4 or an 
applicable IGA, see the discussion of the coordination rules under 
Sec.  1.6049-4(c)(4) in section III.A.1 of this preamble.)
C. Exceptions to Reporting for Certain Payments Made on Behalf of a 
PFIC
    These temporary regulations add two new exceptions to reporting 
that apply to paying agents and stock transfer agents making certain 
payments on behalf of a corporation described in section 1297(a) (a 
passive foreign investment company or PFIC). The first exception 
relates to dividend payments made by a paying agent on behalf of a PFIC 
as described in Sec.  1.6042-2(a)(1)(i)(B). The second exception 
relates to certain payments made by a stock transfer agent with respect 
to a redemption of PFIC stock as described in Sec.  1.6045-
1(c)(3)(xiv). Both exceptions apply if the agent (that is, the paying 
agent or stock transfer agent, as applicable) satisfies four 
requirements. First, the agent must obtain, for each year that the 
agent relies on this exception, a written statement from the PFIC that 
states that the corporation is described in section 1297(a). This 
written certification from the PFIC must be signed by an officer of the 
corporation, and the agent must have no reason to know that the written 
certification is unreliable or incorrect. Second, the agent must 
identify, prior to payment, the PFIC as a participating FFI (including 
a reporting Model 2 FFI) or a reporting Model 1 FFI in accordance with 
the requirements of Sec.  1.1471-3(d)(4) (as if, for purposes of that 
section, the paying agent or stock transfer agent were a withholding 
agent and as if the PFIC were a payee). Third, the agent must obtain, 
before the year the payment would otherwise be reported, a written 
certification representing that the PFIC will report information with 
respect to the payment (or the account to which the payment is made) as 
required by its reporting obligations under chapter 4 or an applicable 
IGA. If the agent, however, knows that the PFIC is not reporting the 
information as represented in the written certification, the agent must 
report all payments reportable under sections 6041 or 6045 that are 
made during the year for which the agent knows the PFIC is not 
reporting such information. Finally, the agent must not also be acting 
in its capacity as a custodian, nominee, or other agent of the payee 
(that is, the PFIC shareholder).
D. Reliance on Documentary Evidence Under Sec.  1.6049-5(c)
    Section 1.6049-5(c) of the final regulations provides rules for 
determining whether a payor may rely upon documentary evidence instead 
of a withholding certificate for purposes of determining a payee's 
status under section 6049, prescribes the types of documentation that 
constitutes documentary evidence for this purpose, and describes the 
requirements for maintaining the documentary evidence. To provide 
consistency between the documentation standards applicable to 
withholding agents in determining whether withholding applies under 
chapters 3 and 4, or an applicable IGA, these temporary regulations 
revise the final regulations in several respects.
1. Modification to Sec.  1.6049-5(c)(1) and Coordinating Change to 
Sec.  1.6045-1(g)
    Section 1.6049-5(c)(1) of the final regulations provides that a 
payor may rely on documentary evidence described in Sec.  1.6049-
5(c)(1) (which may include, but is not limited to, a certificate of 
residence issued by an appropriate tax official of the foreign 
government or other official documents issued by an authorized 
governmental body) for payments made outside the United States to an 
offshore account. These temporary regulations modify this rule in 
several respects.
    First, these temporary regulations in Sec.  1.6049-5(c)(1) replace 
the term offshore account with the term offshore obligation for 
purposes of determining whether a payor may rely upon documentary 
evidence with respect to a payment made outside the United States. 
These temporary regulations define an offshore obligation that is not 
an account of a bank or other financial institution as, among other 
things, an obligation with respect to which the payor is either engaged 
in business as a broker or dealer in securities or a financial 
institution defined in Sec.  1.1471-5(e). Thus, these temporary 
regulations expand the circumstances in which documentary evidence may 
be relied upon by, among other things, allowing for the use of 
documentary evidence beyond payments made to accounts of banks and 
other financial institutions and allowing for the use of documentary 
evidence by a withholding agent consistent with chapter 4.
    Second, the use of documentary evidence is further expanded as a 
result of changes made by these temporary regulations to the 
description of payment outside the United States under Sec.  1.6049-
5(e), which eliminates the requirement for payors to monitor whether 
certain U.S. connections are present as a condition for using 
documentary evidence (see section III.F of this preamble for a 
description of changes to Sec.  1.6049-5(e)).
    Third, these temporary regulations modify the types of 
documentation that qualify as documentary evidence under Sec.  1.6049-
5(c)(1) by prescribing rules regarding the types of documentary 
evidence that may be relied upon that are the same as those in the 
chapter 4 regulations.
    Fourth, the requirements for payors to maintain documentary 
evidence under Sec.  1.6049-5(c)(1) of the final regulations are also 
modified by these temporary regulations to be consistent with the 
requirements for maintaining documentary evidence applicable to 
withholding agents in the chapter 4 regulations.
    In addition, Sec.  1.6049-5(c)(1) of the final regulations includes 
a rule providing that a payor of broker proceeds described in Sec.  
1.6045-1(c)(2) may rely on documentary evidence described in Sec.  
1.6049-5(c)(1) of the final regulations if the broker completes the 
acts necessary to effect the sale outside the United States. Because 
reporting of gross proceeds is governed by section 6045 and not section 
6049, these temporary regulations remove this rule from Sec.  1.6049-
5(c)(1) and add a cross-reference to a revised rule that is provided in 
Sec.  1.6045-1(g)(1)(i) addressing the circumstances under which a 
broker paying gross proceeds may determine a payee's status using 
documentary evidence. The revised rule under Sec.  1.6045-5(c)(1) 
defines a sale effected outside the United States as a sale with 
respect to which a broker completes the acts necessary to effect the 
sale outside of the United States provided that no office of the same 
broker within the United States negotiated the sale with the customer 
or received instructions with respect to the sale from the customer. 
The revised rule also removes the limitations on the use of documentary 
evidence described in Sec.  1.6045-1(g)(3)(iii)(B) of the final 
regulations, except in circumstances in which the broker completes the 
acts

[[Page 12743]]

necessary to effect to sale at an office of the same broker in the 
United States.
    Finally, consistent with Sec.  1.1441-1(e)(3)(iii), these temporary 
regulations clarify that documentary evidence is permitted to be used 
with respect to payments made to a foreign intermediary (in addition to 
a foreign partnership or foreign trust), regardless of whether the 
obligation with respect to which the payment is made is maintained 
outside the United States.
    The new definition of the term offshore obligation in Sec.  1.6049-
5(c)(1) also applies for purposes of information reporting under 
sections 6041 and 6042.
2. Modifications to Documentation Standards Under Sec.  1.6049-5(c)(4)
    Section 1.6049-5(c)(4) of the final regulations provides special 
documentation rules for certain offshore accounts maintained at a bank 
or other financial institution, which modify the documentation 
standards of Sec.  1.6049-5(c)(1) of the final regulations for payments 
that are not subject to withholding under chapter 3 and are not 
payments of certain U.S. source short-term OID or bank deposit interest 
paid to foreign intermediaries and flow-through entities. These 
temporary regulations in Sec.  1.6049-5(c)(4) retain the modified 
documentation standards in paragraph Sec.  1.6049-5(c)(1) for such 
payments and provide additional allowances for payors to determine the 
status of payees receiving such payments to be consistent with the 
documentation rules prescribed under the chapter 4 regulations for 
participating FFIs (including reporting Model 2 FFIs) to identify their 
account holders. In particular, these temporary regulations allow a 
payor that is a participating FFI (including a reporting Model 2 FFI) 
or registered deemed-compliant FFI to establish a payee's status based 
on identification by a third-party credit agency to the extent 
permitted in Sec.  1.1471-4(c)(4)(ii). A payor that is a reporting 
Model 1 FFI or reporting Model 2 FFI may rely upon documentation or a 
certification establishing a payee's status under an applicable IGA. A 
payor that is an FFI may also rely on a written statement (as defined 
in Sec.  1.1471-1(b)(150)) to establish a payee's foreign status in 
circumstances in which the statement is allowed to be used by the FFI 
to establish the chapter 4 status of the payee without documentary 
evidence under the chapter 4 regulations. Consistent with the provision 
in the chapter 4 regulations that permits reliance on documentary 
evidence without a definitive renewal period for payments made with 
respect to offshore obligations, these temporary regulations provide 
the same treatment for documentation permitted to be relied upon by a 
payor under Sec.  1.6049-5(c)(4). Thus, a payor may rely upon 
documentation under Sec.  1.6049-5(c)(4) if the payor does not have for 
the payee any of the indicia of U.S. status described in Sec.  1.1471-
3(c)(6)(ii)(C)(1) until the payor knows or has reason to know of a 
change in circumstances. Finally, these temporary regulations allow a 
payor to maintain a record of documentary evidence instead of retaining 
the actual documentation reviewed, which is consistent with the rules 
for a participating FFI under chapter 4.
E. Coordination of Chapter 4 With Presumption Rules Under Sec.  1.6049-
5(d)
    Section 1.6049-5(d) of the final regulations provides general 
requirements for identifying payees (referencing the relevant 
requirements of Sec.  1.1441-1) and presumptions that apply in the 
absence of valid documentation for determining the status of a payee as 
a U.S. or foreign person for purposes of reporting under section 6049.
1. Payee Identification
    In general, Sec.  1.6049-5(d)(1) of the final regulations provides 
that a payee of a payment that is otherwise reportable under section 
6049 is identified pursuant to certain provisions that apply to 
identify the payee for purposes of chapter 3, with two exceptions that 
apply to payments that are not subject to withholding under chapter 3. 
The first exception modifies the treatment of a payment made to a U.S. 
agent by treating any such payment as a payment made to a U.S. payee 
(even if the U.S. agent is an agent of a foreign payee). The second 
exception modifies the treatment of a payment to a U.S. branch of a 
foreign bank or of a foreign insurance company by treating the payment 
as made to a foreign payee, regardless of the fact that the U.S. branch 
is treated as a U.S. person for payments of amounts subject to 
withholding and is a U.S. payor.
    The temporary regulations modify these two exceptions to be 
consistent with the rules under chapter 4 by clarifying that these 
exceptions also do not apply with respect to amounts that are 
withholdable payments. The chapter 4 regulations provide that 
withholdable payments made to U.S. agents and intermediaries and 
certain U.S. branches are treated as made to U.S. persons. In addition, 
these temporary regulations, consistent with the chapter 4 regulations, 
add that the first exception applies to a U.S. intermediary in addition 
to a U.S. agent, and they clarify that the second exception applies to 
payments made to a territory financial institution that is treated as a 
U.S. person under Sec.  1.1441-1(b)(2)(iv) (as well as to a U.S. branch 
of a foreign bank or of a foreign insurance company treated as a U.S. 
person under that section).
2. Presumptions in the Absence of Documentation Under Sec.  1.6049-
5(d)(2)
a. General Rule Under Sec.  1.6049-5(d)(2)(i)
    In general, Sec.  1.6049-5(d)(2)(i) of the final regulations 
incorporates the presumption rules of Sec. Sec.  1.1441-1(b)(3) and 
1.1441-5(d) and (e)(6) (general presumption rules) to determine the 
classification and other relevant characteristics of the payee if a 
payment cannot be reliably associated with valid documentation. The 
chapter 61 regulations incorporate these rules regardless of whether a 
payment is subject to withholding under chapter 3. The presumption rule 
for payments with respect to offshore obligations provided under the 
general presumption rules does not apply to a payment that is not 
subject to withholding under chapter 3.
    These temporary regulations modify this exception (which would not 
apply the general presumption rules to a payment that is not subject to 
withholding under chapter 3) in the case of a withholdable payment made 
to a payee that is an entity by applying the presumption rule for 
payments with respect to offshore obligations under Sec.  1.1441-
1(b)(3)(iii)(D) and (b)(3)(vii)(B) regardless of whether the payment is 
an amount subject to withholding under chapter 3. This avoids 
conflicting presumptions under chapters 4 and 61 given that Sec.  
1.1471-3(f) treats such payments as made to a nonparticipating FFI (and 
therefore as made to a foreign entity).
    These temporary regulations also add a new presumption rule that 
applies to a payment that is not subject to withholding under chapter 3 
made to a payee that is an individual with respect to an offshore 
obligation. This new presumption rule will limit the cases in which 
individuals are presumed U.S. non-exempt recipients to cases where a 
payor has U.S. indicia associated with the individual.
b. Grace Period Under Sec.  1.6049-5(d)(2)(ii)
    For purposes of applying the presumption rules, Sec.  1.6049-
5(d)(2)(ii) of the final regulations provides a 90-

[[Page 12744]]

day grace period during which a payor may treat an account as held by a 
foreign person if certain indications of foreign status are present to 
avoid reporting under chapter 61 and backup withholding under section 
3406. The chapter 61 regulations also provide rules for determining 
when the grace period begins, depending on whether an account is a new 
or preexisting account of the payor. These temporary regulations retain 
the 90-day grace period in Sec.  1.6049-5(d)(2)(ii) without 
modification but expand the types of accounts that will be treated as 
existing accounts to include accounts treated as consolidated 
obligations for purposes of chapter 4 (defined in Sec.  1.1471-
1(b)(23)) as long as all payments made to the account are not subject 
to withholding under chapter 3.
c. Joint Owners Under Sec.  1.6049-5(d)(2)(iii)
    These temporary regulations modify the presumption rule with 
respect to withholdable payments made to joint owners of a joint 
account consistent with the presumption rule described in Sec.  1.1471-
3(f)(7). Thus, in the case of an amount that is a withholdable payment 
made to a joint account, the payment is presumed made to a foreign 
payee that is a nonparticipating FFI if any joint payee does not appear 
to be an individual. This modification creates consistency between the 
presumption rules applicable under chapters 4 and 61 with respect to 
withholdable payments made to joint accounts.
    The joint account holder presumption rule described in Sec.  
1.1471-3(f)(7) also applies for purposes of reporting under sections 
6041 and 6042 and backup withholding under section 3406.
3. Foreign Intermediaries or Flow-Through Entities Under Sec.  1.6049-
5(d)(3)
    Section 1.6049-5(d)(3)(i) of the final regulations provides a 
presumption rule for determining whether a payment of an amount subject 
to withholding under chapter 3 may be treated as made to a foreign 
intermediary or flow-through entity by cross-references to the 
applicable presumption rules under Sec. Sec.  1.1441-1(b)(3) and 
1.1441-5(d) and (e)(6). These temporary regulations add a cross-
reference to the chapter 4 regulations for an amount that is a 
withholdable payment under chapter 4 for purposes of both identifying 
the payee and providing the presumption rule that applies to the 
payment. In addition, these temporary regulations clarify that the 
presumption rule under Sec.  1.6049-5(d)(3)(ii), applicable to payments 
not subject to withholding under chapter 3, does not apply to amounts 
that are withholdable payments under chapter 4, consistent with the 
presumption rule under chapter 4.
    The chapter 61 regulations also provide a presumption rule for 
payments of certain U.S. source short-term interest or OID and bank 
deposit interest paid to a foreign intermediary or flow-through entity 
that treats the payment as made to a U.S. non-exempt recipient. These 
temporary regulations under Sec.  1.6049-5(d)(3)(iii) remove bank 
deposit interest from the existing rule to make it consistent with the 
chapter 4 presumption rule applicable to withholdable payments (which 
includes such interest) made to a foreign intermediary or flow-through 
entity. See Sec.  1.1471-3(f)(5) (treating the payment as made to a 
nonparticipating FFI). These temporary regulations also provide that 
this presumption rule is not required to be applied with respect to a 
payment of U.S. source short-term OID allocated on a withholding 
statement to a chapter 4 withholding rate pool of U.S. payees by an 
intermediary or flow-through entity receiving the payment that the 
payor documents to be a participating FFI (including a reporting Model 
2 FFI) or registered deemed-compliant FFI (including a reporting Model 
1 FFI) under the identification requirements of chapter 4.
F. Paid Outside the United States Under Sec.  1.6049-5(e)
    Section 1.6049-5(e) of the final regulations describes the 
circumstances in which an amount is considered paid outside the United 
States for purposes of, among other things, determining whether a payor 
may rely upon documentary evidence under Sec.  1.6049-5(c)(1) of the 
final regulations to document a payee. It requires that the payor or 
middleman (i) complete the acts necessary to effect payment outside the 
United States and (ii) verify that the obligation or payee does not 
have certain specified connections with the United States (U.S. 
connections), such as a U.S. mailing address for the payee. See Sec.  
1.6049-5(e)(1)(i) through (e)(1)(ii) and (e)(2) through (e)(4) of the 
final regulations. These temporary regulations retain the requirement 
that a payor or middleman complete the acts necessary to effect payment 
outside the United States, but remove the other U.S. connections 
described in Sec.  1.6049-5(e) of the final regulations for the purpose 
of being allowed to use documentary evidence under Sec.  1.6049-5(c). 
This modification reduces burdens by eliminating the need for a payor 
or middleman to monitor whether these U.S. connections are present for 
purposes of determining if the payor or middleman may rely upon 
documentary evidence under Sec.  1.6049-5(c)(1). (For a discussion of 
the documentary evidence rule in Sec.  1.6049-5(c), see section III.D 
of this preamble.) The U.S. connections, however, are still retained 
for other purposes under chapter 61 and section 3406, and have been 
included in the definition of the term paid and received outside the 
United States under Sec.  1.6049-4(f)(16) (as discussed in section 
III.A of this preamble).

IV. Other Changes With Respect to Backup Withholding Under Section 
3406, Claims for Refund or Credit Under Section 6402, and Repeal of 
Portfolio Interest Treatment for Certain Obligations Under Section 871

A. Coordination of Withholding Under Sec.  31.3406(g)-1(e) With Chapter 
4
    Section 31.3406(g)-1 of the final regulations requires backup 
withholding with respect to certain reportable payments and provides an 
exception to backup withholding for such payments if they are made 
outside the United States to payees other than known U.S. persons or 
are payments to which withholding under chapter 3 has been applied. The 
final regulations also provide the same exception for payments to which 
the documentary evidence rule under Sec.  1.6049-5(c) applies. These 
temporary regulations modify this exception (consistent with the 
changes made by these temporary regulations in Sec. Sec.  1.6049-4 and 
1.6049-5) so that it applies to a reportable payment that is paid and 
received outside the United States (as defined in Sec.  1.6049-
4(f)(16)) with respect to an offshore obligation (or a sale effected 
outside the United States).
    In addition, these temporary regulations do not require backup 
withholding under section 3406 for certain payments with respect to 
which withholding under chapter 4 has been applied, regardless of 
whether the payee is a known U.S. person to prevent duplicative 
withholding with respect to the same payment.
B. Claims for Credit or Refund of Chapter 4 Withholding Under Sec.  
301.6402-3(e)
    Section 6402 provides authority for the Secretary to make a credit 
or refund of an overpayment, and Sec.  301.6402-3(e) of the final 
regulations provides the general requirements applicable to a claim for 
credit or refund of income tax made by a nonresident alien individual 
or foreign corporation, including a claim for amounts withheld under 
chapter 3. These temporary regulations modify

[[Page 12745]]

these rules to also apply to claims for refund or credit of amounts 
withheld under chapter 4. Similar to the request for a claim for refund 
or credit of an amount withheld under chapter 3, these temporary 
regulations provide that, for an overpayment of tax that resulted from 
withholding under chapter 4, a taxpayer must attach a copy of the Form 
1042-S to the income tax return on which the claim for refund or credit 
is made. These temporary regulations eliminate, however, the 
requirement that the Form 1042-S include the TIN of the recipient in 
order for the claim to be valid. In addition, these temporary 
regulations clarify that the ``other statement'' that a taxpayer may 
attach in lieu of the Form 1042-S or Form 8805, ``Foreign Partner's 
Information Statement of Section 1446 Withholding Tax,'' is a statement 
described in Sec.  1.1446-3(d)(2). Finally, to coordinate claims under 
chapter 3 with those under chapter 4, which permits a participating FFI 
(including a reporting Model 2 FFI) to file a collective claim for 
refund for amounts withheld under chapter 4 with respect to its account 
holders, these temporary regulations provide that no claim for refund 
or credit may be made by a taxpayer for an amount repaid to the 
taxpayer pursuant to a collective refund claim filed by a participating 
FFI (including a reporting Model 2 FFI).
C. Repeal of Portfolio Interest Treatment for Foreign-Targeted 
Obligations Under Sec.  1.871-14
    Section 1.871-14 of the final regulations provides procedures for 
interest to qualify as portfolio interest under section 871(h)(2) or 
section 881(c). Section 502 of the HIRE Act, among other things, 
repealed section 163(f)(2)(B) with respect to obligations that are not 
issued in registered form. In response to the elimination of the 
foreign targeting rules by the HIRE Act, the IRS and Treasury 
Department issued Notice 2012-20, 2012-13 IRB 574 (March 26, 2012), 
which clarified the circumstances in which an obligation held in a book 
entry system by a clearing organization qualifies as an obligation in 
registered form and postponed until January 1, 2014, the elimination of 
the treatment of interest paid with respect to foreign-targeted 
registered obligations under Sec.  1.871-14(e) as portfolio interest. 
Notice 2012-20 was amplified by Notice 2013-43, 2013-31 IRB 113 (July 
29, 2013), which further postpones the elimination of the allowance for 
foreign-targeted registered obligations to apply to obligations issued 
before July 1, 2014. In response to comments, these temporary 
regulations provide an additional transitional extension until January 
1, 2016, for the portfolio interest treatment of foreign-targeted 
registered obligations issued before that date in order to afford the 
time for foreign institutions to become qualified intermediaries in 
accordance with the forthcoming amendment of the qualified intermediary 
agreement and governing revenue procedure. Because of the continuing 
applicability of Notice 2012-20 (as amplified), these temporary 
regulations do not revise the requirements for determining whether an 
obligation is in registered form under Sec.  5f.103-1(c). Instead, 
these temporary regulations include updated citations to sections 
871(h)(2)(A) and (B) and 881(c)(2)(A) and (B) for the applicable sunset 
dates of obligations issued in non-registered form and of foreign-
targeted registered obligations and include provisions to coordinate 
the exception from withholding for portfolio interest with the 
withholding requirements of chapter 4. In addition, Sec.  1.871-
14(c)(2) of the final regulations describes cases in which a U.S. 
person will be considered to have received a statement that meets the 
requirements of section 871(h)(5), which permits receipt of the 
statement by an authorized foreign agent (as described in Sec.  1.1441-
7(c)(2)) of a U.S. person. To further coordinate with revisions made by 
these temporary regulations to Sec.  1.1441-7(c)(2), including the 
removal of the allowance for the use of an authorized foreign agent, 
these temporary regulations update references in Sec.  1.871-14(c)(2) 
to remove the term authorized foreign agent and replace it with the 
term authorized agent.
    The IRS and the Treasury Department intend to issue additional 
amendments to this and other regulatory provisions affected by section 
502 of the HIRE Act (for example, the definition of an obligation in 
registered form) in separate published guidance and seek comments on 
the requirements that should apply under such amendments. Until such 
guidance is issued, taxpayers may continue to rely on Notice 2012-20 to 
treat an obligation as an obligation in registered form.
D. Removal of Example in Sec.  1.6045-1(g)(4)
    In general, Sec.  1.6045-1(c)(2) of the final regulations requires 
a broker to make a return of information for each sale by a customer of 
the broker if the broker effects the sale in the ordinary course of a 
trade or business in which the broker stands ready to effect sales to 
be made by others. Exceptions to the reporting requirement of Sec.  
1.6045-1(c)(2) of the final regulations include sales effected for 
exempt recipients within the meaning of Sec.  1.6045-1(c)(3) and sales 
made by a broker with respect to a customer who is considered to be an 
exempt foreign person under Sec.  1.6045-1(g). Example 8 in Sec.  
1.6045-1(g)(4) of the final regulations deals with the sale of an 
obligation payable 183 days or less from the date of original issue. 
These temporary regulations remove Example 8 from the final regulations 
because the sale of a short-term obligation is generally no longer 
subject to reporting under section 6045, and former Example 9 is 
renumbered to be Example 8.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13653. 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) does 
not apply to these regulations.
    The collection of information in these temporary regulations is 
contained in a number of provisions including Sec. Sec.  1.1441-1, 
1.1441-3, 1.1441-4, and 1.1441-5. The IRS intends that the information 
collection requirements of these temporary regulations will be 
implemented through use of the W-8 series of forms, Form W-9, Form 
1042, Form 1042-S, the 1099 series of forms, and Form 8966, as well as 
certain income tax returns (for example, Forms 1040, 1040-NR, and 
1120F) and Form 843 relating to refunds. As a result, for purposes of 
the Paperwork Reduction Act (44 U.S.C. 3507), the reporting burden 
associated with the collection of information in these temporary 
regulations will be reflected in the information collection burden and 
OMB control number of the appropriate IRS form.
    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 OMB control number.
    Books and 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.
    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4, requires that an agency prepare a costs and benefits analysis 
and a budgetary impact statement before

[[Page 12746]]

promulgating a rule that may result in the expenditure by State, local, 
and tribal governments, in the aggregate, or by the private sector, of 
$100 million or more in any one year. If a budgetary impact statement 
is required, section 205 of the Unfunded Mandates Reform Act requires 
an agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. The Treasury Department and 
the IRS have determined that there is no federal mandate imposed by 
this rulemaking that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.
    For the applicability of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6), please refer to the Special Analyses section of the 
preamble to the cross-referenced notice of proposed rulemaking 
published in the Proposed Rules section in this issue of the Federal 
Register. Pursuant to section 7805(f) of the Internal Revenue Code, 
these regulations have been submitted to the Chief Counsel for Advocacy 
of the Small Business Administration for comment on their impact on 
small business.

Drafting Information

    The principal authors of these regulations are John Sweeney, Joshua 
Rabon, Subin Seth, and Nancy Lee of the Office of Associate Chief 
Counsel (International). However, other personnel from the IRS and the 
Treasury Department participated in the development of these 
regulations.

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 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 31, and 301 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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

0
Par. 2. Section 1.871-14 is amended by:
0
1. Revising paragraph (b).
0
2. In the last sentence of paragraph (c)(1)(i)(B), removing the first 
instance of the word ``in''.
0
3. Revising paragraphs (c)(2), (c)(3)(i), (c)(4), and (e)(1).
0
4. Adding paragraph (i)(3).
    The additions and revisions read as follows:


Sec.  1.871-14  Rules relating to repeal of tax on interest of 
nonresident alien individuals and foreign corporations received from 
certain portfolio debt investments.

* * * * *
    (b) [Reserved]. For further guidance, see Sec.  1.871-14T(b).
    (c) * * *
    (2) through (3)(i) [Reserved]. For further guidance, see Sec.  
1.871-14T(c)(2) through (c)(3)(i).
* * * * *
    (4) [Reserved]. For further guidance, see Sec.  1.871-14T(c)(4).
* * * * *
    (e)(1) [Reserved]. For further guidance, see Sec.  1.871-14T(e)(1).
* * * * *
    (i) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.871-14T(i)(3).


0
Par. 3. Section 1.871-14T is added to read as follows:


Sec.  1.871-14T  Rules relating to repeal of tax on interest of 
nonresident alien individuals and foreign corporations received from 
certain portfolio debt investments (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.871-14(a).
    (b) Rules concerning obligations in bearer form before March 19, 
2012--(1) In general. Interest (including original issue discount) with 
respect to an obligation in bearer form is portfolio interest within 
the meaning of section 871(h)(2)(A) or 881(c)(2)(A) only if it is paid 
with respect to an obligation issued after July 18, 1984, and issued 
before March 19, 2012, that is described in section 163(f)(2)(B), as in 
effect prior to the amendment by section 502 of the Hiring Incentives 
to Restore Employment Act of 2010 (HIRE Act), Public Law 111-147, and 
the regulations under that section and an exception under section 
871(h) or 881(c) does not apply. Any obligation that is not in 
registered form as defined in paragraph (c)(1)(i) of this section is an 
obligation in bearer form.
    (2) Coordination with withholding and reporting rules. For an 
exemption from withholding under section 1441 with respect to 
obligations described in this paragraph (b), see Sec.  1.1441-
1(b)(4)(i). See Sec.  1.1471-2 for rules relating to withholding under 
chapter 4 of the Code that may apply to withholdable payments (as 
defined in Sec.  1.1471-4(b)(145)) made on or after July 1, 2014, with 
respect to an agreement or instrument that is not treated as an 
obligation outstanding before March 19, 2012. For purposes of the 
preceding sentence, the terms obligation and outstanding are described 
in Sec.  1.1471-2(b)). See also Sec.  1.1471-4(d)(6) for the reporting 
requirements of participating foreign financial institutions (as 
defined in Sec.  1.1471-1(b)(91)) with respect to accounts held by 
recalcitrant account holders (as defined in Sec.  1.1471-5(g)). For 
rules relating to an exemption from Form 1099 reporting and backup 
withholding under section 3406, see section 6049 and Sec.  1.6049-
5(b)(8) for the payment of interest and Sec.  1.6045-1(g)(1)(ii) for 
the redemption, retirement, or sale of an obligation in bearer form.
    (c)(1) through (c)(1)(ii)(D) [Reserved]. For further guidance, see 
Sec.  1.1871-14(c)(1) introductory text through (c)(1)(ii)(D).
    (2) Required statement. For purposes of paragraph (c)(1)(ii)(C) of 
this section, a U.S. person will be considered to have received a 
statement that meets the requirements of section 871(h)(5) if either it 
complies with one of the procedures described in this paragraph (c)(2) 
and does not have actual knowledge or reason to know that the 
beneficial owner is a U.S. person or it complies with the procedures 
described in paragraph (d) or (e) of this section (to the extent 
applicable).
    (i) The U.S. person (or its authorized agent described in Sec.  
1.1441-7(c)(2)) can reliably associate the payment with documentation 
upon which it can rely to treat the payment as made to a foreign 
beneficial owner in accordance with Sec.  1.1441-1(e)(1)(ii). See Sec.  
1.1441-1(b)(2)(vii) for rules regarding reliable association with 
documentation.
    (ii) The U.S. person (or its authorized agent described in Sec.  
1.1441-7(c)(2)) can reliably associate the payment with a withholding 
certificate described in Sec.  1.1441-5(c)(2)(iv) from a person 
claiming to be a withholding foreign partnership or Sec.  1.1441-
5(e)(v) for a person claiming to be a withholding foreign trust.
    (iii) The U.S. person (or its authorized agent described in Sec.  
1.1441-7(c)(2)) can reliably associate the payment with a withholding 
certificate described in Sec.  1.1441-1(e)(3)(ii) from a person 
representing to be a qualified intermediary that has assumed primary

[[Page 12747]]

withholding responsibility for the payment in accordance with Sec.  
1.1441-1(e)(5)(iv) or a qualified intermediary that has provided a 
withholding statement that meets the requirements of Sec.  1.1441-
1(e)(5)(v)(C) or that includes the payment in a withholding rate pool 
for payments excepted from withholding.
    (iv) The U.S. person (or its authorized agent described in Sec.  
1.1441-7(c)(2)) can reliably associate the payment with a withholding 
certificate described in Sec.  1.1441-1(e)(3)(v) from a person claiming 
to be a U.S. branch of a foreign bank or of a foreign insurance company 
that is described in Sec.  1.1441-1(b)(2)(iv)(A) or a U.S. branch 
designated in accordance with Sec.  1.1441-1(b)(2)(iv)(E).
    (3) Time for providing certificate or documentary evidence--(i) 
General rule. Interest on a registered obligation shall qualify as 
portfolio interest if the withholding certificate or documentary 
evidence that must be provided is furnished before expiration of the 
beneficial owner's period of limitation for claiming a refund of tax 
with respect to such interest. See, however, Sec.  1.1441-1(b)(7) for 
consequences to a withholding agent that makes a payment without 
withholding even though it cannot reliably associate the payment with 
the documentation prior to the payment. If a withholding agent 
withholds an amount under chapter 3 of the Code because it cannot 
reliably associate the payment with the documentation for the 
beneficial owner on the date of payment, the beneficial owner may 
nevertheless claim the benefit of an exemption from tax under this 
section by claiming a refund or credit for the amount withheld based 
upon the procedures described in Sec. Sec.  1.1464-1 and 301.6402-3(e) 
of this chapter. See Sec.  1.1474-5 and Sec.  301.6402-3(e) for the 
allowance and requirements for a refund with respect to an amount 
(including a payment of interest) that was withheld upon under chapter 
4 of the Code. In the alternative, adjustments to any amount of 
overwithheld tax may be made under the procedures described in Sec.  
1.1461-2(a) for a payment withheld upon under chapter 3 of the Code or 
in Sec.  1.1474-2 for a payment withheld upon under chapter 4 of the 
Code.
    (ii) [Reserved]. For further guidance, see Sec.  1.871-
14(c)(3)(ii).
    (4) Coordination with withholding and reporting rules. For an 
exemption from withholding under section 1441 with respect to 
obligations described in this paragraph (c)(4), see Sec.  1.1441-
1(b)(4)(i). For rules applicable to withholding certificates, see Sec.  
1.1441-1(e)(4). For rules regarding documentary evidence, see Sec.  
1.6049-5(c)(1). For application of presumptions when the U.S. person 
cannot reliably associate the payment with documentation, see Sec.  
1.1441-1(b)(3). For standards of knowledge applicable to withholding 
agents, see Sec.  1.1441-7(b). For rules relating to reporting on Forms 
1042 and 1042-S, see Sec.  1.1461-1(b) and (c). For rules relating to 
an exemption from Form 1099 reporting and backup withholding under 
section 3406, see section 6049 and Sec.  1.6049-5(b)(8) for the payment 
of interest and Sec.  1.6045-1(g)(1)(i) for the redemption, retirement, 
or sale of an obligation in registered form. For rules relating to 
withholding under sections 1471 and 1472 that may apply notwithstanding 
the exemption for payments of portfolio interest under section 1441, 
see Sec. Sec.  1.1471-2(a), 1.1471-4(b), and 1.1472-1(b).
    (d) [Reserved]. For further guidance, see Sec.  1.871-14(d) 
introductory text through (d)(3)(iv).
    (e) Foreign-targeted registered obligations--(1) General rule. The 
statement described in paragraph (c)(1)(ii) of this section is not 
required with respect to interest paid on an obligation issued before 
January 1, 2016, that is a registered obligation targeting foreign 
markets in accordance with the provisions of paragraph (e)(2) of this 
section if the interest is paid by a U.S. person, a withholding foreign 
partnership, or a U.S. branch described in Sec.  1.1441-1(b)(2)(iv)(A) 
or (E) to a registered owner at an address outside the United States, 
provided that the registered owner is a financial institution described 
in section 871(h)(5)(B). In that case, the U.S. person otherwise 
required to deduct and withhold tax may treat the interest as portfolio 
interest if it does not have actual knowledge that the beneficial owner 
is a United States person and if it receives the certificate described 
in paragraph (e)(3)(i) of this section from a financial institution or 
member of a clearing organization, which member is the beneficial owner 
of the obligation, or the documentary evidence or statement described 
in paragraph (e)(3)(ii) of this section from the beneficial owner, in 
accordance with the procedures described in paragraph (e)(4) of this 
section.
    (2) through (i)(2) [Reserved]. For further guidance, see Sec.  
1.871-14(e)(2) through (i)(2).
    (3) Effective/applicability date. The rules of paragraphs (b)(2), 
(c)(3)(i), and (c)(4) of this section apply to payments of interest 
made after June 30, 2014. (For payments of interest made before July 1, 
2014, see paragraphs (b)(2), (c)(3)(i), and (c)(4) of this section as 
in effect prior to February 28, 2017.)
    (j) Expiration date. The applicability of this section expires on 
or before February 28, 2017.

0
Par. 4. Section 1.1441-1 is amended by:
0
1. Revising paragraph (a).
0
2. Revising paragraphs (b)(1), (b)(2)(i), (b)(2)(iii)(A), 
(b)(2)(iv)(A), (b)(2)(iv)(B)(2) and (b)(2)(iv)(B)(3).
0
3. Adding paragraph (b)(2)(iv)(B)(4).
0
4. Revising paragraphs (b)(2)(iv)(C), (b)(2)(iv)(E), (b)(2)(vi), 
(b)(2)(vii), (b)(3)(i), (b)(3)(ii), (b)(3)(iii) introductory text, and 
(b)(3)(iii)(A).
0
5. Revising paragraphs (b)(3)(iii)(D), (b)(3)(iv) introductory text, 
(B)(3)(iv)(A), (b)(3)(v)(B), (b)(3)(vi), (b)(3)(vii), (b)(3)(ix)(A), 
(b)(3)(x), (b)(4) introductory text, (b)(4)(i).
0
6. Adding paragraph (b)(5)(ix).
0
7. Revising paragraphs (b)(6), (b)(7)(i) introductory text, 
(b)(7)(i)(A), (b)(7)(i)(B), (b)(7)(i)(C), (b)(7)(ii), and (b)(7)(iv).
0
8. Adding paragraph (b)(7)(v).
0
9. Revising paragraphs (c) introductory text, (c)(2), (c)(5), (c)(10), 
(c)(12), (c)(16), (c)(17), (c)(25), (c)(28), (c)(29), and (c)(30).
0
10. Adding paragraphs (c)(31) through (56).
0
11. Revising paragraph (d)(4).
0
12. Revising paragraphs (e)(1)(ii)(A)(2), (e)(1)(ii)(A)(3), (e)(2)(ii), 
(e)(3)(ii) introductory text, (e)(3)(ii)(A), (e)(3)(ii)(C), and 
(e)(3)(ii)(D).
0
13. Adding paragraph (e)(3)(ii)(E).
0
14. Revising paragraphs (e)(3)(iii) introductory text, (e)(3)(iii)(A), 
(e)(3)(iii)(C), and (e)(3)(iii)(D).
0
15. Adding paragraph (e)(3)(iii)(E).
0
16. Revising paragraphs (e)(3)(iv)(A), (e)(3)(iv)(B), and 
(e)(3)(iv)(C).
0
17. Revising paragraphs (e)(3)(iv)(D)(1) through (6), (e)(3)(iv)(E), 
and (e)(3)(v).
0
18. Revising paragraphs (e)(4) introductory text, (e)(4)(i), 
(e)(4)(ii)(A), (e)(4)(ii)(B)(1) through (6), and (e)(4)(ii)(B)(8), and 
adding paragraphs (e)(4)(ii)(B)(9) through (12).
0
19. Revising paragraphs (e)(4)(ii)(C) and (D).
0
20. Revising paragraphs (e)(4)(iii), (e)(4)(iv)(A), (e)(4)(iv)(C), 
(e)(4)(v), (e)(4)(vi), (e)(4)(vii) introductory text, (e)(4)(vii)(A), 
(e)(4)(vii)(F), and (e)(4)(vii)(H).
0
21. Adding paragraph (e)(4)(vii)(I).
0
22. Revising paragraph (e)(4)(viii)(B) and adding paragraph 
(e)(4)(viii)(C).
0
23. Revising paragraphs (e)(4)(ix) and (e)(5).
0
24. Adding paragraph (f)(3).
    The revisions and additions read as follows:

[[Page 12748]]

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

    (a) [Reserved]. For further guidance, see Sec.  1.1441-1T(a).
    (b) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(1).
    (2) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(2)(i).
* * * * *
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(iii)(A).
* * * * *
    (iv) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(iv)(A).
    (B) * * *
    (2) through (4) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(iv)(B)(2) through (b)(2)(iv)(B)(4).
    (C) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(iv)(C).
* * * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(iv)(E).
* * * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(vi).
    (vii) * * *
    (B) * * *
    (b)(2)(vii)(B)(1) through (b)(2)(vii)(E)(2) [Reserved]. For further 
guidance, see Sec.  1.1441-1T(b)(2)(vii)(B)(1) through 
(b)(2)(vii)(E)(2).
    (F) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(vii(F).
    (3) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(3)(i).
    (ii) * * *
    (A) through (C) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(ii)(A) trough (b)(3)(ii)(C).
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii).
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(A).
    (1) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(A)(1).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(A)(1)(iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(A)(1)(iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(A)(1)(v).
    (2) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(A)(2).
* * * * *
    (D) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iii)(D).
* * * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iv).
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(iv)(A).
* * * * *
    (v) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(v)(B).
    (vi) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(vii).
* * * * *
    (ix) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(3)(ix)(A).
* * * * *
    (x) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(3)(x).
    (4) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(4).
    (i) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(4)(i).
* * * * *
    (5) * * *
    (ix) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(5)(ix).
    (6) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(6).
    (7) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(7)(i).
    (A) through (C) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(7)(i)(A) through (b)(7)(i)(C).
* * * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(7)(ii).
* * * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(7)(iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1441-1T(b)(7)(v).
* * * * *
    (c) [Reserved]. For further guidance, see Sec.  1.1441-1T(c).
* * * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1441-1T(c)(2).
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  1.1441-1T(c)(5).
* * * * *
    (10) [Reserved]. For further guidance, see Sec.  1.1441-1T(c)(10).
* * * * *
    (12) [Reserved]. For further guidance, see Sec.  1.1441-1T(c)(12).
* * * * *
    (c)(16) through (c)(17) [Reserved]. For further guidance, see Sec.  
1.1441-1T(c)(16) through (c)(17).
* * * * *
    (25) [Reserved]. For further guidance, see Sec.  1.1441-1T(c)(25).
* * * * *
    (c)(28) through (c)(56) [Reserved]. For further guidance, see Sec.  
1.1441-1T(c)(28) through (c)(56).
    (d) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1441-1T(d)(4).
    (e) * * *
    (1) * * *
    (ii) * * *
    (A) * * *
    (2) through (e)(1)(ii)(A)(3) [Reserved]. For further guidance, see 
Sec.  1.1441-1T(e)(1)(ii)(A)(2) through (e)(1)(ii)(A)(3).
* * * * *
    (2) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(2)(ii).
    (3) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(ii)(A).
* * * * *
    (C) through (E) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(ii)(C) through (e)(3)(ii)(E).
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iii).
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iii)(A).
* * * * *
    (C) through (E) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iii)(C) through (e)(3)(iii)(E).
    (iv) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(A) through (C).
    (D) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(D)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(D)(2).
    (3) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(D)(3).
    (4) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(D)(4).
    (5) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(D)(5).
    (6) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(D)(6).
* * * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(3)(iv)(E).
    (v) [Reserved]. For further guidance, see Sec.  1.1441-1T(e)(3)(v).
* * * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1441-1T(e)(4).
    (i) [Reserved]. For further guidance, see Sec.  1.1441-1T(e)(4)(i).
    (ii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B).
* * * * *
    (8) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B)(8).
    (9) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B)(9).

[[Page 12749]]

    (10) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B)(10).
    (11) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B)(11).
    (12) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B)(12).
    (C) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(C).
    (D) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(D).
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(iii).
    (iv) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(iv)(A).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(iv)(C).
    (v) through (vii) [Reserved]. For further guidance, see Sec.  
1.1441-1T(e)(4)(v) through (e)(4)(vii).
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(vii)(A).
* * * * *
    (F) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(vii)(F).
* * * * *
    (H) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(vii)(H).
    (I) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(vii)(I).
    (viii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(viii)(B).
    (C) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(viii)(C).
    (ix) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ix).
    (5) [Reserved]. For further guidance, see Sec.  1.1441-1T(e)(5).
    (f) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1441-1T(f)(3).

0
Par. 5. Section 1.1441-1T is added to read as follows:


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

    (a) Purpose and scope. This section, Sec. Sec.  1.1441-2 through 
1.1441-9, and 1.1443-1 provide rules for withholding under sections 
1441, 1442, and 1443 when a payment is made to a foreign person. This 
section provides definitions of terms used in chapter 3 of the Internal 
Revenue Code (Code) and regulations thereunder. It prescribes 
procedures to determine whether an amount must be withheld under 
chapter 3 of the Code and documentation that a withholding agent may 
rely upon to determine the status of a payee or a beneficial owner as a 
U.S. person or as a foreign person and other relevant characteristics 
of the payee that may affect a withholding agent's obligation to 
withhold under chapter 3 of the Code and the regulations thereunder. 
Special procedures regarding payments to foreign persons that act as 
intermediaries are also provided. Section 1.1441-2 defines the income 
subject to withholding under section 1441, 1442, and 1443 and the 
regulations under these sections. Section 1.1441-3 provides rules 
regarding the amount subject to withholding and rules for coordinating 
withholding under this section with withholding under section 1445 and 
under chapter 4 of the Code. Section 1.1441-4 provides exemptions from 
withholding for, among other things, certain income effectively 
connected with the conduct of a trade or business in the United States, 
including certain compensation for the personal services of an 
individual. Section 1.1441-5 provides rules for withholding on payments 
made to flow-through entities and other similar arrangements. Section 
1.1441-6 provides rules for claiming a reduced rate of withholding 
under an income tax treaty. Section 1.1441-7 defines the term 
withholding agent and provides due diligence rules governing a 
withholding agent's obligation to withhold. Section 1.1441-8 provides 
rules for relying on claims of exemption from withholding for payments 
to a foreign government, an international organization, a foreign 
central bank of issue, or the Bank for International Settlements. 
Sections 1.1441-9 and 1.1443-1 provide rules for relying on claims of 
exemption from withholding for payments to foreign tax exempt 
organizations and foreign private foundations.
    (b) General rules of withholding--(1) Requirement to withhold on 
payments to foreign persons. A withholding agent must withhold 30-
percent of any payment of an amount subject to withholding made to a 
payee that is a foreign person unless it can reliably associate the 
payment with documentation upon which it can rely to treat the payment 
as made to a payee that is a U.S. person or as made to a beneficial 
owner that is a foreign person entitled to a reduced rate of 
withholding. However, a withholding agent making a payment to a foreign 
person need not withhold where the foreign person assumes 
responsibility for withholding on the payment under chapter 3 of the 
Code and the regulations thereunder as a qualified intermediary (see 
paragraph (e)(5) of this section), as a U.S. branch of a foreign person 
(see paragraph (b)(2)(iv) of this section), as a withholding foreign 
partnership (see Sec.  1.1441-5(c)(2)(i)), or as a withholding foreign 
trust (see Sec.  1.1441-5(e)(5)(v)). Withholding is also not required 
under this section when withholding under chapter 4 was applied to the 
payment. See Sec.  1.1441-3(a)(2). This section (dealing with general 
rules of withholding and claims of foreign or U.S. status by a payee or 
a beneficial owner), and Sec. Sec.  1.1441-4, 1.1441-5, 1.1441-6, 
1.1441-8, 1.1441-9, and 1.1443-1 provide rules for determining whether 
documentation is required as a condition for reducing the rate of 
withholding on a payment to a foreign beneficial owner or to a U.S. 
payee and if so, the nature of the documentation upon which a 
withholding agent may rely in order to reduce such rate. Paragraph 
(b)(2) of this section prescribes the rules for determining who the 
payee is, the extent to which a payment is treated as made to a foreign 
payee, and reliable association of a payment with documentation. 
Paragraph (b)(3) of this section describes the applicable presumptions 
for determining the payee's status as U.S. or foreign and the payee's 
other characteristics (i.e., as an owner or intermediary, as an 
individual, partnership, corporation, etc.). Paragraph (b)(4) of this 
section lists the types of payments for which the 30-percent 
withholding rate may be reduced. Because the treatment of a payee as a 
U.S. or a foreign person also has consequences for purposes of making 
an information return under the provisions of chapter 61 of the Code 
and for withholding under other provisions of the Code, such as 
sections 3402, 3405 or 3406, paragraph (b)(5) of this section lists 
applicable provisions outside chapter 3 of the Code that require 
certain payees to establish their foreign status (for example, in order 
to be exempt from information reporting). Paragraph (b)(6) of this 
section describes the withholding obligations of a foreign person 
making a payment that it has received in its capacity as an 
intermediary. Paragraph (b)(7) of this section describes the liability 
of a withholding agent that fails to withhold at the required 30-
percent rate in the absence of documentation. Paragraph (b)(8) of this 
section deals with adjustments and refunds in the case of 
overwithholding. Paragraph (b)(9) of this section deals with 
determining the status of the payee when the payment is jointly owned. 
See paragraph (c)(6) of this section for a definition of beneficial 
owner. See Sec.  1.1441-7(a) for a definition of withholding agent. See 
Sec.  1.1441-2(a) for the determination of an amount subject to 
withholding. See Sec.  1.1441-2(e) for the definition of a payment and 
when it is considered made. Except as

[[Page 12750]]

otherwise provided, the provisions of this section apply only for 
purposes of determining a withholding agent's obligation to withhold 
under chapter 3 of the Code and the regulations thereunder.
    (2) Determination of payee and payee's status--(i) In general. 
Except as otherwise provided in this paragraph (b)(2) and Sec.  1.1441-
5(c)(1) and (e)(3), a payee is the person to whom a payment is made, 
regardless of whether such person is the beneficial owner of the amount 
(as defined in paragraph (c)(6) of this section). A foreign payee is a 
payee who is a foreign person. A U.S. payee is a payee who is a U.S. 
person. Generally, the determination by a withholding agent of the U.S. 
or foreign status of a payee and of its other relevant characteristics 
(e.g., as a beneficial owner or intermediary, or as an individual, 
corporation, or flow-through entity) is made on the basis of a 
withholding certificate that is a Form W-8 or a Form 8233 (indicating 
foreign status of the payee or beneficial owner) or a Form W-9 
(indicating U.S. status of the payee). The provisions of this paragraph 
(b)(2), paragraph (b)(3) of this section, and Sec.  1.1441-5 (c), (d), 
and (e) dealing with determinations of payee and applicable 
presumptions in the absence of documentation, apply only to payments of 
amounts subject to withholding under chapter 3 of the Code (within the 
meaning of Sec.  1.1441-2(a)). However, for a payment that is both an 
amount subject to withholding under chapter 3 and a withholdable 
payment under chapter 4, first apply the rules of Sec.  1.1471-3 for 
determining the payee of a withholdable payment under chapter 4 and 
applicable presumptions in the absence of documentation applicable to 
such payments. See also Sec.  1.6049-5(d) for payments of amounts that 
are not subject to withholding under chapter 3 of the Code (or the 
regulations thereunder) but that may be reportable under provisions of 
chapter 61 of the Code (and the regulations thereunder). See paragraph 
(d) of this section for documentation upon which the withholding agent 
may rely in order to treat the payee or beneficial owner as a U.S. 
person. See paragraph (e) of this section for documentation upon which 
the withholding agent may rely in order to treat the payee or 
beneficial owner as a foreign person. For applicable presumptions of 
status in the absence of documentation, see paragraph (b)(3) of this 
section and Sec.  1.1441-5(d). For definitions of a foreign person and 
U.S. person, see paragraph (c)(2) of this section.
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(2)(ii).
    (iii) Payments to wholly-owned entities--(A) Foreign-owned domestic 
entity. A payment to a wholly-owned domestic entity that is disregarded 
for federal tax purposes under Sec.  301.7701-2(c)(2) of this chapter 
as an entity separate from its owner and whose single owner is a 
foreign person shall be treated as a payment to the owner of the 
entity, subject to the provisions of paragraph (b)(2)(iv) of this 
section. For purposes of this paragraph (b)(2)(iii)(A), a domestic 
entity means a person that would be treated as a U.S. person if it had 
an election in effect under Sec.  301.7701-3(c)(1)(i) of this chapter 
to be treated as a corporation. For example, a limited liability 
company, A, organized under the laws of the State of Delaware, opens an 
account at a U.S. bank. Upon opening of the account, the bank requests 
A to furnish a Form W-9 as required under section 6049(a) and the 
regulations under that section. A does not have an election in effect 
under Sec.  301.7701-3(c)(1)(i) of this chapter and, therefore, is not 
treated as an organization taxable as a corporation, including for 
purposes of the exempt recipient provisions in Sec.  1.6049-4(c)(1). If 
A has a single owner and the owner is a foreign person (as defined in 
paragraph (c)(2) of this section), then A may not furnish a Form W-9 
because it may not represent that it is a U.S. person for purposes of 
the provisions of chapters 3, 4, and 61 of the Code, and section 3406. 
Therefore, A must furnish a Form W-8 with the name, address, and 
taxpayer identifying number (TIN) (if required) of the foreign person 
who is the single owner in the same manner as if the account were 
opened directly by the foreign single owner. See Sec. Sec.  1.894-1T(d) 
and 1.1441-6(b)(2) for special rules where the entity's owner is 
claiming a reduced rate of withholding under an income tax treaty.
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(2)(iii)(B).
    (iv) Payments to a U.S. branch of certain foreign banks or foreign 
insurance companies--(A) U.S. branch treated as a U.S. person in 
certain cases. A payment to a U.S. branch of a foreign person is a 
payment to a foreign person. However, a U.S. branch of a participating 
FFI, registered deemed compliant FFI or NFFE that is described in this 
paragraph (b)(2)(iv)(A) may agree to be treated as a U.S. person for 
purposes of withholding on specified payments to the U.S. branch. See 
Sec.  1.1471-3(d) for rules regarding how a withholding agent may 
determine the chapter 4 status of an entity. If a U.S. branch agrees to 
be treated as a U.S. person with a withholding agent, it is required to 
act as a U.S. person with respect to all other withholding agents, 
including when acting as an intermediary with respect to withholdable 
payments for purposes of chapter 4. See Sec.  1.1471-3(a)(3)(iv). In 
such cases, the U.S. branch is treated as a payee that is a U.S. 
person. Notwithstanding the preceding sentence, a withholding agent 
making a payment to a U.S. branch treated as a U.S. person under this 
paragraph (b)(2)(iv)(A) shall not treat the branch as a U.S. person for 
purposes of reporting the payment made to the branch. Therefore, a 
payment to such U.S. branch shall be reported on Form 1042-S under 
Sec.  1.1461-1(c) and Sec.  1.1474-1(d)(1)(i) for a payment of U.S. 
source FDAP income that is a chapter 4 reportable amount as defined in 
Sec.  1.1471-1(b)(16). Further, a U.S. branch that is treated as a U.S. 
person under this paragraph (b)(2)(iv)(A) shall not be treated as a 
U.S. person for purposes of the withholding certificate it provides to 
a withholding agent. Therefore, the U.S. branch must furnish a U.S. 
branch withholding certificate on a Form W-8IMY as provided in 
paragraph (e)(3)(v) of this section and not a Form W-9. An agreement to 
treat a U.S. branch as a U.S. person must be evidenced by a U.S. branch 
withholding certificate described in paragraph (e)(3)(v) of this 
section furnished by the U.S. branch to the withholding agent. A U.S. 
branch described in this paragraph (b)(2)(iv)(A) is any U.S. branch of 
a foreign bank subject to regulatory supervision by the Federal Reserve 
Board or a U.S. branch of a foreign insurance company required to file 
an annual statement on a form approved by the National Association of 
Insurance Commissioners with the Insurance Department of a State, a 
Territory, or the District of Columbia. In addition, a territory 
financial institution (including a territory financial institution that 
is a flow-through entity) will be treated as a U.S. branch for purposes 
of this paragraph (b)(2)(iv)(A). The Internal Revenue Service (IRS) may 
approve a list of U.S. branches that may qualify for treatment as a 
U.S. person under this paragraph (b)(2)(iv)(A) (see Sec.  601.601(d)(2) 
of this chapter). See Sec.  1.6049-5(c)(5)(vi) for the treatment of 
U.S. branches as U.S. payors if they make a payment that is subject to 
reporting under chapter 61 of the Internal Revenue Code. Also see Sec.  
1.6049-5(d)(1)(ii) for the treatment of U.S. branches as foreign payees 
under chapter 61 of the Internal Revenue Code.
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(2)(iv)(B).
    (1) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(2)(iv)(B)(1).

[[Page 12751]]

    (2) As a payment directly to the persons whose names are on 
withholding certificates or other appropriate documentation forwarded 
by the U.S. branch to the withholding agent when no agreement is in 
effect to treat the U.S. branch as a U.S. person for such payment, to 
the extent the withholding agent can reliably associate the payment 
with such certificates or documentation;
    (3) As a payment to a foreign person of income that is effectively 
connected with the conduct of a trade or business in the United States 
if the withholding agent has obtained an EIN for the branch and cannot 
reliably associate the payment with a withholding certificate from a 
U.S. branch (or any other certificate or other appropriate 
documentation from another person). See Sec.  1.1441-4(a)(2)(ii); or
    (4) As a payment to a foreign person of income that is not 
effectively connected with the conduct of a trade or business in the 
United States if the withholding agent has not obtained an EIN for the 
branch and cannot reliably associate the payment with a withholding 
certificate from the U.S. branch.
    (C) Consequences to the U.S. branch. A U.S. branch that is treated 
as a U.S. person under paragraph (b)(2)(iv)(A) of this section shall be 
treated as a separate person for purposes of section 1441(a) and all 
other provisions of chapters 3 and 4 of the Internal Revenue Code and 
the regulations thereunder (other than for purposes of reporting the 
payment to the U.S. branch under Sec.  1.1461-1(c) and Sec.  1.1474-
1(d)(1)(i) for a chapter 4 reportable amount) or for purposes of the 
documentation such a branch must furnish under paragraph (e)(3)(v) of 
this section) for any payment that it receives as such. Thus, the U.S. 
branch shall be responsible for withholding on the payment in 
accordance with the provisions under chapters 3 and 4 of the Internal 
Revenue Code and the regulations thereunder and other applicable 
withholding provisions of the Internal Revenue Code. For this purpose, 
it shall obtain and retain documentation from payees or beneficial 
owners of the payments that it receives as a U.S. person in the same 
manner as if it were a separate entity. For example, if a U.S. branch 
receives a payment on behalf of its home office and the home office is 
a qualified intermediary, the U.S. branch must obtain a qualified 
intermediary withholding certificate described in paragraph (e)(3)(ii) 
of this section from its home office. In addition, a U.S. branch that 
has not provided documentation to the withholding agent for a payment 
that is, in fact, not effectively connected income is a withholding 
agent with respect to that payment. See paragraph (b)(6) of this 
section and Sec.  1.1441-4(a)(2)(ii).
    (D) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(2)(iv)(D).
    (E) Payments to other U.S. branches. Similar withholding procedures 
may apply to payments to U.S. branches that are not described in 
paragraph (b)(2)(iv)(A) of this section to the extent permitted by the 
IRS. Any such branch must establish that its situation is analogous to 
that of a U.S. branch described in paragraph (b)(2)(iv)(A) of this 
section. In the alternative, the branch must establish that the 
withholding and reporting requirements under chapter 3 of the Code and 
the regulations thereunder impose an undue administrative burden and 
that the collection of the tax imposed by section 871(a) or 881(a) on 
the foreign person (or its members in the case of a foreign 
partnership) will not be jeopardized by the exemption from withholding. 
Generally, an undue administrative burden will be found to exist in a 
case where the person entitled to the income, such as a foreign 
insurance company, receives from the withholding agent income on 
securities issued by a single corporation, some of which is, and some 
of which is not, effectively connected with conduct of a trade or 
business within the United States and the criteria for determining the 
effective connection are unduly difficult to apply because of the 
circumstances under which such securities are held. No exemption from 
withholding shall be granted under this paragraph (b)(2)(iv)(E) unless 
the person entitled to the income complies with such other requirements 
as may be imposed by the IRS and unless the IRS is satisfied that the 
collection of the tax on the income involved will not be jeopardized by 
the exemption from withholding. The IRS may prescribe such procedures 
as are necessary to make these determinations (see Sec.  601.601(d)(2) 
of this chapter).
    (v) [Reserved]. For further guidance, see Sec.  1.1441-1(b)(2)(v).
    (vi) Other payees. A payment to a person described in Sec.  1.6049-
4(c)(1)(ii) that the withholding agent would treat as a payment to a 
foreign person without obtaining documentation for purposes of 
information reporting under section 6049 (if the payment were interest) 
is treated as a payment to a foreign payee for purposes of chapter 3 of 
the Code and the regulations thereunder (or to a foreign beneficial 
owner to the extent provided in paragraph (e)(1)(ii)(A) (6) or (7) of 
this section). Further, a payment that the withholding agent can 
reliably associate with documentary evidence described in Sec.  1.6049-
5(c)(1) relating to the payee is treated as a payment to a foreign 
payee. See Sec.  1.1441-5(b)(1) and (c)(1) for payee determinations for 
payments to partnerships. See Sec.  1.1441-5(e) for payee 
determinations for payments to foreign trusts or foreign estates.
    (vii) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(2)(vii) introductory text and (b)(2)(vii)(A).
    (B) Special rules applicable to a withholding certificate from a 
nonqualified intermediary or flow-through entity--(1) In the case of a 
payment made to a nonqualified intermediary, a flow-through entity (as 
defined in paragraph (c)(23) of this section), or a U.S. branch 
described in paragraph (b)(2)(iv) of this section (other than a U.S. 
branch that is treated as a U.S. person), a withholding agent can 
reliably associate the payment with valid documentation only to the 
extent that, prior to the payment, the withholding agent can allocate 
the payment to a valid nonqualified intermediary, flow-through, or U.S. 
branch withholding certificate (and a withholding certificate provided 
by a nonparticipating FFI with respect to a portion of a payment that 
is a withholdable payment allocated to an exempt beneficial owner as 
described in Sec.  1.1471-3(c)(3)(iii)(B)(4)); the withholding agent 
can reliably determine how much of the payment relates to valid 
documentation provided by a payee as determined under paragraph (c)(12) 
of this section (i.e., a person that is not itself an intermediary, 
flow-through entity, or U.S. branch); and the withholding agent has 
sufficient information to report the payment on Form 1042-S or Form 
1099, if reporting is required. See, however, paragraph (e)(3)(iv) of 
this section for when a nonqualified intermediary may report payees to 
the withholding agent in a chapter 4 withholding rate pool, in which 
case a withholding agent need not associate the portion of the payment 
attributable to such payees with documentation from each such payee. 
See also paragraph (e)(3)(iii) of this section for the requirements of 
a nonqualified intermediary withholding certificate, paragraph 
(e)(3)(v) of this section for the requirements of a U.S. branch 
certificate, and Sec. Sec.  1.1441-5(c)(3)(iii) and (e)(5)(iii) for the 
requirements of a flow-through withholding certificate (including the 
requirements for a withholding certificate associated with a 
withholdable payment). Thus, a payment cannot be reliably associated 
with valid documentation provided by a

[[Page 12752]]

payee to the extent such documentation is lacking or unreliable, or to 
the extent that information required to allocate and report all or a 
portion of the payment to each payee is lacking or unreliable. If a 
withholding certificate attached to an intermediary, U.S. branch, or 
flow-through withholding certificate is another intermediary, U.S. 
branch, or flow-through withholding certificate, the rules of this 
paragraph (b)(2)(vii)(B) apply by treating the share of the payment 
allocable to the other intermediary, U.S. branch, or flow-through 
entity as if the payment were made directly to such other entity. See 
paragraph (e)(3)(iv)(D) of this section for rules permitting 
information allocating a payment to documentation to be received after 
the payment is made.
    (2) The rules of paragraph (b)(2)(vii)(B)(1) of this section are 
illustrated by the following examples. Each example illustrates a 
payment that is not a withholdable payment and, therefore, neither the 
chapter 4 status of the NQI nor payee specific documentation is 
required to be provided to the withholding agent (and no withholding 
applies under chapter 4 on each payment). See paragraph (e)(3)(iv)(C) 
of this section for the requirements of a withholding statement 
provided by a nonqualified intermediary that receives a withholdable 
payment and for an example illustrating the requirements of an NQI 
providing a withholding statement to a withholding agent for a 
withholdable payment.

    Example 1. WA, a withholding agent, makes a payment of U.S. 
source interest with respect to a grandfathered obligation as 
described in Sec.  1.1471-2(b) (and thus the payment is not a 
withholdable payment) to NQI, an intermediary that is a nonqualified 
intermediary. NQI provides a valid intermediary withholding 
certificate under paragraph (e)(3)(iii) of this section. NQI does 
not, however, provide valid documentation from the persons on whose 
behalf it receives the interest payment, and, therefore, the 
interest payment cannot be reliably associated with valid 
documentation provided by a payee. WA must apply the presumption 
rules of paragraph (b)(3)(v) of this section to the payment.
    Example 2. The facts are the same as in Example 1, except that 
NQI does attach valid beneficial owner withholding certificates (as 
defined in paragraph (e)(2)(i) of this section) from A, B, C, and D 
establishing their status as foreign persons. NQI does not, however, 
provide WA with any information allocating the payment among A, B, 
C, and D and, therefore, WA cannot determine the portion of the 
payment that relates to each beneficial owner withholding 
certificate. The interest payment cannot be reliably associated with 
valid documentation from a payee and WA must apply the presumption 
rules of paragraph (b)(3)(v) of this section to the payment. See, 
however, paragraph (e)(3)(iv)(D) of this section providing for 
alternative procedures that allow a nonqualified intermediary to 
provide allocation information after a payment is made.
    Example 3. The facts are the same as in Example 2, except that 
NQI provides allocation information associated with its intermediary 
withholding certificate indicating that 25% of the interest payment 
is allocable to A and 25% to B. NQI does not provide any allocation 
information regarding the remaining 50% of the payment. WA may treat 
25% of the payment as made to A and 25% as made to B. The remaining 
50% of the payment cannot be reliably associated with valid 
documentation from a payee, however, since NQI did not provide 
information allocating the payment. Thus, the remaining 50% of the 
payment is subject to the presumption rules of paragraph (b)(3)(v) 
of this section.
    Example 4. WA makes a payment of U.S. source interest to NQI1, 
an intermediary that is not a qualified intermediary. NQI1 provides 
WA with a valid nonqualified intermediary withholding certificate as 
well valid beneficial owner withholding certificates from A and B 
and a valid nonqualified intermediary withholding certificate from 
NQI2. NQI2 has provided valid beneficial owner documentation from C 
sufficient to establish C's status as a foreign person. Based on 
information provided by NQI1, WA can allocate 20% of the interest 
payment to A, and 20% to B. Based on information that NQI2 provided 
NQI1 and that NQI1 provides to WA, WA can allocate 60% of the 
payment to NQI2, but can only allocate one half of that payment 
(30%) to C. Therefore, WA cannot reliably associate the remainder of 
the payment made to NQI2 (30% of the total payment) with valid 
documentation and must apply the presumption rules of paragraph 
(b)(3)(v) of this section to that portion of the payment.

    (C) Special rules applicable to a withholding certificate provided 
by a qualified intermediary that does not assume primary withholding 
responsibility--(1) If a payment is made to a qualified intermediary 
that does not assume primary withholding responsibility under chapter 3 
of the Internal Revenue Code or primary Form 1099 reporting and backup 
withholding responsibility under chapter 61 and section 3406 of the 
Internal Revenue Code for the payment, a withholding agent can reliably 
associate the payment with valid documentation only to the extent that, 
prior to the payment, the withholding agent has received a valid 
qualified intermediary withholding certificate described in paragraph 
(e)(3)(ii) of this section and the withholding agent can reliably 
determine the portion of the payment that relates to a chapter 3 
withholding rate pool, as defined in paragraph (c)(44) of this section, 
a chapter 4 withholding rate pool (including for a withholdable payment 
as described in paragraph (e)(5)(v)(C)(2) of this section) as defined 
in paragraph (c)(48) of this section, or a pool attributable to U.S. 
exempt recipients. In the case of a withholding rate pool attributable 
to a U.S. non-exempt recipient, a payment cannot be reliably associated 
with valid documentation unless, prior to the payment, the qualified 
intermediary has provided the U.S. person's Form W-9 (or, in the 
absence of the form, the name, address, and TIN, if available, of the 
U.S. person) and sufficient information for the withholding agent to 
report the payment on Form 1099. See, however, paragraph 
(e)(5)(v)(C)(3) of this section for alternative procedures for 
allocating payments among U.S. non-exempt recipients and paragraphs 
(e)(5)(iv)(C)(1) and (2) of this section for when a chapter 4 
withholding rate pool of U.S. payees may be provided by a qualified 
intermediary instead of documentation with respect to each U.S. non-
exempt recipient.
    (2) The rules of this paragraph (b)(2)(vii)(C) are illustrated by 
the following examples:

    Example 1. WA, a withholding agent, makes a payment of U.S. 
source dividends that is a withholdable payment to QI. QI provides 
WA with a valid qualified intermediary withholding certificate on 
which it indicates that it does not assume primary withholding 
responsibility under chapters 3 and 4 or primary Form 1099 reporting 
and backup withholding responsibility under chapter 61 and section 
3406. QI does not provide any information allocating the dividend to 
withholding rate pools. WA cannot reliably associate the payment 
with valid payee documentation and therefore must apply the 
presumption rules applicable to a withholdable payment under Sec.  
1.1471-3(f)(5) to determine the status of the payee for purposes of 
chapter 4. See Example 2 for an application of the presumption rules 
under Sec.  1.1471-3(f).
    Example 2. WA makes a payment of U.S. source dividends that is a 
withholdable payment to QI, which is an NFFE. QI has 5 customers: A, 
B, C, D, and E, all of whom are individuals except for C. QI has 
obtained valid documentation from A and B establishing their 
entitlement to a 15% rate of tax on U.S. source dividends under an 
income tax treaty. C is a U.S. person that is an exempt recipient as 
defined in paragraph (c)(20) of this section. D and E are U.S. non-
exempt recipients who have provided Forms W-9 to QI. A, B, C, D, and 
E are each entitled to 20% of the dividend payment. QI provides WA 
with a valid qualified intermediary withholding certificate as 
described in paragraph (e)(3)(ii) of this section with which it 
associates the Forms W-9 from D and E. QI associates the following 
allocation information with its qualified intermediary withholding 
certificate: 40% of the payment is allocable to the 15% chapter 3 
withholding

[[Page 12753]]

rate pool, and 20% is allocable to each of D and E. QI does not 
provide any allocation information regarding the remaining 20% of 
the payment. WA cannot reliably associate 20% of the payment with 
valid documentation and, therefore, must apply the presumption rules 
applicable to a withholdable payment. Because QI is receiving a 
withholdable payment as an intermediary, under paragraph (b)(3)(iii) 
of this section WA must apply the presumption rule of Sec.  1.1471-
3(f)(5) to treat the portion of the payment that cannot reliably be 
associated with valid documentation as made to a nonparticipating 
FFI account holder of QI. As a result, WA is required to withhold at 
a 30% rate of tax under chapter 4. See Sec.  1.1441-3(a)(2) 
permitting WA to credit the amount withheld under chapter 4 against 
the liability for tax due on the payment under section 1441. The 40% 
of the payment allocable to the 15% withholding rate pool, and the 
portion of the payments allocable to D and E are payments that can 
be reliably associated with documentation.

    (D) Special rules applicable to a withholding certificate provided 
by a qualified intermediary that assumes primary withholding 
responsibility under chapter 3 of the Internal Revenue Code--(1) In the 
case of a payment made to a qualified intermediary that assumes primary 
withholding responsibility under chapter 3 of the Internal Revenue Code 
with respect to that payment (but does not assume primary Form 1099 
reporting and backup withholding responsibility under chapter 61 of the 
Internal Code and section 3406), a withholding agent can reliably 
associate the payment with valid documentation only to the extent that, 
prior to the payment, the withholding agent has received a valid 
qualified intermediary withholding certificate and the withholding 
agent can reliably determine the portion of the payment that relates to 
the withholding rate pool for which the qualified intermediary assumes 
primary withholding responsibility and the portion of the payment 
attributable to withholding rate pools for each U.S. non-exempt 
recipient for whom the qualified intermediary has provided a Form W-9 
(or, in absence of the form, the name, address, and TIN, if available, 
of the U.S. non-exempt recipient). See paragraph (e)(5)(iv) of this 
section (requiring a qualified intermediary assuming primary 
withholding responsibility under chapter 3 to assume primary 
withholding responsibility under chapter 4). See also paragraph 
(e)(5)(v)(C)(3) of this section for alternative allocation procedures 
for payments made to U.S. persons that are not exempt recipients and 
paragraphs (e)(5)(v)(C)(1) and (2) of this section for when a qualified 
intermediary may provide a chapter 4 withholding rate pool of U.S. 
payees to a withholding agent instead of documentation with respect to 
each U.S. non-exempt recipient.
    (2) Examples. The following examples illustrate the rules of 
paragraph (b)(2)(vii)(D)(1) of this section. However, see the example 
in paragraph (e)(5)(v)(D) for rules for reporting of U.S. non-exempt 
recipients when a qualified intermediary that is an FFI reports a U.S. 
account under chapter 4.

    Example 1. WA makes a payment of U.S. source interest that is a 
withholdable payment to QI, a qualified intermediary that is an 
NFFE. QI provides WA with a withholding certificate that indicates 
that QI will assume primary withholding responsibility under 
chapters 3 and 4 of the Internal Revenue Code with respect to the 
payment. In addition, QI attaches a Form W-9 from A, a U.S. non-
exempt recipient, as defined in paragraph (c)(21) of this section, 
and provides the name, address, and TIN of B, a U.S. person that is 
also a non-exempt recipient but who has not provided a Form W-9. QI 
associates a withholding statement with its qualified intermediary 
withholding certificate indicating that 10% of the payment is 
attributable to A, and 10% to B, and that QI will assume primary 
withholding responsibility for chapters 3 and 4 with respect to the 
remaining 80% of the payment. WA can reliably associate the entire 
payment with valid documentation. Although under the presumption 
rule of paragraph (b)(3)(v) of this section, an undocumented person 
receiving U.S. source interest is generally presumed to be a foreign 
person, WA has actual knowledge that B is a U.S. non-exempt 
recipient and therefore must report the payment on Form 1099 and 
backup withhold on the interest payment under section 3406.
    Example 2. The facts are the same as in Example 1, except that 
no information has been provided for the 20% of the payment that is 
allocable to A and B. Thus, QI has accepted withholding 
responsibility for 80% of the payment, but has provided no 
information for the remaining 20%. In this case, 20% of the payment 
cannot be reliably associated with valid documentation, and, under 
paragraph (b)(3)(iii) of this section, WA must apply the presumption 
rule of Sec.  1.1471-3(f)(5) (because the payment is a withholdable 
payment). See the Example 2 in paragraph (b)(2)(vii)(C)(2).

    (E) Special rules applicable to a withholding certificate provided 
by a qualified intermediary that assumes primary Form 1099 reporting 
and backup withholding responsibility but not primary withholding under 
chapter 3--(1) If a payment is made to a qualified intermediary that 
assumes primary Form 1099 reporting and backup withholding 
responsibility for the payment (but does not assume primary withholding 
responsibility under chapters 3 and 4 of the Internal Revenue Code), a 
withholding agent can reliably associate the payment with valid 
documentation only to the extent that, prior to the payment, the 
withholding agent has received a valid qualified intermediary 
withholding certificate and the withholding agent can reliably 
determine the portion of the payment that relates to a withholding rate 
pool or pools provided as part of the qualified intermediary's 
withholding statement and the portion of the payment for which the 
qualified intermediary assumes primary Form 1099 reporting and backup 
withholding responsibility. See paragraph (e)(5)(v)(C)(2) of this 
section for when a qualified intermediary may include a chapter 4 
withholding rate pool on a withholding statement provided to a 
withholding agent with respect to a withholdable payment.
    (2) The following example illustrates the rules of paragraph 
(b)(2)(vii)(D)(1) of this section:

    Example. WA, a withholding agent, makes a payment of U.S. source 
dividends that is a withholdable payment to QI, a qualified 
intermediary and participating FFI. QI has provided WA with a valid 
qualified intermediary withholding certificate. QI states on its 
withholding statement accompanying the certificate that it assumes 
primary Form 1099 reporting and backup withholding responsibility 
but does not assume primary withholding responsibility under 
chapters 3 and 4 of the Internal Revenue Code. QI represents that 
15% of the dividend is subject to a 30% rate of withholding, 75% of 
the dividend is subject to a 15% rate of withholding. QI represents 
that it assumes primary Form 1099 reporting and backup withholding 
for the remaining 10% of the payment, and therefore need not provide 
a chapter 4 withholding rate pool with respect to this portion of 
the payment or documentation with respect to U.S. non-exempt 
recipients. The entire payment can be reliably associated with valid 
documentation.

    (F) Special rules applicable to a withholding certificate provided 
by a qualified intermediary that assumes primary withholding 
responsibility under chapter 3 and primary Form 1099 reporting and 
backup withholding responsibility and a withholding certificate 
provided by a withholding foreign partnership or a withholding foreign 
trust. If a payment is made to a qualified intermediary that assumes 
both primary withholding responsibility under chapters 3 and 4 of the 
Internal Revenue Code and primary Form 1099 reporting and backup 
withholding responsibility under chapter 61 and section 3406 of the 
Internal Revenue Code for the payment, a withholding agent can reliably 
associate a payment with valid documentation provided that it receives 
a valid qualified intermediary withholding certificate as described in 
paragraph (e)(3)(ii) of this section. In the

[[Page 12754]]

case of a payment made to a withholding foreign partnership or a 
withholding foreign trust, the withholding agent can reliably associate 
the payment with valid documentation to the extent it can associate the 
payment with a valid withholding certificate described in Sec.  1.1441-
5(c)(2)(iv) or in Sec.  1.1441-5(e)(5)(v) (respectively). See paragraph 
(e)(5)(iv) of this section, providing that a qualified intermediary 
assuming primary withholding responsibility under chapter 3 must also 
assume primary withholding responsibility under chapter 4 with respect 
to a withholdable payment.
    (3) Presumptions regarding payee's status in the absence of 
documentation--(i) General rules. A withholding agent that cannot, 
prior to the payment, reliably associate (within the meaning of 
paragraph (b)(2)(vii) of this section) a payment of an amount subject 
to withholding (as described in Sec.  1.1441-2(a)) with valid 
documentation may rely on the presumptions of this paragraph (b)(3) to 
determine the status of the person receiving the payment as a U.S. or a 
foreign person and the person's other relevant characteristics (for 
example, as an owner or intermediary, as an individual, trust, 
partnership, or corporation). The determination of withholding and 
reporting requirements applicable to payments to a person presumed to 
be a foreign person is governed only by the provisions of chapters 3 
and 4 of the Code and the regulations thereunder. For the determination 
of withholding and reporting requirements applicable to payments to a 
person presumed to be a U.S. person, see chapter 61 of the Code, 
section 3402, 3405, or 3406, and, with respect to the reporting 
requirements of a participating FFI or registered deemed-compliant FFI, 
see chapter 4 of the Code and the related regulations. A presumption 
that a payee is a foreign payee is not a presumption that the payee is 
a foreign beneficial owner. Therefore, the provisions of this paragraph 
(b)(3) have no effect for purposes of reducing the withholding rate if 
associating the payment with documentation of foreign beneficial 
ownership is required as a condition for such rate reduction. See 
paragraph (b)(3)(ix) of this section for consequences to a withholding 
agent that fails to withhold in accordance with the presumptions set 
forth in this paragraph (b)(3) or if the withholding agent has actual 
knowledge or reason to know of facts that are contrary to the 
presumptions set forth in this paragraph (b)(3). See paragraph 
(b)(2)(vii) of this section for rules regarding the extent to which a 
withholding agent can reliably associate a payment with documentation.
    (ii) Presumptions of classification as individual, corporation, 
partnership, etc.--(A) In general. A withholding agent that cannot 
reliably associate a payment with a valid withholding certificate or 
that has received valid documentary evidence under Sec. Sec.  1.1441-
1(e)(1)(ii)(A)(2) and 1.6049-5(c)(1) or (4) but cannot determine a 
payee's classification from the documentary evidence must apply the 
rules of this paragraph (b)(3)(ii) to determine the payee's 
classification as an individual, trust, estate, corporation, or 
partnership. The fact that a payee is presumed to have a certain status 
under the provisions of this paragraph (b)(3)(ii) does not mean that it 
is excused from furnishing documentation if documentation is otherwise 
required to obtain a reduced rate of withholding under this section. 
For example, if, for purposes of this paragraph (b)(3)(ii), a payee is 
presumed to be a tax-exempt organization based on Sec.  1.6049-
4(c)(1)(ii)(B), the withholding agent cannot rely on this presumption 
to reduce the rate of withholding on payments to such person (if such 
person is also presumed to be a foreign person under paragraph 
(b)(3)(iii)(A) of this section) because a reduction in the rate of 
withholding for payments to a foreign tax-exempt organization generally 
requires that a valid Form W-8 described in Sec.  1.1441-9(b)(2) be 
furnished to the withholding agent.
    (B) No documentation provided. If the withholding agent cannot 
reliably associate a payment with a valid withholding certificate or 
valid documentary evidence, it must presume that the payee is an 
individual, a trust, or an estate, if the payee appears to be such 
person (for example, based on the payee's name or information in the 
customer file). In the absence of reliable indications that the payee 
is an individual, trust, or an estate, the withholding agent must 
presume that the payee is a corporation or one of the persons 
enumerated under Sec.  1.6049-4(c)(1)(ii)(B) through (Q) if it can be 
so treated under Sec.  1.6049-4(c)(1)(ii)(A)(1) or any one of the 
paragraphs under Sec.  1.6049-4(c)(1)(ii)(B) through (Q) 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)(A)(1) through 
(Q), then the payee shall be presumed to be a partnership. If such a 
partnership is presumed to be foreign, it is not the beneficial owner 
of the income paid to it. See paragraph (c)(6) of this section. If such 
a partnership is presumed to be domestic, it is a U.S. non-exempt 
recipient for purposes of chapter 61 of the Internal Revenue Code.
    (C) Documentary evidence furnished for offshore obligation. If the 
withholding agent receives valid documentary evidence, as described in 
Sec.  1.6049-5(c)(1) or (c)(4), with respect to an offshore obligation 
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 will 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.
    (iii) Presumption of U.S. or foreign status. A payment that the 
withholding agent cannot reliably associate with documentation is 
presumed to be made to a U.S. person, except as otherwise provided in 
this paragraph (b)(3)(iii), in paragraphs (b)(3) (iv) and (v) of this 
section, or in Sec.  1.1441-5 (d) or (e). A withholding agent must 
treat a payee that is presumed or known to be a trust but for which the 
withholding agent cannot determine the type of trust in accordance with 
the presumptions specified in Sec.  1.1441-5(e)(6)(ii). In the case of 
a payment that is a withholdable payment, a withholding agent must

[[Page 12755]]

apply the presumption rule under Sec.  1.1471-3(f) for purposes of 
chapter 4.
    (A) Payments to exempt recipients--(1) In general. If a withholding 
agent cannot reliably associate a payment with documentation from the 
payee and the payee is an exempt recipient (as determined under the 
provisions of Sec.  1.6049-4(c)(1)(ii) in the case of interest, or 
under similar provisions under chapter 61 of the Code applicable to the 
type of payment involved, but not including a payee that the 
withholding agent may treat as a foreign intermediary in accordance 
with paragraph (b)(3)(v) of this section), the payee is presumed to be 
a foreign person and not a U.S. person--
    (i) If the withholding agent has actual knowledge of the payee's 
employer identification number and that number begins with the two 
digits ``98'';
    (ii) If the withholding agent's communications with the payee are 
mailed to an address in a foreign country;
    (iii) If the name of the payee indicates that the entity is the 
type of entity that is on the per se list of foreign corporations 
contained in Sec.  301.7701-2(b)(8)(i) of this chapter (other than a 
name which contains the designation ``corporation'' or ``company'');
    (iv) If the payment is made with respect to an offshore obligation 
(as defined in paragraph (c)(37) of this section); or
    (v) Only with respect to an account opened after July 1, 2014, if 
the withholding agent has a telephone number for the person outside of 
the United States.
    (2) Special rule for withholdable payments made to exempt 
recipients. Notwithstanding the provisions of paragraph 
(b)(3)(iii)(A)(1) of this section, a payment that is also a 
withholdable payment made to an entity determined to be an exempt 
recipient under Sec.  1.6049-4(c)(1)(ii)(A)(1), (F), (G), (H), (M), 
(O), (P), or (Q) in the case of interest (or under similar provisions 
in chapter 61 applicable to the type of income) shall be presumed made 
to a foreign payee in the absence of documentation (including 
documentary evidence) establishing the entity as a U.S. person. 
Additionally, a withholding agent may apply the rule provided in this 
paragraph (b)(3)(iii)(A)(2) instead of the rule in provided in 
paragraph (b)(3)(iii)(A)(1) of this section for all payments with 
respect to an obligation. The provisions of this paragraph 
(b)(3)(iii)(A)(2) will not apply, however, to a withholdable payment 
made with respect to a preexisting obligation to a payee that the 
withholding agent determined prior to July 1, 2014 to be a U.S. exempt 
recipient.
    (B) and (C) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(3)(iii)(B) and (C).
    (D) Payments with respect to offshore obligations. A payment is 
presumed made to a foreign payee if the payment is made outside the 
United States (as defined in Sec.  1.6049-5(e)) with respect to an 
offshore obligation (as defined in paragraph (c)(37) of this section) 
and the withholding agent does not have actual knowledge that the payee 
is a U.S. person. See Sec.  1.6049-5(d)(2) and (3) for exceptions to 
this rule.
    (E) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(3)(iii)(E).
    (iv) Grace period. A withholding agent may choose to apply the 
provisions of Sec.  1.6049-5(d)(2)(ii) regarding a 90-day grace period 
for purposes of this paragraph (b)(3) (by applying the term withholding 
agent instead of the term payor) to amounts described in Sec.  1.1441-
6(c)(2) and to amounts covered by a Form 8233 described in Sec.  
1.1441-4(b)(2)(ii). Thus, for these amounts, a withholding agent may 
choose to treat the payee as a foreign person and withhold under 
chapter 3 of the Internal Revenue Code (and the regulations thereunder) 
while awaiting documentation. For purposes of determining the rate of 
withholding under this section, the withholding agent must withhold at 
the unreduced 30-percent rate at the time that the amounts are credited 
to an account. For reporting of amounts credited both before and after 
the grace period, see Sec.  1.1461-1(c)(4)(i)(A). The following 
adjustments shall be made at the expiration of the grace period:
    (A) If, at the end of the grace period, the documentation is not 
furnished in the manner required under this section and the account 
holder is presumed to be a U.S. non-exempt recipient, then backup 
withholding only applies to amounts credited to the account after the 
expiration of the grace period. Amounts credited to the account during 
the grace period shall be treated as owned by a foreign payee and 
adjustments must be made to correct any underwithholding on such 
amounts in the manner described in Sec.  1.1461-2.
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(3)(iv)(B).
    (v) [Reserved]. For further guidance, see Sec.  1.1441-1(b)(3)(v) 
introductory text and (b)(3)(v)(A).
    (B) Beneficial owner documentation or allocation information is 
lacking or unreliable. Except as otherwise provided in this paragraph 
(b)(3)(v)(B), any portion of a payment that the withholding agent may 
treat as made to a foreign intermediary (whether a nonqualified or a 
qualified intermediary) but that the withholding agent cannot treat as 
reliably associated with valid documentation under the rules of 
paragraph (b)(2)(vii) of this section is presumed made to an unknown, 
undocumented foreign payee. As a result, a withholding agent must 
deduct and withhold 30 percent from any payment of an amount subject to 
withholding. If a withholding certificate attached to an intermediary 
certificate is another intermediary withholding certificate or a flow-
through withholding certificate, the rules of this paragraph 
(b)(3)(v)(B) (or Sec.  1.1441-5(d)(3) or (e)(6)(iii)) apply by treating 
the portion of the payment allocable to the other intermediary or flow-
through entity as if it were made directly to the other intermediary or 
flow-through entity. Any payment of an amount subject to withholding 
that is presumed made to an undocumented foreign person must be 
reported on Form 1042-S. See Sec.  1.1461-1(c). See Sec.  1.6049-5(d) 
for payments that are not subject to withholding under chapter 3. 
However, in the case of a payment that is a withholdable payment made 
to a foreign intermediary, the presumption rules under Sec.  1.1471-
3(f)(5) shall apply.
    (vi) U.S. branches and territory financial institutions not treated 
as a U.S. person. The rules of paragraph (b)(3)(v)(B) of this section 
shall apply to payments to a U.S. branch or a territory financial 
institution described in paragraph (b)(2)(iv)(A) of 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 treated as a 
U.S. person.
    (vii) Joint payees--(A) In general. Except as provided in paragraph 
(b)(3)(vii)(B) of this section and this paragraph (b)(3)(vii)(A), if a 
withholding agent makes a payment to joint payees and cannot reliably 
associate a payment with valid documentation from all payees, the 
payment is presumed made to an unidentified U.S. person. If, however, a 
withholding agent makes a payment that is a withholdable payment and 
any joint payee does not appear, by its name and other information 
contained in the account file, to be an individual, then the entire 
amount of the payment will be treated as made to an undocumented 
foreign person. See paragraph (b)(3)(iii) of this section for 
presumption rules that apply in the case of a payment that is a 
withholdable payment. However, if one of the joint payees provides a 
Form W-9 furnished in accordance with the procedures described in 
Sec. Sec.  31.3406(d)-1 through 31.3406(d)-5 of this chapter, the

[[Page 12756]]

payment shall be treated as made to that payee. See Sec.  31.3406(h)-2 
of this chapter for rules to determine the relevant payee if more than 
one Form W-9 is provided. For purposes of applying this paragraph 
(b)(3), the grace period rules in paragraph (b)(3)(iv) of this section 
shall apply only if each payee meets the conditions described in 
paragraph (b)(3)(iv) of this section.
    (B) Special rule for offshore obligations. If a withholding agent 
makes a payment to joint payees and cannot reliably associate a payment 
with valid documentation from all payees, the payment is presumed made 
to an unknown foreign payee if the payment is made outside the United 
States (as defined in Sec.  1.6049-5(e)) with respect to an offshore 
obligation (as defined in Sec.  1.6049-5(c)(1)).
    (viii) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(3)(viii).
    (ix) Effect of reliance on presumptions and of actual knowledge or 
reason to know otherwise--(A) General rule. Except as otherwise 
provided in paragraph (b)(3)(ix)(B) of this section, a withholding 
agent that withholds on a payment under section 3402, 3405 or 3406 in 
accordance with the presumptions set forth in this paragraph (b)(3) 
shall not be liable for withholding under this section even if it is 
later established that the beneficial owner of the payment is, in fact, 
a foreign person. Similarly, a withholding agent that withholds on a 
payment under this section in accordance with the presumptions set 
forth in this paragraph (b)(3) shall not be liable for withholding 
under section 3402 or 3405 or for backup withholding under section 3406 
even if it is later established that the payee or beneficial owner is, 
in fact, a U.S. person. A withholding agent that, instead of relying on 
the presumptions described in this paragraph (b)(3), relies on its own 
actual knowledge to withhold a lesser amount, not withhold, or not 
report a payment, even though reporting of the payment or withholding a 
greater amount would be required if the withholding agent relied on the 
presumptions described in this paragraph (b)(3), shall be liable for 
tax, interest, and penalties to the extent provided under section 1461 
and the regulations under that section. See paragraph (b)(7) of this 
section for provisions regarding such liability if the withholding 
agent fails to withhold in accordance with the presumptions described 
in this paragraph (b)(3).
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(3)(ix)(B).
    (x) Examples. The provisions of this paragraph (b)(3) are 
illustrated by the following examples:

    Example 1. A withholding agent, W, makes a payment of U.S. 
source interest with respect to a grandfathered obligation as 
described in Sec.  1.1471-2(b) (and thus the payment is not a 
withholdable payment) to person X, Inc. with respect to an account W 
maintains for X, Inc. outside the United States. W cannot reliably 
associate the payment to X, Inc. with documentation. Under Sec.  
1.6049-4(c)(1)(ii)(A)(1), W may treat X, Inc. as a corporation that 
is an exempt recipient under chapter 61. Thus, under the 
presumptions described in paragraph (b)(3)(iii) of this section as 
applicable to a payment to an exempt recipient that is not a 
withholdable payment, W must presume that X, Inc. is a foreign 
person (because the payment is made with respect to an offshore 
obligation). However, W knows that X, Inc. is a U.S. person who is 
an exempt recipient. W may not rely on its actual knowledge to not 
withhold under this section. If W's knowledge is, in fact, 
incorrect, W would be liable for tax, interest, and, if applicable, 
penalties, under section 1461. W would be permitted to reduce or 
eliminate its liability for the tax by establishing, in accordance 
with paragraph (b)(7) of this section, that the tax is not due or 
has been satisfied. If W's actual knowledge is, in fact, correct, W 
may nevertheless be liable for tax, interest, or penalties under 
section 1461 for the amount that W should have withheld based upon 
the presumptions. W would be permitted to reduce or eliminate its 
liability for the tax by establishing, in accordance with paragraph 
(b)(7) of this section, that its actual knowledge was, in fact, 
correct and that no tax or a lesser amount of tax was due.

    Example 2. A withholding agent, W, makes a payment of U.S. 
source interest with respect to a grandfathered obligation as 
described in Sec.  1.1471-2(b) (and thus the payment is not a 
withholdable payment) to Y who does not qualify as an exempt 
recipient under Sec.  1.6049-4(c)(1)(ii). W cannot reliably 
associate the payment to Y with documentation. Under the 
presumptions described in paragraph (b)(3)(iii) of this section, W 
must presume that Y is a U.S. person who is not an exempt recipient 
for purposes of section 6049. However, W knows that Y is a foreign 
person. W may not rely on its actual knowledge to withhold under 
this section rather than backup withhold under section 3406. If W's 
knowledge is, in fact, incorrect, W would be liable for tax, 
interest, and, if applicable, penalties, under section 3403. If W's 
actual knowledge is, in fact, correct, W may nevertheless be liable 
for tax, interest, or penalties under section 3403 for the amount 
that W should have withheld based upon the presumptions. Paragraph 
(b)(7) of this section does not apply to provide relief from 
liability under section 3403.
    Example 3. A withholding agent, W, makes a payment of U.S. 
source dividends to X, Inc. with respect to an account that X, Inc. 
opened with W after June 30, 2014. W cannot reliably associate the 
payment to X, Inc. with documentation but may treat X, Inc. as an 
exempt recipient for purposes of this section applying the rules of 
Sec.  1.6042-3(b)(1)(vii). However, because the dividend payment is 
a withholdable payment and W did not determine the chapter 3 status 
of X, Inc. before July 1, 2014, W may treat X, Inc. as a U.S. person 
that is an exempt recipient only if W obtains documentary evidence 
supporting X, Inc.'s status as a U.S. person. See paragraph 
(b)(3)(iii)(A)(2) of this section.
    Example 4.  A withholding agent, W, is a plan administrator who 
makes pension payments to person X with a mailing address in a 
foreign country with which the United States has an income tax 
treaty in effect. Under that treaty, the type of pension income paid 
to X is taxable solely in the country of residence. The plan 
administrator has a record of X's U.S. social security number. W has 
no actual knowledge or reason to know that X is a foreign person. W 
may rely on the presumption of paragraph (b)(3)(iii)(C) of this 
section in order to treat X as a U.S. person. Therefore, any 
withholding and reporting requirements for the payment are governed 
by the provisions of section 3405 and the regulations under that 
section.

    (4) List of exemptions from, or reduced rates of, withholding under 
chapter 3 of the Code. A withholding agent that has determined that the 
payee is a foreign person for purposes of paragraph (b)(1) of this 
section must determine whether the payee is entitled to a reduced rate 
of withholding under section 1441, 1442, or 1443. This paragraph (b)(4) 
identifies items for which a reduction in the rate of withholding may 
apply and whether the rate reduction is conditioned upon documentation 
being furnished to the withholding agent. Documentation required under 
this paragraph (b)(4) is documentation that a withholding agent must be 
able to associate with a payment upon which it can rely to treat the 
payment as made to a foreign person that is the beneficial owner of the 
payment in accordance with paragraph (e)(1)(ii) of this section. This 
paragraph (b)(4) also cross-references other sections of the Code and 
applicable regulations in which some of these exceptions, exemptions, 
or reductions are further explained. See, for example, paragraph 
(b)(4)(viii) of this section, dealing with effectively connected 
income, that cross-references Sec.  1.1441-4(a); see paragraph 
(b)(4)(xv) of this section, dealing with exemptions from, or reductions 
of, withholding under an income tax treaty, that cross-references Sec.  
1.1441-6. This paragraph (b)(4) is not an exclusive list of items to 
which a reduction of the rate of withholding may apply and, thus, does 
not preclude an exemption from, or reduction in, the rate of 
withholding that may otherwise be allowed under the regulations under 
the provisions of chapter 3 of the Code for a particular item of income 
identified in this paragraph (b)(4). The exclusions and limitations 
specified in this paragraph (b)(4) apply for purposes of chapter 3. 
Additional withholding

[[Page 12757]]

and documentation requirements may apply to withholding agents under 
chapter 4 with respect to payments that are withholdable payments. See, 
for example, Sec.  1.1471-2(a) requiring withholding on withholdable 
payments made to certain FFIs and Sec.  1.1471-2(a)(4) for payments 
exempted from withholding under section 1471(a).
    (i) Portfolio interest described in section 871(h) or 881(c) and 
substitute interest payments described in Sec.  1.871-7(b)(2) or 1.881-
2(b)(2) are exempt from withholding under section 1441(a). See Sec.  
1.871-14 for regulations regarding portfolio interest and section 
1441(c)(9) for the exemption from withholding for portfolio interest. 
Documentation establishing foreign status is required for interest on 
an obligation in registered form to qualify as portfolio interest. See 
section 871(h)(2)(B)(ii) and Sec.  1.871-14(c)(1)(ii)(C). For special 
documentation rules regarding foreign-targeted registered obligations 
described in Sec.  1.871-14(e)(2) (and issued before January 1, 2016), 
see Sec.  1.871-14(e) (3) and (4) and, in particular, Sec.  1.871-
14(e)(4)(i)(A) and (ii)(A) regarding when the withholding agent must 
receive the documentation. The documentation furnished for purposes of 
qualifying interest as portfolio interest serves as the basis for the 
withholding exemption for purposes of this section and establishing 
foreign status for purposes of section 6049. See Sec.  1.6049-5(b)(8). 
Documentation establishing foreign status is not required for 
qualifying interest on an obligation in bearer form described in Sec.  
1.871-14(b)(1) (and issued before March 19, 2012) as portfolio 
interest. However, in certain cases, documentation for portfolio 
interest on a bearer obligation may have to be furnished in order to 
establish foreign status for purposes of the information reporting 
provisions of section 6049 and backup withholding under section 3406. 
See Sec.  1.6049-5(b)(7).
    (ii) through (xxi) [Reserved]. For further guidance, see Sec.  
1.1441-1(b)(4)(ii) through (xxi).
    (5)(i) through (viii) [Reserved]. For further guidance, see Sec.  
1.1441-1(b)(5)(i) through (viii).
    (ix) Payments to a foreign person that are governed by section 
6050W (dealing with payment card and third party network transactions) 
are exempt from information reporting under Sec.  1.6050W-1(a)(5)(ii).
    (6) Rules of withholding for payments by a foreign intermediary or 
certain U.S. branches--(i) In general. A foreign intermediary described 
in paragraph (e)(3)(i) of this section or a U.S. branch or territory 
financial institution described in paragraph (b)(2)(iv) of this section 
that receives an amount subject to withholding (as defined in Sec.  
1.1441-2(a)) shall be required to withhold (if another withholding 
agent has not withheld the full amount required) and report such 
payment under chapter 3 of the Internal Revenue Code and the 
regulations thereunder except as otherwise provided in this paragraph 
(b)(6). A nonqualified intermediary, U.S. branch, or territory 
financial institution described in paragraph (b)(2)(iv) of this section 
(other than a U.S. branch or territory financial institution that is 
treated as a U.S. person) shall not be required to withhold or report 
if it has provided a valid nonqualified intermediary withholding 
certificate or a U.S. branch withholding certificate, it has provided 
all of the information required by paragraph (e)(3)(iv) of this section 
(withholding statement), and it does not know, and has no reason to 
know, that another withholding agent failed to withhold the correct 
amount or failed to report the payment correctly under Sec.  1.1461-
1(c). The withholding requirement of a nonqualified intermediary under 
the previous sentence also excludes a case in which withholding under 
chapter 4 was applied by a withholding agent on the payment. See Sec.  
1.1441-3(a)(2) (coordinating withholding under chapter 3 with 
withholding applied under chapter 4 of the Code). A qualified 
intermediary's obligations to withhold and report shall be determined 
in accordance with its qualified intermediary withholding agreement.
    (ii) Examples. The following examples illustrate the rules of 
paragraph (b)(6)(i) of this section and coordinate rules for 
withholding that apply under chapter 4 with those that apply under 
chapter 3. See also paragraph (e)(3)(iv)(C) of this section for the 
requirements of withholding statements provided by nonqualified 
intermediaries.

    Example 1. FB, a foreign bank, acts as intermediary for five 
different individuals, A, B, C, D, and E, each of whom owns U.S. 
securities that generate U.S. source dividends (that are 
withholdable payments). The dividends are paid by USWA, a U.S. 
withholding agent. FB furnished USWA with a nonqualified 
intermediary withholding certificate, described in paragraph 
(e)(3)(iii) of this section, on which FB certifies its status as a 
participating FFI (such that withholding under chapter 4 does not 
apply), to which it attached valid withholding certificates for A, 
B, C, D, and E. The withholding certificates from A and B claim a 
15% reduced rate of withholding under an income tax treaty. C, D, 
and E claim no reduced rate of withholding. FB provides a 
withholding statement that meets all of the requirements of 
paragraph (e)(3)(iv) of this section, including information 
allocating 20% of each dividend payment to each of A, B, C, D, and 
E. FB does not have actual knowledge or reason to know that USWA did 
not withhold the correct amounts or report the dividends on Forms 
1042-S to each of A, B, C, D, and E. FB is not required to withhold 
or to report the dividends to A, B, C, D, and E.
    Example 2. The facts are the same as in Example 1, except that 
FB did not provide any information for USWA to determine how much of 
the dividend payments were made to A, B, C, D, and E. Because USWA 
could not reliably associate the dividend payments with 
documentation under paragraph (b)(2)(vii) of this section with 
respect to a payment that is a withholdable payment, USWA applied 
the presumption rule of Sec.  1.1471-3(f)(5) and withheld 30% from 
all dividend payments under chapter 4 and filed a Form 1042-S 
reporting the payment to an account holder of FB that is a non-
participating FFI. FB is deemed to know that USWA did not report the 
payment to A, B, C, D, and E because it did not provide all of the 
information required on a withholding statement under paragraph 
(e)(3)(iv) of this section (that is, allocation information). 
Although FB is not required to withhold on the payment under this 
section because the full 30% withholding was imposed by USWA, it is 
required to report the payments on Forms 1042-S to A, B, C, D, and 
E. FB's intentional failure to do so will subject it to intentional 
disregard penalties under sections 6721 and 6722.

    (7) Liability for failure to obtain documentation timely or to act 
in accordance with applicable presumptions--(i) General rule. A 
withholding agent that cannot reliably associate a payment with valid 
documentation on the date of payment and that does not withhold under 
this section, or withholds at less than the 30-percent rate prescribed 
under section 1441(a) and paragraph (b)(1) of this section, is liable 
under section 1461 for the tax required to be withheld under chapter 3 
of the Code and the regulations thereunder, without the benefit of a 
reduced rate unless--
    (A) The withholding agent has appropriately relied on the 
presumptions described in paragraph (b)(3) of this section (including 
the grace period described in paragraph (b)(3)(iv) of this section) in 
order to treat the payee as a U.S. person or, if applicable, on the 
presumptions described in Sec.  1.1441-4(a) (2)(ii) or (3)(i) to treat 
the payment as effectively connected income;
    (B) The withholding agent can demonstrate to the satisfaction of 
the district director or the Assistant Commissioner (International) 
that the proper amount of tax, if any, was in fact paid to the IRS;

[[Page 12758]]

    (C) No documentation is required under section 1441 or this section 
in order for a reduced rate of withholding to apply; or
    (D) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(7)(i)(D).
    (ii) Proof that tax liability has been satisfied. Proof of payment 
of tax may be established for purposes of paragraph (b)(7)(i)(B) of 
this section on the basis of a Form 4669 (or such other form as the IRS 
may prescribe in published guidance (see Sec.  601.601(d)(2) of this 
chapter)), establishing the amount of tax, if any, actually paid by or 
for the beneficial owner on the income. Proof that a reduced rate of 
withholding was, in fact, appropriate under the provisions of chapter 3 
of the Code and the regulations thereunder may also be established 
after the date of payment by the withholding agent on the basis of a 
valid withholding certificate or other appropriate documentation 
furnished after that date that was effective as of the date of payment. 
A withholding certificate furnished after the date of payment will be 
considered effective as of the date of the payment if the certificate 
contains a signed affidavit (either at the bottom of the form or on an 
attached page) that states that the information and representations 
contained on the certificate were accurate as of the time of the 
payment. A certificate obtained within 30 days after the date of the 
payment will not be considered to be unreliable solely because it does 
not contain an affidavit. However, in the case of a withholding 
certificate of an individual received more than a year after the date 
of payment, the withholding agent will be required to obtain, in 
addition to the withholding certificate and affidavit, documentary 
evidence, as described in Sec.  1.1471-3(c)(5)(i), that supports the 
individual's claim of foreign status or documentary evidence described 
in Sec.  1.1441-6(c)(4)(i) to support any treaty claim made on the 
certificate. In the case of a withholding certificate of an entity 
received more than a year after the date of payment, the withholding 
agent will be required to obtain, in addition to the withholding 
certificate and affidavit, documentary evidence described in Sec.  
1.1471-3(c)(5)(i) that supports the entity's claim of foreign status or 
documentary evidence described in Sec.  1.1441-6(c)(4)(ii) to support 
any treaty claim made on the certificate. If documentation other than a 
withholding certificate is submitted from a payee more than a year 
after the date of payment, the withholding agent will be required to 
obtain from the payee a withholding certificate and affidavit 
supporting the claim of chapter 3 status as of the time of the payment. 
See Sec.  1.1471-3(c)(7)(ii) for additional requirements that may apply 
under chapter 4 for documentation obtained after the date of payment of 
a withholdable payment.
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(7)(iii).
    (iv) Special rule for determining validity of withholding 
certificate containing inconsequential errors. A withholding agent may 
treat a withholding certificate as valid when the certificate includes 
an error described as an inconsequential error in Sec.  1.1471-
3(c)(7)(i) for which the withholding agent obtains documentation 
sufficient for supporting a payee's claim of status as a foreign person 
or, for a payee that is an entity, its classification to the extent 
permitted under Sec.  1.1471-3(c)(7)(i). For example, if the country of 
residence is abbreviated in an ambiguous way on a beneficial owner 
withholding certificate provided to establish the beneficial owner's 
foreign status, a withholding agent may treat the withholding 
certificate as valid if it has obtained documentary evidence supporting 
that the beneficial owner's residence is in a country other than the 
United States.
    (v) Special effective date. See paragraph (f)(2)(ii) of this 
section for the special effective date applicable to this paragraph 
(b)(7).
    (8) and (9) [Reserved]. For further guidance, see Sec.  1.1441-
1(b)(8) and (9).
    (c) Definitions. The following definitions apply for purposes of 
sections 1441 through 1443, 1461, and regulations under those sections. 
For definitions of terms used in these regulations that are defined 
under sections 1471 through 1474, see subparagraphs (43) through (56) 
of this paragraph.
    (1) [Reserved]. For further guidance, see Sec.  1.1441-1(c)(1).
    (2) Foreign and U.S. person. The term foreign person means any 
person that is not a U.S. person, including a QI branch of a U.S. 
financial institution (as defined in Sec.  1.1471-1(b)(109). Such a 
branch continues to be a U.S. payor for purposes of chapter 61 of the 
Internal Revenue Code. See Sec.  1.6049-5(c)(4). A U.S. person is a 
person described in section 7701(a)(30), the U.S. government (including 
an agency or instrumentality thereof), a State (including an agency or 
instrumentality thereof), or the District of Columbia (including an 
agency or instrumentality thereof).
    (3) and (4) [Reserved]. For further guidance, see Sec.  1.1441-
1(c)(3) and (4).
    (5) Financial institution and foreign financial institution (FFI). 
The term financial institution means a person described in Sec.  
1.1471-5(e). The term foreign financial institution or FFI has the 
meaning set forth in Sec.  1.1471-5(d).
    (6) through (9) [Reserved]. For further guidance, see Sec.  1.1441-
1(c)(6) through (9).
    (10) Chapter 3 of the Code (or chapter 3). For purposes of the 
regulations under sections 1441, 1442, and 1443, any reference to 
chapter 3 of the Code (or chapter 3) shall not include references to 
sections 1445 and 1446, unless the context indicates otherwise.
    (11) [Reserved]. For further guidance, see Sec.  1.1441-1(c)(11).
    (12) Payee. For purposes of chapter 3 of the Internal Revenue Code, 
the term payee of a payment is determined under paragraph (b)(2) of 
this section, Sec.  1.1441-5(c)(1) (relating to partnerships), and 
Sec.  1.1441-5(e)(2) and (3) (relating to trusts and estates) and 
includes foreign persons, U.S. exempt recipients, and U.S. non-exempt 
recipients. A nonqualified intermediary and a qualified intermediary 
(to the extent it does not assume primary withholding responsibility) 
are not payees if they are acting as intermediaries and not the 
beneficial owner of income. In addition, a flow-through entity (other 
than a withholding foreign partnership, withholding foreign trust, or 
qualified intermediary that assumes primary withholding responsibility) 
is not a payee unless the income is (or is deemed to be) effectively 
connected with the conduct of a trade or business in the United States. 
See Sec.  1.6049-5(d)(1) for rules to determine the payee for purposes 
of chapter 61 of the Internal Revenue Code. See Sec. Sec.  1.1441-
1(b)(3), 1.1441-5(d), and (e)(6) and Sec.  1.6049-5(d)(3) for 
presumption rules that apply if a payee's identity cannot be determined 
on the basis of valid documentation. For purposes of chapter 4, the 
term payee has the meaning set forth in Sec.  1.1471-3(a) with respect 
to a withholdable payment.
    (13) through (15) [Reserved]. For further guidance, see Sec.  
1.1441-1(c)(13) through (15).
    (16) Withholding certificate. The term withholding certificate 
means a Form W-8 described in paragraph (e)(2)(i) of this section 
(relating to foreign beneficial owners), paragraphs (e)(3)(i) or 
(e)(5)(i) of this section (relating to foreign intermediaries), Sec.  
1.1441-5(c)(2)(iv), (c)(3)(iii), and (e)(5)(iii) (relating to flow-
through entities), a Form 8233 described in Sec.  1.1441-4(b)(2), a 
Form W-9 as described in paragraph (d) of this section, a statement 
described in Sec.  1.871-14(c)(2)(v) (relating to portfolio interest), 
or any other certificates that under the Internal

[[Page 12759]]

Revenue Code or regulations certifies or establishes the status of a 
payee or beneficial owner as a U.S. or a foreign person.
    (17) Documentary evidence; other appropriate documentation. The 
terms documentary evidence or other appropriate documentation refer to 
documentary evidence that may be provided for payments made outside the 
United States with respect to offshore obligations in accordance with 
Sec.  1.6049-5(c)(1) or any other evidence that under the Internal 
Revenue Code or regulations certifies or establishes the status of a 
payee or beneficial owner as a U.S. or foreign person. See Sec. Sec.  
1.1441-6(b)(2), (c)(3) and (4) (relating to treaty benefits), and 
1.6049-5(c)(1) and (4) (relating to chapter 61 reporting). Also see 
Sec.  1.1441-4(a)(3)(ii) regarding documentary evidence for notional 
principal contracts.
    (18) through (24) [Reserved]. For further guidance, see Sec.  
1.1441-1(c)(18) through (c)(24).
    (25) Foreign complex trust. A foreign complex trust is a foreign 
trust other than a foreign simple trust or foreign grantor trust.
    (26) through (27) [Reserved]. For further guidance, see Sec.  
1.1441-1(c)(26) through (c)(27).
    (28) Nonwithholding foreign partnership (or NWP). A nonwithholding 
foreign partnership is a foreign partnership that is not a withholding 
foreign partnership, as defined in Sec.  1.1441-5(c)(2)(i).
    (29) Withholding foreign partnership (or WP). A withholding foreign 
partnership is defined in Sec.  1.1441-5(c)(2)(i).
    (30) Possessions of the United States or U.S. territory. For 
purposes of the regulations under chapters 3 and 61 of the Internal 
Revenue Code, the term possessions of the United States or U.S. 
territory means Guam, American Samoa, the Northern Mariana Islands, 
Puerto Rico, or the Virgin Islands.
    (31) Amount subject to chapter 3 withholding. An amount subject to 
withholding under chapter 3 is an amount described in Sec.  1.1441-
2(a).
    (32) EIN. The term EIN means an employer identification number 
(also known as a federal tax identification number) described in Sec.  
301.6109-1(a)(1)(i).
    (33) Flow-through withholding certificate. The term flow-through 
withholding certificate means a Form W-8IMY submitted by a foreign 
partnership, foreign simple trust, or foreign grantor trust.
    (34) Foreign payee. The term foreign payee means any payee other 
than a U.S. payee.
    (35) Intermediary withholding certificate. The term intermediary 
withholding certificate means a Form W-8IMY submitted by an 
intermediary.
    (36) Nonwithholding foreign trust (or NWT). The term nonwithholding 
foreign trust or NWT means a foreign trust as defined in section 
7701(a)(31)(B) that is a simple trust or grantor trust and is not a 
withholding foreign trust.
    (37) Payment with respect to an offshore obligation. The term 
payment with respect to an offshore obligation means a payment made 
outside of the United States, within the meaning of Sec.  1.6049-5(e), 
with respect to an offshore obligation (as defined in Sec. Sec.  
1.6049-5(c)(1)), 1.6041-1(d), or 1.6042-3(b) (depending on the type of 
payment).
    (38) Permanent residence address. The term permanent residence 
address is the address in the country of which the person claims to be 
a resident for purposes of that country's income tax. In the case of a 
withholding certificate furnished in order to claim a reduced rate of 
withholding under an income tax treaty, the residence must be 
determined in the manner prescribed under the applicable treaty. See 
Sec.  1.1441-6(b). The address of a financial institution with which 
the person maintains an account, a post office box, or an address used 
solely for mailing purposes is not a permanent residence address unless 
such address is the only permanent address used by the person and 
appears as the person's registered address in the person's 
organizational documents. Further, an address that is provided subject 
to instructions to hold all mail to that address is not a permanent 
residence address. If the person is an individual who does not have a 
tax residence in any country, the permanent address is the place at 
which the person normally resides. If the person is an entity and does 
not have a tax residence in any country, then the permanent residence 
address of the entity is the place at which the person maintains its 
principal office.
    (39) Standing instructions to pay amounts. The term standing 
instructions to pay amounts has the meaning set forth in Sec.  1.1471-
1(b)(126).
    (40) Territory financial institution. The term territory financial 
institution has the meaning set forth in Sec.  1.1471-1(b)(130).
    (41) TIN. The term TIN means the tax identifying number assigned to 
a person under section 6109.
    (42) Withholding foreign trust (or WT). The term withholding 
foreign trust (or WT) means a foreign grantor trust or foreign simple 
trust that has executed the agreement described in Sec.  1.1441-
5(e)(5)(v).
    (43) Certified deemed-compliant FFI. The term certified deemed-
compliant FFI means an FFI described in Sec.  1.1471-5(f)(2).
    (44) Chapter 3 withholding rate pool. The term chapter 3 
withholding rate pool has the meaning described in paragraph 
(e)(5)(v)(C)(1) of this section.
    (45) Chapter 3 status. The term chapter 3 status refers to the 
attributes of a payee relevant for determining the rate of withholding 
with respect to a payment made to the payee for purposes of chapter 3.
    (46) Chapter 4 of the Code (or chapter 4). The term chapter 4 of 
the Code (or chapter 4) means sections 1471 through 1474 and the 
regulations thereunder.
    (47) Chapter 4 status. The term chapter 4 status means a person's 
status as a U.S. person, a specified U.S. person, an individual that is 
a foreign person, a participating FFI, a deemed-compliant FFI, a 
restricted distributor, an exempt beneficial owner, a nonparticipating 
FFI, a territory financial institution, an excepted NFFE, or a passive 
NFFE.
    (48) Chapter 4 withholding rate pool. The term chapter 4 
withholding rate pool has the meaning set forth Sec.  1.1471-1(b)(20). 
For when a withholding statement may include a chapter 4 withholding 
rate pool of U.S. payees for purposes of this section and Sec.  1.1441-
5, however, see paragraph (e)(3)(iv)(A) of this section (for a 
withholding statement provided by a nonqualified intermediary) or 
paragraph (e)(5)(v)(C)(2) of this section (for a withholding statement 
provided by a qualified intermediary).
    (49) Deemed-compliant FFI. The term deemed-compliant FFI means an 
FFI that is treated, pursuant to section 1471(b)(2) and Sec.  1.1471-
5(f), as meeting the requirements of section 1471(b). The term deemed-
compliant FFI also includes a QI branch of a U.S. financial institution 
that is a reporting Model 1 FFI.
    (50) GIIN (or Global Intermediary Identification Number). The term 
GIIN or Global Intermediary Identification Number means the 
identification number that is assigned to a participating FFI or 
registered deemed-compliant FFI. The term GIIN or Global Intermediary 
Identification Number also includes the identification number assigned 
to a reporting Model 1 FFI (as defined in Sec.  1.1471-1(b)(114)) for 
purposes of identifying such entity to withholding agents. All GIINs 
will appear on the IRS FFI list.

[[Page 12760]]

    (51) NFFE. The term NFFE or non-financial foreign entity has the 
meaning set forth in Sec.  1.1471-1(b)(80).
    (52) Nonparticipating FFI. The term nonparticipating FFI means an 
FFI other than a participating FFI, a deemed-compliant FFI, or an 
exempt beneficial owner.
    (53) Participating FFI. The term participating FFI has the meaning 
set forth in Sec.  1.1471-1(b)(91).
    (54) Preexisting obligation. The term preexisting obligation has 
the meaning set forth in Sec.  1.1471-1(b)(104).
    (55) Registered deemed-compliant FFI. The term registered deemed- 
compliant FFI has the meaning set forth in Sec.  1.1471-5(f)(1).
    (56) Withholdable payment. The term withholdable payment has the 
meaning set forth in Sec.  1.1473-1(a).
    (d) [Reserved]. For further guidance, see Sec.  1.1441-1(d) 
introductory text through (d)(3).
    (4) When a payment to an intermediary or flow-through entity may be 
treated as made to a U.S. payee. A withholding agent that makes a 
payment to an intermediary (whether a qualified intermediary or 
nonqualified intermediary), a flow-through entity, or a U.S. branch or 
territory financial institution described in paragraph (b)(2)(iv) of 
this section may treat the payment as made to a U.S. payee to the 
extent that, prior to the payment, the withholding agent can reliably 
associate the payment with a Form W-9 described in paragraph (d)(2) or 
(3) of this section attached to a valid intermediary, flow-through, or 
U.S. branch withholding certificate described in paragraph (e)(3)(i) of 
this section or to the extent the withholding agent can reliably 
associate the payment with a Form W-8 described in paragraph (e)(3)(v) 
of this section that evidences an agreement to treat a U.S. branch or 
territory financial institution described in paragraph (b)(2)(iv) of 
this section as a U.S. person. In addition, a withholding agent may 
treat the payment as made to a U.S. payee only if it complies with the 
electronic confirmation procedures described in paragraph (e)(4)(v) of 
this section, if required, and it has not been notified by the IRS that 
any of the information on the withholding certificate or other 
documentation is incorrect or unreliable. In the case of a Form W-9 
that is required to be furnished for a reportable payment that may be 
subject to backup withholding, the withholding agent may be notified in 
accordance with section 3406(a)(1)(B) and the regulations under that 
section. See applicable procedures under section 3406(a)(1)(B) and the 
regulations under that section for payors who have been notified with 
regard to such a Form W-9. Withholding agents who have been notified in 
relation to other Forms W-9, including under section 6724(b) pursuant 
to section 6721, may rely on the withholding certificate or other 
documentation only to the extent provided under procedures as 
prescribed by the IRS (see Sec.  601.601(d)(2) of this chapter).
    (e) through (e)(1)(ii)(A)(1) [Reserved]. For further guidance, see 
Sec.  1.1441-1(e) introductory text through (e)(1)(ii)(A)(1).
    (2) That the payment is made outside the United States (within the 
meaning of Sec.  1.6049-5(e)) with respect to an offshore obligation 
(within the meaning of paragraph (c)(37) of this section) and the 
withholding agent can reliably associate the payment with documentary 
evidence described in Sec. Sec.  1.1441-6(c)(3) or (4), or 1.6049-
5(c)(1) relating to the beneficial owner;
    (3) That the withholding agent can reliably associate the payment 
with a valid qualified intermediary withholding certificate, as 
described in paragraph (e)(3)(ii) of this section, and the qualified 
intermediary has provided sufficient information for the withholding 
agent to allocate the payment to a chapter 3 withholding rate pool;
    (4) through (7) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(1)(ii)(A)(4) through (7).
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(1)(ii)(B).
    (2) [Reserved]. For further guidance, see Sec.  1.1441-1(e)(2) 
introductory text through (e)(2)(i).
    (ii) Requirements for validity of certificate. A beneficial owner 
withholding certificate is valid for purposes of a payment of an amount 
subject to chapter 3 withholding only if it is provided on a Form W-8, 
or a Form 8233 in the case of personal services income described in 
Sec.  1.1441-4(b) or certain scholarship or grant amounts described in 
Sec.  1.1441-4(c) (or a substitute form described in paragraph 
(e)(4)(vi) of this section or such other form as the IRS may 
prescribe). A Form W-8 is valid only if its validity period has not 
expired, it is signed under penalties of perjury by the beneficial 
owner, and it contains all of the information required on the form. The 
required information is the beneficial owner's name, permanent 
residence address (as defined in Sec.  1.1441-1(c)(55)), TIN (if 
required), a certification that the person is not a U.S. citizen (if 
the person is an individual) or a certification of the country under 
the laws of which the beneficial owner is created, incorporated, or 
governed (if a person other than an individual), the classification of 
the entity, and such other information as may be required by the 
regulations under section 1441 or by the form or accompanying 
instructions in addition to, or in lieu of, the information described 
in this paragraph (e)(2)(ii) (including when a foreign TIN and an 
individual's date of birth are required). A beneficial owner 
withholding certificate must also include the chapter 4 status of a 
beneficial owner that is an entity receiving a withholdable payment in 
order to be valid. See paragraph (e)(4)(vii) of this section for 
circumstances in which a TIN is required on a beneficial owner 
withholding certificate.
    (3) [Reserved]. For further guidance, see Sec.  1.1441-1(e)(3) 
introductory text and (e)(3)(i).
    (ii) Intermediary withholding certificate from a qualified 
intermediary. A qualified intermediary shall provide a qualified 
intermediary withholding certificate for withholdable payments or 
reportable amounts received by the qualified intermediary. See 
paragraph (e)(3)(vi) of this section for the definition of reportable 
amount. A qualified intermediary withholding certificate is valid only 
if it is furnished on a Form W-8, an acceptable substitute form, or 
such other form as the IRS may prescribe, it is signed under penalties 
of perjury by a person with authority to sign for the qualified 
intermediary, its validity has not expired, and it contains the 
following information, statement, and certifications--
    (A) The name, permanent residence address, qualified intermediary 
employer identification number (QI-EIN), and the country under the laws 
of which the intermediary is created, incorporated, or governed. For a 
withholding certificate provided with respect to a withholdable payment 
or associated with a withholding statement allocating the payment to a 
chapter 4 withholding rate pool of U.S. payees, the withholding 
certificate must also include the chapter 4 status of the qualified 
intermediary (which, if the qualified intermediary is an FFI, it must 
be a participating FFI, a registered deemed-compliant FFI, or an FFI 
treated as a deemed-compliant FFI under an applicable IGA that is 
subject to due diligence and reporting requirements with respect to its 
U.S. accounts similar to those applicable to a registered deemed-
compliant FFI under Sec.  1.1471-5(f)(1), and its GIIN (if applicable). 
However, a qualified intermediary withholding certificate may include a 
chapter 4 status of limited FFI as defined in Sec.  1.1471-1(b)(77) 
through

[[Page 12761]]

December 31, 2015. See paragraph (e)(5)(ii) for the chapter 4 status 
required of a qualified intermediary. A qualified intermediary that 
does not act in its capacity as a qualified intermediary must not use 
its QI-EIN. Rather, the intermediary should provide a nonqualified 
intermediary withholding certificate, if it is acting as an 
intermediary, and should use the taxpayer identification number (if 
any) and GIIN (if applicable) that it uses for all other purposes;
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(3)(ii)(B).
    (C) A certification that the qualified intermediary has provided, 
or will provide, a withholding statement as required by paragraph 
(e)(5)(v) of this section;
    (D) A certification that the qualified intermediary is fulfilling 
its reporting obligations under chapter 4 with respect to any payees 
included in the U.S. payee pool when the qualified intermediary 
provides a withholding statement that allocates a payment to payees in 
such a pool; and
    (E) Any other information, certifications, or statements as may be 
required by the form or accompanying instructions in addition to, or in 
lieu of, the information and certifications described in this paragraph 
(e)(3)(ii) or paragraph (e)(3)(v) of this section. See paragraph 
(e)(5)(v) of this section for the requirements of a withholding 
statement associated with the qualified intermediary withholding 
certificate.
    (iii) Intermediary withholding certificate from a nonqualified 
intermediary. A nonqualified intermediary shall provide a nonqualified 
intermediary withholding certificate for reportable amounts received by 
the nonqualified intermediary. See paragraph (e)(3)(vi) of this section 
for the definition of reportable amount. A nonqualified intermediary 
withholding certificate is valid only to the extent it is furnished on 
a Form W-8, an acceptable substitute form, or such other form as the 
IRS may prescribe, it is signed under penalties of perjury by a person 
authorized to sign for the nonqualified intermediary, it contains the 
information, statements, and certifications described in this paragraph 
(e)(3)(iii) and paragraph (e)(3)(iv) of this section, its validity has 
not expired, and it contains the withholding certificates and other 
appropriate documentation for all persons to whom the certificate 
relates are associated with the certificate. Withholding certificates 
and other appropriate documentation consist of beneficial owner 
withholding certificates described in paragraph (e)(2)(i) of this 
section, intermediary and flow-through withholding certificates 
described in paragraph (e)(3)(i) of this section, withholding foreign 
partnership and withholding foreign trust certificates described in 
Sec.  1.1441-5(c)(2)(iv) and (e)(5)(iii), documentary evidence 
described in Sec. Sec.  1.1441-6(c)(3) or (4) and 1.6049-5(c)(1), and 
any other documentation or certificates applicable under other 
provisions of the Internal Revenue Code or regulations that certify or 
establish the status of the payee or beneficial owner as a U.S. or a 
foreign person. If a nonqualified intermediary is acting on behalf of 
another nonqualified intermediary or a flow-through entity, then the 
nonqualified intermediary must associate with its own withholding 
certificate the other nonqualified intermediary withholding certificate 
or the flow-through withholding certificate and separately identify all 
of the withholding certificates and other appropriate documentation 
that are associated with the withholding certificate of the other 
nonqualified intermediary or flow-through entity. Nothing in this 
paragraph (e)(3)(iii) shall require an intermediary to furnish original 
documentation. Copies of certificates or documentary evidence may be 
transmitted to the U.S. withholding agent, in which case the 
nonqualified intermediary must retain the original documentation for 
the same time period that the copy is required to be retained by the 
withholding agent under paragraph (e)(4)(iii) of this section and must 
provide it to the withholding agent upon request. For purposes of this 
paragraph (e)(3)(iii), a valid intermediary withholding certificate 
also includes a statement described in Sec.  1.871-14(c)(2)(v) 
furnished for interest to qualify as portfolio interest for purposes of 
sections 871(h) and 881(c). The information and certifications required 
on a Form W-8 described in this paragraph (e)(3)(iii) are as follows--
    (A) The name and permanent resident address of the nonqualified 
intermediary, chapter 4 status (for a nonqualified intermediary 
receiving a withholdable payment or providing a withholding statement 
associated with the Form W-8 allocating a payment to a chapter 4 
withholding rate pool of U.S. payees), GIIN (if applicable), and the 
country under the laws of which the nonqualified intermediary is 
created, incorporated, or governed;
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(3)(iii)(B).
    (C) If the nonqualified intermediary withholding certificate is 
used to transmit withholding certificates or other appropriate 
documentation for more than one person on whose behalf the nonqualified 
intermediary is acting, a withholding statement associated with the 
Form W-8 that provides all the information required by paragraph 
(e)(3)(iv) of this section;
    (D) A certification that the nonqualified intermediary is 
fulfilling its reporting obligations under chapter 4 with respect to 
any payees included in the U.S. payee pool when the nonqualified 
intermediary provides an FFI withholding statement described in Sec.  
1.1471-3(c)(3)(iii)(B)(2) that allocates a payment to payees in such a 
pool; and
    (E) Any other information, certifications, or statements as may be 
required by the form or accompanying instructions in addition to, or in 
lieu of, the information, certifications, and statements described in 
this paragraph (e)(3)(iii) or paragraph (e)(5)(iv) of this section.
    (iv) Withholding statement provided by nonqualified intermediary--
(A) In general. A nonqualified intermediary shall provide a withholding 
statement required by this paragraph (e)(3)(iv) to the extent the 
nonqualified intermediary is required to furnish, or does furnish, 
documentation for payees on whose behalf it receives reportable amounts 
(as defined in paragraph (e)(3)(vi) of this section) or to the extent 
it otherwise provides the documentation of such payees to a withholding 
agent. A nonqualified intermediary, however, that is subject to 
withholding under chapter 4 due to its chapter 4 status as a 
nonparticipating FFI need not provide a withholding statement unless it 
is providing documentation with respect to an exempt beneficial owner 
as described in Sec.  1.1471-3(c)(3)(iii)(B)(4). A nonqualified 
intermediary is not required to disclose to the withholding agent 
information regarding persons for whom it collects reportable amounts 
unless it has actual knowledge that any such person is a U.S. non-
exempt recipient as defined in paragraph (c)(21) of this section. 
Information regarding U.S. non-exempt recipients required under this 
paragraph (e)(3)(iv) must be provided irrespective of any requirement 
under foreign law that prohibits the disclosure of the identity of an 
account holder of a nonqualified intermediary or financial information 
relating to such account holder. A nonqualified intermediary is not 
required to provide information on a withholding statement regarding 
U.S. non-exempt recipients, provided that the nonqualified intermediary 
is a participating FFI (including a reporting Model 2 FFI) or 
registered deemed-compliant FFI (including a reporting Model 1 FFI) 
that identifies on the

[[Page 12762]]

withholding statement the portion of a payment allocable to a chapter 4 
withholding rate pool of U.S. payees to the extent that the 
nonqualified intermediary is permitted to include such U.S. payees in a 
pool under Sec.  1.6049-4(c)(4)(iii). See Sec.  1.1471-3(d)(4) for the 
requirements of an entity to identify itself as a participating FFI or 
registered deemed-compliant FFI to a withholding agent for purposes of 
chapter 4. Although a nonqualified intermediary is not required to 
provide documentation and other information required by this paragraph 
(e)(3)(iv) for persons other than U.S. non-exempt recipients not 
included in a chapter 4 withholding rate pool of U.S. payees, a 
withholding agent that does not receive documentation and such 
information must apply the presumption rules of paragraph (b) of this 
section, Sec. Sec.  1.1441-5(d) and (e)(6), 1.6049-5(d), and 1.1471-
3(f)(5) (for a withholdable payment) or the withholding agent shall be 
liable for tax, interest, and penalties. A withholding agent must apply 
the presumption rules even if it is not required under chapter 61 of 
the Internal Revenue Code to obtain documentation to treat a payee as 
an exempt recipient and even though it has actual knowledge that the 
payee is a U.S. person. For example, if a nonqualified intermediary 
receives a payment that is not a withholdable payment and fails to 
provide a withholding agent with a Form W-9 for an account holder that 
is a U.S. exempt recipient that is not included in a chapter 4 
withholding rate pool of U.S. payees to the extent permitted in this 
paragraph (e)(3)(iv)(A), the withholding agent must presume (even if it 
has actual knowledge that the account holder is a U.S. exempt 
recipient) that the account holder is an undocumented foreign person 
with respect to amounts subject to chapter 3 withholding. See paragraph 
(b)(3)(v) of this section for applicable presumptions. Therefore, the 
withholding agent must withhold 30 percent from the payment even though 
if a Form W-9 had been provided, no withholding or reporting on the 
payment attributable to a U.S. exempt recipient would apply. Further, a 
nonqualified intermediary that fails to provide the documentation and 
the information under this paragraph (e)(3)(iv) for another withholding 
agent to report the payments on Forms 1042-S (including under the 
requirements of Sec.  1.1474-1(d)(2) for a payment of a chapter 4 
reportable amount) and Forms 1099 is not relieved of its responsibility 
to file information returns. See paragraph (b)(6) of this section. 
Therefore, unless the nonqualified intermediary itself files such 
returns and provides copies to the payees, it shall be liable for 
penalties under sections 6721 (failure to file information returns), 
and 6722 (failure to furnish payee statements), including the penalties 
under those sections for intentional failure to file information 
returns. In addition, failure to provide either the documentation or 
the information required by this paragraph (e)(3)(iv) results in a 
payment not being reliably associated with valid documentation. 
Therefore, the beneficial owners of the payment are not entitled to 
reduced rates of withholding and if the full amount required to be held 
under the presumption rules is not withheld by the withholding agent, 
the nonqualified intermediary must withhold the difference between the 
amount withheld by the withholding agent and the amount required to be 
withheld. Failure to withhold shall result in the nonqualified 
intermediary being liable for tax under section 1461, interest, and 
penalties, including penalties under section 6656 (failure to deposit) 
and section 6672 (failure to collect and pay over tax).
    (B) General requirements. A withholding statement must be provided 
prior to the payment of a reportable amount and must contain the 
information specified in paragraph (e)(3)(iv)(C) of this section. The 
statement must be updated as often as required to keep the information 
in the withholding statement correct prior to each subsequent payment. 
The withholding statement forms an integral part of the withholding 
certificate provided under paragraph (e)(3)(iii) of this section, and 
the penalties of perjury statement provided on the withholding 
certificate shall apply to the withholding statement. The withholding 
statement may be provided in any manner the nonqualified intermediary 
and the withholding agent mutually agree, including electronically. If 
the withholding statement is provided electronically as part of a 
system established by the withholding agent or nonqualified 
intermediary to provide the statement, however, there must be 
sufficient safeguards to ensure that the information received by the 
withholding agent is the information sent by the nonqualified 
intermediary and all occasions of user access that result in the 
submission or modification of the withholding statement information 
must be recorded. In addition, the electronic system must be capable of 
providing a hard copy of all withholding statements provided by the 
nonqualified intermediary. A withholding statement may otherwise be 
transmitted by a nonqualified intermediary via email or facsimile to a 
withholding agent under the requirements specified in paragraph 
(e)(4)(iv)(C) of this section (substituting the term withholding 
statement for the term Form W-8 or the term document, as applicable). A 
withholding agent will be liable for tax, interest, and penalties in 
accordance with paragraph (b)(7) of this section to the extent it does 
not follow the presumption rules of paragraph (b)(3) of this section or 
Sec. Sec.  1.1441-5(d) and (e)(6), and 1.6049-5(d) for any payment of a 
reportable amount, or portion thereof, for which it does not have a 
valid withholding statement prior to making a payment. A withholding 
agent may not treat as valid an allocation of a payment to a chapter 4 
withholding rate pool of U.S. payees described in paragraph 
(e)(3)(iv)(A) of this section or an allocation of a payment to a 
chapter 4 withholding rate pool of recalcitrant account holders 
described in paragraph (e)(3)(iv)(C)(2) of this section unless the 
withholding agent identifies the nonqualified intermediary maintaining 
the account (as described in Sec.  1.1471-5(b)(5)) as a participating 
FFI (including a reporting Model 2 FFI) or registered deemed-compliant 
FFI (including a reporting Model 1 FFI) by applying the rules of Sec.  
1.1471-3(d)(4).
    (C) Content of withholding statement. The withholding statement 
provided by a nonqualified intermediary must contain the information 
required by this paragraph (e)(3)(iv)(C).
    (1) In general. The withholding statement provided by a 
nonqualified intermediary must contain the information required by this 
paragraph (e)(3)(iv)(C).
    (i) Except as otherwise provided in (e)(3)(iv)(A) of this section 
(which excludes reporting of information with respect to certain U.S. 
persons on the withholding statement), the withholding statement must 
contain the name, address, TIN (if any) and the type of documentation 
(documentary evidence, Form W-9, or type of Form W-8) for every person 
from whom documentation has been received by the nonqualified 
intermediary and provided to the withholding agent and whether that 
person is a U.S. exempt recipient, a U.S. non-exempt recipient, or a 
foreign person. See paragraphs (c)(2), (20), and (21) of this section 
for the definitions of foreign person, U.S. exempt recipient, and U.S. 
non-exempt recipient. In the case of a foreign person, the statement 
must indicate whether the foreign person is a beneficial owner or an

[[Page 12763]]

intermediary, flow-through entity, U.S. branch, or territory financial 
institution described in paragraph (b)(2)(iv) of this section and 
include the type of recipient, based on recipient codes applicable for 
chapter 3 purposes used for filing Forms 1042-S, if the foreign person 
is a recipient as defined in Sec.  1.1461-1(c)(1)(ii).
    (ii) The withholding statement must allocate each payment, by 
income type, to every payee required to be reported on the withholding 
statement for whom documentation has been provided (including U.S. 
exempt recipients except as provided in paragraph (e)(3)(iv)(A) of this 
section). Any payment that cannot be reliably associated with valid 
documentation from a payee shall be treated as made to an unknown payee 
in accordance with the presumption rules of paragraph (b) of this 
section and Sec. Sec.  1.1441-5(d) and (e)(6) and 1.6049-5(d). For this 
purpose, a type of income is determined by the types of income required 
to be reported on Forms 1042-S or 1099, as appropriate. Notwithstanding 
the preceding sentence, deposit interest (including original issue 
discount) described in section 871(i)(2)(A) or 881(d) and interest or 
original issue discount on short-term obligations as described in 
section 871(g)(1)(B) or 881(e) is only required to be allocated to the 
extent it is required to be reported on Form 1099 or Form 1042-S. See 
Sec.  1.6049-8 (regarding reporting of bank deposit interest to certain 
foreign persons). If a payee receives income through another 
nonqualified intermediary, flow-through entity, or U.S. branch or 
territory financial institution described in paragraph (e)(2)(iv) of 
this section (other than a U.S. branch or territory financial 
institution treated as a U.S. person), the withholding statement must 
also state, with respect to the payee, the name, address, and TIN, if 
known, of the other nonqualified intermediary or U.S. branch from which 
the payee directly receives the payment or the flow-through entity in 
which the payee has a direct ownership interest. If another 
nonqualified intermediary, flow-through entity, or U.S. branch fails to 
allocate a payment, the name of the nonqualified intermediary, flow-
through entity, or U.S. branch that failed to allocate the payment 
shall be provided with respect to such payment.
    (iii) If a payee is identified as a foreign person, the 
nonqualified intermediary must specify the rate of withholding to which 
the payee is subject, the payee's country of residence and, if a 
reduced rate of withholding is claimed, the basis for that reduced rate 
(e.g., treaty benefit, portfolio interest, exempt under section 
501(c)(3), 892, or 895). The allocation statement must also include the 
taxpayer identification numbers of those foreign persons for whom such 
a number is required under paragraph (e)(4)(vii) of this section or 
Sec.  1.1441-6(b)(1) (regarding claims for treaty benefits for which a 
TIN is provided unless a foreign tax identifying number described in 
Sec.  1.1441-6(b)(1) is provided). In the case of a claim of treaty 
benefits, the nonqualified intermediary's withholding statement must 
also state whether the limitation on benefits and section 894 
statements required by Sec.  1.1441-6(c)(5) have been provided, if 
required, in the beneficial owner's Form W-8 or associated with such 
owner's documentary evidence.
    (iv) The withholding statement must also contain any other 
information the withholding agent reasonably requests in order to 
fulfill its obligations under chapter 3, chapter 61 of the Internal 
Revenue Code, and section 3406.
    (2) Nonqualified intermediary withholding statement for 
withholdable payments. This paragraph (e)(3)(iv)(C)(2) modifies the 
requirements of a withholding statement described in paragraph 
(e)(3)(iv)(C)(1) of this section that is provided by a nonqualified 
intermediary with respect to a reportable amount that is a withholdable 
payment. For such a payment, the requirements applicable to a 
withholding statement described in paragraph (e)(3)(iv)(A) through 
(e)(3)(iv)(C)(1) of this section shall apply, except that--
    (i) The withholding statement must include the chapter 4 status and 
GIIN (when required for chapter 4 purposes under Sec.  1.1471-3(d)) of 
each other intermediary or flow-through entity that is a foreign person 
and that receives the payment excluding an intermediary or flow-through 
entity that is an account holder of or interest holder in a withholding 
foreign partnership, withholding foreign trust, or qualified 
intermediary;
    (ii) If the nonqualified intermediary that is a participating FFI 
or registered deemed-compliant FFI provides a withholding statement 
described in Sec.  1.1471-3(c)(3)(iii)(B)(2) (describing an FFI 
withholding statement), the withholding statement may include chapter 4 
withholding rate pools with respect to the portions of the payment 
allocated to nonparticipating FFIs and recalcitrant account holders (to 
the extent permitted on an FFI withholding statement described in that 
paragraph) in lieu of providing specific payee information with respect 
to such persons reported on the statement (including persons subject to 
chapter 4 withholding) as described in paragraph (e)(3)(iv)(C)(1) of 
this section;
    (iii) If the nonqualified intermediary provides a withholding 
statement described in Sec.  1.1471-3(c)(3)(iii)(B)(3) (describing a 
chapter 4 withholding statement), the withholding statement may include 
chapter 4 withholding rate pools with respect to the portions of the 
payment allocated to nonparticipating FFIs; and
    (iv) For a payment allocated to a payee that is a foreign person 
(other than a person included in a chapter 4 withholding rate pool 
described in paragraphs (e)(3)(iv)(C)(2)(ii) and (iii) of this section) 
that is reported on a withholding statement described in Sec.  1.1471-
3(c)(3)(iii)(B)(2) or (3), the withholding statement must include the 
chapter 4 status of the payee and, for a payee other than an 
individual, the recipient code for chapter 4 purposes used for filing 
Form 1042-S.

    (3) Example. This example illustrates the principles of 
paragraph (e)(3)(iv)(C) of this section. WA makes a withholdable 
payment of U.S. source dividends to NQI, a nonqualified 
intermediary. NQI provides WA with a valid intermediary withholding 
certificate under paragraph (e)(3)(iii) of this section that 
includes NQI's certification of its status for chapter 4 purposes as 
a participating FFI. NQI provides a withholding statement on which 
NQI allocates 20% of the payment to a chapter 4 withholding rate 
pool of recalcitrant account holders of NQI for purposes of chapter 
4 and allocates 80% of the payment equally to A and B, individuals 
that are account holders of NQI. NQI also provides WA with valid 
beneficial owner withholding certificates from A and B establishing 
their status as foreign persons entitled to a 15% rate of 
withholding under an applicable income tax treaty. Because NQI has 
certified its status as a participating FFI, withholding under 
chapter 4 is not required with respect to NQI. See Sec.  1.1471-
2(a)(4). Based on the documentation NQI provided to WA with respect 
to A and B, WA can reliably associate the payment with valid 
documentation on the portion of the payment allocated to them and, 
because the payment is a withholdable payment, may rely on the 
allocation of the payment for NQI's recalcitrant account holders in 
a chapter 4 withholding rate pool in lieu of payee information with 
respect to such account holders. See paragraph (e)(3)(iv)(C)(2) of 
this section for the special rules for a withholding statement 
provided by a nonqualified intermediary for a withholdable payment. 
Also see Sec.  1.1471-2(a) for WA's withholding requirements under 
chapter 4 with respect to the portion of the payment allocated to 
NQI's recalcitrant account holders and Sec.  1.1441-3(a)(2) for 
coordinating withholding under chapter 3 for payments to which 
withholding is applied under chapter 4.

    (D) Alternative procedures--(1) In general. Under the alternative

[[Page 12764]]

procedures of this paragraph (e)(3)(iv)(D), a nonqualified intermediary 
may provide information allocating a payment of a reportable amount to 
each payee (including U.S. exempt recipients) otherwise required under 
paragraph (e)(3)(iv)(B)(2) of this section after a payment is made. To 
use the alternative procedure of this paragraph (e)(3)(iv)(D), the 
nonqualified intermediary must inform the withholding agent on a 
statement associated with its nonqualified intermediary withholding 
certificate that it is using the procedure under this paragraph 
(e)(3)(iv)(D) and the withholding agent must agree to the procedure. If 
the requirements of the alternative procedure are met, a withholding 
agent, including the nonqualified intermediary using the procedures, 
can treat the payment as reliably associated with documentation and, 
therefore, the presumption rules of paragraph (b)(3) of this section 
and Sec. Sec.  1.1441-5(d) and (e)(6) and 1.6049-5(d) do not apply even 
though information allocating the payment to each payee has not been 
received prior to the payment. See paragraph (e)(3)(iv)(D)(7) of this 
section, however, for a nonqualified intermediary's liability for tax 
and penalties if the requirements of this paragraph (e)(3)(iv)(D) are 
not met. These alternative procedures shall not be used for payments 
that are allocable to U.S. non-exempt recipients except as provided in 
paragraph (e)(3)(iv)(D)(2)(ii) of this section. Therefore, a 
nonqualified intermediary is required to provide a withholding agent 
with information allocating payments of reportable amounts to U.S. non-
exempt recipients prior to the payment being made by the withholding 
agent.
    (2) Withholding rate pools--(i) In general. In place of the 
information required in paragraph (e)(3)(iv)(C)(2) of this section 
allocating payments to each payee, the nonqualified intermediary must 
provide a withholding agent with withholding rate pool information 
prior to the payment of a reportable amount. The withholding statement 
must contain all other information required by paragraph (e)(3)(iv)(C) 
of this section. Further, each payee listed in the withholding 
statement must be assigned to an identified withholding rate pool. To 
the extent a nonqualified intermediary is required to, or does provide, 
documentation, the alternative procedures do not relieve the 
nonqualified intermediary from the requirement to provide documentation 
prior to the payment being made. Therefore, withholding certificates or 
other appropriate documentation and all information required by 
paragraph (e)(3)(iv)(C) of this section (other than allocation 
information) must be provided to a withholding agent before any new 
payee receives a reportable amount. In addition, the withholding 
statement must be updated by assigning a new payee to a withholding 
rate pool prior to the payment of a reportable amount. A withholding 
rate pool is a payment of a single type of income, determined in 
accordance with the categories of income used to file Form 1042-S, that 
is subject to a single rate of withholding. A withholding rate pool may 
be established by any reasonable method to which the nonqualified 
intermediary and a withholding agent agree (e.g., by establishing a 
separate account for a single withholding rate pool, or by dividing a 
payment made to a single account into portions allocable to each 
withholding rate pool). The nonqualified intermediary shall determine 
withholding rate pools based on valid documentation or, to the extent a 
payment cannot be reliably associated with valid documentation, the 
presumption rules of paragraph (b)(3) of this section and Sec. Sec.  
1.1441-5(d) and (e)(6) and 1.6049-5(d).
    (ii) Withholding rate pools for withholdable payments. This 
paragraph (e)(3)(iv)(D)(2)(ii) modifies the provisions of paragraph 
(e)(3)(iv)(D)(2)(i) of this section with respect to the withholding 
rate pools permitted for the alternative procedures described in 
paragraph (e)(3)(iv)(D)(1) of this section in the case of a reportable 
amount that is a withholdable payment or for a payment for which an FFI 
withholding statement is provided by the nonqualified intermediary. In 
the case of a withholdable payment, a nonqualified intermediary may 
include amounts allocable to a chapter 4 reporting pool (other than a 
U.S. payee pool) in a 30-percent rate pool together with a withholding 
rate pool for amounts subject to chapter 3 withholding at the 30-
percent rate. For the amount of the payment allocable to a U.S. payee 
pool on an FFI withholding statement, a nonqualified intermediary may 
include such an amount in a withholding rate pool with the amount of 
the payment that is exempt from withholding under chapter 3 instead of 
providing documentation regarding U.S. non-exempt recipients included 
in the pool. To the extent that a nonqualified intermediary allocates 
an amount to any chapter 4 withholding rate pool, the nonqualified 
intermediary is required to notify the withholding agent of the 
allocation before receiving the payment and is not required to provide 
documentation with respect to the payees included in such pool. The 
nonqualified intermediary shall determine the chapter 4 withholding 
rate pools permitted to be used under this paragraph 
(e)(3)(iv)(D)(2)(ii) in accordance with the nonqualified intermediary's 
applicable chapter 4 status and under Sec.  1.1471-3(c)(3)(iii)(B)(2) 
(for an FFI withholding statement) or (3) (for a chapter 4 withholding 
statement). Additionally, the nonqualified intermediary shall identify 
those payees to which withholding under chapter 4 applies that are not 
included in a chapter 4 reporting pool (including payees that could be 
included in a chapter 4 withholding rate pool for whom the nonqualified 
intermediary chooses to provide payee specific information).
    (3) Allocation information. The nonqualified intermediary must 
provide the withholding agent with sufficient information to allocate 
the income in each withholding rate pool to each payee (including U.S. 
exempt recipients or any chapter 4 withholding rate pool identified by 
the withholding agent under paragraph (c)(3)(iv)(D)(2)(ii) of this 
section) within the pool no later than January 31 of the year following 
the year of payment. Any payments that are not allocated to payees for 
whom documentation has been provided or a chapter 4 withholding rate 
pool referred to in the previous sentence shall be allocated to an 
undocumented payee in accordance with the presumption rules of 
paragraph (b)(3) of this section and Sec. Sec.  1.1441-5(d) and (e)(6), 
1.6049-5(d), and 1.1471-3(f)(5) (for a withholdable payment for chapter 
4 purposes). Notwithstanding the preceding sentence, deposit interest 
(including original issue discount) described in section 871(i)(2)(A) 
or 881(d) and interest or original issue discount on short-term 
obligations as described in section 871(g)(1)(B) or 881(e) is not 
required to be allocated to a U.S. exempt recipient or a foreign payee, 
except as required under Sec.  1.6049-8 (regarding reporting of deposit 
interest paid to certain foreign persons).
    (4) Failure to provide allocation information. Except as provided 
in paragraph (e)(3)(iv)(D)(5) of this section, if a nonqualified 
intermediary fails to provide allocation information, if required, by 
January 31 for any withholding rate pool to the extent required in 
paragraph (e)(3)(iv)(D)(3) of this section, a withholding agent shall 
not apply the alternative procedures of this paragraph (e)(3)(iv)(D) to 
any payments of reportable amounts paid after January 31 in the taxable 
year

[[Page 12765]]

following the calendar year for which allocation information was not 
given and any subsequent taxable year. Further, the alternative 
procedures shall be unavailable for any other withholding rate pool 
(other than a chapter 4 withholding rate pool as otherwise permitted) 
even though allocation information was given for that other pool. 
Therefore, the withholding agent must withhold on a payment of a 
reportable amount in accordance with the presumption rules of paragraph 
(b)(3) of this section, and Sec. Sec.  1.1441-5(d) and (e)(6), 1.6049-
5(d), and 1.1471-3(f)(5) (for a withholdable payment for chapter 4 
purposes), unless the nonqualified intermediary provides all of the 
information, including information sufficient to allocate the payment 
to each specific payee or chapter 4 withholding rate pool (as 
permitted), required by paragraph (e)(3)(iv)(A) through (C) of this 
section prior to the payment. A nonqualified intermediary must allocate 
at least 90 percent of the income required to be allocated for each 
withholding rate pool as required under this paragraph (e)(3)(iv)(D)(4) 
or the nonqualified intermediary will be treated as having failed to 
provide allocation information for purposes of this paragraph 
(e)(3)(iv)(D). For purposes of the allocation, a nonqualified 
intermediary is required to identify by January 31 the portion of the 
payment that is allocated to each chapter 4 withholding rate pool 
(rather than the payees included in each such pool). See paragraph 
(e)(3)(iv)(D)(7) of this section for liability for tax and penalties if 
a nonqualified intermediary fails to provide allocation information in 
whole or in part.
    (5) Cure provision. A nonqualified intermediary may cure any 
failure to provide allocation information by providing the required 
allocation information to the withholding agent no later than February 
14 following the calendar year of payment. If the withholding agent 
receives the allocation information by that date, it may apply the 
adjustment procedures of Sec.  1.1461-2 (or of Sec.  1.1474-2 for an 
amount withheld under chapter 4) to any excess withholding for payments 
made on or after February 1 and on or before February 14. Any 
nonqualified intermediary that fails to cure by February 14, may 
request the ability to use the alternative procedures of this paragraph 
(e)(3)(iv)(D) by submitting a request, in writing, to the. The request 
must state the reason that the nonqualified intermediary did not comply 
with the alternative procedures of this paragraph (e)(3)(iv)(D) and 
steps that the nonqualified intermediary has taken, or will take, to 
ensure that no failures occur in the future. If the IRS determines that 
the alternative procedures of this paragraph (e)(3)(iv)(D) may apply, a 
determination to that effect will be issued by the IRS to the 
nonqualified intermediary.
    (6) Form 1042-S reporting in case of allocation failure. If a 
nonqualified intermediary fails to provide allocation information by 
February 14 following the year of payment for a withholding rate pool, 
the withholding agent must file Forms 1042-S for payments made to each 
payee in that pool (other than U.S. exempt recipients) in the prior 
calendar year by pro rating the payment to each payee (including U.S. 
exempt recipients) listed in the withholding statement for that 
withholding rate pool, treating as a payee for this purpose each 
chapter 4 withholding rate pool identified by the nonqualified 
intermediary under paragraph (e)(3)(iv)(D)(2)(ii) of this section. If 
the nonqualified intermediary fails to allocate 10 percent or less of 
an amount required to be allocated for a withholding rate pool, a 
withholding agent shall report the unallocated amount as paid to a 
single unknown payee in accordance with the presumption rules of 
paragraph (b) of this section and Sec. Sec.  1.1441-5(d) and (e)(6), 
1.6049-5(d), and Sec.  1.1471-3(f)(5) (for a withholdable payment for 
chapter 4 purposes). The portion of the payment that can be allocated 
to specific recipients, as defined in Sec.  1.1461-1(c)(1)(ii), shall 
be reported to each recipient in accordance with the rules of Sec.  
1.1461-1(c) and Sec.  1.1471-1(d)(2) (for a withholdable payment).
    (7) and (8) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(iv)(D)(7) and (8).
    (E) Notice procedures. The IRS may notify a withholding agent that 
the alternative procedures of paragraph (e)(3)(iv)(D) of this section 
are not applicable to a specified nonqualified intermediary, a U.S. 
branch described in paragraph (b)(2)(iv) of this section, or a flow-
through entity. If a withholding agent receives such a notice, it must 
commence withholding under this section or chapter 4 (if applicable) in 
accordance with the presumption rules of paragraph (b)(3) of this 
section and Sec. Sec.  1.1441-5(d) and (e)(6), 1.6049-5(d), and1.1471-
3(f)(5) (for a withholdable payment for chapter 4 purposes) unless the 
nonqualified intermediary, U.S. branch, or flow-through entity complies 
with the procedures in paragraphs (e)(3)(iv)(A) through (C) of this 
section. In addition, the IRS may notify a withholding agent, in 
appropriate circumstances, that it must apply the presumption rules of 
paragraph (b)(3) of this section and Sec. Sec.  1.1441-5(d) and (e)(6), 
1.6049-5(d), and Sec.  1.1471-3(f)(5) (for a withholdable payment for 
chapter 4 purposes) to payments made to a nonqualified intermediary, a 
U.S. branch, or a flow-through entity even if the nonqualified 
intermediary, U.S. branch or flow-through entity provides allocation 
information prior to the payment. A withholding agent that receives a 
notice under this paragraph (e)(3)(iv)(E) must commence withholding in 
accordance with the presumption rules within 30 days of the date of the 
notice. The IRS may withdraw its prohibition against using the 
alternative procedures of paragraph (e)(3)(iv)(D) of this section, or 
its requirement to follow the presumption rules, if the nonqualified 
intermediary, U.S. branch, or flow-through entity can demonstrate to 
the satisfaction of the IRS that it is capable of complying with the 
rules under chapter 3 of the Internal Revenue Code and any other 
conditions required by the IRS.
    (v) Withholding certificate from certain U.S. branches (including 
territory financial institutions). A U.S. branch certificate is a 
withholding certificate provided by a U.S. branch (including a 
territory financial institution) described in paragraph (b)(2)(iv) of 
this section that is not the beneficial owner of the income. The 
withholding certificate is provided with respect to reportable amounts 
and must state that such amounts are not effectively connected with the 
conduct of a trade or business in the United States. The withholding 
certificate must either transmit the appropriate documentation for the 
persons for whom the branch receives the payment (i.e., as an 
intermediary) or be provided as evidence of its agreement with the 
withholding agent to be treated as a U.S. person with respect to any 
payment associated with the certificate. A U.S. branch withholding 
certificate is valid only if it is furnished on a Form W-8, an 
acceptable substitute form, or such other form as the IRS may 
prescribe, it is signed under penalties of perjury by a person 
authorized to sign for the branch, its validity has not expired, and it 
contains the information, statements, and certifications described in 
this paragraph (e)(3)(v). If the certificate is furnished to transmit 
withholding certificates and other documentation, it must contain the 
information, certifications, and statements described in paragraphs 
(e)(3)(v)(A) through (C) of this section and in paragraphs (e)(3)(iii)

[[Page 12766]]

and (iv) (alternative procedures) of this section, applying the term 
U.S. branch instead of the term nonqualified intermediary. If the 
certificate is furnished pursuant to an agreement to treat the U.S. 
branch or territory financial institution as a U.S. person (which 
agreement must be for purposes of chapter 4 in addition to this section 
in the case of a payment that is a withholdable payment), the 
information and certifications required on the withholding certificate 
are limited to the following--
    (A) The name of the territory financial institution or person of 
which the U.S. branch is a part, the address of the territory financial 
institution or U.S. branch, and, for a withholding certificate provided 
by a U.S. branch, a certification that the person of which the branch 
is a part is a participating FFI or registered deemed-compliant FFI;
    (B) A certification that the payments associated with the 
certificate are not effectively connected with the conduct of its trade 
or business in the United States;
    (C) The EIN of the territory financial institution or branch;
    (D) The GIIN of the FFI of which the U.S. branch is a part, if 
applicable; and
    (E) Any other information, certifications, or statements as may be 
required by the form or accompanying instructions in addition to, or in 
lieu of, the information and certification described in this paragraph 
(e)(3)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(3)(vi).
    (4) Applicable rules. The provisions in this paragraph (e)(4) 
describe procedures applicable to withholding certificates on Form W-8 
or Form 8233 (or a substitute form) or documentary evidence furnished 
to establish foreign status. These provisions do not apply to Forms W-9 
(or their substitutes). For corresponding provisions regarding Form W-9 
(or a substitute form), see section 3406 and the regulations under that 
section.
    (i) Who may sign the certificate. A withholding certificate 
(including an acceptable substitute) may be signed by any person 
authorized to sign a declaration under penalties of perjury on behalf 
of the person whose name is on the certificate as provided in section 
6061 and the regulations under that section (relating to who may sign 
generally for an individual, estate, or trust, which includes certain 
agents who may sign returns and other documents), section 6062 and the 
regulations under that section (relating to who may sign corporate 
returns), and section 6063 and the regulations under that section 
(relating to who may sign partnership returns). A person authorized to 
sign a withholding certificate includes an officer or director of a 
corporation, a partner of a partnership, a trustee of a trust, an 
executor of an estate, any foreign equivalent of the former titles, and 
any other person that has been provided written authorization by the 
individual or entity named on the certificate to sign documentation on 
such person's behalf.
    (ii) Period of validity--(A) General rule. Except as provided 
otherwise in paragraphs (e)(4)(ii)(B) and (C) of this section and this 
paragraph (e)(4)(ii)(A), a withholding certificate described in 
paragraph (e)(2)(i) of this section, or a certificate described in 
Sec.  1.871-14(c)(2)(v) (furnished to qualify interest as portfolio 
interest for purposes of sections 871(h) and 881(c)), will remain valid 
until the [earlier of the] last day of the third calendar year 
following the year in which the withholding certificate is signed [or 
the day that a change in circumstances occurs that makes any 
information on the certificate incorrect]. For example, a withholding 
certificate signed on September 30, 2015, remains valid through 
December 31, 2018, unless circumstances change that make the 
information on the form no longer correct. Documentary evidence 
described in Sec.  1.1441-6(c)(3) or (4) or Sec.  1.6049-5(c)(1) shall 
remain valid until the last day of the third calendar year following 
the year in which the documentary evidence is provided to the 
withholding agent except as provided in paragraph (e)(4)(ii)(B) of this 
section. Documentary evidence described in Sec.  1.6049-5(c)(1) 
provided to establish a payee's foreign status that contains an 
expiration date may, however, be treated as valid until that expiration 
date if doing so would provide a longer period of validity than the 
three-year period. Additionally, a withholding certificate or 
documentary evidence with a period of validity that is valid on 
December 31, 2013 will not be treated as invalid based solely on the 
period described in this paragraph (e)(4)(ii) before January 1, 2015. 
Notwithstanding the validity periods prescribed by this paragraph 
(e)(4)(ii)(A) and paragraphs (e)(4)(ii)(B) and (C) of this section, a 
withholding certificate and documentary evidence will cease to be valid 
if a change in circumstances makes the information on the documentation 
incorrect.
    (B) Indefinite validity period. Notwithstanding paragraph 
(e)(4)(ii)(A) of this section, the following certificates (or parts of 
certificates) and documentary evidence described in paragraphs 
(e)(4)(ii)(B)(1) through (11) of this section shall remain valid until 
the a change in circumstances makes the information on the 
documentation incorrect under paragraph (e)(4)(ii)(D)(3). See, however, 
Sec.  1.1471-3(c)(6)(ii) for when a withholding certificate or 
documentary evidence remains valid (or is subject to renewal) when also 
provided with respect to a withholdable payment made to an entity 
(including an intermediary) for purposes of whether a withholding agent 
may continue to rely on the entity's claim of chapter 4 status. 
Additionally, the provisions of paragraphs (e)(4)(ii)(B)(1), (2), and 
(12) of this section do not apply to documentary evidence or a 
withholding certificate furnished prior to July 1, 2014.
    (1) A beneficial owner withholding certificate (other than the 
portion of the certificate making a claim for treaty benefits) and 
documentary evidence supporting a claim of foreign status when both are 
provided together by an individual claiming foreign status if the 
withholding agent does not have a current U.S. residence address or 
U.S. mailing address for the payee, does not have one or more current 
U.S. telephone numbers that are the only telephone numbers the 
withholding agent has for the payee, and, for a payment described in 
Sec.  1.6049-5(c)(1), the withholding agent has not been provided 
standing instructions to make a payment to an account in the United 
States for the obligation.
    (2) A beneficial owner withholding certificate (other than the 
portion of the certificate making a claim for treaty benefits) 
described in Sec.  1.1471-3(c)(6)(ii)(C)(2) and documentary evidence 
provided by an entity supporting the entity's claim of foreign status.
    (3) A beneficial owner withholding certificate provided by an 
entity claiming status as a tax-exempt entity under section 501(c) that 
is not a foreign private foundation under section 509, provided that 
the withholding agent reports at least one payment annually to the 
entity under Sec.  1.1461-1(c).
    (4) A certificate described in paragraph (e)(3)(ii) of this section 
(a qualified intermediary withholding certificate) but not including 
the withholding certificates, documentary evidence, statements or other 
information associated with the certificate.
    (5) A certificate described in paragraph (e)(3)(iii) of this 
section (a nonqualified intermediary certificate), but not including 
the withholding certificates, documentary evidence, statements or other 
information associated with the certificate.

[[Page 12767]]

    (6) A certificate described in paragraph (e)(3)(v) of this section 
(a U.S. branch (including a territory financial institution) 
withholding certificate that is not provided by the beneficial owner), 
but not including the withholding certificates, documentary evidence, 
statements or other information associated with the certificate.
    (7) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(4)(ii)(B)(7).
    (8) A withholding certificate provided by a withholding foreign 
trust described in Sec.  1.1441-5(e)(5)(v).
    (9) A certificate described in Sec.  1.1441-5(c)(2)(iv) (dealing 
with a certificate from a person representing to be a withholding 
foreign partnership).
    (10) A certificate described in Sec.  1.1441-5(c)(3)(iii) (a 
withholding certificate from a nonwithholding foreign partnership) but 
not including the withholding certificates, documentary evidence, 
statements or other information required to be associated with the 
certificate.
    (11) A certificate furnished by a person representing to be an 
integral part of a foreign government (within the meaning of Sec.  
1.892-2T(a)(2)) in accordance with Sec.  1.1441-8(b), or by a person 
representing to be a foreign central bank of issue (within the meaning 
of Sec.  1.861-2(b)(4)) or the Bank for International Settlements in 
accordance with Sec.  1.1441-8(c)(1); and
    (12) Documentary evidence that is not generally renewed or amended 
(such as a certificate of incorporation).
    (C) Withholding certificate for effectively connected income. 
Notwithstanding paragraph (e)(4)(ii)(B) of this section, the period of 
validity of a withholding certificate furnished to a withholding agent 
to claim a reduced rate of withholding for income that is effectively 
connected with the conduct of a trade or business within the United 
States shall be limited to the three-year period described in paragraph 
(e)(4)(ii)(A) of this section.
    (D) Change in circumstances--(1) Defined. A certificate or 
documentation becomes invalid from the date of a change in 
circumstances affecting the correctness of the certificate or 
documentation to the extent provided in this paragraph (e)(4)(ii)(D). 
For purposes of this section, a person is considered to have a change 
in circumstances only if such change affects the person's claim of 
chapter 3 status. Thus, for example, a change of address is not a 
change in circumstances with respect to a claim of only foreign status 
under this paragraph (e)(4)(ii)(D) if the change is to another address 
outside the United States, but is a change in circumstances if the 
change is to an address in the U.S.
    (2) Obligation to notify a withholding agent of a change in 
circumstances. If a change in circumstances makes any information on a 
certificate or other documentary evidence incorrect, then the person 
whose name is on the certificate or other documentation must inform the 
withholding agent within 30 days of the change and furnish a new 
certificate or new documentary evidence. If an intermediary (including 
a U.S. branch or territory financial institution described in paragraph 
(b)(2)(iv)(A) of this section) or a flow-through entity becomes aware 
that a certificate or other appropriate documentation it has furnished 
to the person from whom it collects a payment is no longer valid 
because of a change in the circumstances of the person who issued the 
certificate or furnished the other appropriate documentation, then the 
intermediary or flow-through entity must notify the person from whom it 
collects the payment of the change of circumstances within 30 days of 
the date that it knows or has reason to know of the change in 
circumstances. It must also obtain a new withholding certificate or new 
appropriate documentation to replace the existing certificate or 
documentation the validity of which has expired due to the change in 
circumstances to continue to treat the person who provided the 
certificate or documentary evidence under its claimed chapter 3 status.
    (3) Withholding agent's obligation with respect to a change in 
circumstances. A withholding agent may rely on a certificate without 
having to inquire into possible changes of circumstances that may 
affect the validity of the statement, unless it knows or has reason to 
know that circumstances have changed, as permitted under paragraph 
(e)(4)(viii) of this section. A withholding agent is required to notify 
any person providing documentary evidence (in lieu of a withholding 
certificate) of the person's obligation to notify the withholding agent 
of a change in circumstances. However, a withholding agent may choose 
to apply the provisions of paragraph (b)(3)(iv) of this section 
regarding the 90-day grace period as of that date while awaiting a new 
certificate or documentation or while seeking information regarding 
changes, or suspected changes, in the person's circumstances. A 
withholding agent may also require a new certificate at any time prior 
to a payment, even though the withholding agent has no actual knowledge 
or reason to know that any information stated on the certificate has 
changed.
    (iii) Retention of documentation. A withholding agent must retain 
each withholding certificate and other documentation for purposes of 
this section for as long as it may be relevant to the determination of 
the withholding agent's tax liability under section 1461 and Sec.  
1.1461-1. A withholding agent may retain a withholding certificate or 
documentary evidence that is an original, certified copy, or a scanned 
document (as described in paragraph (e)(4)(iv)(C) of this section). A 
withholding agent may also retain a withholding certificate by other 
means (such as microfiche) that allows a reproduction of the document 
provided that the withholding agent has recorded its receipt of a form 
described in the preceding sentence and is able to produce a hard copy 
of the form. See Sec.  1.6049-5(c)(1) for the requirements for 
maintaining documentary evidence that also apply for purposes of 
determining a payee's U.S. or foreign status for purposes of chapter 3.
    (iv) Electronic transmission of information--(A) In general. A 
withholding agent may establish a system for a beneficial owner or 
payee to electronically furnish a Form W-8, an acceptable substitute 
Form W-8, or such other form as the Internal Revenue Service may 
prescribe. The system must meet the requirements described in paragraph 
(e)(4)(iv)(B) of this section. See paragraph (e)(iv)(4)(C) of this 
section for other cases in which a Form W-8 (or other documentation) 
may be furnished electronically.
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(4)(iv)(B).
    (C) Forms and documentary evidence received by facsimile or email. 
A withholding agent may rely upon an otherwise valid Form W-8 (or 
documentary evidence) received by facsimile or a form or document 
scanned and received electronically, such as, for example, an image 
embedded in an email or as a Portable Document Format (.pdf) attached 
to an email. A withholding agent may not rely on a form or document 
received by such means, however, if the withholding agent knows that 
the form or document was transmitted to the withholding agent by a 
person not authorized to do so by the person required to execute the 
form. A withholding agent may establish other procedures to 
authenticate and verify a form or document sent by such means and may 
reject any form or document that fails to satisfy the requirements of 
such procedures.
    (v) Additional procedures for certificates provided electronically. 
The IRS may prescribe procedures in a

[[Page 12768]]

revenue procedure (see Sec.  601.601(d)(2) of this chapter) or may 
issue other appropriate guidance (including a written directive for 
revenue agents) to further prescribe the conditions by which the IRS 
will determine that a system developed by a withholding agent to permit 
beneficial owners and payees to provide Forms W-8 electronically 
satisfies the requirements of paragraph (e)(4)(iv)(B) of this section.
    (vi) Acceptable substitute form. A withholding agent may substitute 
its own form instead of an official Form W-8 or 8233 (or such other 
official form as the IRS may prescribe). Such a substitute for an 
official form will be acceptable if it contains provisions that are 
substantially similar to those of the official form, it contains the 
same certifications relevant to the transactions as are contained on 
the official form and these certifications are clearly set forth, and 
the substitute form includes a signature-under-penalties-of-perjury 
statement identical to the one stated on the official form. The 
substitute form is acceptable even if it does not contain all of the 
provisions contained on the official form, so long as it contains those 
provisions that are relevant to the transaction for which it is 
furnished (including those required for purposes of chapter 4). For 
example, a withholding agent that pays no income for which treaty 
benefits are claimed may develop a substitute form that is identical to 
the official form, except that it does not include information 
regarding claims of benefits under an income tax treaty. Similarly, a 
withholding agent that is not required to determine the chapter 4 
status of a payee providing a form may develop a substitute form that 
does not contain chapter 4 statuses. A withholding agent who uses a 
substitute form must furnish instructions relevant to the substitute 
form only to the extent and in the manner specified in the instructions 
to the official form. A withholding agent may use a substitute form 
that is written in a language other than English and may accept a form 
that is filled out in a language other than English, but the 
withholding agent must make available an English translation of the 
form and its contents to the IRS upon request. A withholding agent may 
refuse to accept a certificate from a payee or beneficial owner 
(including the official Form W-8 or 8233) if the certificate provided 
is not an acceptable substitute form provided by the withholding agent, 
but only if the withholding agent furnishes the payee or beneficial 
owner with an acceptable substitute form within 5 business days of 
receipt of an unacceptable form from the payee or beneficial owner. In 
that case, the substitute form is acceptable only if it contains a 
notice that the withholding agent has refused to accept the form 
submitted by the payee or beneficial owner and that the payee or 
beneficial owner must submit the acceptable form provided by the 
withholding agent in order for the payee or beneficial owner to be 
treated as having furnished the required withholding certificate.
    (vii) Requirement of taxpayer identifying number. A TIN must be 
stated on a withholding certificate when required by this paragraph 
(e)(4)(vii) for the withholding certificate to be valid for purposes of 
this section. A TIN is required to be stated on--
    (A) A withholding certificate on which a beneficial owner is 
claiming the benefit of a reduced rate under an income tax treaty 
(other than for amounts described in Sec.  1.1441-6(c)(2) or amounts 
for which a foreign tax identifying number has been provided, as 
described in Sec.  1.1441-6(c)(2));
    (B) through (E) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(4)(vii)(B) through (E).
    (F) A withholding certificate from a person representing to be a 
withholding foreign partnership or a withholding foreign trust;
    (G) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(4)(vii)(G).
    (H) A withholding certificate from a person representing to be a 
U.S. branch or territory financial institution described in paragraph 
(b)(2)(iv) of this section; and
    (I) A withholding certificate provided by an entity acting as a 
qualified securities lender, as defined for purposes of chapter 3, with 
respect to a substitute dividend paid in a securities lending or 
similar transaction.
    (viii) [Reserved]. For further guidance, see Sec.  1.1441-
1(e)(4)(viii) introductory text and (e)(4)(viii)(A).
    (B) Status of payee as an intermediary or as a person acting for 
its own account. A withholding agent may rely on the type of 
certificate furnished as indicative of the payee's status as an 
intermediary or as an owner, unless the withholding agent has actual 
knowledge or reason to know otherwise. For example, a withholding agent 
that receives a beneficial owner withholding certificate from a foreign 
financial institution may treat the institution as the beneficial 
owner, unless it has information in its records that would indicate 
otherwise or the certificate contains information that is not 
consistent with beneficial owner status (e.g., sub-account numbers that 
do not correspond to accounts maintained by the withholding agent for 
such person or names of one or more persons other than the person 
submitting the withholding certificate). If the financial institution 
also acts as an intermediary, the withholding agent may request that 
the institution furnish two certificates, i.e., a beneficial owner 
certificate described in paragraph (e)(2)(i) of this section for the 
amounts that it receives as a beneficial owner, and an intermediary 
withholding certificate described in paragraph (e)(3)(i) of this 
section for the amounts that it receives as an intermediary. In the 
absence of reliable representation or information regarding the status 
of the payee as an owner or as an intermediary, see paragraph 
(b)(3)(v)(A) for applicable presumptions.
    (C) Reliance on a prior version of a withholding certificate. Upon 
the issuance by the IRS of an updated version of a withholding 
certificate, a withholding agent may continue to accept the prior 
version of the withholding certificate for six months after the 
revision date shown on the updated withholding certificate, unless the 
IRS has issued guidance that indicates otherwise, and may continue to 
rely upon a previously signed prior version of the withholding 
certificate until its period of validity expires.
    (ix) Certificates to be furnished to withholding agent for each 
obligation unless exception applies. Unless otherwise provided in 
paragraphs (e)(4)(ix)(A) through (D) of this section, a withholding 
agent that is a financial institution with which a customer may open an 
account shall obtain a withholding certificate or documentary evidence 
on an obligation-by-obligation basis and may not rely upon such 
documentation collected by another person or another branch of the 
withholding agent.
    (A) Exception for certain branch or account systems or system 
maintained by agent. A withholding agent may rely on a withholding 
certificate or documentary evidence furnished by a customer as part of 
a single branch system, universal account system, or shared account 
system described in Sec.  1.1471-3(c)(8) (substituting the term chapter 
3 status for chapter 4 status each place it appears in that paragraph). 
Furthermore, a withholding agent may rely on a shared documentation 
system maintained by an agent as described in Sec.  1.1471-3(c)(9)(i) 
(also substituting the term chapter 3 status for chapter 4 status each 
place it appears in that paragraph).
    (B) Reliance on certification provided by introducing brokers--(1) 
In general. A withholding agent may rely on the certification of a 
broker indicating the

[[Page 12769]]

broker's determination of a payee's chapter 3 status and that the 
broker holds a valid beneficial owner withholding certificate described 
in paragraph (e)(2)(i) of this section or other appropriate 
documentation for that beneficial owner with respect to any readily 
tradable instrument, as defined in Sec.  31.3406(h)-1(d) of this 
chapter, if the broker is a United States person (including a U.S. 
branch treated as a U.S. person under paragraph (b)(2)(iv) of this 
section) that is acting as the agent of a beneficial owner. A 
withholding agent may also rely on a certification described in the 
preceding sentence that is provided by a qualified intermediary that 
makes payments to beneficial owners that it receives from the 
withholding agent. The certification must be in writing or in 
electronic form and contain all of the information required of a 
nonqualified intermediary under paragraphs (e)(3)(iv)(B) and (C) of 
this section. If a broker chooses to use this paragraph (e)(4)(ix)(B), 
that broker will be solely responsible for applying the rules of Sec.  
1.1441-7(b) to the withholding certificates or other appropriate 
documentation and shall be liable for any underwithholding as a result 
of the broker's failure to apply such rules. See Sec.  1.1471-
3(c)(9)(iii) for a similar allowance that applies to a broker's 
determination of a payee's chapter 4 status for purposes of chapter 4. 
For purposes of this paragraph (e)(4)(ix)(B), the term broker means a 
person treated as a broker under Sec.  1.6045-1(a).
    (2) Example. The following example illustrates the rules of this 
paragraph (e)(4)(x)(B) with respect to a U.S. broker:

    Example. SCO is a U.S. securities clearing organization that 
provides clearing services for correspondent broker, CB, a U.S. 
corporation. Pursuant to a fully disclosed clearing agreement, CB 
fully discloses the identity of each of its customers to SCO. Part 
of SCO's clearing duties include the crediting of income and gross 
proceeds of readily tradable instruments (as defined in Sec.  
31.3406(h)-1(d)) to each customer's account. For each disclosed 
customer that is a foreign beneficial owner, CB provides SCO with 
information required under paragraphs (e)(3)(iv)(B) and (C) of this 
section that is necessary to apply the correct rate of withholding 
and to file Forms 1042-S. SCO may use the representations and 
beneficial owner information provided by CB to determine the proper 
amount of withholding and to file Forms 1042-S. CB is responsible 
for determining the validity of the withholding certificates or 
other appropriate documentation under Sec.  1.1441-1(b).

    (C) Reliance on documentation and certifications provided between 
principals and agents--(1) Withholding agent as agent. A withholding 
agent may rely upon documentation and certifications provided by a 
principal for purposes of determining a payee's chapter 3 status only 
if the principal is a U.S. withholding agent, a qualified intermediary 
(when acting as such for determining a payee's status), or a 
withholding foreign partnership or withholding foreign trust with 
respect to a partner, owner, or beneficiary in the entity. Thus an 
agent (such as a paying agent or transfer agent) may not rely upon a 
certification provided by a principal that is a participating FFI but 
is not also a qualified intermediary, withholding foreign partnership, 
or withholding foreign trust for purposes of this section, even though 
it may rely on the certification when provided solely for purposes of 
chapter 4 under Sec.  1.1471-3(c)(9)(iv).
    (2) Withholding agent as principal. A withholding agent may also 
rely on documentation collected by an agent of the withholding agent in 
order to fulfill its chapter 3 obligations because such agent's actions 
are imputed to the principal (the withholding agent). For example, a 
withholding agent may contract an agent to collect Forms W-8 from 
account holders, but the withholding agent remains liable for any tax 
liability resulting from a failure of the agent to comply with the 
requirements of chapter 3.
    (D) Reliance upon documentation for accounts acquired in merger or 
bulk acquisition for value. A withholding agent that acquires an 
account from a predecessor or transferor in a merger or bulk 
acquisition of accounts for value is permitted to rely upon valid 
documentation (or copies of valid documentation) collected by the 
predecessor or transferor for determining the chapter 3 status of an 
account holder of such an account. In addition, a withholding agent 
that acquires an account in a merger or bulk acquisition of accounts 
for value, other than a related party transaction, from a U.S. 
withholding agent (or a qualified intermediary when the withholding 
agent is also a qualified intermediary) may also rely upon the 
predecessor's or transferor's determination of the account holder's 
chapter 3 status for a transition period of the lesser of six months 
from the date of the merger or until the acquirer knows that the claim 
of entity classification and status is inaccurate or a change in 
circumstances occurs with respect to the account. At the end of the 
transition period, the acquirer will be permitted to rely upon the 
predecessor's determination as to the chapter 3 status of the account 
holder only if the documentation that the acquirer has for the account 
holder, including documentation obtained from the predecessor or 
transferor, supports the status claimed. An acquirer that discovers at 
the end of the transition period that the chapter 3 status assigned by 
the predecessor or transferor to the account holder was incorrect and 
has not withheld as it would have been required to but for its reliance 
upon the predecessor's determination, will be required to withhold on 
future payments, if any, made to the account holder the amount of tax 
that should have been withheld during the transition period but for the 
erroneous classification as to the account holder's status. For 
purposes of this paragraph (e)(4)(ix)(D), a related party transaction 
is a merger or sale of accounts in which the acquirer is in the same 
expanded affiliated group, within the meaning of Sec.  1.1471-5(i)(2), 
as the predecessor or transferor either prior to or after the merger or 
acquisition or the predecessor or transferor (or shareholders of the 
predecessor or transferor) obtain a controlling interest in the 
acquirer or in a newly formed entity created for purposes of the merger 
or acquisition. See Sec.  1.1471-3(c)(v) for a similar reliance rule 
that applies for purposes of chapter 4.
    (5) Qualified intermediaries--(i) General rule. A qualified 
intermediary, as defined in paragraph (e)(5)(ii) of this section, may 
furnish a qualified intermediary withholding certificate to a 
withholding agent. The withholding certificate provides certifications 
on behalf of other persons for the purpose of claiming and verifying 
reduced rates of withholding under section 1441 or 1442 and for the 
purpose of reporting and withholding under other provisions of the 
Internal Revenue Code, such as the provisions under chapters 4 and 61 
and section 3406 (and the regulations under those provisions). 
Furnishing such a certificate is in lieu of transmitting to a 
withholding agent withholding certificates or other appropriate 
documentation for the persons for whom the qualified intermediary 
receives the payment, including interest holders in a qualified 
intermediary that is fiscally transparent under the regulations under 
section 894. Although the qualified intermediary is required to obtain 
withholding certificates or other appropriate documentation from 
beneficial owners, payees, or interest holders pursuant to its 
agreement with the IRS, it is generally not required to attach such 
documentation to the intermediary withholding certificate. 
Notwithstanding the preceding sentence a qualified intermediary must 
provide a

[[Page 12770]]

withholding agent with the Forms W-9, or disclose the names, addresses, 
and taxpayer identifying numbers, if known, of those U.S. non-exempt 
recipients for whom the qualified intermediary receives reportable 
amounts (within the meaning of paragraph (e)(3)(vi) of this section) to 
the extent required in the qualified intermediary's agreement with the 
IRS and except as otherwise provided in paragraph (e)(5)(v)(C)(1) of 
this section.
    (ii) Definition of qualified intermediary. With respect to a 
payment to a foreign person, the term qualified intermediary means a 
person that is a party to a withholding agreement with the IRS and such 
person is--
    (A) A foreign financial institution that is a participating FFI 
(including a reporting Model 2 FFI), a registered deemed-compliant FFI 
(including a reporting Model 1 FFI), or an FFI treated as a deemed-
compliant FFI under an applicable IGA that is subject to due diligence 
and reporting requirements with respect to its U.S. accounts similar to 
those applicable to a registered deemed-compliant FFI under Sec.  
1.1471-5(f)(1), excluding a U.S. branch of any of the foregoing 
entities;
    (B) A foreign branch or office of a U.S. financial institution or a 
foreign branch or office of a U.S. clearing organization that is either 
a reporting Model 1 FFI or agrees to the reporting requirements 
applicable to a participating FFI with respect to its U.S. accounts;
    (C) A foreign corporation for purposes of presenting claims of 
benefits under an income tax treaty on behalf of its shareholders to 
the extent permitted to act as a qualified intermediary by the IRS; or
    (D) Any other person acceptable to the IRS.
    (iii) Withholding agreement--(A) In general. The IRS may, upon 
request, enter into a withholding agreement with a foreign person 
described in paragraph (e)(5)(ii) of this section pursuant to such 
procedures as the IRS may prescribe in published guidance (see Sec.  
601.601(d)(2) of this chapter). Under the withholding agreement, a 
qualified intermediary shall generally be subject to the applicable 
withholding and reporting provisions applicable to withholding agents 
and payors under chapters 3, 4, and 61 of the Internal Revenue Code, 
section 3406, the regulations under those provisions, and other 
withholding provisions of the Internal Revenue Code, except to the 
extent provided under the agreement.
    (B) Terms of the withholding agreement. The agreement shall specify 
the obligations of the qualified intermediary under chapters 3 and 4 
and, for a qualified intermediary that is an FFI, require the qualified 
intermediary to satisfy the documentation, withholding, and reporting 
obligations required of a participating FFI or registered deemed-
compliant FFI (including a reporting Model 1 FFI as defined in Sec.  
1.1471-1(b)(114)) with respect to each branch of the qualified 
intermediary other than a U.S. branch that is treated as a U.S. person 
under paragraph (b)(2)(iv)(A) of this section. The agreement will 
specify the type of certifications and documentation upon which the 
qualified intermediary may rely to ascertain the classification (e.g., 
corporation or partnership), status (i.e., U.S. or foreign and chapter 
4 status) of beneficial owners and payees who receive reportable 
amounts and reportable payments collected by the qualified intermediary 
for purposes of chapters 3 and 61, section 3406, and, if necessary, 
entitlement to the benefits of a reduced rate under an income tax 
treaty. The agreement shall specify if, and to what extent, the 
qualified intermediary may assume primary withholding responsibility in 
accordance with paragraph (e)(5)(iv) of this section. It shall also 
specify the extent to which applicable return filing and information 
reporting requirements are modified so that, in appropriate cases, the 
qualified intermediary may report payments to the IRS on an aggregated 
basis, without having to disclose the identity of beneficial owners and 
payees. However, the qualified intermediary may be required to provide 
to the IRS the name and address of those foreign customers who benefit 
from a reduced rate under an income tax treaty pursuant to the 
qualified intermediary arrangement for purposes of verifying 
entitlement to such benefits, particularly under an applicable 
limitation on benefits provision. Under the agreement, a qualified 
intermediary may agree to act as an acceptance agent to perform the 
duties described in Sec.  301.6109-1(d)(3)(iv)(A) of this chapter. The 
agreement may specify the manner in which applicable procedures for 
adjustments for underwithholding and overwithholding, including refund 
procedures, apply in the context of a qualified intermediary 
arrangement and the extent to which applicable procedures may be 
modified. In particular, a withholding agreement may allow a qualified 
intermediary to claim refunds of overwithheld amounts. The agreement 
shall specify the manner in which the qualified intermediary may deal 
with payments to other intermediaries and flow-through entities and the 
obligations of a qualified intermediary that acts as a qualified 
securities lender with respect to payments of substitute dividends 
under chapters 3 and 4. In addition, the agreement shall specify the 
manner in which the IRS will verify compliance with the agreement, 
including the time and manner for which a qualified intermediary will 
be required to certify to the IRS regarding its compliance with the 
agreement (including its performance of a periodic review) and the 
types of information required to be disclosed as part of the 
certification. In appropriate cases, the IRS may require review 
procedures be performed by an approved auditor (in addition to those 
performed as part of the periodic review) and may conduct a review of 
the auditor's findings. The agreement may include provisions for the 
assessment and collection of tax in the event that failure to comply 
with the terms of the agreement results in the failure by the 
withholding agent or the qualified intermediary to withhold and deposit 
the required amount of tax. Further, the agreement may specify the 
procedures by which amounts withheld are to be deposited, if different 
from the deposit procedures under the Internal Revenue Code and 
applicable regulations. To determine whether to enter a qualified 
intermediary withholding agreement and the terms of any particular 
withholding agreement, the IRS will consider the type of local know-
your-customer laws and practices to which the entity is subject, as 
well as the extent and nature of supervisory and regulatory control 
exercised under the laws of the foreign country over the foreign 
entity.
    (iv) Assignment of primary withholding responsibility. Any person 
who meets the definition of a withholding agent under Sec.  1.1441-7(a) 
(for payments subject to chapter 3 withholding) and Sec.  1.1473-1(d) 
(for withholdable payments) (whether a U.S. person or a foreign person) 
is required to withhold and deposit any amount withheld under 
Sec. Sec.  1.1461-1(a) and 1.1474-1(b) and to make the returns 
prescribed by Sec. Sec.  1.1461-1(b) and (c), and by 1.1474-1(c), and 
(d). Under its qualified intermediary agreement, a qualified 
intermediary agreement may, however, inform a withholding agent from 
which it receives a payment that it will assume the primary obligation 
to withhold, deposit, and report amounts under chapters 3 and 4 of the 
Internal Revenue Code and/or under chapter 61 of the Internal Revenue 
Code and section 3406. For assuming withholding

[[Page 12771]]

obligations as described in the previous sentence, a qualified 
intermediary that assumes primary withholding responsibility for 
payments made to an account under chapter 3 is also required to assume 
primary withholding responsibility under chapter 4 for payments made to 
the account that are withholdable payments. Additionally, a qualified 
intermediary may represent that it assumes chapter 61 reporting and 
section 3406 obligations for a payment when the qualified intermediary 
reports the payment (or the account to which the payment is made) as 
part of its applicable U.S. account reporting requirements as a 
participating FFI or registered deemed-compliant FFI. If a withholding 
agent makes a payment of an amount subject to withholding under chapter 
3, a reportable payment (as defined in section 3406(b)), or a 
withholdable payment to a qualified intermediary that represents to the 
withholding agent that it has assumed primary withholding 
responsibility for the payment, the withholding agent is not required 
to withhold on the payment. The withholding agent is not required to 
determine that the qualified intermediary agreement actually performs 
its primary withholding responsibilities. A qualified intermediary that 
assumes primary withholding responsibility under chapters 3 and 4 or 
primary reporting and backup withholding responsibility under chapter 
61 and section 3406 is not required to assume primary withholding 
responsibility for all accounts it has with a withholding agent but 
must assume primary withholding responsibility for all payments made to 
any one account that it has with the withholding agent.
    (v) Withholding statement--(A) In general. A qualified intermediary 
must provide each withholding agent from which it receives reportable 
amounts as a qualified intermediary with a written statement (the 
withholding statement) containing the information specified in 
paragraph (e)(5)(v)(B) of this section. A withholding statement is not 
required, however, if all of the information a withholding agent needs 
to fulfill its withholding and reporting requirements is contained in 
the withholding certificate. The qualified intermediary agreement will 
require the qualified intermediary to include information in its 
withholding statement relating to withholdable payments for purposes of 
withholding under chapter 4 as described in paragraph (e)(5)(v)(C)(2) 
of this section. The withholding statement forms an integral part of 
the qualified intermediary's qualified intermediary withholding 
certificate and the penalties of perjury statement provided on the 
withholding certificate shall apply to the withholding statement as 
well. The withholding statement may be provided in any manner, and in 
any form, to which qualified intermediary and the withholding agent 
mutually agree, including electronically. If the withholding statement 
is provided electronically, the statement must satisfy the requirements 
described in paragraph (e)(3)(iv) of this section (applicable to a 
withholding statement provided by a nonqualified intermediary). The 
withholding statement shall be updated as often as necessary for the 
withholding agent to meet its reporting and withholding obligations 
under chapters 3, 4, and 61 and section 3406. For purposes of this 
section, a withholding agent will be liable for tax, interest, and 
penalties in accordance with paragraph (b)(7) of this section to the 
extent it does not follow the presumption rules of paragraph (b)(3) of 
this section, Sec. Sec.  1.1441-5(d) and (e)(6), and 1.6049-5(d) for a 
payment, or portion thereof, for which it does not have a valid 
withholding statement prior to making a payment.
    (B) Content of withholding statement. The withholding statement 
must contain sufficient information for a withholding agent to apply 
the correct rate of withholding on payments from the accounts 
identified on the statement and to properly report such payments on 
Forms 1042-S and Forms 1099, as applicable. The withholding statement 
must--
    (1) Designate those accounts for which the qualified intermediary 
acts as a qualified intermediary;
    (2) Designate those accounts for which qualified intermediary 
assumes primary withholding responsibility under chapter 3 and chapter 
4 of the Code and/or primary reporting and backup withholding 
responsibility under chapter 61 and section 3406;
    (3) If applicable, designate those accounts for which the qualified 
intermediary is acting as a qualified securities lender with respect to 
a substitute dividend paid in a securities lending or similar 
transaction; and
    (4) Provide information regarding withholding rate pools, as 
described in paragraph (e)(5)(v)(C) of this section.
    (C) Withholding rate pools--(1) In general. Except to the extent it 
has assumed both primary withholding responsibility under chapters 3 
and 4 of the Internal Revenue Code and primary reporting and backup 
withholding responsibility under chapter 61 and section 3406 with 
respect to a payment, a qualified intermediary shall provide as part of 
its withholding statement the chapter 3 withholding rate pool 
information that is required for the withholding agent to meet its 
withholding and reporting obligations under chapters 3 and 61 of the 
Internal Revenue Code and section 3406. See, however, paragraph 
(e)(5)(v)(C)(2) of this section for when a qualified intermediary may 
provide a chapter 4 withholding rate pool (as described in paragraph 
(c)(48) of this section) with respect to a payment that is a 
withholdable payment. A chapter 3 withholding rate pool is a payment of 
a single type of income, determined in accordance with the categories 
of income reported on Form 1042-S that is subject to a single rate of 
withholding paid to a payee that is a foreign person and for which 
withholding under chapter 4 does not apply except as otherwise provided 
in this paragraph (e)(5)(v)(C)(1). A chapter 3 withholding rate pool 
may be established by any reasonable method on which the qualified 
intermediary and a withholding agent agree (e.g., by establishing a 
separate account for a single chapter 3 withholding rate pool, or by 
dividing a payment made to a single account into portions allocable to 
each chapter 3 withholding rate pool). A qualified intermediary may 
include a separate pool for account holders that are U.S. exempt 
recipients or may include such accounts in a chapter 3 withholding rate 
pool to which withholding does not apply. The withholding statement 
must identify each applicable chapter 4 exemption code (as provided in 
the instructions to Form 1042-S) applicable to a chapter 3 withholding 
rate pool contained on the withholding statement (subdividing a chapter 
3 withholding rate pool into sub-pools as necessary based on the 
applicable chapter 4 exemption code). To the extent a qualified 
intermediary does not assume primary reporting and backup withholding 
responsibility under chapter 61 and section 3406, a qualified 
intermediary's withholding statement must establish a separate 
withholding rate pool for each U.S. non-exempt recipient account holder 
that the qualified intermediary has disclosed to the withholding agent 
unless the qualified intermediary uses the alternative procedures in 
paragraph (e)(5)(v)(C)(3) of this section or the account holder is a 
payee that the qualified intermediary is permitted to include in a 
chapter 4 withholding rate pool of U.S. payees. A qualified 
intermediary may include a chapter 4 withholding rate pool of U.S. 
payees on a withholding statement by applying the

[[Page 12772]]

rules under paragraph (e)(3)(iv)(A) of this section (by substituting 
``qualified intermediary'' for ``nonqualified intermediary'') with 
respect to an account that it maintains (as described in Sec.  1.1471-
5(b)(5)) for the payee of the payment. A qualified intermediary shall 
determine withholding rate pools based on valid documentation that it 
obtains under its withholding agreement with the IRS, or if a payment 
cannot be reliably associated with valid documentation, under the 
applicable presumption rules. If a qualified intermediary has an 
account holder that is another intermediary (whether a qualified 
intermediary or a nonqualified intermediary) or a flow-through entity, 
the qualified intermediary may combine the account holder information 
provided by the other intermediary or flow-through entity with the 
qualified intermediary's direct account holder information to determine 
the qualified intermediary's chapter 3 withholding rate pools and each 
of the qualified intermediary's chapter 4 withholding rate pools to the 
extent provided in the agreement described in (e)(5)(iii) of this 
section.
    (2) Withholding rate pool requirements for a withholdable payment. 
This paragraph (e)(5)(v)(C)(2) modifies the requirements of a 
withholding statement described in paragraph (e)(5)(v)(C)(1) provided 
by a qualified intermediary with respect to a withholdable payment 
(including a reportable amount that is a withholdable payment). For 
such a payment, the regulations applicable to a withholding statement 
described in paragraph (e)(5)(v)(C)(1) of this section shall apply, 
except that--
    (i) If the qualified intermediary provides a withholding statement 
described in Sec.  1.1471-3(c)(3)(iii)(B)(2) (describing an FFI 
withholding statement), the withholding statement may include chapter 4 
withholding rate pools with respect to the portions of the payment 
allocated to recalcitrant account holders and nonparticipating FFIs (to 
the extent permitted) in lieu of reporting chapter 3 withholding rate 
pools with respect to such persons as described in paragraph 
(e)(5)(v)(C)(1) of this section); or
    (ii) If the qualified intermediary provides a withholding statement 
described in Sec.  1.1471-3(c)(3)(iii)(B)(3) (describing a chapter 4 
withholding statement), the withholding statement may include a chapter 
4 withholding rate pool with respect to the portion of the payment 
allocated to nonparticipating FFIs.
    (3) 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 28-percent withholding, or other 
applicable statutory back-up withholding tax rate) 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)(3), 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)(3), 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.

    (D) Example. The following example illustrates the application of 
paragraph (e)(5)(v)(C) for a qualified intermediary providing chapter 4 
withholding rate pools on an FFI withholding statement provided to a 
withholding agent. WA makes a payment of U.S. source interest that is a 
withholdable payment to QI, a qualified intermediary that is an FFI and 
a non-U.S. payor (as defined in Sec.  1.6049-5(c)(5)), and A and B are 
account holders of QI (as defined under Sec.  1.1471-5(a)) and are both 
U.S. non-exempt recipients (as defined paragraph (c)(21) of this 
section). Ten percent of the payment is attributable to both A and B. A 
has provided WA with a Form W-9, but B has not provided WA with a Form 
W-9. QI assumes primary withholding responsibility under chapters 3 and 
4 with respect to the payment, 80-percent of which is allocable to 
foreign payees who are account holders other than A and B. As a 
participating FFI, QI is required to report with respect to its U.S. 
accounts under Sec.  1.1471-4(d) (as incorporated into the agreement 
described in paragraph (e)(5)(iii) of this section). Provided that QI 
reports A's account as a U.S. account under the requirements referenced 
in the preceding sentence, QI is not required to provide WA with a Form 
W-9 from A and may instead include A in a chapter 4 withholding rate 
pool of U.S. payees, allocating 10% of the payment to this pool. See 
Sec.  1.6049-4(c)(4)(iii) concerning when reporting under section 6049 
for a payment of interest is not required when an FFI that is a non-
U.S. payor reports an account holder receiving the payment under its 
chapter 4 requirements. With respect to B, the interest payment is 
subject to backup withholding under section 3406. Because B is a 
recalcitrant account holder of QI for withholdable payments and because 
QI assumes primary chapter 4 withholding responsibility, however, QI 
may include the portion of the payment allocated to B with the 
remaining 80% of the payment for which QI assumes primary withholding 
responsibility. WA can reliably associate the full amount of the 
payment based on the withholding statement and does so regardless of 
whether WA knows B is a U.S. non-exempt recipient that is receiving a 
portion of the payment. See Sec.  31.3406(g)-1(e) (providing exemption 
to backup withholding when withholding was applied under chapter 4).

    (f) [Reserved]. For further guidance, see Sec.  1.1441-1(f)(1) and 
(2).
    (3) Effective/applicability date. This section applies to payments 
made after June 30, 2014. (For payments made after December 31, 2000, 
and before July 1, 2014, see this section as in effect and contained in 
26 CFR part 1, as revised April 1, 2013.)
    (g) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 6. Section 1.1441-3 is amended by revising paragraphs (a), 
(c)(4)(i), and (d) and adding paragraph (j) to read as follows:

[[Page 12773]]

Sec.  1.1441-3  Determination of amounts to be withheld.

    (a) [Reserved]. For further guidance, see Sec.  1.1441-3T(a).
* * * * *
    (c) * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1441-3T(c)(4)(i).
* * * * *
    (d) [Reserved]. For further guidance, see Sec.  1.1441-3T(d).
* * * * *
    (j) [Reserved]. For further guidance, see Sec.  1.1441-3T(j).

0
Par. 7. Section 1.1441-3T is added to read as follows:


Sec.  1.1441-3T  Determination of amounts to be withheld (temporary).

    (a) General rule--(1) Withholding on gross amount. Except as 
otherwise provided in regulations under section 1441, the amount 
subject to withholding under Sec.  1.1441-1 is the gross amount of 
income subject to withholding that is paid to a foreign person. The 
gross amount of income subject to withholding may not be reduced by any 
deductions, except to the extent that one or more personal exemptions 
are allowed as provided under Sec.  1.1441-4(b)(6).
    (2) Coordination with chapter 4. A withholding agent making a 
payment that is both a withholdable payment and an amount subject to 
withholding under Sec.  1.1441-2(a) and that has withheld tax as 
required under chapter 4 from such payment, is not an amount required 
to be withheld under this section notwithstanding paragraph (a)(1) of 
this section. See Sec.  1.1474-6(b)(1) for the allowance for a 
withholding agent to credit withholding applied under chapter 4 against 
its liability for tax due under sections 1441, 1442, or 1443, and see 
Sec.  1.1474-6(b)(1) for the rule allowing a withholding agent to 
credit withholding applied under chapter 4 against its liability for 
tax due under sections 1441, 1442, or 1443, and Sec.  1.1474-6(b)(2) 
for when such withholding is considered applied by a withholding agent. 
If the withholdable payment is not required to be withheld upon under 
chapter 4, then the withholding agent must apply the provisions of 
Sec.  1.1441-1 to determine whether withholding is required under 
sections 1441, 1442, or 1443.
    (b) through (c)(3) [Reserved]. For further guidance, see Sec.  
1.1441-3(b) through (c)(3).
    (4) Coordination with withholding under section 1445--(i) In 
general. A distribution from a U.S. Real Property Holding Corporation 
(USRPHC) (or from a corporation that was a USRPHC at any time during 
the five-year period ending on the date of distribution) with respect 
to stock that is a U.S. real property interest under section 897(c) or 
from a Real Estate Investment Trust (REIT) or other entity that is a 
qualified investment entity (QIE) under section 897(h)(4) with respect 
to its stock is subject to the withholding provisions under section 
1441 (or section 1442 or 1443) and section 1445. A USRPHC making a 
distribution shall be treated as satisfying its withholding obligations 
under both sections if it withholds in accordance with one of the 
procedures described in either paragraph (c)(4)(i)(A) or (B) of this 
section. A USRPHC must apply the same withholding procedure to all the 
distributions made during the taxable year. However, the USRPHC may 
change the applicable withholding procedure from year to year. For 
rules regarding distributions by REITs and other entities that are 
QIEs, see paragraph (c)(4)(i)(C) of this section. To the extent 
withholding under sections 1441, 1442, or 1443 applies under this 
paragraph (c)(4)(i) to any portion of a distribution that is a 
withholdable payment, see paragraph (a)(2) for rules coordinating 
withholding under chapter 4.
    (A) Withholding under section 1441. The USRPHC may choose to 
withhold on a distribution only under section 1441 (or 1442 or 1443) 
and not under section 1445. In such a case, the USRPHC must withhold 
under section 1441 (or 1442 or 1443) on the full amount of the 
distribution, whether or not any portion of the distribution represents 
a return of basis or capital gain. If a reduced tax rate under an 
income tax treaty applies to the distribution by the USRPHC, then the 
applicable rate of withholding on the distribution shall be no less 
than 10-percent, unless the applicable treaty specifies an applicable 
lower rate for distributions from a USRPHC, in which case the lower 
rate may apply.
    (B) Withholding under both sections 1441 and 1445. As an 
alternative to the procedure described in paragraph (c)(4)(i)(A) of 
this section, a USRPHC may choose to withhold under both sections 1441 
(or 1442 or 1443) and 1445 under the procedures set forth in this 
paragraph (c)(4)(i)(B). The USRPHC must make a reasonable estimate of 
the portion of the distribution that is a dividend under paragraph 
(c)(2)(ii)(A) of this section, and must--
    (1) Withhold under section 1441 (or 1442 or 1443) on the portion of 
the distribution that is estimated to be a dividend under paragraph 
(c)(2)(ii)(A) of this section; and
    (2) Withhold under section 1445(e)(3) and Sec.  1.1445-5(e) on the 
remainder of the distribution or on such smaller portion based on a 
withholding certificate obtained in accordance with Sec.  1.1445-
5(e)(3)(iv).
    (C) Coordination with REIT/QIE withholding. Withholding is required 
under section 1441 (or 1442 or 1443) on the portion of a distribution 
from a REIT or other entity that is a QIE that is not designated (for 
REITs) or reported (for regulated investment companies that are QIEs) 
as a capital gain dividend, a return of basis, or a distribution in 
excess of a shareholder's adjusted basis in the stock of the REIT or 
QIE that is treated as a capital gain under section 301(c)(3). A 
distribution in excess of a shareholder's adjusted basis in the stock 
of the REIT or QIE is, however, subject to withholding under section 
1445, unless the interest in the REIT or QIE is not a U.S. real 
property interest (e.g., an interest in a domestically controlled REIT 
or QIE under section 897(h)(2)). In addition, withholding is required 
under section 1445 on the portion of the distribution designated (for 
REITs) or reported (for regulated investment companies that are QIEs) 
as a capital gain dividend to the extent that it is attributable to the 
sale or exchange of a U.S. real property interest. See Sec.  1.1445-8.
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
3(c)(4)(ii).
    (d) Withholding on payments that include an undetermined amount of 
income--(1) In general. Where the withholding agent makes a payment and 
does not know at the time of payment the amount that is subject to 
withholding because the determination of the source of the income or 
the calculation of the amount of income subject to tax depends upon 
facts that are not known at the time of payment, then the withholding 
agent must withhold an amount under Sec.  1.1441-1 based on the entire 
amount paid that is necessary to ensure that the tax withheld is not 
less than 30 percent (or other applicable percentage) of the amount 
that could be from sources within the United States or income subject 
to tax. See Sec.  1.1471-2(a)(5) for similar rules under chapter 4 that 
apply to payments made to payees that are entities. The amount so 
withheld shall not exceed 30 percent of the amount paid. With respect 
to a payment described in paragraph (d)(1) or (2) of this section, the 
withholding agent may elect to retain 30 percent of the payment to hold 
in escrow until the earlier of the date that the amount of income from 
sources within the United States or the taxable amount can be 
determined or

[[Page 12774]]

one year from the date the amount is placed is in escrow, at which time 
the withholding becomes due under Sec.  1.1441-1, or, to the extent 
that withholding is not required, the escrowed amount must be paid to 
the payee.
    (2) Withholding on certain gains. Absent actual knowledge or reason 
to know otherwise, a withholding agent may rely on a claim regarding 
the amount of gain described in Sec.  1.1441-2(c) if the beneficial 
owner withholding certificate, or other appropriate withholding 
certificate, states the beneficial owner's basis in the property giving 
rise to the gain. In the absence of a reliable representation on a 
withholding certificate, the withholding agent must withhold an amount 
under Sec.  1.1441-1 that is necessary to assure that the tax withheld 
is not less than 30 percent (or other applicable percentage) of the 
recognized gain. For this purpose, the recognized gain is determined 
without regard to any deduction allowed by the Code from the gains. The 
amount so withheld shall not exceed 30 percent of the amount payable by 
reason of the transaction giving rise to the recognized gain. See Sec.  
1.1441-1(b)(8) regarding adjustments in the case of overwithholding.
    (e) through (i) [Reserved]. For further guidance, see Sec.  1.1441-
3(e) through (i).
    (j) Effective/applicability date. (1) Except as otherwise provided 
in paragraph (g) of this section, this section applies to payments made 
after June 30, 2014. (For payments made after December 31, 2000, see 
this section as in effect and contained in 26 CFR part 1 revised April 
1, 2013.)
    (2) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 8. Section 1.1441-4 is amended by revising paragraphs (a)(2)(ii), 
(b)(2)(i), (b)(2)(iii), (b)(2)(v), and (b)(3) and adding paragraphs 
(g)(3) and (h) to read as follows:


Sec.  1.1441-4  Exemptions from withholding for certain effectively 
connected income and other amounts.

    (a) * * *
    (2) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
4T(a)(2)(ii).
* * * * *
    (b) * * *
    (2) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1441-4T(b)(2)(i).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
4T(b)(2)(iii).
* * * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1441-4T(b)(2)(v).
    (3) [Reserved]. For further guidance, see Sec.  1.1441-4T(b)(3).
* * * * *
    (g) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1441-4T(g)(3).
    (h) [Reserved]. For further guidance, see Sec.  1.1441-4T(h).

0
Par. 9. Section 1.1441-4T is added to read as follows:


Sec.  1.1441-4T  Exemptions from withholding for certain effectively 
connected income and other amounts (temporary).

    (a)(1) through (a)(2)(i) [Reserved]. For further guidance, see 
Sec.  1.1441-4(a) through (a)(2)(i).
    (ii) Special rules for U.S. branches of foreign persons--(A) U.S. 
branches of certain foreign banks or foreign insurance companies. A 
payment to a U.S. branch described in Sec.  1.1441-1(b)(2)(iv)(B)(3) is 
presumed to be effectively connected with the conduct of a trade or 
business in the United States without the need to furnish a certificate 
if the withholding agent obtains an EIN for the entity, unless the U.S. 
branch provides a U.S. branch withholding certificate described in 
Sec.  1.1441-1(e)(3)(v) that represents otherwise. If no certificate is 
furnished but the income is not, in fact, effectively connected income, 
then the branch must withhold whether the payment is collected on 
behalf of other persons or on behalf of another branch of the same 
entity. See Sec.  1.1441-1(b)(2)(iv) and (b)(6) for general rules 
applicable to payments to U.S. branches of foreign persons.
    (B) Other U.S. branches. See Sec.  1.1441-1(b)(2)(iv)(E) for 
similar procedures for other U.S. branches to the extent provided in a 
determination letter from the IRS.
    (3) [Reserved]. For further guidance, see Sec.  1.1441-4(a)(3).
    (b)(1) [Reserved]. For further guidance, see Sec.  1.1441-4(b)(1).
    (2) Manner of obtaining withholding exemption under tax treaty--(i) 
In general. In order to obtain the exemption from withholding by reason 
of a tax treaty, provided by paragraph (b)(1)(iv) of this section, a 
nonresident alien individual must submit a withholding certificate 
(described in paragraph (b)(2)(ii) of this section) to each withholding 
agent from whom amounts are to be received. A separate withholding 
certificate must be filed for each taxable year of the alien 
individual. If the withholding agent is satisfied that an exemption 
from withholding is warranted (see paragraph (b)(2)(iii) of this 
section), the withholding certificate shall be accepted in the manner 
set forth in paragraph (b)(2)(iv) of this section. The exemption from 
withholding becomes effective for payments made at least ten days after 
a copy of the accepted withholding certificate is forwarded to the IRS. 
The withholding agent may rely on an accepted withholding certificate 
only if the IRS has not objected to the certificate. For purposes of 
this paragraph (b)(2)(i), the IRS will be considered to have not 
objected to the certificate if it has not notified the withholding 
agent within a 10-day period beginning from the date that the 
withholding certificate is forwarded to the IRS pursuant to paragraph 
(b)(2)(v) of this section. After expiration of the 10-day period, the 
withholding agent may rely on the withholding certificate retroactive 
to the date of the first payment covered by the certificate. The fact 
that the IRS does not object to the withholding certificate within the 
10-day period provided in this paragraph (b)(2)(i) shall not preclude 
the IRS from examining the withholding agent at a later date with 
respect to facts that the withholding agent knew or had reason to know 
regarding the payment and eligibility for a reduced rate and that were 
not disclosed to the IRS as part of the 10-day review process.
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
4(b)(2)(ii).
    (iii) Review by withholding agent. The exemption from withholding 
provided by paragraph (b)(1)(iv) of this section shall not apply unless 
the withholding agent accepts (in the manner provided in paragraph 
(b)(2)(iv) of this section) the statement on Form 8233, ``Exemption 
From Withholding on Compensation for Independent (and Certain 
Dependent) Personal Services of a Nonresident Alien Individual,'' (or 
successor form) supplied by the nonresident alien individual. Before 
accepting the statement, the withholding agent must examine the 
statement. If the withholding agent knows or has reason to know that 
any of the facts or assertions on Form 8233 may be false or that the 
eligibility of the individual's compensation for the exemption cannot 
be readily determined, the withholding agent may not accept the 
statement on Form 8233 and is required to withhold under this section. 
If the withholding agent accepts the statement and subsequently finds 
that any of the facts or assertions contained on Form 8233 may be false 
or that the eligibility of the individual's compensation for the 
exemption can no longer be readily determined, then the withholding 
agent shall promptly so notify the IRS by letter, and the

[[Page 12775]]

withholding agent is not relieved of liability to withhold on any 
amounts still to be paid. If the withholding agent is notified by the 
IRS that the eligibility of the individual's compensation for the 
exemption is in doubt or that such compensation is not eligible for the 
exemption, the withholding agent is required to withhold under this 
section. The rules of this paragraph (b)(2) are illustrated by the 
following examples.

    Example 1. C, a nonresident alien individual, submits Form 8233 
to W, a withholding agent. The statement on Form 8233 does not 
include all the information required by paragraph (b)(2)(ii) of this 
section. Therefore, W has reason to know that he or she cannot 
readily determine whether C's compensation for personal services is 
eligible for an exemption from withholding and, therefore, W must 
withhold.
    Example 2. D, a nonresident alien individual, is performing 
services for W, a withholding agent. W has accepted a statement on 
Form 8233 submitted by D, according to the provisions of this 
section. W receives notice from the Internal Revenue Service that 
the eligibility of D's compensation for a withholding exemption is 
in doubt. Therefore, W has reason to know that the eligibility of 
the compensation for a withholding exemption cannot be readily 
determined, as of the date W receives the notification, and W must 
withhold tax under section 1441 on amounts paid after receipt of the 
notification.
    Example 3. E, a nonresident alien individual, submits Form 8233 
to W, a withholding agent for whom E is to perform personal 
services. The statement contains all the information requested on 
Form 8233. E claims an exemption from withholding based on a 
personal exemption amount computed on the number of days E will 
perform personal services for W in the United States. If W does not 
know or have reason to know that any statement on the Form 8233 is 
false or that the eligibility of E's compensation for the 
withholding exemption cannot be readily determined, W can accept the 
statement on Form 8233 and exempt from withholding the appropriate 
amount of E's income.

    (iv) [Reserved]. For further guidance, see Sec.  1.1441-
4(b)(2)(iv).
    (v) Copies of Form 8233. The withholding agent shall forward one 
copy of each Form 8233 that is accepted under paragraph (b)(2)(iv) of 
this section to the IRS within five days of such acceptance. The 
withholding agent shall retain a copy of Form 8233.
    (3) Withholding agreements. Compensation for personal services of a 
nonresident alien individual who is engaged during the taxable year in 
the conduct of a trade or business within the United States may be 
wholly or partially exempted from the withholding required by Sec.  
1.1441-1 if an agreement is reached between the IRS and the alien 
individual with respect to the amount of withholding required. Such 
agreement shall be available in the circumstances and in the manner set 
forth by the Internal Revenue Service, and shall be effective for 
payments covered by the agreement that are made after the agreement is 
executed by all parties. The alien individual must agree to timely file 
an income tax return for the current taxable year.
    (b)(4) through (g)(2) [Reserved]. For further guidance, see Sec.  
1.1441-4(b)(4) through (g)(2).
    (g)(3) Effective/applicability date. This section applies to 
payments made after June 30, 2014. (For payments made after December 
31, 2000, see this section as in effect and contained in 26 CFR part 1 
revised April 1, 2013.)
    (h) Expiration date. The applicability of this section expires on 
February 28, 2017.
0
Par. 10. Section 1.1441-5 is amended by:
0
1. Revising paragraph (b)(2)(iii).
0
2. Adding paragraph (b)(2)(vi).
0
3. Revising paragraphs (c)(1)(i) introductory text, (c)(1)(i)(C), and 
(c)(1)(iv).
0
4. Adding paragraph (c)(1)(v).
0
5. Revising paragraphs (c)(2)(i) through (iii), (c)(2)(iv)(A) and (B), 
(c)(3)(i), (c)(3)(ii), (c)(3)(iii)(A), (c)(3)(iv), (c)(3)(v), and 
(d)(2) through (4).
0
6. Adding paragraph (e)(3)(iii).
0
7. Revising paragraphs (e)(5)(i), (e)(5)(ii), (e)(5)(iii)(A), 
(e)(5)(iv), (e)(5)(v), (e)(6)(ii), and (f).
0
8. Adding paragraph (g)(3).
    The revisions and additions read as follows:


Sec.  1.1441-5  Withholding on payments to partnerships, trusts, and 
estates.

* * * * *
    (b) * * *
    (2) * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
5T(b)(2)(iii).
* * * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.1441-
5T(b)(2)(vi).
    (c) * * *
    (1) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1441-5T(c)(1)(i).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1441-
5T(c)(1)(i)(C).
* * * * *
    (iv) and (v) [Reserved]. For further guidance, see Sec.  1.1441-
5T(c)(1)(iv) and (v).
    (2) * * *
    (i) through (iii) [Reserved]. For further guidance, see Sec.  
1.1441-5T(c)(2)(i) through (c)(2)(iii).
    (iv) * * *
    (A) and (B) [Reserved]. For further guidance, see Sec.  1.1441-
5T(c)(2)(iv)(A) and (B).
* * * * *
    (3) * * *
    (i) and (ii) [Reserved]. For further guidance, see Sec.  1.1441-
5T(c)(3)(i) and (ii)
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
5T(c)(3)(iii)(A).
* * * * *
    (iv) and (v) [Reserved]. For further guidance, see Sec.  1.1441-
5T(c)(3)(iv) and (v).
    (d) * * *
    (2) through (4) [Reserved]. For further guidance, see Sec.  1.1441-
5T(d)(2) through (d)(4).
    (e) * * *
    (3) * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
5T(e)(3)(iii).
* * * * *
    (5) * * *
    (i) and (ii) [Reserved]. For further guidance, see Sec.  1.1441-
5T(e)(5)(i) and (ii).
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1441-
5T(e)(5)(iii)(A).
* * * * *
    (iv) and (v) [Reserved]. For further guidance, see Sec.  1.1441-
5T(e)(5)(iv) and (v).
    (6) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
5T(e)(6)(ii).
* * * * *
    (f) [Reserved]. For further guidance, see Sec.  1.1441-5T(f).
    (g) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1441-5T(g)(3).

0
Par. 11. Section 1.1441-5T is added to read as follows:


Sec.  1.1441-5T  Withholding on payments to partnerships, trusts, and 
estates (temporary).

    (a) through (b)(2)(ii) [Reserved]. For further guidance, see Sec.  
1.1441-5(a) through (b)(2)(ii).
    (b)(2)(iii) U.S. complex trusts and U.S. estates. A U.S. trust that 
is not a trust described in section 651(a) (see paragraph (b)(2)(ii) of 
this section) or sections 671 through 679 (see paragraph (b)(2)(iv) of 
this section) (a U.S. complex trust) is required to withhold under 
chapter 3 of the Internal Revenue Code (Code) as a withholding agent on 
the distributable net income includible in the gross income of a 
foreign beneficiary to the extent the distributable net income consists 
of an amount subject to withholding (as defined in Sec.  1.1441-2(a)) 
that is, or is required to be,

[[Page 12776]]

distributed currently. The U.S. complex trust shall withhold when a 
distribution is made to a foreign beneficiary. The trust may use the 
same procedures regarding an estimate of the amount subject to 
withholding as a U.S. simple trust under paragraph (b)(2)(ii) of this 
section. To the extent an amount subject to withholding is required to 
be, but is not actually distributed, the U.S. complex trust must 
withhold on the foreign beneficiary's allocable share at the time the 
income is required to be reported on Form 1042-S under Sec.  1.1461-
1(c), without extension. A U.S. estate is required to withhold under 
chapter 3 of the Code on the distributable net income includible in the 
gross income of a foreign beneficiary to the extent the distributable 
net income consists of an amount subject to withholding (as defined in 
Sec.  1.1441-2(a)) that is actually distributed. A U.S. estate may also 
use the reasonable estimate procedures of paragraph (b)(2)(ii) of this 
section. However, those procedures apply to an estate that has a 
taxable year other than a calendar year only if the estate files an 
amended return on Form 1042 for the calendar year in which the 
distribution was made and pays the underwithheld tax and interest 
within 60 days after the close of the taxable year in which the 
distribution was made.
    (iv) and (v) [Reserved]. For further guidance, see Sec.  1.1441-5 
(b)(2)(iv) and (v).
    (vi) Coordination with chapter 4 requirements for U.S. 
partnerships, trusts, and estates. To the extent that a U.S. 
partnership is required to withhold on an amount under chapter 4 with 
respect to a partner, beneficiary or owner, the partnership, trust, or 
estate must apply the rules described in Sec.  1.1473-1(a)(5) to 
determine when it must withhold on the amount under chapter 4. In a 
case in which withholding applies under chapter 4 to such an amount, 
see Sec.  1.1441-3(a)(2) to coordinate with withholding that otherwise 
applies to such an amount under this paragraph (b).
    (c) Foreign partnerships--(1) Determination of payee. (i) Payments 
treated as made to partners. Except as otherwise provided in paragraph 
(c)(1)(ii) or (iv) of this section, the payees of a payment to a person 
that the withholding agent may treat as a nonwithholding foreign 
partnership under paragraph (c)(3)(i) or (d)(2) of this section are the 
partners (looking through partners that are foreign intermediaries or 
flow-through entities) as follows--
    (A) and (B) [Reserved]. For further guidance, see Sec.  1.1441-
5(c)(1)(i)(A) and (B).
    (C) If the withholding agent can reliably associate a partner's 
distributive share of the payment with a qualified intermediary 
withholding certificate under Sec.  1.1441-1(e)(3)(ii), a nonqualified 
intermediary withholding certificate under Sec.  1.1441-1(e)(3)(iii), 
or a U.S. branch certificate under Sec.  1.1441-1(e)(3)(v) (including 
one provided by a territory financial institution), then the rules of 
Sec.  1.1441-1(b)(2)(v) shall apply to determine who the payee is in 
the same manner as if the partner's distributive share of the payment 
had been paid directly to such intermediary or U.S. branch or territory 
financial institution;
    (c)(1)(i)(D) through (c)(1)(iii) [Reserved]. For further guidance, 
see Sec.  1.1441-5 (c)(1)(i)(D) through (c)(1)(iii).
    (iv) Coordination with chapter 4 for payments made to foreign 
partnerships. A withholding agent that makes a payment of U.S. source 
FDAP income to a foreign partnership that is a withholdable payment to 
which withholding under chapter 4 applies must apply the rules 
described in Sec.  1.1473-1(a)(5)(vi) to determine when the payment is 
treated as made to a partner in the partnership for purposes of chapter 
4. In a case in which withholding applies under chapter 4 to a 
withholdable payment made to a foreign partnership, see Sec.  1.1441-
3(a)(2) to coordinate with withholding otherwise required under this 
paragraph (c) with respect to the amount of the payment included in the 
gross income of a partner. For when a withholding agent may reliably 
associate a withholdable payment with a chapter 4 withholding rate pool 
in lieu of obtaining documentation for each payee include in the pool, 
see Sec.  1.1441-1(e)(3)(iv)(C)(2) (substituting the term 
nonwithholding foreign partnership for the term nonqualified 
intermediary).
    (v) Examples. The rules of paragraphs (c)(1)(i) and (ii) of this 
section are illustrated by the following examples. Each example assumes 
that all payments are not withholdable payments and thus no withholding 
applies under chapter 4.

    Example 1.  FP is a nonwithholding foreign partnership organized 
in Country X. FP has two partners, FC, a foreign corporation, and 
USP, a U.S. partnership. USWH, a U.S. withholding agent, makes a 
payment of U.S. source interest to FP that is not a withholdable 
payment. FP has provided USWH with a valid nonwithholding foreign 
partnership certificate, as described in paragraph (c)(3)(iii) of 
this section, with which it associates a beneficial owner 
withholding certificate from FC and a Form W-9, ``Request for 
Taxpayer Identification Number and Certification,'' from USP 
together with the withholding statement required by paragraph 
(c)(3)(iv) of this section. USWH can reliably associate the payment 
of interest with the withholding certificates from FC and USP. Under 
paragraph (c)(1)(i) of this section, the payees of the interest 
payment are FC and USP.
    Example 2. The facts are the same as in Example 1, except that 
FP1, a nonwithholding foreign partnership, is a partner in FP rather 
than USP. FP1 has two partners, A and B, both foreign persons. FP 
provides USWH with a valid nonwithholding foreign partnership 
certificate, as described in paragraph (c)(3)(iii) of this section, 
with which it associates a beneficial owner withholding certificate 
from FC and a nonwithholding foreign partnership certificate from 
FP1. In addition, foreign beneficial owner withholding certificates 
from A and B are associated with the nonwithholding foreign 
partnership withholding certificate from FP1. FP also provides the 
withholding statement required by paragraph (c)(3)(iv) of this 
section. USWH can reliably associate the interest payment with the 
withholding certificates provided by FC, A, and B. Therefore, under 
paragraph (c)(1)(i) of this section, the payees of the interest 
payment are FC, A, and B.
    Example 3. USWH makes a payment of U.S. source dividends to WFP, 
a withholding foreign partnership, that is not a withholdable 
payment. WFP has two partners, FC1 and FC2, both foreign 
corporations. USWH can reliably associate the payment with a valid 
withholding foreign partnership withholding certificate from WFP. 
Therefore, under paragraph (c)(1)(ii)(A) of this section, WFP is the 
payee of the interest.
    Example 4. USWH makes a payment of U.S. source royalties that is 
not a withholdable payment to FP, a foreign partnership. USWH can 
reliably associate the royalties with a valid withholding 
certificate from FP on which FP certifies that the income is 
effectively connected with the conduct of a trade or business in the 
United States. Therefore, under paragraph (c)(1)(ii)(B) of this 
section, FP is the payee of the royalties.

    (2) Withholding foreign partnerships--(i) Reliance on claim of 
withholding foreign partnership status. A withholding foreign 
partnership is a foreign partnership that has entered into an agreement 
with the Internal Revenue Service (IRS), as described in paragraph 
(c)(2)(ii) of this section, with respect to distributions and 
guaranteed payments it makes to its partners. A withholding agent that 
can reliably associate a payment with a certificate described in 
paragraph (c)(2)(iv) of this section may treat the person to whom it 
makes the payment as a withholding foreign partnership for purposes of 
withholding under chapters 3 and 4 of the Code, information reporting 
under chapter 61 of the Code, backup withholding under section 3406, 
and withholding under other provisions of the Code. Furnishing such a 
certificate is in lieu of

[[Page 12777]]

transmitting to a withholding agent withholding certificates or other 
appropriate documentation for its partners. Although the withholding 
foreign partnership generally will be required to obtain withholding 
certificates or other appropriate documentation from its partners 
pursuant to its agreement with the IRS, it will generally not be 
required to attach such documentation to its withholding foreign 
partnership withholding certificate to the extent it is permitted to 
act as a withholding foreign partnership with respect to the payment 
under its agreement. A foreign partnership may act as a qualified 
intermediary under Sec.  1.1441-1(e)(5) with respect to payments it 
makes to persons other than its partners. In addition, the IRS may 
permit a foreign partnership to act as a qualified intermediary under 
Sec.  1.1441-1(e)(5)(ii)(D) with respect to its partners in appropriate 
circumstances.
    (ii) Withholding agreement. The IRS may, upon request, enter into a 
withholding agreement with a foreign partnership pursuant to such 
procedures as the IRS may prescribe in published guidance (see Sec.  
601.601(d)(2) of this chapter). Under the withholding agreement, a 
foreign partnership shall generally be subject to the applicable 
withholding and reporting provisions applicable to withholding agents 
(and payors as defined in Sec.  1.6049-4(a) under chapters 3, 4, and 61 
of the Code, section 3406, the regulations under those provisions, and 
other withholding provisions of the Code, except to the extent provided 
under the agreement. Under the agreement, a foreign partnership may 
agree to act as an acceptance agent to perform the duties described in 
Sec.  301.6109-1(d)(3)(iv)(A) of this chapter. For a partnership that 
receives withholdable payments on behalf of its partners and that is an 
FFI, the agreement will require the partnership to assume the 
requirements of a participating FFI, a registered deemed-compliant FFI, 
or an FFI treated as a deemed-compliant FFI under an applicable IGA 
that is subject to due diligence and reporting requirements with 
respect to its U.S. accounts similar to those applicable to a 
registered deemed-compliant FFI under Sec.  1.1471-5(f)(1). The 
agreement may specify the manner in which applicable procedures for 
adjustments for underwithholding and overwithholding, including refund 
procedures, apply to the withholding foreign partnership and its 
partners and the extent to which applicable procedures may be modified. 
In particular, a withholding agreement may allow a withholding foreign 
partnership to claim refunds of overwithheld amounts on behalf of its 
customers. In addition, the agreement must specify the manner in which 
the IRS will verify the partnership's compliance with its agreement, 
including the requirements for a periodic review of the partnership's 
compliance with the agreement and the procedures for the partnership to 
certify to its compliance with the agreement. A withholding foreign 
partnership must file a return on Form 1042, ``Annual Withholding Tax 
Return for U.S. Source Income of Foreign Persons,'' and information 
returns on Form 1042-S, ``Foreign Person's U.S. Source Income Subject 
to Withholding.'' The withholding foreign partnership agreement may 
also require a withholding foreign partnership to file a partnership 
return under section 6031(a) and partner statements under 6031(b), 
including for each U.S. partner to the extent required in the 
agreement. Additionally, a partnership that is an FFI will be required 
to file Form 8966, ``FATCA Report,'' to the extent provided in the 
agreement.
    (iii) Withholding responsibility. A withholding foreign partnership 
must assume primary withholding responsibility under both chapters 3 
and 4 of the Code. It is not required to provide information to the 
withholding agent regarding each partner's distributive share of the 
payment (including a withholdable payment). The withholding foreign 
partnership will be responsible for reporting the payments under Sec.  
1.1461-1(c), Sec.  1.1474-1(d), and chapter 61 of the Code and filing 
Form 1042 (to the extent required in the agreement). A withholding 
agent making a payment to a withholding foreign partnership is not 
required to withhold any amount under chapters 3 and 4 of the Code on 
the payment unless it has actual knowledge or reason to know that the 
foreign partnership is not acting as a withholding foreign partnership 
with respect to the payment or has not withheld to the extent required. 
The withholding foreign partnership shall withhold the payments under 
the same procedures and at the same time as prescribed for withholding 
by a U.S. partnership under paragraph (b)(2) of this section, except 
that, for purposes of determining the partner's status, the provisions 
of paragraph (d)(4) of this section shall apply.
    (iv) [Reserved]. For further guidance, see Sec.  1.1441-
5(c)(2)(iv).
    (A) The name, permanent residence address (as described in Sec.  
1.1441-1(e)(2)(ii)), the employer identification number of the 
partnership, the country under the laws of which the partnership is 
created or governed, and, for a withholding certificate furnished for a 
partnership receiving a withholdable payment, the chapter 4 status of 
the partnership (and GIIN of the partnership, if applicable);
    (B) A certification that the partnership is a withholding foreign 
partnership within the meaning of paragraph (c)(2)(i) of this section, 
and, for a partnership that is an FFI receiving a withholdable payment, 
a certification that the partnership is acting as a participating FFI, 
a registered deemed-compliant FFI, or a nonreporting IGA FFI (as 
defined in Sec.  1.1471-1(b)(83)); and
    (C) [Reserved]. For further guidance, see Sec.  1.1441-
5(c)(2)(iv)(C).
    (3) Nonwithholding foreign partnerships--(i) Reliance on claim of 
foreign partnership status. A withholding agent may treat a person as a 
nonwithholding foreign partnership if it receives from that person a 
nonwithholding foreign partnership withholding certificate as described 
in paragraph (c)(3)(iii) of this section. A withholding agent that does 
not receive a nonwithholding foreign partnership withholding 
certificate, or does not receive a valid withholding certificate, from 
an entity it knows, or has reason to know, is a foreign partnership, 
must apply the presumption rules of Sec. Sec.  1.1441-1(b)(3) and 
1.6049-5(d) and paragraphs (d) and (e)(6) of this section. In addition, 
to the extent a withholding agent cannot, prior to a payment, reliably 
associate the payment with valid documentation from a payee that is 
associated with the nonwithholding foreign partnership withholding 
certificate or has insufficient information to report the payment on 
Form 1042-S or Form 1099, to the extent reporting is required, the 
withholding agent must apply the presumption rules. See Sec.  1.1441-
1(b)(2)(vii)(A) and (b)(2)(vii)(B) for rules regarding reliable 
association. See, however, Sec.  1.1441-1(e)(3)(iv)(C)(2) for when a 
withholding agent may reliably associate a withholdable payment with a 
chapter 4 withholding rate pool in lieu of obtaining documentation for 
each payee included in the pool (substituting the term nonwithholding 
foreign partnership for the term nonqualified intermediary). See also 
Sec.  1.1441-1(e)(3)(iv)(A) for when a withholding agent may reliably 
associate a payment with a chapter 4 withholding rate pool of U.S. 
payees. See paragraph (c)(3)(iv) of this section and Sec.  1.1441-
1(e)(3)(iv) for alternative procedures permitting

[[Page 12778]]

allocation information to be received after a payment is made.
    (ii) Reliance on claim of reduced withholding by a partnership for 
its partners. This paragraph (c)(3)(ii) describes the manner in which a 
withholding agent may rely on a claim of reduced withholding when 
making a payment to a nonwithholding foreign partnership. To the extent 
that a withholding agent treats a payment to a nonwithholding foreign 
partnership as a payment to the nonwithholding foreign partnership's 
partners (whether direct or indirect) in accordance with paragraph 
(c)(1)(i) of this section, it may rely on a claim for reduced 
withholding by the partner if, prior to the payment, the withholding 
agent can reliably associate the payment (within the meaning of Sec.  
1.1441-1(b)(2)(vii)) with a valid withholding certificate or other 
appropriate documentation from the partner that establishes entitlement 
to a reduced rate of withholding. A withholding certificate or other 
appropriate documentation that establishes entitlement to a reduced 
rate of withholding is a beneficial owner withholding certificate 
described in Sec.  1.1441-1(e)(2)(i), documentary evidence described in 
Sec.  1.1441-6(c)(3) or (4) or Sec.  1.6049-5(c)(1) (for a partner 
claiming to be a foreign person and a beneficial owner, determined 
under the provisions of Sec.  1.1441-1(c)(6)), a Form W-9 described in 
Sec.  1.1441-1(d) (for a partner claiming to be a U.S. payee), a 
withholding foreign partnership withholding certificate described in 
paragraph (c)(2)(iv) of this section, or a withholding statement 
allocating the payment to a chapter 4 withholding rate pool of U.S. 
payees. For when the withholding agent can reliably associate the 
payment with a chapter 4 withholding rate pool, see paragraph (c)(3)(i) 
of this section. See also Sec.  1.1441-3(a)(2) (coordinating 
withholding under chapter 3 when withholding under chapter 4 is applied 
to a payment). Unless a nonwithholding foreign partnership withholding 
certificate is provided for income claimed to be effectively connected 
with the conduct of a trade or business in the United States, a claim 
must be presented for each portion of the payment that represents an 
item of income includible in the distributive share of a partner as 
required under paragraph (c)(3)(iii)(C) of this section. When making a 
claim for several partners, the partnership may present a single 
nonwithholding foreign partnership withholding certificate to which the 
partners' certificates or other appropriate documentation are 
associated. Where the nonwithholding foreign partnership withholding 
certificate is provided for income claimed to be effectively connected 
with the conduct of a trade or business in the United States under 
paragraph (c)(3)(iii)(D) of this section, the claim may be presented 
without having to identify any partner's distributive share of the 
payment.
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
5(c)(3)(iii).
    (A) The name, permanent residence address (as described in Sec.  
1.1441-1(e)(2)(ii)), the employer identification number of the 
partnership, if any, the country under the laws of which the 
partnership is created or governed, and the chapter 4 status of the 
partnership (for a nonwithholding foreign partnership receiving a 
withholdable payment or providing a withholding statement associated 
with the Form W-8 allocating a payment to a chapter 4 withholding rate 
pool of U.S. payees), and the GIIN of the partnership (if applicable);
    (B) through (E) [Reserved]. For further guidance, see Sec.  1.1441-
5(c)(3)(iii)(B) through (c)(3)(iii)(E).
    (iv) Withholding statement provided by nonwithholding foreign 
partnership and coordination with chapter 4. The provisions of Sec.  
1.1441-1(e)(3)(iv) (regarding a withholding statement) shall apply to a 
nonwithholding foreign partnership by substituting the term 
nonwithholding foreign partnership for the term nonqualified 
intermediary, including when a nonwithholding foreign partnership may 
provide to a withholding agent a withholding statement that includes a 
chapter 4 withholding rate pool in lieu of information with respect to 
each partner that is a payee of a payment.
    (v) Withholding and reporting by a foreign partnership. A 
nonwithholding foreign partnership described in this paragraph (c)(3) 
that receives an amount subject to withholding (as defined in Sec.  
1.1441-2(a)) shall be required to withhold and report such payment 
under chapter 3 of the Code and the regulations thereunder except as 
otherwise provided in this paragraph (c)(3)(v). A nonwithholding 
foreign partnership shall not be required to withhold and report if it 
has provided a valid nonwithholding foreign partnership withholding 
certificate, it has provided all of the information required by 
paragraph (c)(3)(iv) of this section (withholding statement), and it 
does not know, and has no reason to know, that another withholding 
agent failed to withhold the correct amount or failed to report the 
payment correctly under Sec.  1.1461-1(c). A nonwithholding foreign 
partnership is also not required to withhold and report under this 
paragraph (c)(3) to the extent that withholding under chapter 4 was 
applied to a payment that is includible in the gross income of a 
partner in the partnership. See also Sec.  1.1441-3(a)(2) for 
coordination rules when withholding under chapter 4 has been applied to 
a withholdable payment. A withholding foreign partnership's obligations 
to withhold and report shall be determined in accordance with its 
withholding foreign partnership agreement.
    (d)(1) [Reserved]. For further guidance, see Sec.  1.1441-5(d)(1).
    (2) Determination of partnership status as U.S. or foreign in the 
absence of documentation. In the absence of a valid representation of 
U.S. partnership status in accordance with paragraph (b)(1) of this 
section or of foreign partnership status in accordance with paragraph 
(c)(2)(i) or (c)(3)(i) of this section, the withholding agent shall 
determine the classification of the payee under the presumptions set 
forth in Sec.  1.1441-1(b)(3)(ii). If the withholding agent treats the 
payee as a partnership under Sec.  1.1441-1(b)(3)(ii), the withholding 
agent shall apply the presumptions set forth in Sec.  1.1441-
1(b)(3)(iii) to determine whether to treat the partnership as a U.S. 
person or foreign person. For rules regarding reliable association with 
a withholding certificate from a domestic or a foreign partnership, see 
Sec.  1.1441-1(b)(2)(vii).
    (3) Determination of partners' status in the absence of certain 
documentation. If a nonwithholding foreign partnership has provided a 
nonwithholding foreign partnership withholding certificate under 
paragraph (c)(3)(iii) of this section that would be valid except that 
the withholding agent cannot reliably associate all or a portion of the 
payment with valid documentation from a partner of the partnership, 
then the withholding agent may apply the presumption rule of this 
paragraph (d)(3) with respect to all or a portion of the payment for 
which documentation has not been received. See Sec.  1.1441-
1(b)(2)(vii)(A) and (B) for rules regarding reliable association. The 
presumption rule of this paragraph (d)(3) also applies to a person that 
is presumed to be a foreign partnership under the rule of paragraph 
(d)(2) of this section. Any portion of a payment that the withholding 
agent cannot treat as reliably associated with valid documentation from 
a partner may be presumed made to a foreign payee. As a result, any 
payment of an amount subject to withholding is subject to withholding 
at a rate of 30 percent. Any

[[Page 12779]]

payment that is presumed to be made to an undocumented foreign payee 
must be reported on Form 1042-S. See Sec.  1.1461-1(c). For a payment 
described in this paragraph (d)(3) that is a withholdable payment, see 
Sec.  1.1471-3(f)(5) for the presumption rule for determining the 
payee's chapter 4 status to determine whether withholding under chapter 
4 applies to the payment.
    (4) Determination by a withholding foreign partnership of the 
status of its partners. Except as otherwise provided in the agreement 
described in paragraph (c)(2) of this section, a withholding foreign 
partnership shall determine whether the partners or some other persons 
are the payees of the partners' distributive shares of any payment made 
by a withholding foreign partnership by applying the rules of Sec.  
1.1441-1(b)(2), paragraph (c)(1) of this section (in the case of a 
partner that is a foreign partnership), and paragraph (e)(3) of this 
section (in the case of a partner that is a foreign estate or a foreign 
trust). Further, the provisions of paragraph (d)(3) of this section 
shall apply to determine the status of partners and the applicable 
withholding rates to the extent that, at the time the foreign 
partnership is required to withhold on a payment, it cannot reliably 
associate the amount with documentation for any one or more of its 
partners.
    (e)(1) through (e)(3)(ii) [Reserved]. For further guidance, see 
Sec.  1.1441-5(e)(1) through (e)(3)(ii).
    (iii) Coordination with chapter 4 for payments made to foreign 
simple trusts and foreign grantor trusts. A withholding agent that 
makes a payment of U.S. source FDAP income to a foreign simple trust or 
foreign grantor trust that is a withholdable payment to which 
withholding under chapter 4 applies must apply the rules described in 
Sec.  1.1473-1(a)(5)(vi) to determine when the payment is treated as 
made to a beneficiary or owner of the trust for purposes of chapter 4. 
In a case in which withholding applies under chapter 4 to a 
withholdable payment made to a foreign simple trust or foreign grantor 
trust, see Sec.  1.1441-3(a)(2) to coordinate withholding otherwise 
required under this paragraph (e) with respect to the amount of the 
payment included in the gross income of the payee of the payment. For 
when a withholding agent may reliably associate a withholdable payment 
with a chapter 4 withholding rate pool in lieu of obtaining 
documentation for each payee included in the pool, see Sec.  1.1441-
1(e)(3)(iv)(C)(2) (substituting the term nonwithholding foreign trust 
for the term nonqualified intermediary).
    (4) [Reserved]. For further guidance, see Sec.  1.1441-5(e)(4).
    (5) Foreign simple trust and foreign grantor trust--(i) Reliance on 
claim of foreign simple trust or foreign grantor trust status. A 
withholding agent may treat a person as a foreign simple trust or 
foreign grantor trust if it receives from that person a foreign simple 
trust or foreign grantor trust withholding certificate as described in 
paragraph (e)(5)(iii) of this section. A withholding agent must apply 
the presumption rules of Sec. Sec.  1.1441-1(b)(3) and 1.6049-5(d) and 
paragraphs (d) and (e)(6) of this section to the extent it cannot, 
prior to the payment, reliably associate a payment (within the meaning 
of Sec.  1.1441-1(b)(2)(vii)) with a valid foreign simple trust or 
foreign grantor trust withholding certificate, it cannot reliably 
determine how much of the payment relates to valid documentation 
provided by a payee (e.g., a person that is not itself a nonqualified 
intermediary, flow-through entity, or U.S. branch) associated with the 
foreign simple trust or foreign grantor trust withholding certificate, 
or it does not have sufficient information to report the payment on 
Form 1042-S or Form 1099, if reporting is required. See Sec.  1.1441-
1(b)(2)(vii)(A) and (b)(2)(vii)(B). See, however, Sec.  1.1441-
1(e)(3)(iv)(C)(2) for when a withholding agent may reliably associate a 
withholdable payment with a chapter 4 withholding rate pool in lieu of 
obtaining documentation for each payee included in a pool (substituting 
the term nonwithholding foreign trust for the term nonqualified 
intermediary). See also Sec.  1.1441-1(e)(3)(iv)(A) for when a 
withholding agent may reliably associate a payment with a chapter 4 
withholding rate pool of U.S. payees.
    (ii) Reliance on claim of reduced withholding by a foreign simple 
trust or foreign grantor trust for its beneficiaries or owners. This 
paragraph (e)(5)(ii) describes the manner in which a withholding agent 
may rely on a claim of reduced withholding when making a payment to a 
foreign simple trust or foreign grantor trust. To the extent that a 
withholding agent treats a payment to a foreign simple trust or foreign 
grantor trust as a payment to payees other than the trust in accordance 
with paragraph (e)(3)(i) of this section, it may rely on a claim for 
reduced withholding by a beneficiary or owner if, prior to the payment, 
the withholding agent can reliably associate the payment (within the 
meaning of Sec.  1.1441-1(b)(2)(vii)) with a valid withholding 
certificate or other appropriate documentation from a payee or 
beneficial owner that establishes entitlement to a reduced rate of 
withholding. A withholding certificate or other appropriate 
documentation that establishes entitlement to a reduced rate of 
withholding is a beneficial owner withholding certificate described in 
Sec.  1.1441-1(e)(2)(i) or documentary evidence described in Sec.  
1.1441-6(c)(3) or (c)(4) or in Sec.  1.6049-5(c)(1) (for a beneficiary 
or owner claiming to be a foreign person and a beneficial owner, 
determined under the provisions of Sec.  1.1441-1(c)(6)), a Form W-9 
described in Sec.  1.1441-1(d) (for a beneficiary or owner claiming to 
be a U.S. payee), a withholding foreign partnership withholding 
certificate described in paragraph (c)(2)(iv) of this section, or a 
withholding statement allocating the payment to a chapter 4 withholding 
rate pool of U.S. payees. For when the withholding agent can reliably 
associate the payment with a chapter 4 withholding rate pool, see 
paragraph (c)(3)(i) of this section. See also Sec.  1.1441-3(a)(2) 
(coordinating withholding under chapter 3 when withholding under 
chapter 4 is applied to a withholdable payment). Unless a foreign 
simple trust or foreign grantor trust withholding certificate is 
provided for income treated as income effectively connected with the 
conduct of a trade or business in the United States, a claim must be 
presented for each payee's portion of the payment. When making a claim 
for several payees, the trust may present a single foreign simple trust 
or foreign grantor trust withholding certificate with which the payees' 
certificates or other appropriate documentation are associated. Where 
the foreign simple trust or foreign grantor trust withholding 
certificate is provided for income that is treated as effectively 
connected with the conduct of a trade or business in the United States 
under paragraph (e)(5)(iii)(D) of this section, the claim may be 
presented without having to identify any beneficiary's or grantor's 
distributive share of the payment.
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
5(e)(5)(iii).
    (A) The name, permanent residence address (as described in Sec.  
1.1441-1(e)(2)(ii)), the employer identification number, if required, 
of the trust, the country under the laws of which the trust is created, 
the chapter 4 status of the trust (for a nonwithholding foreign trust 
receiving a withholdable payment or providing a withholding statement 
associated with the Form W-8 allocating a payment to a chapter 4 
withholding rate pool of U.S. payees), and the GIIN of the trust (if 
applicable);
    (B) through (E) [Reserved]. For further guidance, see Sec.  1.1441-
5 (e)(5)(iii)(B) through (e)(5)(iii)(E).

[[Page 12780]]

    (iv) Withholding statement provided by a foreign simple trust or 
foreign grantor trust. The provisions of Sec.  1.1441-1(e)(3)(iv) 
(regarding a withholding statement) shall apply to a foreign simple 
trust or foreign grantor trust by substituting the term foreign simple 
trust or foreign grantor trust for the term nonqualified intermediary, 
including when a withholding statement provided by a foreign simple 
trust or foreign grantor trust may include a chapter 4 withholding rate 
pool in lieu of information with respect to each owner or beneficiary 
that is a payee of a payment.
    (v) Withholding foreign trusts. The IRS may enter an agreement with 
a foreign trust to treat the trust or estate as a withholding foreign 
trust. Such an agreement shall generally follow the same principles as 
an agreement with a withholding foreign partnership under paragraph 
(c)(2)(ii) of this section. A withholding agent may treat a payment to 
a withholding foreign trust in the same manner the withholding agent 
would treat a payment (including a withholdable payment) to a 
withholding foreign partnership. The IRS may also enter an agreement to 
treat a trust as a qualified intermediary in appropriate circumstances. 
See Sec.  1.1441-1(e)(5)(ii)(D). For a withholding foreign trust that 
is an FFI and that receives withholdable payments on behalf of its 
owners or beneficiaries, the agreement will require the withholding 
foreign trust to assume the requirements of either a participating FFI, 
registered deemed-compliant FFI, or an FFI treated as a deemed-
compliant FFI under an applicable IGA that is subject to due diligence 
and reporting requirements with respect to its U.S. accounts similar to 
those applicable to a registered deemed-compliant FFI under Sec.  
1.1471-5(f)(1).
    (6)(i) [Reserved]. For further guidance, see Sec.  1.1441-
5(e)(6)(i).
    (ii) Determination of status as U.S. or foreign trust or estate in 
the absence of documentation. In the absence of valid documentation 
that establishes the U.S. status of a trust or estate under paragraph 
(b)(1) of this section and of documentation that establishes the 
foreign status of a trust or estate under paragraph (e)(4) or 
(e)(5)(iii) of this section, the withholding agent shall determine the 
classification of the payee based upon the presumptions set forth in 
Sec.  1.1441-1(b)(3)(ii). If, based upon those presumptions, the 
withholding agent classifies the payee as a trust or estate, the 
withholding agent shall apply the presumptions set forth in Sec.  
1.1441-1(b)(3)(iii) to determine whether the trust or estate is a U.S. 
person or foreign person. An undocumented payee presumed to be a 
foreign trust shall be presumed to be a foreign complex trust. If a 
withholding agent has documentary evidence that establishes that an 
entity is a foreign trust, but the withholding agent cannot determine 
whether the foreign trust is a complex trust, a simple trust, or 
foreign grantor trust, the withholding agent shall presume that the 
trust is a foreign complex trust. Notwithstanding the preceding 
sentence, in the case of a foreign trust with a settlor that is a U.S. 
person and for which a withholding agent has both a U.S. address and 
TIN, the withholding agent shall presume that the trust is a grantor 
trust when it cannot determine the status of the trust as a simple 
trust, complex trust, or grantor trust. See Sec.  1.1471-3(f)(4) and 
(5) to determine the status of the payee for purposes of chapter 4.
    (iii) [Reserved]. For further guidance, see Sec.  1.1441-
5(e)(6)(iii).
    (f) Failure to receive withholding certificate timely or to act in 
accordance with applicable presumptions. See applicable procedures 
described in Sec.  1.1441-1(b)(7) in the event the withholding agent 
does not hold an appropriate withholding certificate or other 
appropriate documentation at the time of payment or fails to rely on 
the presumptions set forth in Sec.  1.1441-1(b)(3) or in paragraph (d) 
or (e) of this section. For a payment that is a withholdable payment, 
see Sec.  1.1471-3(f) for the presumption rule for determining the 
payee's chapter 4 status.
    (g)(1) and (2) [Reserved]. For further guidance, see Sec.  1.1441-
5(g)(1) and (2).
    (g)(3) Effective/applicability date. This section applies to 
payments made after June 30, 2014. (For payments made after December 
31, 2000, and before July 1, 2014, see this section as in effect and 
contained in 26 CFR Part 1, as revised April 1, 2013.)
    (h) Expiration date. The applicability of this section expires on 
February 28, 2017.


0
Par. 12. Section 1.1441-6 is amended by revising paragraphs (a), 
(b)(1), (b)(2)(i), (b)(2)(iv), (c)(1) and adding paragraph (i)(3) to 
read as follows:


Sec.  1.1441-6  Claim of reduced withholding under an income tax 
treaty.

    (a) [Reserved]. For further guidance, see Sec.  1.1441-6T(a).
    (b)(1) [Reserved]. For further guidance, see Sec.  1.1441-6T(b)(1).
    (2)(i) [Reserved]. For further guidance, see Sec.  1.1441-
6T(b)(2)(i).
* * * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1441-
6T(b)(2)(iv).
* * * * *
    (c)(1) [Reserved]. For further guidance, see Sec.  1.1441-6T(c)(1).
* * * * *
    (i) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1441-6T(i)(3).


0
Par. 13. Section 1.1441-6T is added to read as follows:


Sec.  1.1441-6T  Claim of reduced withholding under an income tax 
treaty (temporary).

    (a) In general. The rate of withholding on a payment of income 
subject to withholding may be reduced to the extent provided under an 
income tax treaty in effect between the United States and a foreign 
country. Most benefits under income tax treaties are to foreign persons 
who reside in the treaty country. In some cases, benefits are available 
under an income tax treaty to U.S. citizens or U.S. residents or to 
residents of a third country. See paragraph (b)(5) of this section for 
claims of benefits by U.S. persons. If the requirements of this section 
are met, the amount withheld from the payment may be reduced at source 
to account for the treaty benefit. See, however, Sec.  1.1471-2(a) and 
Sec.  1.1472-1(b) for when withholding at source on a withholdable 
payment may not be reduced to account for a treaty benefit and the 
beneficial owner of the payment may need to file a claim for refund to 
obtain a refund for the overwithheld amount of tax. See also Sec.  
1.1441-4(b)(2) for rules regarding claims of reduced rate of 
withholding under an income tax treaty in the case of compensation from 
personal services.
    (b) Reliance on claim of reduced withholding under an income tax 
treaty--(1) In general. The withholding imposed under section 1441, 
1442, or 1443 on any payment to a foreign person is eligible for 
reduction under the terms of an income tax treaty only to the extent 
that such payment is treated as derived by a resident of an applicable 
treaty jurisdiction, such resident is a beneficial owner, and all other 
requirements for benefits under the treaty are satisfied. See section 
894 and the regulations under section 894 to determine whether a 
resident of a treaty country derives the income. Absent actual 
knowledge or reason to know otherwise, a withholding agent may rely on 
a claim that a beneficial owner is entitled to a reduced rate of 
withholding based upon an income tax treaty if, prior to the payment, 
the withholding agent can reliably associate the payment with a 
beneficial owner withholding certificate, as described in Sec.  1.1441-

[[Page 12781]]

1(e)(2), that contains the information necessary to support the claim, 
or, in the case of a payment of income described in paragraph (c)(2) of 
this section made outside the United States with respect to an offshore 
obligation, documentary evidence described in paragraphs (c)(3), 
(c)(4), and (c)(5) of this section. See Sec.  1.6049-5(e) for the 
definition of payments made outside the United States and Sec.  1.6049-
5(c)(1) for the definition of an offshore obligation. For purposes of 
this paragraph (b)(1), a beneficial owner withholding certificate 
described in Sec.  1.1441-1(e)(2)(i) contains information necessary to 
support the claim for a treaty benefit only if it includes the 
beneficial owner's taxpayer identifying number (except as otherwise 
provided in paragraph (c)(1) and (g) of this section, or the beneficial 
owner provides its foreign tax identifying number issued by its country 
of residence and such country has with the United States an income tax 
treaty or information exchange agreement in effect) and the 
representations that the beneficial owner derives the income under 
section 894 and the regulations under section 894, if required, and 
meets the limitation on benefits provisions of the treaty, if any. The 
withholding certificate must also contain any other representations 
required by this section and any other information, certifications, or 
statements as may be required by the form or accompanying instructions 
in addition to, or in place of, the information and certifications 
described in this section. Absent actual knowledge or reason to know 
that the claims are incorrect (applying the standards of knowledge in 
Sec.  1.1441-7(b)), a withholding agent may rely on the claims made on 
a withholding certificate or on documentary evidence. A withholding 
agent may also rely on the information contained in a withholding 
statement provided under Sec. Sec.  1.1441-1(e)(3)(iv) and 1.1441-
5(c)(3)(iv) and (e)(5)(iv) to determine whether the appropriate 
statements regarding section 894 and limitation on benefits have been 
provided in connection with documentary evidence. The Internal Revenue 
Service (IRS) may apply the provisions of Sec.  1.1441-1(e)(1)(ii)(B) 
to notify the withholding agent that the certificate cannot be relied 
upon to grant benefits under an income tax treaty. See Sec.  1.1441-
1(e)(4)(viii) regarding reliance on a withholding certificate by a 
withholding agent. The provisions of Sec.  1.1441-1(b)(3)(iv) dealing 
with a 90-day grace period shall apply for purposes of this section.
    (2) Payment to fiscally transparent entity--(i) In general. If the 
person claiming a reduced rate of withholding under an income tax 
treaty is an interest holder of an entity that is considered to be 
fiscally transparent (as defined in the regulations under section 894) 
by the interest holder's jurisdiction with respect to an item of 
income, then, with respect to such income derived by that person 
through the entity, the entity shall be treated as a flow-through 
entity and may provide a flow-through withholding certificate with 
which the withholding certificate or other documentary evidence of the 
interest holder that supports the claim for treaty benefits is 
associated. In the case of a payment that is a withholdable payment, 
see, however, Sec.  1.1471-3(c) for determining the payee of the 
payment and Sec. Sec.  1.1471-2(a) and 1472-1(b) for when withholding 
at source may apply to the payment based on the status of the payee 
notwithstanding a claim for treaty benefits made under this paragraph 
(b)(2) by an interest holder in the payee. In such a case, the interest 
holder may file a claim for refund of the overwithheld amount of tax. 
For purposes of this paragraph (b)(2)(i), interest holders do not 
include any direct or indirect interest holders that are themselves 
treated as fiscally transparent entities with respect to that income by 
the interest holder's jurisdiction. See Sec.  1.1441-1(c)(23) and 
(e)(3)(i) for the definition of flow-through entity and flow-through 
withholding certificate. The entity may provide a beneficial owner 
withholding certificate, or beneficial owner documentation, with 
respect to any remaining portion of the income to the extent the entity 
is receiving income and is not treated as fiscally transparent by its 
own jurisdiction. Further, the entity may claim a reduced rate of 
withholding with respect to the portion of a payment for which it is 
not treated as fiscally transparent if it meets all the requirements to 
make such a claim and, in the case of treaty benefits, it provides the 
documentation required by paragraph (b)(1) of this section. If dual 
claims, as described in paragraph (b)(2)(iii) of this section, are 
made, multiple withholding certificates may have to be furnished. 
Multiple withholding certificates may also have to be furnished if the 
entity receives income for which a reduction of withholding is claimed 
under a provision of the Internal Revenue Code (e.g., portfolio 
interest) and income for which a reduction of withholding is claimed 
under an income tax treaty.
    (ii) and (iii) [Reserved]. For further guidance, see Sec.  1.1441-
6(b)(2)(ii) and (iii).
    (iv) Examples. The following examples illustrate the rules of 
paragraph (b)(2) of this section. Each of the following examples 
describes a payment of U.S. source royalties, which are not 
withholdable payments under chapter 4. See Sec.  1.1473-1(a)(4)(iii) 
(describing nonfinancial payments that are not treated as withholdable 
payments). Thus, withholding under chapter 4 shall not apply with 
respect to the U.S. source royalties in any of the following examples:

    Example 1. (i) Facts. Entity E is a business organization formed 
under the laws of country Y. Country Y has an income tax treaty with 
the United States. The treaty contains a limitation on benefits 
provision. E receives U.S. source royalties from withholding agent W 
and claims a reduced rate of withholding under the U.S.-Y tax treaty 
on its own behalf (rather than on behalf of its interest holders). E 
furnishes a beneficial owner withholding certificate described in 
paragraph (b)(1) of this section that represents that E is a 
resident of country Y (within the meaning of the U.S.-Y tax treaty), 
is the beneficial owner of the income, derives the income under 
section 894 and the regulations under section 894, and is not 
precluded from claiming benefits by the treaty's limitation on 
benefits provision.
    (ii) Analysis. Absent actual knowledge or reason to know 
otherwise, W may rely on the representations made by E to apply a 
reduced rate of withholding.
    Example 2. (i) Facts. The facts are the same as under Example 1, 
except that one of E's interest holders, H, is an entity organized 
in country Z. The U.S.-Z tax treaty reduces the rate on royalties to 
zero whereas the rate on royalties under the U.S.-Y tax treaty 
applicable to E is 5%. H is not fiscally transparent under country 
Z's tax law with respect to such income. H furnishes a beneficial 
owner withholding certificate to E that represents that H derives, 
within the meaning of section 894 and the regulations under section 
894, its share of the royalty income paid to E as a resident of 
country Z, is the beneficial owner of the royalty income, and is not 
precluded from claiming treaty benefits by virtue of the limitation 
on benefits provision in the U.S.-Z treaty. E furnishes to W a flow-
through withholding certificate described in Sec.  1.1441-1(e)(3)(i) 
to which it attaches H's beneficial owner withholding certificate 
and a withholding statement for the portion of the payment that H 
claims as its distributive share of the royalty income. E also 
furnishes to W a beneficial owner withholding certificate for itself 
for the portion of the payment that H does not claim as its 
distributive share.
    (ii) Analysis. Absent actual knowledge or reason to know 
otherwise, W may rely on the documentation furnished by E to treat 
the royalty payment to a single foreign entity (E) as derived by 
different residents of tax treaty countries as a result of the 
claims presented under different treaties. W may, at its option,

[[Page 12782]]

grant dual treatment, that is, a reduced rate of zero percent under 
the U.S.-Z treaty on the portion of the royalty payment that H 
claims to derive as a resident of country Z and a reduced rate of 5% 
under the U.S.-Y treaty for the balance. However, under paragraph 
(b)(2)(iii) of this section, W may, at its option, treat E as the 
only relevant person deriving the royalty and grant benefits under 
the U.S.-Y treaty only.
    Example 3. (i) Facts. E is a business organization formed under 
the laws of country X. Country X has an income tax treaty with the 
United States. E has two interest holders, H1, organized in country 
Y, and H2, organized in country Z. E receives from W, a U.S. 
withholding agent, a payment of U.S. source royalties and interest, 
with respect to an obligation issued before July 1, 2014, that is 
eligible for the portfolio interest exception under sections 871(h) 
and 881(c), provided W receives the appropriate beneficial owner 
statement required under section 871(h)(5). E is classified as a 
corporation under U.S. tax law principles. Country X, E's country of 
organization, treats E as an entity that is not fiscally transparent 
with respect to items of income under the regulations under section 
894. Under the U.S.-X income tax treaty, royalties are subject to a 
5% rate of withholding. Country Y, H1's country of organization, 
treats E as fiscally transparent with respect to items of income 
under section 894 and H1 as not fiscally transparent with respect to 
items of income. Under the country Y-U.S. income tax treaty, 
royalties are exempt from U.S. tax. Country Z, H2's country of 
organization, treats E as not fiscally transparent under section 894 
with respect to items of income. E provides W with a flow-through 
beneficial owner withholding certificate with which it associates a 
beneficial owner withholding certificate from H1. H1's withholding 
certificate states that H1 is a resident of country Y, derives the 
royalty income under section 894, meets the applicable limitations 
on benefits provisions of the U.S.-Y treaty, and is the beneficial 
owner of the income. The withholding statement attached to E's flow-
through withholding certificate allocates one-half of the royalty 
payment to H1. E also provides W with a beneficial owner withholding 
certificate for the interest income and the remaining one-half of 
the royalty income. The withholding certificate states that E is a 
resident of country X, derives the royalty income under section 894, 
meets the limitation on benefits provisions of the U.S.-X treaty, 
and is the beneficial owner of the income.
    (ii) Analysis. Absent actual knowledge or reason to know that 
the claims are incorrect, W may treat one-half of the royalty 
derived by E as subject to a 5% withholding rate and one-half of the 
royalty as derived by H1 and subject to no withholding. Further, it 
may treat all of the interest as being paid to E and as qualifying 
for the portfolio interest exception. W can, at its option, treat 
the entire royalty as paid to E and subject it to withholding at a 
5% rate of withholding. In that case, H1 would be entitled to claim 
a refund with respect to its one-half of the royalty.

    (3) and (4) [Reserved]. For further guidance, see Sec.  1.1441-
6(b)(3) and (4).
    (c) Exemption from requirement to furnish a taxpayer identifying 
number and special documentary evidence rules for certain income--(1) 
General rule. In the case of income described in paragraph (c)(2) of 
this section, a withholding agent may rely on a beneficial owner 
withholding certificate described in paragraph (b)(1) of this section 
without regard to the requirement that the withholding certificate 
include the beneficial owner's taxpayer identifying number. In the case 
of a payment of income not described in paragraph (c)(2) of this 
section, a withholding agent may rely on a withholding certificate that 
includes the beneficial owner's foreign taxpayer identifying number 
described in paragraph (b)(1) of this section instead of the beneficial 
owner's taxpayer identifying number. In the case of payments of income 
described in paragraph (c)(2) of this section made outside the United 
States (as defined in Sec.  1.6049-5(e)) with respect to an offshore 
obligation (as defined in Sec.  1.6049-5(c)(1)), a withholding agent 
may, as an alternative to a withholding certificate described in 
paragraph (b)(1) of this section, rely on a certificate of residence 
described in paragraph (c)(3) of this section or documentary evidence 
described in paragraph (c)(4) of this section, relating to the 
beneficial owner, that the withholding agent has reviewed and maintains 
in its records in accordance with Sec.  1.1441-1(e)(4)(iii). In the 
case of a payment to a person other than an individual, the certificate 
of residence or documentary evidence must be accompanied by the 
statements described in paragraphs (c)(5)(i) and (ii) of this section 
regarding limitation on benefits and whether the amount paid is derived 
by such person or by one of its interest holders. The withholding agent 
maintains the reviewed documents by retaining the original, certified 
copy, or photocopy (microfiche, electronic scan, or similar means of 
electronic storage) of such documents. With respect to documentary 
evidence, the withholding agent must also note in its records the date 
on which the documents were received and reviewed. This paragraph 
(c)(1) shall not apply to amounts that are exempt from withholding 
based on a claim that the income is effectively connected with the 
conduct of a trade or business in the United States.
    (2) through (i)(2) [Reserved]. For further guidance, see Sec.  
1.1441-6(c)(2) through (i)(2).
    (i)(3) Effective/applicability dates. This section applies to 
payments made after June 30, 2014. (For payments made after December 
31, 2000 (except for payments to which paragraph (g) of this section 
applies, in which case substitute December 31, 2001 for December 31, 
2000), and before July 1, 2014, see this section as in effect and 
contained in 26 CFR part 1 revised April 1, 2013.)
    (j) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 14. Section 1.1441-7 is amended by revising paragraphs (b), (c), 
and (f)(2)(ii) and adding paragraph (h) to read as follows:


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

* * * * *
    (b) [Reserved]. For further guidance, see Sec.  1.1441-7T(b).
    (c) [Reserved]. For further guidance, see Sec.  1.1441-7T(c).
* * * * *
    (f) * * *
    (2) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1441-
7T(f)(2)(ii).
* * * * *
    (h) [Reserved]. For further guidance, see Sec.  1.1441-7T(h).

0
Par. 15. Section 1.1441-7T is added to read as follows:


Sec.  1.1441-7T  General provisions relating to withholding agents 
(temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1441-7(a).
    (b) Standards of knowledge--(1) In general. A withholding agent 
must withhold at the full 30-percent rate under section 1441, 1442, or 
1443(a) or at the full 4-percent rate under section 1443(b) if it has 
actual knowledge or reason to know that a claim of U.S. status or of a 
reduced rate of withholding under section 1441, 1442, or 1443 is 
unreliable or incorrect. A withholding agent shall be liable for tax, 
interest, and penalties to the extent provided under sections 1461 and 
1463 and the regulations under those sections if it fails to withhold 
the correct amount despite its actual knowledge or reason to know the 
amount required to be withheld. For purposes of the regulations under 
sections 1441, 1442, and 1443, a withholding agent may rely on 
information or certifications contained in, or associated with, a 
withholding certificate or other documentation furnished by or for a 
beneficial owner or payee unless the withholding agent has actual 
knowledge or reason to know that the information or certifications are 
incorrect or unreliable and, if based on such knowledge or reason to 
know, it should withhold (under chapter 3 of the Code

[[Page 12783]]

or another withholding provision of the Code) an amount greater than 
would be the case if it relied on the information or certifications, or 
it should report (under chapter 3 of the Code or under another 
provision of the Code) an amount that would not otherwise be reportable 
if it relied on the information or certifications. See Sec.  1.1441-
1(e)(4)(viii) for applicable reliance rules. A withholding agent that 
has received notification by the Internal Revenue Service (IRS) that a 
claim of U.S. status or of a reduced rate is incorrect has actual 
knowledge beginning on the date that is 30 calendar days after the date 
the notice is received. A withholding agent that fails to act in 
accordance with the presumptions set forth in Sec. Sec.  1.1441-
1(b)(3), 1.1441-4(a), 1.1441-5 (d) and (e), or 1.1441-9(b)(3) may also 
be liable for tax, interest, and penalties. See Sec.  1.1441-
1(b)(3)(ix) and (7). In the case of a withholding agent making a 
withholdable payment to a payee that the withholding agent is required 
to treat as a foreign entity, see Sec.  1.1471-3(e) for standards of 
knowledge and Sec. Sec.  1.1471-2 and 1.1472-1(b) for withholding that 
may apply under chapter 4.
    (2) Reason to know. A withholding agent shall be considered to have 
reason to know if its knowledge of relevant facts or of statements 
contained in the withholding certificates or other documentation is 
such that a reasonably prudent person in the position of the 
withholding agent would question the chapter 3 claims made. For an 
obligation that is a preexisting obligation, a withholding agent will 
have reason to know that a chapter 3 claim made by the holder of the 
obligation (account holder) is unreliable or incorrect if any 
information contained in its account opening files or other files 
pertaining to the obligation (account information), including 
documentation collected for purposes of AML due diligence (as defined 
under Sec.  1.1471-1(b)(4)), conflicts with the account holder's claim. 
A withholding agent will not, however, be considered to have reason to 
know that a person's chapter 3 claim is unreliable or incorrect based 
on documentation collected for AML due diligence until the date that is 
30 days after the obligation is executed (or the account is opened for 
an obligation that is an account with a financial institution).
    (3) Financial institutions--limits on reason to know--(i) In 
general. For purposes of this paragraph (b)(3) and paragraphs (b)(4) 
through (10) of this section, the terms withholding certificate, 
documentary evidence, and documentation are defined in Sec.  1.1441-
1(c)(16), (17) and (18). Except as otherwise provided in paragraphs 
(b)(4) through (9) of this section, a withholding agent that is an FFI 
under Sec.  1.1471-5(e), an insurance company (without regard to 
whether such company is a specified insurance company), or a broker or 
dealer in securities that maintains an account for a beneficial owner 
(a direct account holder) has reason to know that documentation 
provided by the direct account holder is unreliable or incorrect only 
if one or more of the circumstances described in paragraphs (b)(4) 
through (9) of this section exist. If a direct account holder has 
provided documentation that is unreliable or incorrect under the rules 
of paragraph (b)(4) through (9) of this section, the withholding agent 
may require new documentation. Alternatively, the withholding agent may 
rely on the documentation originally provided if the rules of 
paragraphs (b)(4) through (9) of this section permit such reliance 
based on additional statements and documentation obtained by the 
withholding agent from the beneficial owner. Paragraph (b)(10) of this 
section provides rules regarding reason to know for withholding agents 
that receive beneficial owner documentation from persons (indirect 
account holders) that have an account relationship with, or an 
ownership interest in, a direct account holder of the withholding 
agent. Paragraph (b)(11) of this section provides limitations on a 
withholding agent's reason to know for multiple obligations held by the 
same person. Paragraph (b)(12) of this section defines a reasonable 
explanation provided by an individual with respect to the individual's 
claim of foreign status. For rules regarding reliance on Form W-9, see 
Sec.  31.3406(g)-3(e)(2) of this chapter. For payments that are 
withholdable payments, see Sec.  1.1471-3(e)(3) and (4) for additional 
rules regarding a withholding agent's reason to know with respect to a 
payee's claim of chapter 4 status and Sec.  1.1471-3(f) for presumption 
rules that apply when the claim of chapter 4 status is unreliable or 
incorrect.
    (ii) Limits on reason to know for preexisting obligations. With 
respect to a preexisting obligation, a withholding agent that has 
documented the foreign status of the direct account holder for purposes 
of chapter 3 or chapter 61 before July 1, 2014 may continue to rely on 
such documentation. If, however, the withholding agent reviews 
documentation for an individual account holder claiming foreign status 
that contains a U.S. place of birth (as described in paragraph 
(b)(5)(ii) of this section) or if the withholding agent is notified of 
a change in circumstances under the criteria of paragraphs (b)(5) and 
(8) of this section (as effective on July 1, 2014), the obligation will 
be treated as having experienced a change in circumstances under Sec.  
1.1441-1(e)(4)(ii)(D) as of the date that the withholding agent reviews 
the documentation or receives the notification, and the withholding 
agent will then have reason to know that the documentation is 
unreliable or incorrect. See Sec.  1.1441-1(b)(3)(iv) for the grace 
period following a changes in circumstances.
    (4) Rules applicable to withholding certificates--(i) In general. A 
withholding agent has reason to know that a beneficial owner 
withholding certificate provided by a direct account holder 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 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.
    (ii) Examples. The rules of paragraph (b)(4) of this section are 
illustrated by the following examples:

    Example 1. F, a foreign person that has a direct account 
relationship with USB, a bank that is a U.S. person, provides USB 
with a beneficial owner withholding certificate for the purpose of 
claiming a reduced rate of withholding on U.S. source dividends 
(which is a withholdable payment). F resides in a treaty country 
that has a limitation on benefits provision in its income tax treaty 
with the United States. The withholding certificate includes a 
certification of F's status for chapter 4 purposes to except the 
payment from withholding under chapter 4, but does not contain a 
statement regarding limitations on benefits or deriving the income 
under section 894 as required by Sec.  1.1441-6(b)(1). USB cannot 
rely on the withholding certificate to grant a reduced

[[Page 12784]]

rate of withholding for chapter 3 purposes because it is incomplete 
with respect to the claim made by F.
    Example 2. F, a foreign person and entity that has a direct 
account relationship with USB, a broker that is a U.S. person, 
provides USB with a withholding certificate for the purpose of 
claiming the portfolio interest exception under section 881(c) with 
respect to interest paid on an obligation issued before July 1, 
2014. The payment of interest is not a withholdable payment under 
Sec.  1.1471-2(b) (referring to payments made with respect to 
grandfathered obligations), and, therefore, withholding does not 
apply to the payment under chapter 4. See Sec.  1.1441-3(c)(4)(i) 
for rules coordinating withholding under chapters 3 and 4. F 
indicates on its withholding certificate, however, that it is a 
partnership. USB may not treat F as a beneficial owner of the 
interest for purposes of the portfolio interest exception because F 
has indicated on its withholding certificate that it is a foreign 
partnership, and such entity classification is inconsistent with its 
claim as a beneficial owner.

    (5) Withholding certificate--establishment of foreign status. A 
withholding agent has reason to know that a beneficial owner 
withholding certificate (as defined in Sec.  1.1441-1(e)(2)) provided 
by a direct account holder is unreliable or incorrect for purposes of 
establishing the account holder's status as a foreign person as set 
forth in paragraphs (b)(5)(i) through (iii) of this section.
    (i) Classification of U.S. status, U.S. address, or U.S. telephone 
number. A withholding certificate is unreliable or incorrect if the 
withholding agent has classified the person as a U.S. person in its 
account information, the withholding certificate has a current 
permanent residence address (as defined in Sec.  1.1441-1(e)(2)(ii)) in 
the United States, the withholding certificate has a current mailing 
address in the United States, the withholding agent has a current 
residence or mailing address as part of its account information that is 
an address in the United States, or the direct account holder notifies 
the withholding agent of a new residence or mailing address in the 
United States (whether or not provided on a withholding certificate). A 
withholding agent also has reason to know that a withholding 
certificate provided by a person is unreliable or incorrect if the 
withholding agent has a current telephone number for the account holder 
in the United States and has no telephone number for the account holder 
outside of the United States. When any of the foregoing indicia are 
present (U.S. indicia), a withholding agent may nevertheless rely on 
the beneficial owner withholding certificate to establish the account 
holder's foreign status if it may do so under the provisions of 
paragraph (b)(5)(i)(A) or (B) of this section.
    (A) A withholding agent may treat a direct account holder as a 
foreign person if the beneficial owner withholding certificate has been 
provided by an individual and--
    (1) The withholding agent has in its possession or obtains 
documentary evidence establishing foreign status (as described in Sec.  
1.1471-3(c)(5)(i)) that does not contain a U.S. address and the 
individual provides the withholding agent with a reasonable 
explanation, in writing, supporting the claim of foreign status (as 
defined in paragraph (b)(12) of this section);
    (2) For a payment made outside the U.S. with respect to an offshore 
obligation (as described in Sec.  1.6049-5(c)(1)), the withholding 
agent has in its possession or obtains documentary evidence 
establishing foreign status (as described in Sec.  1.1471-3(c)(5)(i)), 
that does not contain a U.S. address;
    (3) For a payment made with respect to an offshore obligation (with 
offshore obligation defined as in Sec.  1.6049-5(c)(1)), the 
withholding agent classifies the individual as a resident of the 
country in which the obligation is maintained, the withholding agent is 
required to report a payment made to the individual annually on a tax 
information statement that is filed with the tax authority of the 
country in which the office is located as part of that country's 
resident reporting requirements, and that country has a tax information 
exchange agreement or income tax treaty in effect with the United 
States; or
    (4) For a case in which the withholding agent classified the 
account holder as a U.S. person in its account information, the 
withholding agent has in its possession or obtains documentary evidence 
described in Sec.  1.1471-3(c)(5)(i)(B) evidencing citizenship in a 
country other than the United States.
    (B) A withholding agent may treat a direct account holder as a 
foreign person if the beneficial owner withholding certificate has been 
provided by an entity that the withholding agent does not know, or does 
not have reason to know, is a flow-through entity and--
    (1) The withholding agent has in its possession or obtains 
documentation establishing foreign status (as described in Sec.  
1.1471-3(c)(5)(i) and as applicable to entities) that substantiates 
that the entity is actually organized or created under the laws of a 
foreign country; or
    (2) For a payment made with respect to an offshore obligation (with 
offshore obligation defined as in Sec.  1.6049-5(c)(1)), the 
withholding agent classifies the entity as a resident of the country in 
which the account is maintained, the withholding agent is required to 
report a payment made to the entity annually on a tax information 
statement that is filed with the tax authority of the country in which 
the office is located as part of that country's resident reporting 
requirements, and that country has a tax information exchange agreement 
or income tax treaty in effect with the United States.
    (ii) U.S. place of birth. A withholding agent has reason to know 
that a withholding certificate claiming foreign status provided by a 
direct account holder that is an individual is unreliable or incorrect 
if the withholding agent has, either on accompanying documentation or 
as part of its account information, an unambiguous indication of a 
place of birth for the individual in the United States. A withholding 
agent may treat the individual as a foreign person, notwithstanding the 
U.S. place of birth, if the withholding agent has in its possession or 
obtains documentary evidence described in Sec.  1.1471-3(c)(5)(i)(B) 
evidencing citizenship in a country other than the United States and 
either a copy of the individual's Certificate of Loss of Nationality of 
the United States or a reasonable written explanation of the account 
holder's renunciation of U.S. citizenship or the reason the account 
holder did not obtain U.S. citizenship at birth.
    (iii) Standing instructions with respect to offshore obligations. A 
beneficial owner withholding certificate is unreliable or incorrect if 
it is provided with respect to an offshore obligation (as defined in 
Sec.  1.6049-5(c)(1)) of a direct account holder that has provided 
standing instructions to pay amounts to an address or an account 
maintained in the United States. The withholding agent may treat the 
account holder as a foreign person, however, if the account holder 
provides either a reasonable explanation in writing that supports its 
foreign status or documentary evidence establishing foreign status 
described in Sec.  1.1471-3(c)(5)(i).
    (6) Withholding certificate--claim of reduced rate of withholding 
under treaty. A withholding agent has reason to know that a withholding 
certificate (other than Form W-9) provided by a direct account holder 
is unreliable or incorrect for purposes of establishing that the 
account holder is a resident of a country with which the United States 
has an income tax treaty if it is described in paragraphs (b)(6)(i) 
through (iii) of this section.
    (i) Permanent residence address. A beneficial owner withholding 
certificate

[[Page 12785]]

is unreliable or incorrect if the permanent residence address on the 
beneficial owner withholding certificate is not in the country whose 
treaty is invoked, or the direct account holder notifies the 
withholding agent of a new permanent residence address that is not in 
the treaty country. A withholding agent may, however, treat a direct 
account holder as entitled to a reduced rate of withholding under an 
income tax treaty if the account holder provides a reasonable 
explanation for the permanent residence address outside the treaty 
country (e.g., the address is the address of a branch of the beneficial 
owner located outside the treaty country in which the entity is a 
resident) or the withholding agent has in its possession or obtains 
documentary evidence described in Sec.  1.1471-3(c)(5)(i) that 
establishes residency in a treaty country.
    (ii) Mailing address. A beneficial owner withholding certificate is 
unreliable or incorrect if the permanent residence address on the 
withholding certificate is in the applicable treaty country but the 
withholding certificate contains a mailing address outside the treaty 
country or the withholding agent has a current mailing address as part 
of its account information for the direct account holder that is 
outside the treaty country. A mailing address that is a P.O. Box, in-
care-of address, or address at a financial institution (if the 
financial institution is not a beneficial owner) shall not preclude a 
withholding agent from treating the account holder as a resident of a 
treaty country if such address is in the treaty country. If a 
withholding agent has a mailing address (whether or not contained on 
the withholding certificate) outside the applicable treaty country, the 
withholding agent may nevertheless treat a direct account holder as a 
resident of an applicable treaty country if--
    (A) The withholding agent has in its possession or obtains 
documentary evidence described in Sec.  1.1471-3(c)(5)(i) supporting 
the account holder's claim of residence in the applicable treaty 
country (and the additional documentation does not contain an address 
outside the treaty country);
    (B) The withholding agent has in its possession, or obtains, 
documentation that establishes that the direct account holder is an 
entity organized in a treaty country (or an entity managed and 
controlled in a treaty country, if the applicable treaty so requires);
    (C) The withholding agent knows that the address outside the 
applicable treaty country (other than a P.O. box, or in-care-of 
address) is a branch of the account holder that is an entity that is a 
resident of the applicable treaty country; or
    (D) The withholding agent obtains a written statement from the 
direct account holder that reasonably establishes entitlement to treaty 
benefits.
    (iii) Standing instructions. A beneficial owner withholding 
certificate is unreliable or incorrect to establish entitlement to a 
reduced rate of withholding under an income tax treaty if the direct 
account holder has standing instructions to pay amounts directing the 
withholding agent to pay amounts from its account to an address or an 
account outside the treaty country unless the account holder provides a 
reasonable explanation, in writing, or the withholding agent has in its 
possession or obtains documentary evidence described in Sec.  1.1471-
3(c)(5)(i) establishing the account holder's residence in the 
applicable treaty country.
    (7) Documentary evidence. A withholding agent shall not treat 
documentary evidence provided by a direct account holder as valid if 
the documentary evidence does not reasonably establish the identity of 
the person presenting the documentary evidence. For example, 
documentary evidence is not valid if it is provided in person by a 
direct account holder that is a natural person and the photograph or 
signature on the documentary evidence, if any, does not match the 
appearance or signature of the person presenting the document. A 
withholding agent shall not rely on documentary evidence to reduce the 
rate of withholding that would otherwise apply under the presumption 
rules of Sec. Sec.  1.1441-1(b)(3), 1.1441-5(d) and (e)(6), and 1.6049-
5(d) if the documentary evidence contains information that is 
inconsistent with the direct account holder's claim of a reduced rate 
of withholding, the withholding agent has other account information 
that is inconsistent with the direct account holder's claim, or the 
documentary evidence lacks information necessary to establish 
entitlement to a reduced rate of withholding. For example, if a direct 
account holder provides documentary evidence to claim treaty benefits 
and the documentary evidence establishes the direct account holder's 
status as a foreign person and a resident of a treaty country, but the 
account holder fails to provide the treaty statements required by Sec.  
1.1441-6(c)(5), the documentary evidence does not establish the direct 
account holder's 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 country with which the United States has an 
income tax treaty, documentary evidence shall be considered unreliable 
or incorrect only if it is not reliable under the rules of paragraph 
(b)(8) and (9) of this section.
    (8) Documentary evidence--establishment of foreign status. A 
withholding agent has reason to know that documentary evidence is 
unreliable or incorrect for purposes of establishing the direct account 
holder's status as a foreign person if the documentary evidence is 
described in paragraphs (b)(8)(i), (ii), (iii), or (iv) of this 
section.
    (i) Documentary evidence received prior to January 1, 2001. A 
withholding agent shall not treat documentary evidence provided by a 
direct account holder before January 1, 2001, as valid for purposes of 
establishing the account holder's status as a foreign person if it has 
actual knowledge that the account holder is a U.S. person or if it has 
a mailing or residence address for the account holder in the United 
States. If a withholding agent has an address for the direct account 
holder in the United States, the withholding agent may nevertheless 
treat the account holder as a foreign person if it can so treat the 
account holder under the rules of paragraph (b)(8)(ii) of this section. 
See, however, paragraph (b)(3)(ii) of this section regarding changes in 
circumstances with respect to preexisting obligations.
    (ii) Documentary evidence received after December 31, 2000. A 
withholding agent shall not treat documentary evidence provided by an 
account holder after December 31, 2000, as valid for purposes of 
establishing the direct account holder's foreign status if the 
withholding agent does not have a permanent residence address for the 
account holder. Documentary evidence is also unreliable or incorrect to 
establish a direct account holder's status as a foreign person if the 
withholding agent has classified the account holder as a U.S. person in 
its account information, if the withholding agent has a current mailing 
or permanent residence address (whether or not on the documentation) 
for the direct account holder in the United States, the direct account 
holder notifies the withholding agent of a new residence or mailing 
address in the United States, or if the withholding agent has a current 
telephone number for the account holder in the United States and has no 
telephone number for the account holder outside of the United States. 
Notwithstanding the foregoing, a

[[Page 12786]]

withholding agent may rely on documentary evidence as establishing the 
direct account holder's foreign status if it may do so under the 
provisions of paragraph (b)(8)(ii)(A) or (B) of this section.
    (A) Treatment of individual's foreign status. A withholding agent 
may treat a direct account holder that is an individual as a foreign 
person even if it has any of the U.S. indicia described in paragraph 
(b)(8)(ii) of this section for the account holder if--
    (1) The withholding agent has in its possession or obtains 
additional documentary evidence supporting the claim of foreign status 
(described in Sec.  1.1471-3(c)(5)(i)) that does not contain a U.S. 
address and a reasonable explanation in writing supporting the account 
holder's foreign status;
    (2) The withholding agent obtains a valid beneficial owner 
withholding certificate on Form W-8 and the Form W-8 contains a 
permanent residence address outside the United States and a mailing 
address outside the United States (or if a mailing address is inside 
the United States the account holder provides a reasonable explanation 
in writing supporting the account holder's foreign status); or
    (3) For a payment made with respect to an offshore obligation (with 
offshore obligation defined as in Sec.  1.6049-5(c)(1)), the 
withholding agent classifies the individual as a resident of the 
country in which the obligation is maintained, the withholding agent is 
required to report a payment made to the individual annually on a tax 
information statement that is filed with the tax authority of the 
country in which the office is located as part of that country's 
resident reporting requirements, and that country has a tax information 
exchange agreement or income tax treaty in effect with the United 
States.
    (B) Presumption of entity's foreign status. A withholding agent may 
treat a direct account holder that is an entity (other than a flow-
through entity) as a foreign person even if it has any of the U.S. 
indicia described in paragraph (b)(8)(ii) of this section for the 
account holder in the United States if--
    (1) The withholding agent has in its possession or obtains 
documentary evidence establishing foreign status (as described in Sec.  
1.1471-3(c)(5)(i)) that substantiates that the entity is actually 
organized or created under the laws of a foreign country;
    (2) The withholding agent obtains a valid beneficial owner 
withholding certificate on Form W-8 and the Form W-8 contains a 
permanent residence address outside the United States and a mailing 
address outside the United States (or if a mailing address is inside 
the United States the account holder provides additional documentary 
evidence sufficient to establish the account holder's foreign status); 
or
    (3) For a payment made with respect to an offshore obligation (with 
offshore obligation defined as in Sec.  1.6049-5(c)(1)), the 
withholding agent classifies the entity as a resident of the country in 
which the account is maintained, the withholding agent is required to 
report a payment made to the entity annually on a tax information 
statement that is filed with the tax authority of the country in which 
the office is located as part of that country's resident reporting 
requirements, and that country has a tax information exchange agreement 
or income tax treaty in effect with the United States.
    (iii) U.S. place of birth. A withholding agent has reason to know 
that documentary evidence provided by a direct account holder to 
support an individual's foreign status is unreliable or incorrect if 
the withholding agent has, either on the documentary evidence or as 
part of its account information, an unambiguous place of birth for the 
individual in the United States. A withholding agent may treat the 
individual as a foreign person, notwithstanding the U.S. birth place, 
if the withholding agent has in its possession or obtains documentary 
evidence described in Sec.  1.1471-3(c)(5)(i)(B) evidencing citizenship 
in a country other than the United States and a copy of the 
individual's Certificate of Loss of Nationality of the United States. 
Alternatively, a withholding agent may treat the individual as a 
foreign person if the withholding agent obtains a valid beneficial 
owner withholding certificate on Form W-8 from the individual that 
establishes the account holder's foreign status, documentary evidence 
described in Sec.  1.1471-3(c)(5)(i)(B) evidencing citizenship in a 
country other than the United States, and a reasonable written 
explanation of the individual's renunciation of U.S. citizenship or the 
reason the individual did not obtain U.S. citizenship at birth.
    (iv) Standing instructions with respect to offshore obligations. 
Documentary evidence is unreliable or incorrect if it is provided with 
respect to an offshore obligation (as defined in Sec.  1.6049-5(c)(1)) 
of a direct account holder that has provided the withholding agent with 
standing instructions to pay amounts to an address or an account 
maintained in the United States. The withholding agent may treat the 
direct account holder as a foreign person, however, if the account 
holder provides either a reasonable explanation in writing that 
supports its foreign status or a valid beneficial owner withholding 
certificate claiming foreign status.
    (9) Documentary evidence--claim of reduced rate of withholding 
under treaty. A withholding agent has reason to know that documentary 
evidence is unreliable or incorrect for purposes of establishing that a 
direct account holder is a resident of a country with which the United 
States has an income tax treaty if it is described in paragraph 
(b)(9)(i) or (ii) of this section.
    (i) Permanent residence address and mailing address. Documentary 
evidence is unreliable or incorrect if the withholding agent has a 
current mailing or current permanent residence address for the direct 
account holder (whether or not on the documentary evidence) that is 
outside the applicable treaty country, or the withholding agent has no 
permanent residence address for the account holder. If a withholding 
agent has a current mailing or current permanent residence address for 
the direct account holder outside the applicable treaty country, the 
withholding agent may nevertheless treat a direct account holder as a 
resident of an applicable treaty country if the withholding agent--
    (A) Has in its possession or obtains additional documentary 
evidence described in Sec.  1.1471-3(c)(5)(i) supporting the direct 
account holder's claim of residence in the applicable treaty country 
(and the documentary evidence does not contain an address outside the 
applicable treaty country, a P.O. box, an in-care-of address, or the 
address of a financial institution);
    (B) Has in its possession or obtains documentary evidence described 
in Sec.  1.1471-3(c)(5)(i) that establishes the direct account holder 
is an entity organized in a treaty country (or an entity managed and 
controlled in a treaty country, if the applicable treaty so requires); 
or
    (C) Obtains a valid beneficial owner withholding certificate on 
Form W-8 that contains a permanent residence address and a mailing 
address in the applicable treaty country.
    (ii) Standing instructions. Documentary evidence is unreliable or 
incorrect if the direct account holder has provided the withholding 
agent with standing instructions to pay amounts to an address or an 
account maintained outside the treaty country unless the direct account 
holder provides a reasonable explanation, in writing, establishing the 
direct account holder's residence in the applicable treaty country, or 
a valid beneficial

[[Page 12787]]

owner withholding certificate that contains a permanent residence 
address and a mailing address in the applicable treaty country.
    (10) Indirect account holders. A withholding agent that receives 
documentation from a payee through a nonqualified intermediary, a flow-
through entity, or a U.S. branch (including a territory financial 
institution) described in Sec.  1.1441-1(b)(2)(iv) (other than a U.S. 
branch or territory financial institution that is treated as a U.S. 
person) has reason to know that the documentation is unreliable or 
incorrect if a reasonably prudent person in the position of a 
withholding agent would question the claims made. This standard 
requires, but is not limited to, a withholding agent's compliance with 
the rules of paragraphs (b)(10)(i) through (iii).
    (i) The withholding agent must review the withholding statement 
described in Sec.  1.1441-1(e)(3)(iv) and may not rely on information 
in the statement to the extent the information does not support the 
claims made for any payee. For this purpose, a withholding agent may 
not treat a payee as a foreign person if an address in the United 
States is provided for such payee and may not treat a person as a 
resident of a country with which the United States has an income tax 
treaty if the address for that person is outside the applicable treaty 
country. Notwithstanding a U.S. address or an address outside a treaty 
country, the withholding agent may treat a payee as a foreign person or 
a foreign person as a resident of a treaty country if the withholding 
statement is accompanied by a valid withholding certificate and 
documentary evidence (as described in Sec.  1.1471-3(c)(5)(i)) or a 
reasonable explanation is provided, in writing, by the nonqualified 
intermediary, flow-through entity, or U.S. branch supporting the 
payee's foreign status or the foreign person's residency in a treaty 
country.
    (ii) The withholding agent must review each withholding certificate 
in accordance with the requirements of paragraphs (b)(5) and (6) of 
this section and verify that the information on the withholding 
certificate is consistent with the information on the withholding 
statement required under Sec.  1.1441-1(e)(3)(iv). If there is a 
discrepancy between the withholding certificate and the withholding 
statement, the withholding agent may choose to rely on the withholding 
certificate, if valid, and instruct the nonqualified intermediary, 
flow-through entity, or U.S. branch to correct the withholding 
statement or apply the presumption rules of Sec. Sec.  1.1441-1(b), 
1.1441-5(d) and (e)(6), 1.6049-5(d), and 1.1471-3(f) (for a 
withholdable payment for chapter 4 purposes) to the payment allocable 
to the payee who provided the withholding certificate. If the 
withholding agent chooses to rely upon the withholding certificate, the 
withholding agent is required to instruct the intermediary or flow-
through entity to correct the withholding statement and confirm that 
the intermediary or flow-through entity does not know or have reason to 
know that the withholding certificate is unreliable or inaccurate.
    (iii) The withholding agent must review the documentary evidence 
provided by the nonqualified intermediary, flow-through entity, or U.S. 
branch to determine that there is no obvious indication that the payee 
is a U.S. non-exempt recipient or that the documentary evidence does 
not establish the identity of the person who provided the documentation 
(e.g., the documentary evidence does not appear to be an identification 
document).
    (11) Limits on reason to know for multiple obligations belonging to 
a single person. A withholding agent that maintains multiple 
obligations for a single person will have reason to know that a claim 
of foreign status for the person is inaccurate based on account 
information for another obligation held by the person only to the 
extent that--
    (i) The withholding agent's computerized systems link the 
obligations by reference to a data element such as client number, EIN, 
or foreign tax identifying number and consolidates the account 
information and payment information for the obligations; or
    (ii) The withholding agent has treated the obligations as 
consolidated obligations for purposes of sharing documentation pursuant 
to Sec.  1.1441-1(e)(4)(ix) or for purposes of treating one or more 
accounts as preexisting obligations.
    (12) Reasonable explanation supporting claim of foreign status. A 
reasonable explanation supporting an individual's claim of foreign 
status for purposes of paragraphs (b)(5) and (8) of this section means 
a written statement prepared by the individual or the individual's 
completion of a checklist provided by the withholding agent, stating 
that the individual meets the requirements of one of paragraphs 
(b)(12)(i) through (iv) of this section.
    (i) The individual certifies that he or she--
    (A) Is a student at a U.S. educational institution and holds the 
appropriate visa;
    (B) Is a teacher, trainee, or intern at a U.S. educational 
institution or a participant in an educational or cultural exchange 
visitor program, and holds the appropriate visa;
    (C) Is a foreign individual assigned to a diplomatic post or a 
position in a consulate, embassy, or international organization in the 
United States; or
    (D) Is a spouse or unmarried child under the age of 21 years of one 
of the persons described in paragraphs (b)(12)(i)(A) through (C) of 
this section;
    (ii) The individual provides information demonstrating that he or 
she has not met the substantial presence test set forth in Sec.  
301.7701(b)-1(c) of this chapter (e.g., a written statement indicating 
the number of days present in the United States during the three-year 
period that includes the current year);
    (iii) The individual certifies that he or she meets the closer 
connection exception described in Sec.  301.7701(b)-2, states the 
country to which the individual has a closer connection, and 
demonstrates how that closer connection has been established; or
    (iv) With respect a payment entitled to a reduced rate of tax under 
a U.S. income tax treaty, the individual certifies that he or she is 
treated as a resident of a country other than the United States and is 
not treated as a U.S. resident or U.S. citizen for purposes of that 
income tax treaty.
    (13) Additional guidance. The IRS may prescribe other circumstances 
for which a withholding certificate or documentary evidence is 
unreliable or incorrect in addition to the circumstances described in 
paragraph (b) of this section to establish an account holder's status 
as a foreign person or a beneficial owner entitled to a reduced rate of 
withholding in published guidance (see Sec.  601.601(d)(2) of this 
chapter).
    (c) Agent--(1) In general. A withholding agent may authorize an 
agent to fulfill its obligations under chapter 3 if the requirements of 
paragraph (c)(2) of this section are satisfied. The acts of an agent of 
a withholding agent (including the receipt of withholding certificates, 
the payment of amounts of income subject to withholding, and the 
deposit of tax withheld) are imputed to the withholding agent on whose 
behalf it is acting.
    (2) Authorized agent. An agent is an authorized agent only if--
    (i) There is a written agreement between the withholding agent and 
the foreign person acting as agent that clearly provides which 
obligations under chapter 3 that the agent is authorized to fulfill;

[[Page 12788]]

    (ii) A Form 8655, ``Reporting Agent Authorization,'' is filed with 
the IRS if the agent (including any sub-agent) is acting as a reporting 
agent for filing Form 1042 or making tax deposits and payments;
    (iii) Books and records and relevant personnel of the agent 
(including any sub-agent) are available to the withholding agent (on a 
continuous basis, including after termination of the relationship) in 
order to evaluate the withholding agent's compliance with the 
provisions of chapters 3, 4, and 61 of the Code, section 3406, and the 
regulations under those provisions; and
    (iv) The U.S. withholding agent remains fully liable for the acts 
of its agent (or for any sub-agent) and does not assert any of the 
defenses that may otherwise be available, including under common law 
principles of agency in order to avoid tax liability under the Internal 
Revenue Code.
    (3) Liability of withholding agent acting through an agent. An 
authorized agent is subject to the same withholding and reporting 
obligations that apply to any withholding agent under the provisions of 
chapter 3 of the Code and the regulations thereunder. See the 
instructions to Form 1042-S for the manner for filing the form when an 
authorized agent acts on behalf of a withholding agent. Except as 
otherwise provided in the QI, WP, and WT agreements, an authorized 
agent does not benefit from the special procedures or exceptions that 
may apply to a qualified intermediary, WP, or WT. A withholding agent 
acting through an authorized agent is liable for any failure of the 
agent, such as failure to withhold an amount or make payment of tax, in 
the same manner and to the same extent as if the agent's failure had 
been the failure of the withholding agent. For this purpose, the 
agent's actual knowledge or reason to know shall be imputed to the 
withholding agent. The withholding agent's liability shall exist 
irrespective of the fact that the authorized agent is also a 
withholding agent and is itself separately liable for failure to comply 
with the provisions of the regulations under section 1441, 1442, or 
1443. However, the same tax, interest, or penalties shall not be 
collected more than once.
    (d) through (f)(2)(i) [Reserved]. For further guidance, see Sec.  
1.1441-7(d) through (f)(2)(i).
    (f)(2)(ii) Examples. The following examples illustrate the 
operation of paragraph (d)(2) of this section. Each example assumes 
that withholding under chapter 4 does not apply.

    Example 1.  (i) DS is a U.S. subsidiary of FP, a corporation 
organized in Country N, a country that does not have an income tax 
treaty with the United States. FS is a special purpose subsidiary of 
FP that is incorporated in Country T, a country that has an income 
tax treaty with the United States that prohibits the imposition of 
withholding tax on payments of interest. FS is capitalized with 
$10,000,000 in debt from BK, a Country N bank, and $1,000,000 in 
capital from FS.
    (ii) On May 1, 1995, C, a U.S. person, purchases an automobile 
from DS in return for an installment note. On July 1, 1995, DS sells 
a number of installment notes, including C's, to FS in exchange for 
$10,000,000. DS continues to service the installment notes for FS 
and C is not notified of the sale of its obligation and continues to 
make payments to DS. But for the withholding tax on payments of 
interest by DS to BK, DS would have borrowed directly from BK, 
pledging the installment notes as collateral.
    (iii) The C installment note is a financing transaction, whether 
held by DS or by FS, and the FS note held by BK also is a financing 
transaction. After FS purchases the installment note, and during the 
time the installment note is held by FS, the transactions constitute 
a financing arrangement, within the meaning of Sec.  1.881-
3(a)(2)(i). BK is the financing entity, FS is the intermediate 
entity, and C is the financed entity. Because the participation of 
FS in the financing arrangement reduces the tax imposed by section 
881 and because there was a tax avoidance plan, FS is a conduit 
entity.
    (iv) Because C does not know or have reason to know of the tax 
avoidance plan (and by extension that the financing arrangement is a 
conduit financing arrangement), C is not required to withhold tax 
under section 1441. However, DS, who knows that FS's participation 
in the financing arrangement is pursuant to a tax avoidance plan and 
is a withholding agent for purposes of section 1441, is not relieved 
of its withholding responsibilities.
    Example 2. Assume the same facts as in Example 1 except that C 
receives a new payment booklet on which DS is described as 
``agent''. Although C may deduce that its installment note has been 
sold, without more C has no reason to know of the existence of a 
financing arrangement. Accordingly, C is not liable for failure to 
withhold, although DS still is not relieved of its withholding 
responsibilities.
    Example 3. (i) DC is a U.S. corporation that is in the process 
of negotiating a loan of $10,000,000 from BK1, a bank located in 
Country N, a country that does not have an income tax treaty with 
the United States. Before the loan agreement is signed, DC's tax 
lawyers point out that interest on the loan would not be subject to 
withholding tax if the loan were made by BK2, a subsidiary of BK1 
that is incorporated in Country T, a country that has an income tax 
treaty with the United States that prohibits the imposition of 
withholding tax on payments of interest. BK1 makes a loan to BK2 to 
enable BK2 to make the loan to DC. Without the loan from BK1 to BK2, 
BK2 would not have been able to make the loan to DC.
    (ii) The loan from BK1 to BK2 and the loan from BK2 to DC are 
both financing transactions and together constitute a financing 
arrangement within the meaning of Sec.  1.881-3(a)(2)(i). BK1 is the 
financing entity, BK2 is the intermediate entity, and DC is the 
financed entity. Because the participation of BK2 in the financing 
arrangement reduces the tax imposed by section 881 and because there 
is a tax avoidance plan, BK2 is a conduit entity.
    (iii) Because DC is a party to the tax avoidance plan (and 
accordingly knows of its existence), DC must withhold tax under 
section 1441. If DC does not withhold tax on its payment of 
interest, BK2, a party to the plan and a withholding agent for 
purposes of section 1441, must withhold tax as required by section 
1441.
    Example 4. (i) DC is a U.S. corporation that has a long-standing 
banking relationship with BK2, a U.S. subsidiary of BK1, a bank 
incorporated in Country N, a country that does not have an income 
tax treaty with the United States. DC has borrowed amounts of as 
much as $75,000,000 from BK2 in the past. On January 1, 1995, DC 
asks to borrow $50,000,000 from BK2. BK2 does not have the funds 
available to make a loan of that size. BK2 considers asking BK1 to 
enter into a loan with DC but rejects this possibility because of 
the additional withholding tax that would be incurred. Accordingly, 
BK2 borrows the necessary amount from BK1 with the intention of on-
lending to DC. BK1 does not make the loan directly to DC because of 
the withholding tax that would apply to payments of interest from DC 
to BK1. DC does not negotiate with BK1 and has no reason to know 
that BK1 was the source of the loan.
    (ii) The loan from BK2 to DC and the loan from BK1 to BK2 are 
both financing transactions and together constitute a financing 
arrangement within the meaning of Sec.  1.881-3(a)(2)(i). BK1 is the 
financing entity, BK2 is the intermediate entity, and DC is the 
financed entity. The participation of BK2 in the financing 
arrangement reduces the tax imposed by section 881. Because the 
participation of BK2 in the financing arrangement reduces the tax 
imposed by section 881 and because there was a tax avoidance plan, 
BK2 is a conduit entity.
    (iii) Because DC does not know or have reason to know of the tax 
avoidance plan (and by extension that the financing arrangement is a 
conduit financing arrangement), DC is not required to withhold tax 
under section 1441. However, BK2, who is also a withholding agent 
under section 1441 and who knows that the financing arrangement is a 
conduit financing arrangement, is not relieved of its withholding 
responsibilities.

    (3) and (g) [Reserved]. For further guidance, see Sec.  1.1441-
7(f)(3) and (g).
    (h) Effective date/Applicability. Except as otherwise provided in 
paragraph (f)(3) of this section, this section applies to payments made 
after June 30, 2014. (For payments made after December 31, 2000, and 
before July 1, 2014, see this section as in effect and contained in 26 
CFR part 1, as revised April 1, 2013.)

[[Page 12789]]

    (i) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 16. Section 1.1461-1 is amended by revising paragraphs (b)(1), 
(c)(1)(i), (c)(1)(ii), (c)(2)(ii)(E), (c)(2)(ii)(H), (c)(2)(ii)(I), 
(c)(3)(i), (c)(3)(iii), (c)(4)(i), (c)(4)(ii)(A), (c)(4)(iv), 
(c)(4)(v), (c)(5), and (i) to read as follows:


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

* * * * *
    (b)(1) [Reserved]. For further guidance, see Sec.  1.1461-1T(b)(1).
* * * * *
    (c)(1)(i) and (ii) [Reserved]. For further guidance, see Sec.  
1.1461-1T(c)(1)(i) and (ii).
* * * * *
    (2) * * *
    (ii) * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1.461-
1T(c)(2)(ii)(E).
* * * * *
    (c)(2)(ii)(H) and (I) [Reserved]. For further guidance, see Sec.  
1.1.461-1T(c)(2)(ii)(H) and (I).
    (3) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1461-1T(c)(3)(i).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1461-
1T(c)(3)(iii).
* * * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1461-1T(c)(4)(i).
    (ii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1461-
1T(c)(4)(ii)(A).
* * * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1461-
1T(c)(4)(iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1461-1T(c)(4)(v).
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  1.1461-1T(c)(5).
* * * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1461-1T(i).

0
Par. 17. Section 1.1461-1T is added to read as follows:


Sec.  1.1461-1T  Payments and returns of tax withheld (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1461-1(a).
    (b) Income tax return--(1) General rule. A withholding agent shall 
make an income tax return on Form 1042 (or such other form as the IRS 
may prescribe) for income paid during the preceding calendar year that 
the withholding agent is required to report on an information return on 
Form 1042-S (or such other form as the IRS may prescribe) under 
paragraph (c)(1) of this section. See section 6011 and Sec.  1.6011-
1(c). The withholding agent must file the return on or before March 15 
of the calendar year following the year in which the income was paid. 
The return must show the aggregate amount of income paid and tax 
withheld required to be reported on all the Forms 1042-S for the 
preceding calendar year by the withholding agent, in addition to such 
information as is required by the form and accompanying instructions. 
See Sec.  1.1474-1(c) for the requirement to show the aggregate chapter 
4 reportable amounts and tax withheld on Form 1042. A single Form 1042 
may be filed by a withholding agent to report amounts under chapters 3 
and 4, including tax withheld. Withholding certificates or other 
statements or information provided to a withholding agent are not 
required to be attached to the return. A return must be filed under 
this paragraph (b)(1) even though no tax was required to be withheld 
during the preceding calendar year. The withholding agent must retain a 
copy of Form 1042 for the applicable statute of limitations on 
assessments and collection with respect to the amounts required to be 
reported on the Form 1042. See section 6501 and the regulations 
thereunder for the applicable statute of limitations. Adjustments to 
the total amount of tax withheld, as described in Sec.  1.1461-2, shall 
be stated on the return as prescribed by the form and accompanying 
instructions.
    (2) [Reserved]. For further guidance, see Sec.  1.1461-1(b)(2).
    (c) Information returns--(1) Filing requirement--(i) In general. A 
withholding agent (other than an individual who is not acting in the 
course of a trade or business with respect to a payment) must make an 
information return on Form 1042-S (or such other form as the IRS may 
prescribe) to report the amounts subject to reporting, as defined in 
paragraph (c)(2) of this section, that were paid during the preceding 
calendar year. Notwithstanding the preceding sentence, any person that 
withholds or is required to withhold an amount under sections 1441, 
1442, 1443, or Sec.  1.1446-4(a) (applicable to publicly traded 
partnerships required to pay tax under section 1446 on distributions) 
must file a Form 1042-S, ``Foreign Person's U.S. Source Income Subject 
to Withholding,'' for the payment withheld upon whether or not that 
person is engaged in a trade or business and whether or not the payment 
is an amount subject to reporting. The reference in the previous 
sentence to withholding under Sec.  1.1446-4 shall apply to partnership 
taxable years beginning after May 18, 2005, or such earlier time as the 
regulations under Sec. Sec.  1.1446-1 through 1.1446-5 apply by reason 
of an election under Sec.  1.1446-7. A Form 1042-S shall be prepared 
for each recipient of an amount subject to reporting and for each 
single type of income payment. The Form 1042-S shall be prepared in 
such manner as the form and accompanying instructions prescribe. One 
copy of the Form 1042-S shall be filed with the IRS on or before March 
15th of the calendar year following the year in which the amount 
subject to reporting was paid. It shall be filed with a transmittal 
form as provided in the instructions to the Form 1042-S and to the 
transmittal form. Withholding certificates, documentary evidence, or 
other statements or documentation provided to a withholding agent are 
not required to be attached to the form. Another copy of the Form 1042-
S must be furnished to the recipient for whom the form is prepared (or 
any other person, as required under this paragraph (c) or the 
instructions to the form) on or before March 15th of the calendar year 
following the year in which the amount subject to reporting was paid. 
The withholding agent must retain a copy of each Form 1042-S for the 
statute of limitations on assessment and collection applicable to the 
Form 1042 to which the Form 1042-S relates.
    (ii) Recipient--(A) Defined. For purposes of this section, the term 
recipient means--
    (1) A beneficial owner as defined in Sec.  1.1441-1(c)(6), 
including a foreign estate or a foreign complex trust, as defined in 
Sec.  1.1441-1(c)(25);
    (2) A qualified intermediary as defined in Sec.  1.1441-
1(e)(5)(ii);
    (3) A withholding foreign partnership as defined in Sec.  1.1441-
5(c)(2) or a withholding foreign trust under Sec.  1.1441-5(e)(5)(v);
    (4) A territory financial institution treated as a U.S. person 
under Sec.  1.1441-1(b)(2)(iv)(A);
    (5) A U.S. branch that is treated as a U.S. person under Sec.  
1.1441-1(b)(2)(iv)(A);
    (6) A nonwithholding foreign partnership or a foreign simple trust 
as defined in Sec.  1.1441-1(c)(24), but only to the extent the income 
is (or is treated as) effectively connected with the conduct of a trade 
or business in the United States by such entity;
    (7) A payee, as defined in Sec.  1.1441-1(b)(2) that is presumed to 
be a foreign person under the presumption rules of

[[Page 12790]]

Sec.  1.1441-1(b)(3); 1.1441-5(d) or (e)(6), or 1.6049-5(d);
    (8) A partner receiving a distribution from a publicly traded 
partnership subject to withholding under section 1446 and Sec.  1.1446-
4 on distributions of effectively connected income. This paragraph 
(c)(1)(ii)(A)(8) shall apply to partnership taxable years beginning 
after May 18, 2005, or such earlier time as the regulations under 
Sec. Sec.  1.1446-1 through 1.1446-5 apply by reason of an election 
under Sec.  1.1446-7.
    (9) A foreign intermediary, nonwithholding foreign partnership or 
nonwithholding foreign trust that is a participating FFI or registered 
deemed-compliant FFI with respect to a chapter 4 reporting pool of U.S. 
payees;
    (10) A participating FFI or a registered deemed-compliant FFI that 
is a recipient of a withholdable payment described in Sec.  1.1474-
1(d)(1)(ii)(A)(1)(iii); and
    (11) Any other person as required on Form 1042-S or the 
instructions to the form.
    (B) Persons that are not recipients. A recipient does not include--
    (1) A nonqualified intermediary, except with respect to a payment 
(or portion of a payment) for which a nonqualified intermediary that is 
an FFI is a recipient reporting as described in Sec.  1.1474-
1(d)(1)(ii)(A)(1)(iii);
    (2) A payee included in a chapter 3 or chapter 4 withholding rate 
pool;
    (3) A flow-through entity, as defined in Sec.  1.1441-1(c)(23) (to 
the extent it is receiving amounts subject to reporting other than 
income effectively connected with the conduct of a trade or business in 
the United States), that is not a recipient described in paragraphs 
(c)(1)(ii)(9) or (c)(1)(ii)(10) of this section; and
    (4) A U.S. branch (including a territory financial institution) 
described in Sec.  1.1441-1(b)(2)(iv)(A) that is not treated as a U.S. 
person under that section and is not a recipient described in 
paragraphs (c)(1)(ii)(9) or (c)(1)(ii)(10) of this section.
    (C) Coordination with chapter 4 reporting. See Sec.  1.1474-
1(d)(1)(ii)(A) for persons that are defined as recipients of a 
withholdable payment of U.S. source FDAP income for purposes of chapter 
4 in addition to the persons that are recipients under this paragraph 
(c)(1)(ii).
    (c)(2) introductory text through (c)(2)(ii)(D)[Reserved]. For 
further guidance, see Sec.  1.1461-1(c)(2) introductory text through 
(c)(2)(ii)(D).
    (A) through (D) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(2)(ii)(A).
    (E) Any item required to be reported on Form 1099, and such other 
forms as are prescribed pursuant to the information reporting 
provisions of sections 6041 through 6050W and the regulations under 
those sections;
    (F) and (G) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(2)(ii)(F) and (G).
    (H) Interest (including original issue discount) paid with respect 
to foreign-targeted registered obligations issued before January 1, 
2016, that are described in Sec.  1.871-14(e)(2) to the extent the 
documentation requirements described in Sec.  1.871-14(e)(3) and (e)(4) 
are required to be satisfied (taking into account the provisions of 
Sec.  1.871-14(e)(4)(ii), if applicable;
    (I) Interest on a foreign-targeted bearer obligation (see 
Sec. Sec.  1.1441-1(b)(4)(i) and 1.1441-2(a)) issued before March 19, 
2012;
    (J) and (K) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(2)(ii)(J) and (K).
    (3) [Reserved]. For further guidance, see Sec.  1.1461-1(c)(3).
    (i) The name, address, taxpayer identifying number of the 
withholding agent, and the withholding agent's status for chapter 3 
purposes (based on the status codes applicable for chapter 3 purposes 
provided on the form);
    (ii) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(3)(ii).
    (iii) For a payment not subject to withholding under chapter 4, the 
rate of withholding applied or the basis for exempting the payment from 
withholding under chapter 3, and the exemption applicable to the 
payment for chapter 4 purposes (based on the exemption codes provided 
on the form);
    (iv) through (ix) [Reserved]. For further guidance, see Sec.  
1.1461-1(c)(3)(iv) through (ix).
    (4) Method of reporting--(i) Payments by U.S. withholding agents to 
recipients. A withholding agent that is a U.S. person (other than a 
foreign branch of a U.S. person that is a qualified intermediary as 
defined in Sec.  1.1441-1(e)(5)(ii) that makes payments of amounts 
subject to reporting on Form 1042-S must file a separate Form 1042-S 
for each recipient who receives such amount. For purposes of this 
paragraph (c)(4), a U.S. person includes a U.S. branch (including a 
territory financial institution) described in Sec.  1.1441-
1(b)(2)(iv)(A) that is treated as a U.S. person. Except as may 
otherwise be required on Form 1042-S or the instructions to the form, 
only payments for which the income code, exemption code, withholding 
rate and recipient code are the same may be reported on a single Form 
1042-S. See paragraph (c)(4)(ii) of this section for reporting of 
payments made to a person that is not a recipient. See Sec.  1.1474-
1(d)(4) for additional requirements that may apply for reporting on 
Form 1042-S with respect to a withholdable payment that is a chapter 4 
reportable amount.
    (A) Payments to beneficial owners. If a U.S. withholding agent 
makes a payment directly to a beneficial owner it must complete Form 
1042-S treating the beneficial owner as the recipient. Under the grace 
period rule of Sec.  1.1441-1(b)(3)(iv), a U.S. withholding agent may, 
under certain circumstances, treat a payee as a foreign person while 
the withholding agent awaits a valid withholding certificate. A U.S. 
withholding agent who relies on the grace period rule to treat a payee 
as a foreign person must file a Form 1042-S to report all payments on 
Form 1042-S during the period that person was presumed to be foreign 
even if that person is later determined to be a U.S. person based on 
appropriate documentation or is presumed to be a U.S. person after the 
grace period ends. In the case of joint owners, a withholding agent may 
provide a single Form 1042-S made out to the owner whose status the 
U.S. withholding agent relied upon to determine the applicable rate of 
withholding. If, however, any one of the owners requests its own Form 
1042-S, the withholding agent must furnish a Form 1042-S to the person 
who requests it. If more than one Form 1042-S is issued for a single 
payment, the aggregate amount paid and tax withheld that is reported on 
all Forms 1042-S cannot exceed the total amounts paid to joint owners 
and the tax withheld thereon.
    (B) Payments to a qualified intermediary, a withholding foreign 
partnership, or a withholding foreign trust. A U.S. withholding agent 
that makes payments to a qualified intermediary (whether or not the 
qualified intermediary assumes primary withholding responsibility for 
purposes of chapter 3 and chapter 4 of the Code), a withholding foreign 
partnership, or a withholding foreign trust shall complete Forms 1042-S 
treating the qualified intermediary, withholding foreign partnership, 
or withholding foreign trust as the recipient. The U.S. withholding 
agent must complete a separate Form 1042-S for each chapter 3 and 
chapter 4 withholding rate pool with respect to each qualified 
intermediary. A qualified intermediary that does not assume primary 
withholding responsibility on all payments it receives provides 
information regarding the proportions of income subject to a particular 
withholding rate (that is, a chapter 3 withholding rate pool) to the 
withholding agent on a withholding

[[Page 12791]]

statement associated with a qualified intermediary withholding 
certificate. In such a case, the U.S. withholding agent must complete a 
separate Form 1042-S for each chapter 3 and chapter 4 withholding rate 
pool with respect to the qualified intermediary. To the extent a 
qualified intermediary is required to report a payment under chapter 
61, it may provide a U.S. withholding agent with information regarding 
withholding rate pools for U.S. non-exempt recipients (as defined under 
Sec.  1.1441-1(c)(21)). Amounts paid with respect to such withholding 
rate pools must be reported on a Form 1099 completed for each U.S. non-
exempt recipient to the extent such U.S. non-exempt recipient is 
subject to Form 1099 reporting and is not reported on Form 1042-S. See, 
however, Sec.  1.1441-1(e)(5)(v)(C) for when a qualified intermediary 
may provide a chapter 4 withholding rate pool of U.S payees (in lieu of 
reporting such payees on a withholding statement) and for the 
withholding rate pools (including chapter 4 withholding rate pools) 
otherwise reportable on a withholding statement provided by a qualified 
intermediary.
    (C) Amounts paid to U.S. branches treated as U.S. persons. A U.S. 
withholding agent making a payment to a U.S. branch of a foreign person 
(including a territory financial institution) described in Sec.  
1.1441-1(b)(2)(iv)(A) shall complete Form 1042-S as follows--
    (1) If the branch has provided the U.S. withholding agent with a 
withholding certificate that evidences its agreement with the 
withholding agent to be treated as a U.S. person, the U.S. withholding 
agent files Forms 1042-S treating the U.S. branch or territory 
financial institution as the recipient;
    (2) If the branch has provided the U.S. withholding agent with a 
withholding certificate that transmits information regarding beneficial 
owners, qualified intermediaries, withholding foreign partnerships, or 
other recipients, the U.S. withholding agent must complete a separate 
Form 1042-S for each recipient whose documentation is associated with 
the U.S. branch's or territory financial institution's withholding 
certificate; or
    (3) If the U.S. withholding agent cannot reliably associate a 
payment with a valid withholding certificate from the U.S. branch, it 
shall treat the U.S. branch as the recipient and report the income as 
effectively connected with the conduct of a trade or business in the 
United States except as otherwise provided in Sec.  1.1441-
1(b)(2)(iv)(B)(4).
    (D) Dual Claims. A U.S. withholding agent may make a payment to a 
foreign entity that is simultaneously claiming a reduced rate of tax on 
its own behalf for a portion of the payment and a reduced rate on 
behalf of persons in their capacity as interest holders in that entity 
on the remaining portion. See Sec.  1.1441-6(b)(2)(iii). If the claims 
are consistent and the withholding agent accepts the multiple claims, 
the withholding agent must file a separate Form 1042-S for those 
payments for which the entity is treated as the beneficial owner and 
Forms 1042-S for each of the interest holders in the entity for which 
the interest holder is treated as the recipient. For those payments for 
which the interest holder in an entity is treated as the recipient, the 
U.S. withholding agent shall prepare the Form 1042-S in the same manner 
as a payment made to a nonqualified intermediary or flow-through entity 
as set forth in paragraph (c)(4)(ii) of this section. If the claims are 
consistent but the withholding agent has not chosen to accept the 
multiple claims, or if the claims are inconsistent, the withholding 
agent must file a separate Form 1042-S for the person or persons it has 
chosen to treat as the recipients.
    (ii) Payments made by U.S. withholding agents to persons that are 
not recipients--(A) Amounts paid to a nonqualified intermediary, a 
flow-through entity, and certain U.S. branches. If a U.S. withholding 
agent makes a payment to a nonqualified intermediary, a flow-through 
entity, or a U.S. branch (including a territory financial institution) 
described in Sec.  1.1441-1(b)(2)(iv) (other than a U.S. branch or 
territory financial institution that is treated as a U.S. person), it 
must complete a separate Form 1042-S for each recipient to the extent 
the withholding agent can reliably associate a payment with valid 
documentation (within the meaning of Sec.  1.1441-1(b)(2)(vii)) from 
the recipient which is associated with the withholding certificate 
provided by the nonqualified intermediary, flow-through entity, or U.S. 
branch or territory financial institution. See Sec.  1.1474-1(d)(4)(i) 
for when a withholding agent may report a chapter 4 reportable amount 
made to such an entity in a chapter 4 withholding rate pool. See also 
Sec.  1.1441-1(e)(3)(iv)(A) for when a withholding statement provided 
by a nonqualified intermediary may include a chapter 4 withholding rate 
pool of U.S. payees. If a payment is reported by the withholding agent 
in a chapter 4 withholding rate pool, the withholding agent must report 
on Form 1042-S the nonqualified intermediary or flow-through entity as 
a recipient associated with the applicable chapter 4 withholding rate 
pool. If a payment is made through tiers of nonqualified intermediaries 
or flow-through entities, the withholding agent must nevertheless 
complete Form 1042-S for the recipient to the extent it can reliably 
associate the payment with documentation from the recipient. A 
withholding agent that is completing a Form 1042-S for a recipient that 
receives a payment through a nonqualified intermediary, a flow-through 
entity, or a U.S. branch or territory financial institution must 
include on the Form 1042-S the name of the nonqualified intermediary, 
flow-through entity, U.S. branch or territory financial institution 
from which the recipient directly receives the payment. If a U.S. 
withholding agent cannot reliably associate the payment, or any portion 
of the payment, with valid documentation from a recipient either 
because no such documentation has been provided or because the 
nonqualified intermediary, flow-through entity, or U.S. branch or 
territory financial institution has failed to provide sufficient 
allocation information so that the withholding agent can associate the 
payment, or any portion thereof, with valid documentation, then the 
withholding agent must report the payments as made to an unknown 
recipient in accordance with the appropriate presumption rules for that 
payment. Thus, if the payment is not a withholdable payment and under 
the presumption rules the payment is presumed to be made to a foreign 
person, the withholding agent must generally withhold 30 percent of the 
payment and report the payment on Form 1042-S made out to an unknown 
recipient and shall also include the name of the nonqualified 
intermediary, flow-through entity, U.S. branch or territory financial 
institution that received the payment on behalf of the unknown 
recipient. If, however, the recipient is presumed to be a U.S. non-
exempt recipient (as defined in Sec.  1.1441-1(c)(21)), the withholding 
agent must withhold on the payment as required under section 3406 and 
report the payment as required under chapter 61 of the Internal Revenue 
Code. See Sec.  1.1474-1(d)(4) for reporting requirements that apply to 
payments of chapter 4 reportable amounts paid to nonqualified 
intermediaries and flow-through entities. If, however, the payment is a 
withholdable payment, the withholding agent must report the payment as 
made to a chapter 4 withholding rate pool of nonparticipating FFIs in 
accordance with the presumption rule under Sec.  1.1471-3(f)(5).

[[Page 12792]]

    (B) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(4)(ii)(B).
    (iii) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(4)(iii).
    (iv) Reporting by a nonqualified intermediary, flow-through entity, 
and certain U.S. branches. A nonqualified intermediary, flow-through 
entity, or U.S. branch (including a territory financial institution) 
described in Sec.  1.1441-1(e)(2)(iv) (other than a U.S. branch or 
territory financial institution, that is treated as a U.S. person) is a 
withholding agent and must file Forms 1042-S for amounts paid to 
recipients in the same manner as a U.S. withholding agent. A Form 1042-
S will not be required, however, if another withholding agent has 
reported the same amount for which the nonqualified intermediary, flow-
through entity, or U.S. branch would be required to file a return and 
the entire amount that should be withheld from such payment has been 
withheld (including withholding and reporting in accordance with the 
applicable presumption rule for the payment). A nonqualified 
intermediary, flow-through entity, or U.S. branch must report payments 
made to recipients to the extent it has failed to provide the 
appropriate documentation to another withholding agent together with 
the information required for that withholding agent to reliably 
associate the payment with the recipient documentation or to the extent 
it knows, or has reason to know, that less than the required amount has 
been withheld. A nonqualified intermediary or flow-through entity that 
is required to report a payment on Form 1042-S must follow the same 
rules as apply to a U.S. withholding agent under paragraph (c)(4)(i) 
and (c)(4)(ii) of this section.
    (v) Pro rata reporting for allocation failures. If a nonqualified 
intermediary, flow-through entity, or U.S. branch (including a 
territory financial institution) described in Sec.  1.1441-1(b)(2)(iv) 
(other than a U.S. branch or territory financial institution treated as 
a U.S. person) uses the alternative procedures of Sec.  1.1441-
1(e)(3)(iv)(D) and fails to provide information sufficient to allocate 
the amount subject to reporting paid to a withholding rate pool to the 
payees identified for that pool, then the withholding agent shall 
report the payment in accordance with the rule provided in Sec.  
1.1441-1(e)(3)(iv)(D)(6).
    (vi) [Reserved]. For further guidance, see Sec.  1.1461-
1(c)(4)(vi).
    (5) Magnetic media reporting. A withholding agent that makes 250 or 
more Form 1042-S information returns for a taxable year must file Form 
1042-S returns on magnetic media. See, however, Sec.  301.1474-1(a) of 
this chapter for the requirements for a withholding agent that is a 
financial institution to file Forms 1042-S on magnetic media. See, 
also, Sec.  301.6011-2 of this chapter for requirements applicable to a 
withholding agent that files Forms 1042-S with the IRS on magnetic 
media and publications of the IRS relating to magnetic media filing.
    (d) through (h) [Reserved]. For further guidance, see Sec.  1.1461-
1(d) through (h).
    (i) Effective/applicability date. Unless otherwise provided in this 
section, this section shall apply to amounts reported under this 
section beginning for calendar year 2014. (For returns required for 
payments made after December 31, 2000, see this section as in effect 
and contained in 26 CFR part 1 revised April 1, 2013.)
    (j) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 18. Section 1.1461-2 is amended by revising paragraphs (a)(2)(i), 
(a)(4), and (d) to read as follows:


Sec.  1.1461-2  Adjustments for overwithholding or underwithholding of 
tax.

    (a) * * *
    (2) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1461-2T(a)(2)(i).
* * * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1461-2T(a)(4).
* * * * *
    (d) Effective/applicability date--(1) Unless otherwise provided in 
this section, this section applies to payments made after December 31, 
2000.
    (2) [Reserved]. For further guidance, see Sec.  1.1461-2T(d)(2).

0
Par. 19. Section 1.1461-2T is added to read as follows:


Sec.  1.1461-2T  Adjustments for overwithholding or underwithholding of 
tax (temporary).

    (a)(1) [Reserved]. For further guidance, see Sec.  1.1461-2(a)(1).
    (2) Reimbursement of tax--(i) General rule. Under the reimbursement 
procedure, the withholding agent repays the beneficial owner or payee 
for the amount overwithheld. In such a case, the withholding agent may 
reimburse itself by reducing, by the amount of tax actually repaid to 
the beneficial owner or payee, the amount of any deposit of tax made by 
the withholding agent under Sec.  1.6302-2(a)(1)(iii) for any 
subsequent payment period occurring before the end of the calendar year 
following the calendar year of overwithholding. Any such reduction that 
occurs for a payment period in the calendar year following the calendar 
year of overwithholding shall be allowed only if--
    (A) The repayment to the beneficial owner or payee occurs before 
the earlier of the due date (not including extensions) for filing Form 
1042-S for the calendar year of overwithholding or the date the Form 
1042-S is actually filed with the IRS;
    (B) The withholding agent states on a timely filed (not including 
extensions) Form 1042 for the calendar year of overwithholding, that 
the filing of the Form 1042 constitutes a claim for credit in 
accordance with Sec.  1.6414-1; and
    (C) The withholding agent states, on a timely filed (not including 
extensions) Form 1042 for the calendar year of overwithholding, that 
the filing of the Form 1042 constitutes a claim for credit in 
accordance with Sec.  1.6414-1.
    (ii) and (3) [Reserved]. For further guidance, see Sec.  1.1461-
2(a)(2)(ii) and (3).
    (4) Examples. The principles of this paragraph (a) are illustrated 
by the following examples:

    Example 1. (i) N is a nonresident alien individual who is a 
resident of the United Kingdom. In December 2001, a domestic 
corporation C pays a dividend of $100 to N, at which time C 
withholds $30 and remits the balance of $70 to N. On February 10, 
2002, prior to the time that C files its Form 1042 and Form 1042-S 
with respect to the payment, N furnishes a valid Form W-8 described 
in Sec.  1.1441-1(e)(2)(i) upon which C may rely to reduce the rate 
of withholding to 15% under the provisions of the U.S.-U.K. tax 
treaty. Consequently, N advises C that its tax liability is only $15 
and not $30 and requests reimbursement of $15. Although C has 
already deposited the $30 that was withheld, as required by Sec.  
1.6302-2(a)(1)(iv), C repays N in the amount of $15.
    (ii) During 2001, C makes no other payments upon which tax is 
required to be withheld under chapter 3 of the Code; accordingly, 
its return on Form 1042 for such year, which is filed on March 15, 
2002, shows total tax withheld of $30, an adjusted total tax 
withheld of $15, and $30 previously paid for such year. Pursuant to 
Sec.  1.6414-1(b), C claims a credit for the overpayment of $15 
shown on the Form 1042 for 2001. Accordingly, it is permitted to 
reduce by $15 any deposit required by Sec.  1.6302-2 to be made of 
tax withheld during the calendar year 2002. The Form 1042-S required 
to be filed by C with respect to the dividend of $100 paid to N in 
2001 is required to show tax withheld under chapter 3 of $30 and tax 
repaid to N of $15.
    Example 2. The facts are the same as in Example 1. In addition, 
during 2002, C makes payments to N upon which it is required to 
withhold $200 under chapter 3 of the Code, all of which is withheld 
in June 2002. Pursuant to Sec.  1.6302-2(a)(1)(iii), C deposits the 
amount of $185 on July 15, 2002 ($200 less the $15 for which credit 
is claimed on the Form 1042 for 2001). On March 15,

[[Page 12793]]

2003, C Corporation files its return on Form 1042 for calendar year 
2002, which shows total tax withheld of $200, $185 previously 
deposited by C, and $15 allowable credit.
    Example 3. The facts are the same as in Example 1. Under Sec.  
1.6302-2(a)(1)(ii), C is required to deposit on a quarter-monthly 
basis the tax withheld under chapter 3 of the Code. C withholds tax 
of $100 between February 8 and February 15, 2002, and deposits $75 
[($100 x 90%) less $15] of the withheld tax within 3 banking days 
after February 15, 2002, and by depositing $10 [($100-$15) less $75] 
within 3 banking days after March 15, 2002.

    (b) through (d)(1) [Reserved]. For further guidance, see Sec.  
1.1461-2(b) through (d)(1).
    (2) The provisions of this section apply to payments made after 
June 30, 2014.
    (e) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 20. In Sec.  1.6041-1, paragraphs (d)(5)(i) and (ii) and (j) are 
revised to read as follows:


Sec.  1.6041-1  Return of information as to payments of $600 or more.

* * * * *
    (d) * * *
    (5) * * *
    (i) and (ii) [Reserved]. For further guidance, see Sec.  1.6041-
1T(d)(5)(i) and (ii).
* * * * *
    (j) Effective/applicability date. (1) The provisions of paragraphs 
(b), (c), (e), and (f) of this section apply to payments made after 
December 31, 2002. The provisions of paragraphs (a)(1)(iv) and 
(a)(1)(v) apply to payments made after December 31, 2010.
    (2) [Reserved]. For further guidance, see Sec.  1.6041-1T(j)(2).

0
Par. 21. Section 1.6041-1T is added to read as follows:


Sec.  1.6041-1T  Return of information as to payments of $600 or more 
(temporary).

    (a) through (d)(5) [Reserved]. For further guidance, see Sec.  
1.6041-1(a) through (d)(5).
    (i) An amount paid with respect to a notional principal contract is 
not required to be reported if the amount is paid by a non-U.S. payor 
or a non-U.S. middleman and is paid and received outside the United 
States (as defined in Sec.  1.6049-4(f)(16)).
    (ii) An amount paid with respect to a notional principal contract 
is not required to be reported if the amount is paid by a payor that 
has no actual knowledge that the payee is a U.S. person and is paid and 
received outside the United States (as defined in Sec.  1.6049-
4(f)(16)), and the payor is--
    (d)(5)(ii)(A) through (j)(1) [Reserved]. For further guidance, see 
Sec.  1.6041-1(d)(5)(ii)(A) through (j)(1).
    (2) The provisions of paragraphs (d)(5)(i) and (ii) of this section 
apply to payments made after June 30, 2014.
    (k) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 22. Section 1.6041-4 is amended by revising paragraphs (a)(1) 
through (3), adding paragraph (a)(7), and revising paragraphs (b) and 
(d) to read as follows:


Sec.  1.6041-4  Foreign-related items and other exceptions.

    (a) * * *
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.6041-
4T(a)(1) through (3).
* * * * *
    (7) [Reserved]. For further guidance, see Sec.  1.6041-4T(a)(7).
    (b) [Reserved]. For further guidance, see Sec.  1.6041-4T(b).
* * * * *
    (d) Effective/applicability date. (1) The provisions of this 
section apply to payments made after December 31, 2000.
    (2) [Reserved]. For further guidance, see Sec.  1.6041-4T(d)(2).

0
Par. 23. Section 1.6041-4T is added to read as follows:


Sec.  1.6041-4T  Foreign-related items and other exceptions 
(temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.6041-4(a).
    (1) Returns of information are not required for payments that a 
payor can, prior to payment, reliably associate with documentation upon 
which it may rely to treat as made to a foreign beneficial owner in 
accordance with Sec.  1.1441-1(e)(1)(ii) or as made to a foreign payee 
in accordance with Sec.  1.6049-5(d)(1) or presumed to be made to a 
foreign payee under Sec.  1.6049-5(d)(2), (3), (4), or (5). Returns of 
information are also not required for a payment that a payor or 
middleman can, prior to payment, reliably associate with documentation 
upon which it may rely to treat as made to a foreign intermediary or 
flow-through entity in accordance with Sec.  1.1441-1(b) if it obtains 
from the intermediary or flow-through entity a withholding statement 
described in Sec.  1.6049-5(b)(14) that allocates the payment to a 
chapter 4 withholding rate pool (as defined in Sec.  1.6049-4(f)(5)) or 
specific payees to which withholding applies under chapter 4. Payments 
excepted from reporting under this paragraph (a)(1) may be reportable, 
for purposes of chapter 3 of the Internal Revenue Code (Code), under 
Sec.  1.1461-1(b) and (c) and, for purposes of chapter 4 of the Code, 
under Sec.  1.1474-1(d)(2). The provisions in Sec.  1.6049-5(c) 
regarding documentation of foreign status shall apply for purposes of 
this paragraph (a)(1). The provisions in Sec.  1.6049-5(c)(5) regarding 
the definitions of U.S. payor and non-U.S. payor shall also apply for 
purposes of this paragraph (a)(1). See Sec.  1.1441-1(b)(3)(iii)(B) and 
(C) for special payee rules regarding scholarships, grants, pensions, 
annuities, etc. The provisions of Sec.  1.1441-1 shall apply by 
substituting the term payor for the term withholding agent and without 
regard to the fact that the provisions apply only to amounts subject to 
withholding under chapter 3 of the Code and the regulations under that 
chapter.
    (2) Returns of information are not required for payments of amounts 
from sources outside the United States (determined under the provisions 
of part I, subchapter N, chapter 1 of the Code and the regulations 
under those provisions) paid by a non-U.S. payor or non-U.S. middleman 
and that are paid and received outside the United States. For a 
definition of non-U.S. payor and non-U.S. middleman, see Sec.  1.6049-
5(c)(5). For circumstances in which an amount is considered to be paid 
and received outside the United States, see Sec.  1.6049-4(f)(16).
    (3) If a foreign intermediary, as described in Sec.  1.1441-
1(c)(13), or a U.S. branch that is not treated as a U.S. person 
receives a payment from a payor, which payment the payor can reliably 
associate with a valid withholding certificate described in Sec.  
1.1441-1(e)(3)(ii) or (iii), or Sec.  1.1441-1(e)(3)(v), respectively, 
furnished by such intermediary or branch, then the intermediary or 
branch is not required to report such payment when it, in turn, pays 
the amount, unless, and to the extent, the intermediary or branch knows 
that the payment is required to be reported under this section and was 
not so reported. For example, if a U.S. branch described in Sec.  
1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons 
that are not exempt from reporting under Sec.  1.6041-3(q) to the 
person from whom the U.S. branch receives the payment, the U.S. branch 
must report the payment on an information return. See, however, 
paragraph (a)(7) of this section for when reporting under section 
6041is coordinated with reporting under chapter 4 of the Code or an 
applicable IGA (as defined in Sec.  1.6049-4(f)(7)). The exception 
described in this paragraph (a)(3) for amounts paid by a foreign 
intermediary shall not apply to a

[[Page 12794]]

qualified intermediary that assumes reporting responsibility under 
chapter 61 of the Code with respect to amounts reportable under the 
agreement described in Sec.  1.1441-1(e)(5)(iii).
    (4) through (6) [Reserved]. For further guidance, see Sec.  1.6041-
4(a)(4) through (6).
    (7) Returns of information are not required for payments with 
respect to which a return is not required by applying the rules of 
Sec.  1.6049-4(c)(4) (by substituting the term a payment subject to 
reporting under section 6041 for the term an interest payment).
    (b) Joint owners. Amounts paid to joint owners for which a 
certificate or documentation is required as a condition for being 
exempt from reporting under paragraph (a) of this section are presumed 
made to U.S. payees who are not exempt recipients if, prior to payment, 
the payor or middleman cannot reliably associate the payment either 
with a Form W-9 furnished by one of the joint owners in the manner 
required in Sec. Sec.  31.3406(d)-1 through 31.3406(d)-5, or with 
documentation described in paragraph (a)(1) of this section furnished 
by each joint owner upon which the payor or middleman can rely to treat 
each joint owner as a foreign payee or foreign beneficial owner. 
However, in the case of a withholdable payment (as defined in Sec.  
1.6049-4(f)(15)) made to joint payees, if any joint payee does not 
appear to be an individual, the payment is presumed made to a foreign 
payee that is a nonparticipating FFI (as defined in Sec.  1.1471-
1(b)(82)). See Sec.  1.1471-3(f)(7).
    (c) through (d)(1) [Reserved]. For further guidance, see Sec.  
1.6041-4(c) through (d)(1).
    (2) The provisions of paragraphs (a)(1) through (3), (a)(7), and 
(b) of this section apply to payments made after June 30, 2014.
    (e) Expiration date. The applicability of this section expires on 
February 28, 2017.


0
Par. 24. Section 1.6042-2 is amended by revising paragraph (a)(1)(i) 
and adding paragraph (f) to read as follows:


Sec.  1.6042-2  Returns of information as to dividends paid.

    (a) * * *
    (1) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.6042-2T(a)(1)(i).
* * * * *
    (f) [Reserved]. For further guidance, see Sec.  1.6042-2T(f).


0
Par. 25. Section 1.6042-2T is added to read as follows:


Sec.  1.6042-2T  Returns of information as to dividends paid 
(temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.6042-2(a).
    (1) [Reserved]. For further guidance, see Sec.  1.6042-2(a)(1).
    (i) Every person who makes a payment of dividends (as defined in 
Sec.  1.6042-3) to any other person during a calendar year. The 
information return shall show the aggregate amount of the dividends, 
the name, address, and taxpayer identifying number of the person to 
whom paid, the amount of tax deducted and withheld under section 3406 
from the dividends, if any, and such other information as required by 
the forms. An information return is generally not required if the 
amount of dividends paid to the other person during the calendar year 
aggregates less than $10 or if the payment is made to a person who is 
an exempt recipient described in Sec.  1.6049-4(c)(1)(ii) unless the 
payor backup withholds under section 3406 on such payment (because, for 
example, the payee has failed to furnish a Form W-9), in which case the 
payor must make a return under this section, unless the payor refunds 
the amount withheld pursuant to Sec.  31.6413(a)-3 of this chapter. 
Further, a return of information is not required under this section 
for--
    (A) Payments with respect to which a return is not required by 
applying the rules of Sec.  1.6049-4(c)(4) (by substituting the term 
dividend for the term interest); or
    (B) Payments made by a paying agent on behalf of a corporation 
described in section 1297(a) with respect to a shareholder of the 
corporation if--
    (1) The paying agent obtains from the corporation a written 
certification signed by an officer of the corporation, that states that 
the corporation is described in section 1297(a) for each calendar year 
during which the paying agent relies on the provisions of paragraph 
(a)(1)(i)(B) of this section, and the paying agent has no reason to 
know the written certification is unreliable or incorrect;
    (2) The paying agent identifies, prior to payment, the corporation 
as a participating FFI (including a reporting Model 2 FFI) (as defined 
in Sec.  1.6049-4(f)(10) or (14), respectively), or reporting Model 1 
FFI (as defined in Sec.  1.6049-4(f)(13)), in accordance with the 
requirements of Sec.  1.1471-3(d)(4) (substituting the terms paying 
agent and corporation for the terms withholding agent and payee);
    (3) The paying agent obtains, before each year the payment would 
otherwise be reported, a written certification representing that the 
corporation shall report the payment as part of its reporting 
obligations under chapter 4 of the Code or an applicable IGA (as 
defined in Sec.  1.6049-4(f)(7)) with respect to its U.S. accounts and 
provided the paying agent does not know that the corporation is not 
reporting the payment as required. A paying agent that knows that the 
corporation is not reporting the payment as required under chapter 4 of 
the Code or an applicable IGA (as defined in Sec.  1.6049-4(f)(7)) must 
report all payments reportable under this section that it makes during 
the year in which it obtains such knowledge; and
    (4) The paying agent is not also acting in its capacity as a 
custodian, nominee, or other agent of the payee with respect to the 
payments.
    (ii) through (e) [Reserved]. For further guidance, see Sec.  
1.6042-2(a)(1)(ii) through (e).
    (f) Effective/applicability date. The provisions of paragraphs 
(a)(1)(i) of this section apply to payments made after June 30, 2014.
    (g) Expiration date. The applicability of this section expires on 
February 28, 2017.


0
Par. 26. In Sec.  1.6042-3 paragraphs (b)(1)(iii), (b)(1)(iv), 
(b)(1)(vi), (b)(3), and (b)(5) are revised to read as follows:


Sec.  1.6042-3  Dividends subject to reporting.

* * * * *
    (b) * * *
    (1) * * *
    (iii) and (iv) [Reserved]. For further guidance, see Sec.  1.6042-
3T(b)(1)(iii) and (iv).
* * * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.6042-
3T(b)(1)(vi).
* * * * *

    (3) [Reserved]. For further guidance, see Sec.  1.6042-3T(b)(3).
* * * * *
    (5) Effective/applicability date--(i) The provisions of this 
paragraph (b) apply to payments made after December 31, 2000.
    (ii) [Reserved]. For further guidance, see Sec.  1.6042-
3T(b)(5)(ii).
* * * * *
0
Par. 27. Section 1.6042-3T is added to read as follows:


Sec.  1.6042-3T  Dividends subject to reporting (temporary).

    (a) through (b)(1)(ii) [Reserved]. For further guidance, see Sec.  
1.6042-3(a) through (b)(1)(ii).
    (iii) Distributions or payments that a payor can, prior to payment, 
reliably associate with documentation upon which it may rely to treat 
as made to a foreign beneficial owner in accordance

[[Page 12795]]

with Sec.  1.1441-1(e)(1)(ii) or as made to a foreign payee in 
accordance with Sec.  1.6049-5(d)(1) or presumed to be made to a 
foreign payee under Sec.  1.6049-5(d)(2), (3), (4), or (5). Returns of 
information are also not required for payments that a payor or 
middleman can, prior to payment, reliably associate with documentation 
upon which it may rely to treat as made to a foreign intermediary in 
accordance with Sec.  1.1441-1(b) if it obtains from the intermediary 
entity a withholding statement (described in Sec.  1.6049-5(b)(14)) 
that allocates the payment to a chapter 4 withholding rate pool (as 
defined in Sec.  1.6049-4(f)(5)) or to specific payees to which 
withholding under chapter 4 applies. Payments excepted from reporting 
under this paragraph (b)(1)(iii) may be reportable, for purposes of 
chapter 3 of the Internal Revenue Code (Code), under Sec.  1.1461-1(b) 
and (c) or, for chapter 4 purposes, under Sec.  1.1474-1(d)(2). The 
provisions in Sec.  1.6049-5(c) regarding documentation of foreign 
status shall apply for purposes of this paragraph (b)(1)(iii). The 
provisions in Sec.  1.6049-5(c) regarding the definitions of U.S. payor 
and non-U.S. payor shall also apply for purposes of this paragraph 
(b)(1)(iii). The provisions of Sec.  1.1441-1 shall apply by 
substituting the term payor for the term withholding agent and without 
regard to the fact that the provisions apply only to amounts subject to 
withholding under chapter 3 of the Code.
    (iv) Distributions or payments from sources outside the United 
States (as determined under the provisions of part I, subchapter N, 
chapter 1 of the Code and the regulations under those provisions) that 
are paid by a non-U.S. payor or non-U.S. middleman and that are paid 
and received outside the United States. For a definition of non-U.S. 
payor and non-U.S. middleman, see Sec.  1.6049-5(c)(5). For 
circumstances in which an amount is considered to be paid and received 
outside the United States, see Sec.  1.6049-4(f)(16).
    (v) [Reserved]. For further guidance, see Sec.  1.6042-3(b)(1)(v).
    (vi) If a foreign intermediary, as described in Sec.  1.1441-
1(c)(13), or a U.S. branch that is not treated as a U.S. person 
receives a payment from a payor, which payment the payor can reliably 
associate with a valid withholding certificate described in Sec.  
1.1441-1(e)(3)(ii) or (iii), or Sec.  1.1441-1(e)(3)(v), respectively, 
furnished by such intermediary or branch, then the intermediary or 
branch is not required to report such payment when it, in turn, pays 
the amount, unless, and to the extent, the intermediary or branch knows 
that the payment is required to be reported under this section and was 
not so reported. For example, if a U.S. branch described in Sec.  
1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons 
that are not exempt from reporting under Sec.  1.6049-4(c)(1)(ii) to 
the person from whom the U.S. branch receives the payment, the amount 
paid by the U.S. branch to such person is a dividend. See, however, 
Sec.  1.6042-2(a)(1)(i)(A) for when reporting under section 6042 is 
coordinated with reporting under chapter 4 of the Code or an applicable 
IGA (as defined in Sec.  1.6049-4(f)(7)). The exception of this 
paragraph (b)(1)(vi) for amounts paid by a foreign intermediary shall 
not apply to a qualified intermediary that assumes reporting 
responsibility under chapter 61 of the Code with respect to amounts 
reportable under the agreement described in Sec.  1.1441-1(e)(5)(iii).
    (vii) through (b)(2) [Reserved]. For further guidance, see Sec.  
1.6042-3(b)(1)(vii) through (b)(2).
    (3) Joint owners. Amounts paid to joint owners for which a 
certificate or documentation is required as a condition for being 
exempt from reporting under this paragraph (b) are presumed made to 
U.S. payees who are not exempt recipients if, prior to payment, the 
payor or middleman cannot reliably associate the payment either with a 
Form W-9 furnished by one of the joint owners in the manner required in 
Sec. Sec.  31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with 
documentation described in paragraph (b)(1)(iii) of this section 
furnished by each joint owner upon which it can rely to treat each 
joint owner as a foreign payee or foreign beneficial owner. However in 
the case of a withholdable payment (as defined in Sec.  1.6049-
4(f)(15)) made to joint payees, if any such joint payee does not appear 
to be an individual, the payment is presumed made to a foreign payee 
that is a nonparticipating FFI (as defined in Sec.  1.1471-1(b)(82)). 
See Sec.  1.1471-3(f)(7). For purposes of applying this paragraph 
(b)(3), the grace period described in Sec.  1.6049-5(d)(2)(ii) shall 
apply only if each payee qualifies for such grace period.
    (4) through (5)(i) [Reserved]. For further guidance, see Sec.  
1.6042-3(b)(4) through (b)(5)(i).
    (ii) The provisions of paragraphs (b)(1)(iii), (b)(1)(iv), 
(b)(1)(vi), and (b)(3) of this section apply to payments made after 
June 30, 2014.
    (c) [Reserved]. For further guidance, see Sec.  1.6042-3(c).
    (d) Expiration date. The applicability of this section expires on 
February 28, 2017.


0
Par. 28. Section 1.6045-1 is amended by:
0
1. Revising paragraph (c)(3)(ii) and adding paragraphs (c)(3)(xiv) and 
(xv).
0
2. Revising paragraphs (g)(1)(i), (g)(3)(iv), and (g)(4) and (5).
    The revisions and additions read as follows:


Sec.  1.6045-1  Returns of information of brokers and barter exchanges.

* * * * *
    (c) * * *
    (3) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.6045-
1T(c)(3)(ii) through (c)(3)(ii)(B).
* * * * *
    (xiv) through (xv) [Reserved]. For further guidance, see Sec.  
1.6045-1T(c)(3)(xiv) through (xv).
* * * * *
    (g) * * *
    (1) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.6045-1T(g)(1)(i).
* * * * *
    (3) * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.6045-
1T(g)(3)(iv).
    (4) [Reserved]. For further guidance, see Sec.  1.6045-1T(g)(4).
    (5) Effective/applicability date. (i) The provisions of this 
paragraph (g) apply to payments made after December 31, 2000.
    (ii) [Reserved]. For further guidance, see Sec.  1.6045-
1T(g)(5)(ii).
* * * * *


0
Par. 29. Section 1.6045-1T is amended by revising paragraphs (a) 
through (k) and adding paragraphs (p) and (q) to read as follows:


Sec.  1.6045-1T  Returns of information of brokers and barter exchanges 
(temporary).

    (a) through (c)(3)(i) [Reserved]. For further guidance, see Sec.  
1.6045-1(a) through (c)(3)(i)(C)(2)(iv).
    (ii) Excepted sales. No return of information is required with 
respect to a sale effected by a broker for a customer if the sale is an 
excepted sale. For this purpose, a sale is an excepted sale if it is--
    (A) So designated by the Internal Revenue Service in a revenue 
ruling or revenue procedure (see Sec.  601.601(d)(2) of this chapter); 
or
    (B) A sale with respect to which a return is not required by 
applying the rules of Sec.  1.6049-4(c)(4) (by substituting the term a 
sale subject to reporting under section 6045 for the term an interest 
payment).
    (iii) through (xiii) [Reserved]. For further guidance, see Sec.  
1.6045-1(c)(3)(iii) through (xiii).

[[Page 12796]]

    (xiv) Certain redemptions. No return of information is required 
under this section for payments made by a stock transfer agent (as 
described in Sec.  1.6045-1(b)(iv)) with respect to a redemption of 
stock of a corporation described in section 1297(a) with respect to a 
shareholder in the corporation if--
    (A) The stock transfer agent obtains from the corporation a written 
certification signed by an officer of the corporation, that states that 
the corporation is described in section 1297(a) for each calendar year 
during which the stock transfer agent relies on the provisions of 
paragraph (c)(3)(xiv) of this section, and the stock transfer agent has 
no reason to know that the written certification is unreliable or 
incorrect;
    (B) The stock transfer agent identifies, prior to payment, the 
corporation as a participating FFI (including a reporting Model 2 FFI) 
(as defined in Sec.  1.6049-4(f)(10) or (f)(14), respectively), or 
reporting Model 1 FFI (as defined in Sec.  1.6049-4(f)(13)), in 
accordance with the requirements of Sec.  1.1471-3(d)(4) (substituting 
the terms stock transfer agent and corporation for the terms 
withholding agent and payee);
    (C) The stock transfer agent obtains, before each year the payment 
would otherwise be reported, a written certification representing that 
the corporation shall report the payment as part of its account holder 
reporting obligations under chapter 4 of the Code or an applicable IGA 
(as defined in Sec.  1.6049-4(f)(7)) and provided the stock transfer 
agent does not know that the corporation is not reporting the payment 
as required. A stock transfer agent that knows that the corporation is 
not reporting the payment as required under chapter 4 of the Code or an 
applicable IGA must report all payments reportable under this section 
that it makes during the year in which it obtains such knowledge; and
    (D) The stock transfer agent is not also acting in its capacity as 
a custodian, nominee, or other agent of the payee with respect to the 
payment.
    (xv) Effective/applicability date. Paragraphs (c)(3)(ii) and (xiv) 
of this section apply to sales effected on or after July 1, 2014. (For 
sales effected before July 1, 2014, see paragraph (c)(3)(ii) of this 
section as in effect and contained in 26 CFR Part 1 revised April 1, 
2013.)
    (c)(4) through (g)(1) [Reserved]. For further guidance, see Sec.  
1.6045-1(c)(4) through (g)(1).
    (i) With respect to a sale effected at an office of a broker either 
inside or outside the United States, the broker may treat the customer 
as an exempt foreign person if the broker can, prior to the payment, 
reliably associate the payment with documentation upon which it can 
rely in order to treat the customer as a foreign beneficial owner in 
accordance with Sec.  1.1441-1(e)(1)(ii), as made to a foreign payee in 
accordance with Sec.  1.6049-5(d)(1), or presumed to be made to a 
foreign payee under Sec.  1.6049-5(d)(2) or (3). For purposes of this 
paragraph (g)(1)(i), the provisions in Sec.  1.6049-5(c) regarding 
rules applicable to documentation of foreign status shall apply with 
respect to a sale when the broker completes the acts necessary to 
effect the sale at an office outside the United States, as described in 
paragraph (g)(3)(iii)(A) of this section, and no office of the same 
broker within the United States negotiated the sale with the customer 
or received instructions with respect to the sale from the customer. 
The provisions in Sec.  1.6049-5(c) regarding the definitions of U.S. 
payor, U.S. middleman, non-U.S. payor, and non-U.S. middleman shall 
also apply for purposes of this paragraph (g)(1)(i). The provisions of 
Sec.  1.1441-1 shall apply by substituting the terms broker and 
customer for the terms withholding agent and payee and without regard 
for the fact that the provisions apply to amounts subject to 
withholding under chapter 3 of the Internal Revenue Code (Code). The 
provisions of Sec.  1.6049-5(d) shall apply by substituting the terms 
broker and customer for the terms payor and payee. For purposes of this 
paragraph (g)(1)(i), a broker that is required to obtain, or chooses to 
obtain, a beneficial owner withholding certificate described in Sec.  
1.1441-1(e)(2)(i) from an individual may rely on the withholding 
certificate only to the extent the certificate includes a certification 
that the beneficial owner has not been, and at the time the certificate 
is furnished, reasonably expects not to be present in the United States 
for a period aggregating 183 days or more during each calendar year to 
which the certificate pertains. The certification is not required if a 
broker receives documentary evidence under Sec.  1.6049-5(c)(1) or (4).
    (ii) through (3)(iii) [Reserved]. For further guidance, see Sec.  
1.6045-1(g)(1)(ii) through (g)(3)(iii).
    (iv) Special rules where the customer is a foreign intermediary or 
certain U.S. branches. A foreign intermediary, as defined in Sec.  
1.1441-1(c)(13), is an exempt foreign person, except when the broker 
has actual knowledge (within the meaning of Sec.  1.6049-5(c)(3)) that 
the person for whom the intermediary acts is a U.S. person that is not 
exempt from reporting under paragraph (c)(3) of this section or the 
broker is required to presume under Sec.  1.6049-5(d)(3) that the payee 
is a U.S. person that is not an exempt recipient. If a foreign 
intermediary, as described in Sec.  1.1441-1(c)(13), or a U.S. branch 
that is not treated as a U.S. person receives a payment from a payor or 
middleman, which payment the payor or middleman can reliably associate 
with a valid withholding certificate described in Sec.  1.1441-
1(e)(3)(ii) or (iii) or Sec.  1.1441-1(e)(3)(v), respectively, 
furnished by such intermediary or branch, then the intermediary or 
branch is not required to report such payment when it, in turn, pays 
the amount, unless, and to the extent, the intermediary or branch knows 
that the payment is required to be reported under this section and was 
not so reported. For example, if a U.S. branch described in Sec.  
1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons 
that are not exempt from reporting under paragraph (c)(3) of this 
section to the person from whom the U.S. branch receives the payment, 
the U.S. branch must report the payment on an information return. See, 
however, paragraph (c)(3)(ii) of this section for when reporting under 
section 6045 is coordinated with reporting under chapter 4 of the Code 
or an applicable IGA (as defined in Sec.  1.6049-4(f)(7)). The 
exception of this paragraph (g)(3)(iv) for amounts paid by a foreign 
intermediary shall not apply to a qualified intermediary that assumes 
reporting responsibility under chapter 61 of the Code except as 
provided under the agreement described in Sec.  1.1441-1(e)(5)(iii).
    (4) Examples. The application of the provisions of this paragraph 
(g) may be illustrated by the following examples:

    Example 1. FC is a foreign corporation that is not a U.S. payor 
or U.S. middleman described in Sec.  1.6049-5(c)(5) that regularly 
issues and retires its own debt obligations. A is an individual 
whose residence address is inside the United States, who holds a 
bond issued by FC that is in registered form (within the meaning of 
section 163(f) and the regulations under that section). The bond is 
retired by FP, a foreign corporation that is a broker within the 
meaning of paragraph (a)(1) of this section and the designated 
paying agent of FC. FP mails the proceeds to A at A's U.S. address. 
The sale would be considered to be effected at an office outside the 
United States under paragraph (g)(3)(iii)(A) of this section except 
that the proceeds of the sale are mailed to a U.S. address. For that 
reason, the sale is considered to be effected at an office of the 
broker inside the United States under paragraph (g)(3)(iii)(B) of 
this section. Therefore, FC is a broker under paragraph (a)(1) of 
this section with respect to this transaction because, although it 
is not a U.S. payor or U.S. middleman, as described in Sec.  1.6049-
5(c)(5), it is deemed to effect the

[[Page 12797]]

sale in the United States. FP is a broker for the same reasons. 
However, under the multiple broker exception under paragraph 
(c)(3)(iii) of this section, FP, rather than FC, is required to 
report the payment because FP is responsible for paying the holder 
the proceeds from the retired obligations. Under paragraph (g)(1)(i) 
of this section, FP may not treat A as an exempt foreign person and 
must make an information return under section 6045 with respect to 
the retirement of the FC bond, unless FP obtains the certificate or 
documentation described in paragraph (g)(1)(i) of this section.
    Example 2. The facts are the same as in Example 1 except that FP 
mails the proceeds to A at an address outside the United States. 
Under paragraph (g)(3)(iii)(A) of this section, the sale is 
considered to be effected at an office of the broker outside the 
United States. Therefore, under paragraph (a)(1) of this section, 
neither FC nor FP is a broker with respect to the retirement of the 
FC bond. Accordingly, neither is required to make an information 
return under section 6045.
    Example 3. The facts are the same as in Example 2 except that FP 
is also the agent of A. The result is the same as in Example 2. 
Neither FP nor FC are brokers under paragraph (a)(1) of this section 
with respect to the sale since the sale is effected outside the 
United States and neither of them are U.S. payors (within the 
meaning of Sec.  1.6049-5(c)(5)).
    Example 4. The facts are the same as in Example 1 except that 
the registered bond held by A was issued by DC, a domestic 
corporation that regularly issues and retires its own debt 
obligations. Also, FP mails the proceeds to A at an address outside 
the United States. Interest on the bond is not described in 
paragraph (g)(1)(ii) of this section. The sale is considered to be 
effected at an office outside the United States under paragraph 
(g)(3)(iii)(A) of this section. DC is a broker under paragraph 
(a)(1)(i)(B) of this section. DC is not required to report the 
payment under the multiple broker exception under paragraph 
(c)(3)(iii) of this section. FP is not required to make an 
information return under section 6045 because FP is not a U.S. payor 
described in Sec.  1.6049-5(c)(5) and the sale is effected outside 
the United States. Accordingly, FP is not a broker under paragraph 
(a)(1) of this section.
    Example 5.  The facts are the same as in Example 4 except that 
FP is also the agent of A. DC is a broker under paragraph (a)(1) of 
this section. DC is not required to report under the multiple broker 
exception under paragraph (c)(3)(iii) of this section. FP is not 
required to make an information return under section 6045 because FP 
is not a U.S. payor described in Sec.  1.6049-5(c)(5) and the sale 
is effected outside the United States and therefore FP is not a 
broker under paragraph (a)(1) of this section.
    Example 6. The facts are the same as in Example 4 except that 
the bond is retired by DP, a broker within the meaning of paragraph 
(a)(1) of this section and the designated paying agent of DC DP is a 
U.S. payor under Sec.  1.6049-5(c)(5). DC is not required to report 
under the multiple broker exception under paragraph (c)(3)(iii) of 
this section. DP is required to make an information return under 
section 6045 because it is the person responsible for paying the 
proceeds from the retired obligations unless DP obtains the 
certificate or documentary evidence described in paragraph (g)(1)(i) 
of this section.
    Example 7. Customer A owns U.S. corporate bonds issued in 
registered form after July 18, 1984, and carrying a stated rate of 
interest. The bonds are held through an account with foreign bank, 
X, and are held in street name. X is a wholly-owned subsidiary of a 
U.S. company and is not a qualified intermediary within the meaning 
of Sec.  1.1441-1(e)(5)(ii). X has no documentation regarding A. A 
instructs X to sell the bonds. In order to effect the sale, X acts 
through its agent in the United States, Y. Y sells the bonds and 
remits the sales proceeds to X. X credits A's account in the foreign 
country. X does not provide documentation to Y and has no actual 
knowledge that A is a foreign person but it does appear that A is an 
entity (rather than an individual).
    (i) Y's obligations to withhold and report. Y treats X as the 
customer, and not A, because Y cannot treat X as an intermediary 
because it has received no documentation from X. Y is not required 
to report the sales proceeds under the multiple broker exception 
under paragraph (c)(3)(iii) of this section, because X is an exempt 
recipient. Further, Y is not required to report the amount of 
accrued interest paid to X on Form 1042-S under Sec.  1.1461-
1(c)(2)(ii) because accrued interest is not an amount subject to 
reporting under chapter 3 unless the withholding agent knows that 
the obligation is being sold with a primary purpose of avoiding tax.
    (ii) X's obligations to withhold and report. Although X has 
effected, within the meaning of paragraph (a)(1) of this section, 
the sale of a security at an office outside the United States under 
paragraph (g)(3)(iii) of this section, X is treated as a broker, 
under paragraph (a)(1) of this section, because as a wholly-owned 
subsidiary of a U.S. corporation, X is a controlled foreign 
corporation and therefore is a U.S. payor. See Sec.  1.6049-5(c)(5). 
Under the presumptions described in Sec.  1.6049-5(d)(2) (as applied 
to amounts not subject to withholding under chapter 3), X must apply 
the presumption rules of Sec.  1.1441-1(b)(3)(i) through (iii), with 
respect to the sales proceeds, to treat A as a partnership that is a 
U.S. non-exempt recipient because the presumption of foreign status 
for offshore obligations under Sec.  1.1441-1(b)(3)(iii)(D) does not 
apply. See paragraph (g)(1)(i) of this section. Therefore, unless X 
is an FFI (as defined in Sec.  1.1471-1(b)(47)) that is excepted 
from reporting the sales proceeds under paragraph (c)(3)(ii) of this 
section, the payment of proceeds to A by X is reportable on a Form 
1099 under paragraph (c)(2) of this section. X has no obligation to 
backup withhold on the payment based on the exemption under Sec.  
31.3406(g)-1(e) of this chapter, unless X has actual knowledge that 
A is a U.S. person that is not an exempt recipient. X is also 
required to separately report the accrued interest (see paragraph 
(d)(3) of this section) on Form 1099 under section 6049 because A is 
also presumed to be a U.S. person who is not an exempt recipient 
with respect to the payment because accrued interest is not an 
amount subject to withholding under chapter 3 and, therefore, the 
presumption of foreign status for offshore obligations under Sec.  
1.1441-1(b)(3)(iii)(D) does not apply. See Sec.  1.6049-5(d)(2)(i).
    Example 8. The facts are the same as in Example 7, except that X 
is a foreign corporation that is not a U.S. payor under Sec.  
1.6049-5(c).
    (i) Y's obligations to withhold and report. Y is not required to 
report the sales proceeds under the multiple broker exception under 
paragraph (c)(3)(iii) of this section, because X is the person 
responsible for paying the proceeds from the sale to A.
    (ii) X's obligations to withhold and report. Although A is 
presumed to be a U.S. payee under the presumptions of Sec.  1.6049-
5(d)(2), X is not considered to be a broker under paragraph (a)(1) 
of this section because it is a not a U.S. payor under Sec.  1.6049-
5(c)(5). Therefore X is not required to report the sale under 
paragraph (c)(2) of this section.

    (5) introductory text and (5)(i) [Reserved]. For further guidance, 
see Sec.  1.6045-1(g)(5) introductory text and (g)(5)(i).
    (ii) The provisions of paragraphs (g)(1)(i), (g)(3)(iv), and (g)(4) 
of this section apply to payments made on or after July 1, 2014.
    (h) through (k) [Reserved]. For further guidance, see Sec.  1.6045-
1(h) through (k).
* * * * *
    (p) [Reserved]. For further guidance, see Sec.  1.6045-1(p).
    (q) Expiration date. The applicability of this section expires on 
February 28, 2017.


0
Par. 30. Section 1.6049-4 is amended by:
0
1. Revising paragraph (b)(1).
0
2. Adding paragraph (c)(4).
0
3. Revising paragraphs (f)(3) and (f)(4)(ii).
0
4. Adding paragraphs (f)(5) through (16) and (h).
    The revisions and additions 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) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.6049-4T(b)(1).
* * * * *
    (c) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.6049-4T(c)(4).
* * * * *
    (f) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.6049-4T(f)(3).
    (4) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.6049-
4T(f)(4)(ii).

[[Page 12798]]

    (5) through (16) [Reserved]. For further guidance, see Sec.  
1.6049-4T(f)(5) through (16)(iv).
* * * * *
    (h) [Reserved]. For further guidance, see Sec.  1.6049-4T(h).


0
Par. 31. Section 1.6049-4T is added to read as follows:


Sec.  1.6049-4T  Return of information as to interest paid and original 
issue discount includible in gross income after December 31, 1982 
(temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.6049-4(a).
    (b) Information to be reported--(1) Interest payments. Except as 
provided in paragraphs (b)(3) and (5) of this section, in the case of 
interest other than original issue discount treated as interest under 
Sec.  1.6049-5(f), an information return on Form 1099 shall be made for 
the calendar year showing the aggregate amount of the payments, the 
name, address, and taxpayer identification number of the person to whom 
paid, the amount of tax deducted and withheld under section 3406 from 
the payments, if any, and such other information as required by the 
forms. An information return is generally not required if the amount of 
interest paid to a person aggregates less than $10 or if the payment is 
made to a person who is an exempt recipient described in paragraph 
(c)(1)(ii) of this section, unless the payor backup withholds under 
section 3406 on such payment (because, for example, the payee (that is, 
exempt recipient) has failed to furnish a Form W-9 on request), in 
which case the payor must make a return under this section, unless the 
payor refunds the amount withheld pursuant to Sec.  31.6413(a)-3 
(Employment Tax Regulations). For reporting interest paid to certain 
nonresident alien individuals, see Sec.  1.6049-8.
    (2) through (c)(3) [Reserved]. For further guidance, see Sec.  
1.6049-4(b)(2) through (c)(3).
    (4) Coordination of reporting with chapter 4 reporting or an 
applicable IGA--(i) U.S. accounts reported by FFIs that are non-U.S. 
payors. An information return shall not be required with respect to an 
interest payment made by a participating FFI (including a reporting 
Model 2 FFI), or registered deemed-compliant FFI (including a reporting 
Model 1 FFI), that is a non-U.S. payor (as defined in Sec.  1.6049-
5(c)(5)) to an account holder of an account maintained by the FFI, when 
the payment is not subject to withholding under chapters 3 or 4 or to 
backup withholding under section 3406, and the conditions of paragraphs 
(c)(4)(i)(A) through (C) are met. See paragraph (c)(4)(iii) of this 
section for circumstances in which an FFI may allocate a payment 
described in this paragraph (c)(4)(i) to a chapter 4 withholding rate 
pool of U.S. payees.
    (A) The FFI is a participating FFI (including a reporting Model 2 
FFI) reporting the account holder of the U.S. account (as defined in 
Sec.  1.1471-1(b)(133)) pursuant to either Sec.  1.1471-4(d)(3) or (5) 
for the year in which the payment is made (including reporting of the 
account holder's TIN).
    (B) The FFI is a registered deemed-compliant FFI (other than a 
reporting Model 1 FFI) reporting the account holder of the U.S. account 
pursuant to the conditions of its applicable deemed-compliant status 
under Sec.  1.1471-5(f)(1) for the year in which the payment is made 
(including reporting of the account holder's TIN).
    (C) The FFI is a reporting Model 1 FFI reporting the account holder 
of the reportable U.S. account pursuant to an applicable Model 1 IGA 
for the year in which the payment is made (including reporting of the 
account holder's TIN).
    (ii) Other accounts reported by FFIs under chapter 4. An 
information return shall not be required under this section with 
respect to a payment that is not subject to withholding under chapter 3 
(as defined in Sec.  1.1441-2(a)) or backup withholding under Sec.  
31.3406(g)-1(e) and that is made to a recalcitrant account holder of a 
participating FFI (or non-consenting U.S. account of a reporting Model 
2 FFI), provided that the FFI reports such account holder in accordance 
with the classes of account holders described in Sec.  1.1471-4(d)(6) 
for the year in which the payment is made. See paragraph (c)(4)(iii) of 
this section for circumstances in which an FFI may allocate a payment 
described in this paragraph (c)(4)(ii) to a chapter 4 withholding rate 
pool of U.S. payees. In the case of a payment made by an FFI that is a 
reporting Model 1 FFI, an information return shall not be required with 
respect to a payment that is not subject to withholding under chapter 3 
or backup withholding under Sec.  31.3406(g)-1(e) and that is made to 
an account holder of the FFI if the account--
    (A) Has U.S. indicia for which appropriate documentation sufficient 
to treat the account as held by other than a specified U.S. person has 
not been provided pursuant to the due diligence requirements described 
in an applicable Model 1 IGA and,
    (B) Is therefore treated as a U.S. reportable account that the FFI 
is required to report pursuant to the applicable Model 1 IGA.
    (iii) Coordination of reporting exceptions with reporting of 
chapter 4 withholding rate pools. For purposes of paragraphs (c)(4)(i) 
and (ii) of this section, a participating FFI (including a reporting 
Model 2 FFI) or registered deemed-compliant FFI (including a reporting 
Model 1 FFI) receiving a payment from another payor may provide a 
withholding statement to the payor allocating the payment to a chapter 
4 withholding rate of pool of U.S. payees only if the payment is 
excepted from reporting under paragraph (c)(4)(i) of this section or if 
the payment is both excepted from reporting under paragraph (c)(4)(ii) 
of this section and not subject to withholding under chapter 4. See 
Sec.  1.6049-5(b)(14) (providing an exception from reporting under 
section 6049 to a payor that has been furnished a withholding statement 
from an participating FFI (including a reporting Model 2 FFI) or 
registered deemed-compliant FFI (including a reporting Model 1 FFI) and 
that allocates the payment to a chapter 4 withholding rate pool). Thus, 
for example, a U.S. payor that is a participating FFI may not allocate 
a payment to a chapter 4 withholding rate pool of U.S. payees on a 
withholding statement described in Sec.  1.6049-5(b)(14) when the 
payment is made to a U.S. account maintained by the FFI, regardless of 
whether the FFI reports the account in accordance with Sec.  1.1471-
4(d)(3) because the U.S. payor is not excepted from reporting under 
this section pursuant to paragraph (c)(4)(i) of this section.
    (iv) Example. The application of the provisions of paragraphs 
(c)(4)(ii) and (iii) of this section may be illustrated by the 
following example:

    Example. USP is a payor that makes an interest payment that is 
not a withholdable payment (as defined in paragraph (f)(15) of this 
section) to RM2, a U.S. payor and reporting Model 2 FFI. The payment 
is paid and received outside of the United States and is not an 
amount subject to withholding under chapter 3. RM2 receives the 
payment as an intermediary on behalf of its account holder, A. RM2 
has account information with respect to A which includes U.S. 
indicia as described in Sec.  1.1441-7(b)(5) or (8). Additionally, A 
does not provide consent for RM2 to report A's account. Under the 
presumption rules described in Sec.  1.6049-5(d)(2)(i), RM2 is 
required to treat A as a U.S. non-exempt recipient. Despite this 
presumption rule, and because backup withholding does not apply 
under Sec.  31.3406(g)-1(e), no information return shall be required 
with respect to the payment under paragraph (c)(4)(ii) of this 
section if A is reported by RM2 consistent with Sec.  1.1471-4(d)(6) 
as a non-consenting account holder. Additionally, RM2 may include A 
in the chapter 4 withholding rate pool of U.S.

[[Page 12799]]

payees on the withholding statement provided to USP consistent with 
the requirements of paragraph (c)(4)(iii) of this section.

    (d) through (f)(2) [Reserved]. For further guidance, see Sec.  
1.6049-4(d) through (f)(2).
    (3) Obligation. The term obligation includes bonds, debentures, 
notes, certificates, and other evidences of indebtedness regardless of 
how denominated. For the definition of the term offshore obligation, 
see paragraph (f)(9) of this section.
    (4) and (4)(i) [Reserved]. For further guidance, see Sec.  1.6049-
4(f)(4) introductory text and (f)(4)(i).
    (ii) Example. The application of the provisions of paragraph (f)(4) 
of this section may be illustrated by the following example:

    Example. In January, 1984, Broker B, a U.S. payor, purchases on 
behalf of its customer, Individual A, an obligation issued by 
partnership RR in a public offering on that date. Broker B holds the 
obligation for A throughout 1984. Broker B is required to make an 
information return showing the amount of original issue discount 
treated as paid to A under Sec.  1.6049-5(f).

    (5) Chapter 4 withholding rate pool. The term chapter 4 withholding 
rate pool has the meaning set forth in Sec.  1.1471-1(b)(20). However, 
for determining the U.S. payees included in a chapter 4 withholding 
rate pool for purposes of section 6049, see paragraph (c)(4)(iii).
    (6) Foreign financial institution (or FFI). The term foreign 
financial institution or FFI means an entity described in Sec.  1.1471-
1(b)(47),
    (7) Intergovernmental agreement (or IGA). The term 
intergovernmental agreement or IGA has the meaning set forth in Sec.  
1.1471-1(b)(67) (i.e., either a Model 1 IGA described in Sec.  1.1471-
1(b)(78) or a Model 2 IGA described in Sec.  1.1471-1(b)(79)).
    (8) Non-consenting U.S. accounts. The term non-consenting U.S. 
accounts has the meaning set forth in an applicable Model 2 IGA.
    (9) Offshore obligation. The term offshore obligation means an 
offshore obligation defined in Sec.  1.6049-5(c)(1). For the definition 
of the term obligation, see paragraph (f)(3) of this section.
    (10) Participating FFI. The term participating FFI means an FFI 
that is described in Sec.  1.1471-1(b)(91).
    (11) Recalcitrant account holder. The term recalcitrant account 
holder has the same meaning set forth in Sec.  1.1471-1(b)(110).
    (12) Registered deemed-compliant FFI. The term registered deemed-
compliant FFI means an FFI that is described in Sec.  1.1471-1(b)(111).
    (13) Reporting Model 1 FFI. The term reporting Model 1 FFI means an 
FFI that is described in Sec.  1.1471-1(b)(114).
    (14) Reporting Model 2 FFI. The term reporting Model 2 FFI means a 
participating FFI that is described in Sec.  1.1471-1(b)(91).
    (15) Withholdable payment. The term withholdable payment means a 
payment described in Sec.  1.1471-1(b)(145).
    (16) Paid and received outside the United States--(i) In general. 
Except as otherwise provided in paragraphs (f)(16)(ii) and (iii) of 
this section, the term paid and received outside the United States 
means an amount that is paid by a payor or middleman outside the United 
States as described in Sec.  1.6049-5(e).
    (ii) Transfers to the United States. Without regard to the location 
of the account from which the amount is drawn, an amount that is 
described in paragraph (f)(16)(ii)(A) or (B) of this section and paid 
by transfer to an account maintained by the payee in the United States 
or by mail to a United States address (including an amount paid with 
respect to a bond or a discount obligation described in Sec.  1.6049-
5(e)(4)) is not considered to be paid and received outside the United 
States.
    (A) An amount is described in this paragraph (f)(16)(ii)(A) if it 
is paid by an issuer or the paying agent of the issuer with respect to 
an obligation that is--
    (1) Issued by a U.S. payor, as defined in Sec.  1.6049-5(c)(5);
    (2) Registered under the Securities Act of 1933 (15 U.S.C. 77a); or
    (3) Listed on an exchange that is registered as a national 
securities exchange in the United States or included in an interdealer 
quotation system in the United States.
    (B) An amount is described in this paragraph (f)(16)(ii)(B) if it 
is paid by a U.S. middleman (as defined in Sec.  1.6049-5(c)(5)) that, 
as a custodian, nominee, or other agent of a payee, collects the amount 
for or on behalf of the payee.
    (iii) Deposits or accounts with banks and other financial 
institutions. In the case of an amount paid by a bank or other 
financial institution with respect to a deposit or an account that is 
considered paid at a branch or office outside the United States as 
described in Sec.  1.6049-5(e)(2), the amount is not considered paid 
and received outside the United States if the institution has knowledge 
that the customer has transmitted instructions to an agent, branch, or 
office of the institution from inside the United States by mail, 
telephone, electronic transmission, or otherwise concerning the deposit 
or account (unless the transmission from the United States has taken 
place in isolated and infrequent circumstances).
    (iv) Examples. The application of the provisions of paragraph 
(f)(16) of this section may be illustrated by the following examples:

    Example 1. FC is a foreign corporation that is not a U.S. payor 
or U.S. middleman, as defined in Sec.  1.6049-5(c)(5). A holds FC 
coupon bonds that are not in registered form under section 163(f) 
and the regulations . FB, a foreign branch of DC, a domestic 
corporation, is the designated paying agent with respect to the 
bonds issued by FC. A does not have an account with FB. A presents a 
coupon to FB at its office outside the United States with 
instructions to transfer funds to a bank account maintained by A in 
the United States. FB transfers the funds in accordance with A's 
instructions. Even though the amount is credited to an account in 
the United States, the interest on the FC bonds is paid and received 
outside the United States under paragraph (f)(16)(ii) of this 
section and Sec.  1.6049-5(e)(3) because the coupon is presented for 
payment outside the United States; because FC is a foreign person 
that is not a U.S. payor or U.S. middleman, as defined in Sec.  
1.6049-5(d)(1); because FB is not acting as A's agent; and because 
the obligation is not registered under the Securities Act of 1933 
(15 U.S.C. 77a), listed on a securities exchange that is registered 
as a national securities exchange in the United States, or included 
in an interdealer quotation system.
    Example 2. FC is a foreign corporation that is not a U.S. payor 
or U.S. middleman, as defined in Sec.  1.6049-5(d)(1). B, a United 
States citizen, holds a bond issued by FC in registered form under 
section 163(f) and the regulations thereunder and registered under 
the Securities Act of 1933 (15 U.S.C. 77a). The bond is not a 
foreign-targeted registered obligation as defined in Sec.  1.871-
14(e)(2). DB, a United States branch of a foreign corporation 
engaged in the commercial banking business, is the registrar of the 
bonds issued by FC. DB supplies FC with a list of the holders of the 
FC bonds. Interest on the FC bonds is paid to B and other 
bondholders by checks prepared by FC at its principal office outside 
the United States, and B's check is mailed from there to his 
designated address in the United States. The bond is described in 
paragraph (f)(16)(ii)(A)(2) of this section. The interest on the FC 
bonds paid to B by FC is not paid and received outside the United 
States under paragraph (f)(16) of this section.
    Example 3. The facts are the same as in Example 2 except that 
the checks are prepared and mailed in the United States by DC, a 
U.S. corporation engaged in the commercial banking business that is 
the designated paying agent with respect to the bonds issued by FC, 
and B's check is mailed to his designated address outside the United 
States. For purposes of section 6049, the interest on the FC bonds 
paid by DC is not paid and received outside the United States under 
paragraph (f)(16)(i) of this section.

    (g) [Reserved]. For further guidance, see Sec.  1.6049-4(g).

[[Page 12800]]

    (h) Effective/applicability dates. The provisions of paragraphs 
(c)(4), (f)(5) through (f)(16) of this section apply to payments made 
after June 30, 2014.
    (i) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 32. Section 1.6049-5 is amended by:
0
1. Revising paragraphs (b)(6) through (b)(8), (b)(10)(i) through 
(b)(11)(ii)(A), and (b)(12).
0
2. Redesignating paragraphs (b)(14) and (15) as (b)(15) and (16), 
adding new paragraph (b)(14), and revising newly redesignated paragraph 
(b)(15).
0
3. Revising (c)(1) through (c)(4), (c)(5)(i)(F), (c)(6), (d)(1) and 
(2), (d)(3)(i) through (d)(3)(iii)(A), (d)(4), (e), and (g).
    The revisions and additions read as follows:


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

* * * * *
    (b) * * *
    (6) through (8) [Reserved]. For further guidance, see Sec.  1.6049-
5T(b)(6) through (8).
* * * * *
    (10)(i) through (11)(ii)(A) [Reserved]. For further guidance, see 
Sec.  1.6049-5T(b)(10)(i) through (b)(11)(ii)(A).
* * * * *
    (12) [Reserved]. For further guidance, see Sec.  1.6049-5T(b)(12).
* * * * *
    (14) and (15) [Reserved]. For further guidance, see Sec.  1.6049-
5T(b)(14) and (15).
* * * * *
    (c) * * *
    (1) through (4) [Reserved]. For further guidance, see Sec.  1.6049-
5T(c)(1) through (4).
    (5) * * *
    (i) * * *
    (F) [Reserved]. For further guidance, see Sec.  1.6049-
5T(c)(5)(i)(F).
* * * * *
    (6) [Reserved]. For further guidance, see Sec.  1.6049-5T(c)(6).
    (d) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.6049-5T(d)(1).
    (2) * * *
    (i) through (iii) [Reserved]. For further guidance, see Sec.  
1.6049-5T(d)(2)(i).
    (3) * * *
    (i) through (iii)(A) [Reserved]. For further guidance, see Sec.  
1.6049-5T(d)(3)(i) through (d)(3)(iii)(A).
* * * * *
    (4) [Reserved]. For further guidance, see Sec.  1.6049-5T(d)(4).
    (e) * * *
    (1) through (5) [Reserved]. For further guidance, see Sec.  1.6049-
5T(e)
    (g) Effective/applicability date--(1) The provisions of paragraphs 
(b)(6) through (15), (c), (d), and (e) of this section apply to 
payments made after December 31, 2000.
    (2) [Reserved]. For further guidance, see Sec.  1.6049-5T(g)(2).


Sec.  1.6049-5T  [Redesignated as Sec.  1.6049(d)-5T]

0
Par. 33. Section 1.6049-5T is redesignated as section 1.6049(d)-5T.

0
Par. 34. Section 1.6049-5T is added to read as follows:


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

    (a) through (b)(5) [Reserved]. For further guidance, see Sec.  
1.6049-5(a) through (b)(5).
    (6) Amounts from sources outside the United States (determined 
under the provisions of part I, subchapter N, chapter 1 of the Internal 
Revenue Code (Code) and the regulations under those provisions) paid by 
a non-U.S. payor or a non-U.S. middleman (as defined in paragraph 
(c)(5) of this section) and paid and received outside the United 
States. See Sec.  1.6049-4(f)(16) for circumstances in which a payment 
is considered to be paid and received outside the United States.
    (7) Portfolio interest, as defined in Sec.  1.871-14(b)(1), paid 
with respect to obligations in bearer form described in section 
871(h)(2)(A), as in effect prior to the amendment by section 502 of the 
Hiring Incentives to Restore Employment Act of 2010 (HIRE Act), Public 
Law 111-147, or section 881(c)(2)(A), as in effect prior to the 
amendment by section 502 of the HIRE Act, that were issued prior to 
March 19, 2012, or with respect to a foreign-targeted registered 
obligation described in Sec.  1.871-14(e)(2) that was issued prior to 
January 1, 2016, and for which the documentation requirements described 
in Sec.  1.871-14(e)(3) and (4) have been satisfied (other than by a 
U.S. middleman (as defined in paragraph (c)(5) of this section) that, 
as a custodian or nominee of the payee, collects the amount for, or on 
behalf of, the payee, regardless of whether the middleman is also 
acting as agent of the payor).
    (8) Portfolio interest described in Sec.  1.871-14(c)(1)(ii), paid 
with respect to obligations in registered form described in section 
871(h)(2) or 881(c)(2) that is not described in paragraph (b)(7) of 
this section.
    (9) [Reserved]. For further guidance, see Sec.  1.6049-5(b)(9).
    (10)(i) Amounts paid and received outside the United States under 
Sec.  1.6049-4(f)(16) (other than by a U.S. middleman (as defined in 
paragraph (c)(5) of this section) that are paid by a custodian or 
nominee or other agent of the payee, of amounts that that it receives 
for, or on behalf of, the payee, regardless of whether the middleman is 
also acting as agent of the payor) with respect to an obligation that: 
Has a face amount or principal amount of not less than $500,000 (as 
determined based on the spot rate on the date of issuance if in foreign 
currency); has a maturity (at issue) of 183 days or less; satisfies the 
requirements of sections 163(f)(2)(B)(i) and (ii)(I), as in effect 
prior to the amendment by section 502 of the HIRE Act, and the 
regulations thereunder (as if the obligation would otherwise be a 
registration-required obligation within the meaning of section 
163(f)(2)(A)) (however, an original issue discount obligation with a 
maturity of 183 days or less from the date of issuance is not required 
to satisfy the certification requirement of Sec.  1.163-
5(c)(2)(i)(D)(3)) and is issued in accordance with the procedures of 
Sec.  1.163-5(c)(2)(i)(D); and has on its face the following statement 
(or a similar statement having the same effect):

    By accepting this obligation, the holder represents and warrants 
that it is not a United States person (other than an exempt 
recipient described in section 6049(b)(4) of the Internal Revenue 
Code and regulations thereunder) and that it is not acting for or on 
behalf of a United States person (other than an exempt recipient 
described in section 6049(b)(4) of the Internal Revenue Code and the 
regulations thereunder).

    (ii) If the obligation is in registered form, it must be registered 
in the name of an exempt recipient described in Sec.  1.6049-
4(c)(1)(ii). For purposes of this paragraph (b)(10), a middleman may 
treat an obligation as described in section 163(f)(2)(B)(i) and 
(f)(2)(B)(ii)(I), as in effect prior to the amendment by section 502 of 
the HIRE Act, and the regulations under that section if the obligation, 
or coupons detached therefrom, whichever is presented for payment, 
contains the statement described in this paragraph (b)(10). The 
exemption from reporting described in this paragraph (b)(10) shall not 
apply if the payor has actual knowledge that the payee is a U.S. person 
who is not an exempt recipient.
    (11) Amounts paid with respect to an account or deposit with a U.S. 
or foreign branch of a domestic or foreign corporation or partnership 
that is paid with respect to an obligation described in either 
paragraph (b)(11)(i) or (ii) of this section, if the branch is engaged 
in the commercial banking business; and the interest or OID is paid and 
received outside the United States as defined in

[[Page 12801]]

Sec.  1.6049-4(f)(16) (other than by a U.S. middleman (as defined in 
paragraph (c)(5) of this section) that acts as a custodian, nominee, or 
other agent of the payee, and collects the amount for, or on behalf of, 
the payee, regardless of whether the middleman is also acting as agent 
of the payor). The exemption from reporting described in this paragraph 
(b)(11) shall not apply if the payor has actual knowledge that the 
payee is a U.S. person who is not an exempt recipient.
    (i) An obligation is described in this paragraph (b)(11)(i) if it 
is not in registered form (within the meaning of section 163(f) and the 
regulations under that section), is described in section 163(f)(2)(B), 
as in effect prior to the amendment by section 502 of the HIRE Act, and 
issued in accordance with the procedures of Sec.  1.163-5(c)(2)(i)(C) 
or (D), and, in the case of a U.S. branch, is part of a larger single 
public offering of securities. For purposes of this paragraph 
(b)(11)(i), a middleman may treat an obligation as described in section 
163(f)(2)(B), as in effect prior to the amendment by section 502 of the 
HIRE Act, if the obligation, and any detachable coupons, contains the 
statement described in section 163(f)(2)(B)(ii)(II), as in effect prior 
to the amendment by section 502 of the HIRE Act, and the regulations 
under that section.
    (ii)(A) An obligation is described in this paragraph (b)(11)(ii) if 
it produces income described in section 871(i)(2)(A); has a face amount 
or principal amount of not less than $500,000 (as determined based on 
the spot rate on the date of issuance if in foreign currency); 
satisfies the requirements of sections 163(f)(2)(B)(i) and (ii)(I), as 
in effect prior to the amendment by section 502 of the HIRE Act, and 
the regulations thereunder (as if the obligation would otherwise be 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)(C) or (D) (however, an original issue discount 
obligation with a maturity of 183 days or less from the date of 
issuance is not required to satisfy the certification requirement of 
Sec.  1.163-5(c)(2)(i)(D)(3)). For purposes of this paragraph 
(b)(11)(ii), a middleman may treat an obligation as described in 
sections 163(f)(2)(B)(i) and (ii), as in effect prior to the amendment 
by section 502 of the HIRE Act, and the regulations under that section 
if the obligation, or any detachable coupon, contains the statement 
described in paragraph (b)(11)(ii)(B) of this section.
    (B) and (C) [Reserved]. For further guidance, see Sec.  1.6049-
5(b)(11)(ii)(B) and (C).
    (12) Payments that a payor can, prior to payment, reliably 
associate with documentation upon which it may rely to treat the 
payment as made to a foreign beneficial owner in accordance with Sec.  
1.1441-1(e)(1)(ii) or as made to a foreign payee in accordance with 
paragraph (d)(1) of this section or presumed to be made to a foreign 
payee under paragraph (d)(2) or (3) of this section. However, such 
payments may be reportable under Sec.  1.1461-1(b) and (c) or under 
Sec.  1.1474-1(d)(2) (for a chapter 4 reportable amount (as described 
in Sec.  1.1471-1(b)(18)). The provisions of Sec.  1.1441-1 shall apply 
by substituting the term payor for the term withholding agent and 
without regard to the fact that the provisions apply only to amounts 
subject to withholding under chapter 3 of the Code. In the event of a 
conflict between the provisions of Sec.  1.1441-1 and paragraph (d) of 
this section in determining the foreign status of the payee, the 
provisions of Sec.  1.1441-1 shall govern for payments of amounts 
subject to withholding under chapter 3 of the Code and the provisions 
of paragraph (d) of this section shall govern in other cases. This 
paragraph (b)(12) does not apply to interest paid on or after January 
1, 2013, to a nonresident alien individual to the extent provided in 
Sec.  1.6049-8.
    (13) [Reserved]. For further guidance, see Sec.  1.6049-5(b)(13).
    (14) Payments that a payor or middleman can, prior to payment, 
reliably associate with documentation upon which it may rely to treat 
as made to a foreign intermediary or flow-through entity in accordance 
with Sec.  1.1441-1(b) if it obtains from the foreign intermediary or 
flow-through entity a withholding statement under Sec.  1.1471-
3(c)(3)(iii)(B)(2) (describing an FFI withholding statement), Sec.  
1.1471-3(c)(3)(iii)(B)(3) (describing a chapter 4 withholding 
statement), Sec.  1.1441-1(e)(3)(iv) (describing a withholding 
statement provided by a non-qualified intermediary), Sec.  1.1441-
1(e)(5)(v) (describing a withholding statement provided by a qualified 
intermediary), or under Sec.  1.1441-5 (describing a withholding 
statement provided by a foreign partnership, foreign simple trust, or 
foreign grantor trust), that allocates the payment (or portion of a 
payment) to a chapter 4 withholding rate pool or specific payees to 
which withholding applies under chapter 4. The provisions of each of 
the foregoing sections shall apply by substituting the term payor for 
the term withholding agent. A payor or middleman may rely on a 
withholding statement provided by a foreign intermediary or flow-
through entity that identifies a chapter 4 withholding rate pool of 
U.S. payees (as described in Sec.  1.6049-4(c)(4)(iii)) or recalcitrant 
account holders (as described in Sec.  1.1471-4(d)(6)) if it identifies 
the foreign intermediary or flow-through entity that maintains the 
accounts (as described in Sec.  1.1471-5(b)(5)) included in the chapter 
4 withholding rate pool as a participating FFI (including a reporting 
Model 2 FFI) or registered deemed-compliant FFI (including a reporting 
Model 1 FFI) by applying the rules in Sec.  1.1471-3(d)(4) for 
identifying the payee of a payment (by substituting the term payor with 
the term withholding agent). A payor or middleman-may also rely on a 
withholding statement provided by a foreign intermediary that 
identifies a chapter 4 withholding rate pool of U.S. payees or 
recalcitrant account holders if it identifies the intermediary as a 
qualified intermediary (as defined in Sec.  1.1441-1(c)(15) by applying 
the rules described in Sec.  1.1441-1(b)(2)(vii)). See also Sec.  
1.6049-4(c)(4)(iii) for when an FFI may provide a chapter 4 withholding 
rate pool of U.S. payees on a withholding statement furnished to a 
payor or middleman.
    (15) If a foreign intermediary, as described in Sec.  1.1441-
1(c)(13), or a U.S. branch that is not treated as a U.S. person 
receives a payment from a payor, which payment the payor can reliably 
associate with a valid withholding certificate described in Sec.  
1.1441-1(e)(3)(ii) or (iii), or Sec.  1.1441-1(e)(3)(v), respectively, 
furnished by such intermediary or branch, then the intermediary or 
branch is not required to report such payment when it, in turn, pays 
the amount, unless, and to the extent, the intermediary or branch knows 
that the payment is required to be reported under this section and was 
not so reported. For example, if a U.S. branch described in Sec.  
1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons 
that are not exempt from reporting under Sec.  1.6049-4(c)(1)(ii) to 
the person from whom the U.S. branch receives the payment, the amount 
paid by the U.S. branch to such person is interest or original issue 
discount. See, however, Sec.  1.6049-4(c)(4) for when reporting under 
section 6049 is coordinated with reporting under chapter 4 or an 
applicable IGA (as defined in Sec.  1.6049-4(f)(7)). The exception for 
payments described in this paragraph (b)(15) shall not apply to a 
qualified intermediary that assumes reporting responsibility under 
chapter

[[Page 12802]]

61 of the Code for the payment under the agreement described in Sec.  
1.1441-1(e)(5)(iii).
    (16) [Reserved]. For further guidance, see Sec.  1.6049-5(b)(16).
    (c) Applicable rules--(1) Documentary evidence for offshore 
obligations and certain other obligations--(i) A payor may rely on 
documentary evidence described in Sec.  1.1471-3(c)(5)(i) instead of a 
beneficial owner withholding certificate described in Sec.  1.1441-
1(e)(2)(i) in the case of an amount paid outside the United States (as 
described in paragraph (e) of this section) with respect to an offshore 
obligation, or, in the case of broker proceeds described in Sec.  
1.6045-1(c)(2), to the extent provided in Sec.  1.6045-1(g)(1)(i). For 
purposes of this section, the term offshore obligation means--
    (A) An account maintained at an office or branch of a bank or other 
financial institution located outside the United States; or
    (B) An obligation as defined in Sec.  1.6049-4(f)(3) (other than an 
account described in paragraph (c)(1)(i)(A) of this section), contract, 
or other instrument with respect to which the payor is either engaged 
in business as a broker or dealer in securities or a financial 
institution (as defined in Sec.  1.1471-5(e)) that engages in 
significant activities at an office or branch located outside the 
United States. For purposes of the preceding sentence, an office or 
branch of such payor shall be considered to engage in significant 
activities with respect to an obligation when it participates 
materially and actively in negotiating the obligation under the 
principles described in Sec.  1.864-4(c)(5)(iii) (substituting the term 
obligation for the term stock or security).
    (ii) A payor may rely on documentary evidence if the payor has 
established procedures to obtain, review, and maintain documentary 
evidence sufficient to establish the identity of the payee and the 
status of that person as a foreign person; and the payor obtains, 
reviews, and maintains such documentary evidence in accordance with 
those procedures. A payor maintains the documents reviewed for purposes 
of this paragraph (c)(1) by retaining an original, certified copy, or 
photocopy (including a microfiche, electronic scan, or similar means of 
electronic storage) of the documents reviewed for as long as it may be 
relevant to the determination of the payor's obligation to report under 
Sec.  1.6049-4 and this section and noting in its records the date on 
which the document was received and reviewed. Documentary evidence 
furnished for a payment of an amount subject to withholding under 
chapter 3 of the Code or that is a chapter 4 reportable amount under 
Sec.  1.1474-1(d)(2) must contain all of the information that is 
necessary to complete a Form 1042-S for that payment. See Sec. Sec.  
1.1471-3(c) and 1.1471-4(c) for additional documentation requirements 
to identify a payee or account holder for chapter 4 purposes that may 
apply in addition to the requirements under paragraph (c) of this 
section.
    (iii) Even if an account or obligation (as defined in Sec.  1.6049-
4(f)(3)) is not maintained outside the United States (maintained in the 
United States), a payor may rely on documentary evidence associated 
with a withholding certificate described in Sec.  1.1441-1(e)(3)(iii) 
with respect to the persons for whom an entity acting as an 
intermediary collects the payment. A payor may also rely on documentary 
evidence associated with a flow-through withholding certificate for 
payments treated as made to foreign partners of a nonwithholding 
foreign partnership, as defined in Sec.  1.1441-1(c)(28), the foreign 
beneficiaries of a foreign simple trust, as defined in Sec.  1.1441-
1(c)(24), or foreign owners of a foreign grantor trust, as defined in 
Sec.  1.1441-1(c)(26), even though the partnership or trust account is 
an obligation maintained in the United States.
    (2) Other applicable rules. The provisions of Sec.  1.1441-
1(e)(4)(i) through (xii) (regarding who may sign a certificate, 
validity period of certificates and documentary evidence, retention of 
certificates, reliance rules, etc.) shall apply (by substituting the 
term payor for the term withholding agent and disregarding the fact 
that the provisions under Sec.  1.1441-1(e)(4) only apply to amounts 
subject to withholding under chapter 3 of the Code) to withholding 
certificates and documentary evidence furnished for purposes of this 
section. See Sec.  1.1441-1(b)(2)(vii) for provisions dealing with 
reliable association of a payment with documentation.
    (3) Standards of knowledge. A payor may not rely on a withholding 
certificate or documentary evidence described in paragraph (c)(1) or 
(4) of this section if it has actual knowledge or reason to know that 
any information or certification stated in the certificate or 
documentary evidence is unreliable. A payor has reason to know that 
information or certifications are unreliable only if the payor would 
have reason to know under the provisions of Sec.  1.1441-7(b)(2) and 
(3) that the information and certifications provided on the certificate 
or in the documentary evidence are unreliable or, in the case of a Form 
W-9 (or an acceptable substitute), it cannot reasonably rely on the 
documentation as set forth in Sec.  31.3406(h)-3(e) of this chapter 
(see the information and certification described in Sec.  31.3406(h)-
3(e)(2)(i) through (iv) of this chapter that are required in order for 
a payor reasonably to rely on a Form W-9). The provisions of Sec.  
1.1441-7(b)(2) and (3) shall apply for purposes of this paragraph 
(c)(3) irrespective of the type of income to which Sec.  1.1441-7(b)(2) 
is otherwise limited. The exemptions from reporting described in 
paragraphs (b)(10) and (11) of this section shall not apply if the 
payor has actual knowledge that the payee is a U.S. person who is not 
an exempt recipient.
    (4) Special documentation rules for certain payments. This 
paragraph (c)(4) modifies the provisions of paragraph (c)(1) of this 
section for payments of amounts that are not subject to withholding 
under chapter 3 of the Code, other than amounts described in paragraph 
(d)(3)(iii) of this section (dealing with U.S. short-term OID and U.S. 
source deposit interest described in section 871(i)(2)(A) or 
881(d)(3)). Amounts are not subject to withholding under chapter 3 of 
the Code if they are not included in the definition of amounts subject 
to withholding under Sec.  1.1441-2(a) (e.g., deposit interest with 
foreign branches of U.S. banks, foreign source income, or broker 
proceeds). A payor may rely upon documentation in lieu of documentary 
evidence (as described in paragraph (c)(1) of this section) or a 
written statement (as defined in Sec.  1.1471-1(b)(150)) to the extent 
permitted in paragraphs (c)(4)(i) through (iii) of this section, until 
the payor knows or has reason to know of a change in circumstance that 
makes the documentation unreliable or incorrect (as defined in Sec.  
1.1441-1(e)) when the payor does not have customer information for the 
payee that includes any of the U.S. indicia described in Sec.  1.1471-
3(c)(6)(ii)(C)(i). Further, a payor may maintain such documentation or 
documentary evidence as required in paragraph (c)(4)(iv) of this 
section.
    (i) Statement in lieu of documentary evidence with respect to 
accounts. If under the local laws, regulations, or practices of a 
country in which an account is maintained, it is not customary to 
obtain documentary evidence described in paragraph (c)(1) of this 
section with respect to the type of account, the payor may, instead of 
obtaining a beneficial owner withholding certificate described in Sec.  
1.1441-1(e)(2)(i) or documentary evidence described in paragraph (c)(1) 
of this section, establish a payee's foreign status based on the 
statement

[[Page 12803]]

described in this paragraph (c)(4)(i)(A) (or such substitute statement 
as the Internal Revenue Service may prescribe) made on an account 
opening form. However, see, also Sec.  1.1471-4(c) or an applicable IGA 
for additional documentation requirements that may apply to a 
participating FFI (including a reporting Model 2 FFI) for determining 
the status of its account holders for chapter 4 purposes. The statement 
referred to in this paragraph (c)(4)(i)(A) must appear near the 
signature line and must state, ``By opening this account and signing 
below, the account owner represents and warrants that he/she/it is not 
a U.S. person for purposes of U.S. Federal income tax and that he/she/
it is not acting for, or on behalf of, a U.S. person. A false statement 
or misrepresentation of tax status by a U.S. person could lead to 
penalties under U.S. law. If your tax status changes and you become a 
U.S. citizen or a resident, you must notify us within 30 days.'' 
Additionally, a payor may, instead of obtaining a beneficial owner 
withholding certificate described in Sec.  1.1441-1(e)(2)(i) or Sec.  
1.1471-3(c)(3)(ii) or documentary evidence described in paragraph 
(c)(1) of this section, establish a payee's foreign status based on a 
written statement described in paragraph Sec.  1.1471-1(b)(150) to the 
extent a payor uses such written statement to establish a payee's 
chapter 4 status and is permitted to use the written statement under 
Sec.  1.1471-3(d) (by substituting the term payor for the term 
withholding agent) without any other documentary evidence.
    (ii) Third-party identification. A payor that is a participating 
FFI (including a reporting Model 2 FFI) or a registered deemed-
compliant FFI may establish a payee's status based on information 
provided by a third party credit agency under this paragraph (c)(4) if 
the conditions described in Sec.  1.1471-4(c)(4)(ii) are satisfied 
(without regard to whether the payor is a participating FFI).
    (iii) Documentation under IGA. A payor that is a reporting Model 1 
FFI or reporting Model 2 FFI may rely upon documentation or a 
certification establishing a payee's status that is permitted under an 
applicable IGA for determining whether the account of the payee is 
other than a U.S. account and regardless of whether such documentation 
or certification is described in paragraph (c)(1) of this section or 
Sec.  1.1441-1(e)(2).
    (iv) Maintenance of documentation and written statement. A payor 
maintains documentation if it either maintains the documentary evidence 
as described in paragraph (c)(1) of this section or retains a record of 
the documentary evidence reviewed if the payor is not required to 
retain copies of the documentation pursuant to the payor's AML due 
diligence (as defined in Sec.  1.1471-1(b)(4)). A payor retains a 
record of documentary evidence reviewed by noting in its records the 
type of documentation reviewed, the date the document was reviewed, the 
document's identification number (if any), and whether such 
documentation contained any U.S. indicia described in Sec.  1.1441-
7(b)(8). Any statement described in paragraph (c)(4)(i)(A) of this 
section, must be retained in accordance with Sec.  1.1471-3(c)(6)(iii).
    (5) through (c)(5)(i)(E) [Reserved]. For further guidance, see 
Sec.  1.6049-5(c)(5) introductory text through (c)(5)(i)(E).
    (F) A U.S. branch or territory financial institution described in 
Sec.  1.1441-1(b)(2)(iv) that is treated as a U.S. person.
    (ii) [Reserved]. For further guidance, see Sec.  1.6049-
5(c)(5)(ii).
    (6) Examples. The following examples illustrate the provisions of 
paragraphs (b) and (c) of this section:

    Example 1. FC is a foreign corporation that is not engaged in a 
trade or business in the United States during the current calendar 
year. D, an individual who is a resident and citizen of the United 
States, holds a registered obligation issued by FC in a public 
offering. Interest is paid on the obligation within the United 
States by DC, a U.S. corporation that is the designated paying agent 
of FC. D does not have an account with DC. Although interest paid on 
the obligation issued by FC is foreign source, the interest paid by 
DC to D is considered to be interest under paragraph (b)(6) of this 
section for purposes of information reporting under section 6049 
because it is not paid and received outside the United States within 
the meaning of Sec.  1.6049-4(f)(16).
    Example 2. The facts are the same as in Example 1 except that D 
is a nonresident alien individual who has furnished DC with a Form 
W-8 in accordance with the provisions of Sec.  1.1441-1(e)(1)(ii). 
By reason of paragraph (b)(12) of this section, the payment of 
interest by DC to D is not considered to be a payment of interest 
for purposes of information reporting under section 6049. Therefore, 
DC is not required to make an information return under section 6049.
    Example 3. The facts are the same as in Example 2 except that 
the obligation of FC is held in a custodial account for D by FB, a 
foreign branch of a U.S. financial institution. By reason of 
paragraph (c)(5) of this section, FB is considered to be a U.S. 
middleman. Therefore, FB is required to make an information return 
unless FB may treat D as a beneficial owner that is a foreign person 
in accordance with the provisions of Sec.  1.1441-1(e)(1)(ii).
    Example 4. The facts are the same as in Example 3 except that 
the FC obligation is held for D by NC, in a custodial account at 
NC's foreign branch. NC is a foreign corporation that is a non-U.S. 
middleman described in paragraph (c)(5) of this section. The payment 
by NC to D is paid and received outside of the United States under 
Sec.  1.6049-4(f)(16) and therefore is not considered to be a 
payment of interest for purposes of section 6049 pursuant to 
paragraph (b)(6) of this section. Therefore, NC is not required to 
make an information return under section 6049 with respect to the 
payment.

    (d) Determination of status as U.S. or foreign payee and applicable 
presumptions in the absence of documentation--(1) Identifying the 
payee. The provisions of Sec. Sec.  1.1441-1(b)(2), 1.1441-5(c)(1) and 
(e)(2) and (3) shall apply (by applying the term payor instead of the 
term withholding agent) to identify the payee (other than a payee 
included in a chapter 4 withholding rate pool described in paragraph 
(b)(14) of this section) for purposes of this section (and other 
sections of the regulations under this chapter to which this paragraph 
(d)(1) applies), except to the extent provided in this paragraph (d)(1) 
in the case of a payment of an amount that is not subject to 
withholding under chapter 3 of the Code and that is not a withholdable 
payment (as defined in Sec.  1.6049-4(f)(15)). Amounts are not subject 
to withholding under chapter 3 of the Code if they are not included in 
the definition of amounts subject to withholding under Sec.  1.1441-
2(a) (e.g., deposit interest with foreign branches of U.S. banks, 
foreign source income, or broker proceeds). The exceptions to the 
application of Sec.  1.1441-1(b)(2) to amounts that are not subject to 
withholding under chapter 3 of the Code and that are not withholdable 
payments are as follows:
    (i) The provisions of Sec.  1.1441-1(b)(2)(ii), dealing with 
payments to a U.S. agent or intermediary of a foreign person, shall not 
apply. Thus, a payment to a U.S. agent or intermediary of a foreign 
person is treated as a payment to a U.S. payee.
    (ii) Payments to U.S. branches or territory financial institution 
described in Sec.  1.1441-1(b)(2)(iv) shall be treated as payments to a 
foreign payee, irrespective of the fact that the U.S. branch or 
territory financial institution is otherwise treated as a U.S. person 
for payments of amounts subject to withholding under chapter 3 and 
withholdable payments, and irrespective of the fact that the branch or 
territory financial institution is treated as a U.S. payor for purposes 
of paragraph (c)(5) of this section.
    (2) Presumptions of U.S. or foreign status in the absence of 
documentation--(i) In general. Except as otherwise provided in this 
paragraph

[[Page 12804]]

(d)(2)(i), for purposes of this section (and other sections of 
regulations under this chapter 61 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 Code or are withholdable payments. 
The provisions of Sec.  1.1441-1(b)(3)(iii)(D) and (vii)(B) 
(referencing presumption rules for payments with respect to offshore 
obligations) shall not apply to a payment of an amount not subject to 
withholding under chapter 3, unless it is an amount that is a 
withholdable payment made to a payee that is an entity. Thus, in the 
case of a withholdable payment made to an entity, the presumption rules 
of Sec.  1.1441-1(b)(3)(iii)(D) and (vii)(B) shall apply regardless of 
whether the payment is an amount subject to withholding under chapter 
3. Additionally, in the case of an amount paid outside the United 
States with respect to an offshore obligation described in Sec.  
1.1441-1(b)(3)(iii)(D) or (vii)(B) of an amount not subject to 
withholding under chapter 3 and that is treated as made to a payee that 
is an individual, the presumption rules of Sec.  1.1441-1(b)(3)(iii) 
shall not apply, and the payee shall be presumed a U.S. person only 
when the payee has any of the indicia of U.S. status that are described 
in Sec.  1.1441-7(b)(5) or (8). In a case in which a withholding agent 
makes a withholdable payment that cannot reliably be associated with 
documentation, see Sec.  1.1471-3(f)(4) and (5) for determining the 
status of the payee for chapter 4 purposes when the payment is treated 
as made to a foreign entity (by applying the term payor instead of the 
term withholding agent). 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 information, 
documentary evidence, statement, or other documentation described in 
paragraph (c)(4) of this section can be treated as documentation with 
which a payment can be associated.
    (ii) Grace period in the case of indicia of a foreign payee. When 
the conditions of this paragraph (d)(2)(ii) are satisfied, the 30-day 
grace period provisions under section 3406(e) shall not apply and the 
provisions of this paragraph (d)(2)(ii) shall apply instead. A payor 
that, at any time during the grace period described in this paragraph 
(d)(2)(ii), credits an account with payments 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 reportable under sections 
6042, 6045, 6049, or 6050N may, instead of treating the account as 
owned by a U.S. person and applying backup withholding under section 
3406, if applicable, choose to treat the account as owned by a foreign 
person (and apply the grace period described in Sec.  1.1441-
1(b)(3)(iv)) if, at the beginning of the grace period, the address that 
the payor has in its records for the account holder is in a foreign 
country, the payor has been furnished the information contained in a 
withholding certificate described in Sec.  1.1441-1(e)(2), or the payor 
holds a withholding certificate that is no longer reliable other than 
because the validity period as described in Sec.  1.1441-1(e)(4)(ii)(A) 
has expired. In the case of a newly opened account, the grace period 
begins on the date that the payor first credits the account. In the 
case of an existing account for which the payor holds a Form W-8 or 
documentary evidence of foreign status, the payor may apply the 
provisions of the grace period described in Sec.  1.1441-1(b)(3)(iv), 
beginning on the date that the payor first credits the account after 
the existing documentation held with regard to the account can no 
longer be relied upon (other than because the validity period described 
in Sec.  1.1441-1(e)(4)(ii)(A) has expired). A new account shall be 
treated as an existing account for purposes of this paragraph 
(d)(2)(ii) if the account holder already holds an account at the branch 
location at which the new account is opened, or if the account is 
treated as a consolidated obligation as defined in Sec.  1.1471-
(1)(b)(23) for purpose of chapter 4 to the extent the account does not 
receive any amounts subject to withholding under chapter 3. A new 
account shall also be treated as an existing account for purposes of 
this paragraph (d)(2)(ii) if an account is held at another branch 
location if the institution maintains an account information system 
described in Sec.  1.1441-1(e)(4)(ix). The grace period terminates on 
the earlier of the close of the 90th day from the date on which the 
grace period begins or the date that valid documentation is provided. 
The grace period also terminates when the remaining balance in the 
account (due to withdrawals or otherwise) is equal to or less than 28 
percent (or other statutory tax rate that is applicable to backup 
withholding) of the total amounts credited since the beginning of the 
grace period that would be subject to backup withholding if the 
provisions of this paragraph (d)(2)(ii) did not apply. At the end of 
the grace period, the payor shall treat the amounts credited to the 
account, or paid with respect to an account, during the grace period as 
paid to a U.S. or foreign payee depending upon whether documentation 
has been furnished and the nature of any such documentation furnished 
upon which the payor may rely to treat the account as owned by a U.S. 
or foreign payee. If the documentation has not been received on or 
before the date of expiration of the grace period, the payor may also 
apply the presumptions described in this paragraph (d) to amounts 
credited to the account after the date on which the grace period 
expires (until such time as the payor can reliably associate the 
documentation with amounts credited). See Sec.  31.6413(a)-3(a)(1)(iv) 
of this chapter for treating backup withheld amounts under section 3406 
as erroneously withheld when the documentation establishing foreign 
status is furnished prior to the end of the calendar year in which 
backup withholding occurs. If the provisions of this paragraph 
(d)(2)(ii) apply, the provisions of Sec.  31.3406(d)-3 of this chapter 
shall not apply. For purposes of this paragraph (d)(2)(ii), an account 
holder's reinvestment of gross proceeds of a sale into other 
instruments constitutes a withdrawal and a non-qualified electronic 
transmission of information on a withholding certificate is a 
transmission that is not in accordance with the provisions of Sec.  
1.1441-1(e)(4)(iv). See Sec.  1.1092(d)-1 for a definition of the term 
actively traded for purposes of this paragraph (d)(2)(ii).
    (iii) Joint owners. Amounts paid to accounts held jointly for which 
a certificate or documentation is required as a condition for being 
exempt from reporting under paragraph (b) of this section are presumed 
made to U.S. payees who are not exempt recipients if, prior to payment, 
the payor cannot reliably associate the payment either with a Form W-9 
furnished by one of the joint owners in the manner required in 
Sec. Sec.  31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with 
documentation described in paragraph (b)(12) of this section furnished 
by each joint owner

[[Page 12805]]

upon which it can rely to treat each joint owner as a foreign payee or 
foreign beneficial owner. In the case of an amount that is a 
withholdable payment made to a joint account, however, see Sec.  
1.1471-3(f)(7) for when the payment is treated as made to a foreign 
payee that is a nonparticipating FFI (as defined in Sec.  1.1471-
1(b)(82)). For purposes of applying this paragraph (d)(2)(iii), the 
grace period described in paragraph (d)(2)(ii) of this section shall 
apply only if each payee qualifies for such grace period.
    (3) Payments to foreign intermediaries or flow-through entities--
(i) Payments of amounts subject to withholding under chapter 3 of the 
Code or withholdable payments. In the case of payments of amounts that 
the payor may treat as made to a foreign intermediary or flow-through 
entity in accordance with Sec. Sec.  1.1441-1(b)(3)(ii)(C) and 
(b)(3)(v)(A) and 1.1441-5(c) or (e) and that are subject to withholding 
under Sec.  1.1441-2(a), the provisions of Sec. Sec.  1.1441-1(b)(2)(v) 
and 1.1441-5(c)(1), (e)(2), and (3) shall apply (by applying the term 
payor instead of the term withholding agent) to identify the payee. If 
a payment of an amount subject to withholding cannot be reliably 
associated with valid documentation from a payee in accordance with 
Sec.  1.1441-1(b)(2)(vii), the presumption rules of Sec. Sec.  1.1441-
1(b)(3)(v) and 1.1441-5(d) and (e)(6) shall apply to determine the 
payee's status for purposes of this section (and other sections of 
regulations under this chapter to which this paragraph (d)(3) applies). 
In the case of an amount that is a withholdable payment, see Sec.  
1.1471-3(c)(3) for rules to identify the payee and see Sec.  1.1471-
3(f)(5) for the presumption rule that shall apply to amounts treated as 
made to a foreign intermediary or flow-through entity (by applying the 
term payor instead of the term withholding agent). For example, where a 
withholdable payment is made to an intermediary under Sec.  1.1471-3 
that is treated as a nonparticipating FFI under Sec.  1.1471-3(f)(5), 
the nonparticipating FFI shall be treated as the payee under Sec.  
1.1471-3(c)(3) and for purposes of this paragraph (d)(3)(i), therefore, 
no information return shall be required under this section.
    (ii) Payments of amounts not subject to withholding under chapter 3 
of the Code and that are not withholdable payments. Except as provided 
in paragraph (d)(3)(iii) of this section, amounts that are not subject 
to withholding under chapter 3 of the Code and that are not 
withholdable payments that the payor may treat as paid to a foreign 
intermediary or flow-through entity shall be treated as made to an 
exempt recipient described in Sec.  1.6049-4(c) except to the extent 
that the payor has actual knowledge that any person for whom the 
intermediary or flow-through entity is collecting the payment is a U.S. 
person who is not an exempt recipient. In the case of such actual 
knowledge, the payor shall treat the payment that it knows is allocable 
to such U.S. person as a payment to a U.S. payee who is not an exempt 
recipient and has actual knowledge of the amount allocable to such a 
person.
    (iii) Special rule for payments of certain short-term original 
issue discount--(A) General rule. A payment of U.S. source interest or 
original issue discount on the redemption of an obligation with a 
maturity from the date of issue of 183 days or less (short-term OID) 
described in section 871(g)(1)(B) or 881(e) that the payor may treat as 
paid to a foreign intermediary or flow-through entity in accordance 
with the provisions of Sec.  1.1441-1(b)(3)(ii)(C), (b)(3)(v)(A), Sec.  
1.1441-5(d) or (e) (by substituting the term payor for the term 
withholding agent), shall be treated as paid to an undocumented U.S. 
payee that is not an exempt recipient under paragraph Sec.  1.6049-4(c) 
unless the payor has documentation from the payees of the payment and 
the payment is allocated to foreign payees, as a group, and to each 
U.S. non-exempt recipient payee. See Sec.  1.1441-1(e)(3)(iv)(C)(2). 
However, a payor may rely on a withholding statement provided by an 
intermediary described in Sec.  1.1441-1(e)(3)(iv) (or similar 
withholding statement for a flow-through entity) that identifies a 
chapter 4 withholding rate pool of U.S. payees (as described in Sec.  
1.6049-4(c)(4)(iii)) only if it identifies the foreign intermediary or 
flow-through entity as a participating FFI (including a reporting Model 
2 FFI) or registered deemed-compliant FFI (including a reporting Model 
1 FFI) under Sec.  1.1471-3(d)(4) (by substituting the term payor with 
the term withholding agent). See also Sec.  1.6049-4(c)(4)(iii) for 
when an FFI may provide a chapter 4 withholding rate pool of U.S. 
payees on a withholding statement.
    (B) [Reserved]. For further guidance, see Sec.  1.6049-
5(d)(3)(iii)(B).
    (iv) [Reserved]. For further guidance, see Sec.  1.6049-
5(d)(3)(iv).
    (4) Examples. The rules of paragraphs (d)(1) through (3) of this 
section are illustrated by the examples in this paragraph (d)(4). 
Unless otherwise specified in an example, the following facts apply: 
all FFIs, such as a nonqualified intermediary that is an FFI, are 
treated as participating FFIs; all payees have been identified with 
chapter 4 statuses that do not require withholding under chapter 4; and 
none of the payments are withholdable payments.

    Example 1. (i) Facts. USP is a U.S. payor as defined in 
paragraph (c)(5) of this section. USP pays interest from sources 
within the United States that is a withholdable payment to an 
account maintained in the United States by X. The interest is not 
deposit interest described in sections 871(i)(2)(A) or 881(d). USP 
does not have a Form W-9, or withholding certificate from X as 
defined in Sec.  1.1441-1(c)(16). Moreover, USP cannot treat X as an 
exempt recipient, as defined in Sec.  1.6049-4(c)(1)(ii), without 
documentation and there is no indication that X is an individual, 
trust, or estate.
    (ii) Analysis. The U.S. source interest is an amount subject to 
withholding as defined in Sec.  1.1441-2(a). Under paragraph (d)(1) 
of this section, USP must apply the provisions of Sec. Sec.  1.1441-
1(b)(2) and 1.1441-5(c) and (e) to determine the payee of the 
interest. Under Sec.  1.1441-1(b)(2)(i), X, the person to whom the 
payment is made, is considered to be the payee, unless X is 
determined to be a flow-through entity, in which case the rules of 
Sec.  1.1441-5 apply to determine the payee. Under paragraph 
(d)(2)(i) of this section, the rules of Sec.  1.1441-1(b)(3)(ii) 
apply to determine the classification of a payee as an individual, 
trust, estate, corporation, or partnership. Under Sec.  1.1441-
1(b)(3)(ii)(B), X is presumed to be a partnership, since X does not 
appear to be an individual, trust or estate, and X cannot be 
presumed to be an exempt recipient in the absence of documentation. 
Paragraph (d)(2)(i) of this section requires USP to apply the 
provisions of Sec. Sec.  1.1441-1(b)(3)(iii) and 1.1441-5(d) to 
determine whether X is presumed to be a U.S. or foreign partnership. 
Under Sec. Sec.  1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is 
presumed to be a U.S. partnership in absence of any indicia of 
foreign partnership status. The presumption of U.S. status applies 
even though the payment is a withholdable payment (see paragraph 
(d)(2) of this section and Sec.  1.1471-3(f)(2) cross referencing 
the presumption rules of Sec.  1.1441-1(b)(3)). The U.S. source 
interest paid to X is reportable under section 6049 on Form 1099 and 
the interest is subject to backup withholding under section 3406 
because X has not provided its TIN on a valid Form W-9. No 
withholding or reporting applies to the payment under chapter 3 or 4 
of the Code.
    Example 2. (i) Facts. The facts are the same as in Example 1, 
except that the interest paid by USP is from sources outside the 
United States.
    (ii) Analysis. Interest from sources outside the United States 
is not an amount subject to withholding, as defined in Sec.  1.1441-
2(a) or a withholdable payment. Under paragraph (d)(1) of this 
section, USP must apply the provisions of Sec. Sec.  1.1441-1(b)(2) 
and 1.1441-5(c) and (e) to determine the payee. Under Sec.  1.1441-
1(b)(2)(i), X, the person to whom the payment is made, is considered 
to be the payee, unless X is determined to be a flow-through entity, 
in which case the rules of Sec.  1.1441-5(c) or (e) apply to 
determine the

[[Page 12806]]

payee. Under paragraph (d)(2)(i) of this section, the rules of Sec.  
1.1441-1(b)(3)(ii) apply to determine the classification of a payee 
as an individual, trust, estate, corporation, or partnership. These 
rules apply irrespective of whether the payment is an amount subject 
to withholding. Under Sec.  1.1441-1(b)(3)(ii)(B), X is presumed to 
be a partnership, since X does not appear to be an individual, trust 
or estate, and X cannot be presumed to be an exempt recipient in the 
absence of documentation. Paragraph (d)(2)(i) of this section 
requires USP to apply the provisions of Sec. Sec.  1.1441-
1(b)(3)(iii) and 1.1441-5(d) to determine whether, X is presumed to 
be a U.S. or foreign partnership. Under Sec. Sec.  1.1441-
1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to be a U.S. 
partnership in absence of any indicia of foreign partnership status. 
The foreign source interest is a payment subject to reporting on 
Form 1099 under Sec.  1.6049-5(a). Further, because X is a non-
exempt recipient that has failed to provide its TIN on a valid Form 
W-9, the foreign source interest is subject to backup withholding 
under section 3406.
    Example 3.  (i) Facts. USP is a U.S. payor as defined in 
paragraph (c)(5) of this section. USP makes a payment of U.S. source 
interest outside the United States to an offshore account of X. See 
paragraphs (c)(1) for a definition of offshore account and (e) for a 
payment outside the United States. USP does not have a withholding 
certificate from X as defined in Sec.  1.1441-1(c)(16) nor does it 
have documentary evidence as described in Sec.  1.1441-
1(e)(1)(ii)(A)(2) and Sec.  1.6049-5(c)(1).
    (ii) Analysis. The interest is an amount subject to withholding 
as defined in Sec.  1.1441-2(a). Under paragraph (d)(1) of this 
section, USP must apply the provisions of Sec.  1.1441-1(b)(2) and 
Sec.  1.1441-5(c) and (e) to determine the payee. Under Sec.  
1.1441-1(b)(2)(i), X, the person to whom the payment is made, is 
considered to be the payee, unless X is determined to be a flow-
through entity, in which case the rules of Sec.  1.1441-5(c) or (e) 
apply to determine the payee. Under paragraph (d)(2)(i) of this 
section, the rules of Sec.  1.1441-1(b)(3)(ii) apply to determine 
the classification of a payee as an individual, trust, estate, 
corporation, or partnership. Under Sec.  1.1441-1(b)(3)(ii)(B), X is 
presumed to be a partnership, since X does not appear to be an 
individual, trust or estate, and X cannot be presumed to be an 
exempt recipient in the absence of documentation. Paragraph 
(d)(2)(i) of this section requires USP to apply the provisions of 
Sec. Sec.  1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine whether, 
X is presumed to be a U.S. or foreign partnership. Under Sec. Sec.  
1.1441-1(b)(3)(iii)(D) and 1.1441-5(d)(2), X is presumed to be a 
foreign partnership. Therefore, under paragraph (d)(1) of this 
section and Sec.  1.1441-5(c)(1)(i)(E), the payees of the interest 
are presumed to be the partners of X. Under Sec.  1.1441-5(d)(3), 
the partners are presumed to be undocumented foreign persons. 
Therefore, USP must withhold 30% of the interest payment under Sec.  
1.1441-1(b)(1) and report the payment on Form 1042-S in accordance 
with Sec.  1.1461-1(c).
    Example 4. (i) Facts. The facts are the same as in Example 3, 
except that the interest is paid by F, a non-U.S. payor.
    (ii) Analysis. The analysis and result are the same as in 
Example 3. F is a withholding agent under Sec.  1.1441-7 and its 
status as a non-U.S. payor under paragraph (c)(5) of this section is 
irrelevant.
    Example 5. (i) Facts. USP is a U.S. payor as defined in 
paragraph (c)(5) of this section that is not an FFI. USP makes a 
payment outside the United States of interest from sources outside 
the United States with respect to an offshore obligation held by X. 
USP does not have a withholding certificate from X as defined in 
Sec.  1.1441-1(c)(16) nor does it have documentary evidence as 
described in Sec. Sec.  1.1471-3(c)(5)(i) and 1.6049-5(c)(1). USP 
does not have actual knowledge of an employer identification number 
for X. X does not appear to be an individual, trust, or estate and 
cannot be treated as an exempt recipient, as defined in Sec.  
1.6049-4(c)(1)(ii) in the absence of documentation.
    (ii) Analysis. The interest is not an amount subject to 
withholding as defined in Sec.  1.1441-2(a) and is not a 
withholdable payment. Under paragraph (d)(1) of this section, USP 
must apply the rules of Sec. Sec.  1.1441-1(b)(2) and 1.1441-5(c) 
and (e) to determine the payee of the interest. Under Sec.  1.1441-
1(b)(2)(i), X, the person to whom the payment is made, is considered 
to be the payee, unless X is determined to be a flow-through entity, 
in which case the rules of Sec.  1.1441-5(c) or (e) apply to 
determine the payee. Under paragraph (d)(2)(i) of this section, 
Sec.  1.1441-1(b)(3)(ii) applies to determine X's classification as 
an individual, trust, estate, corporation or partnership. Under 
Sec.  1.1441-1(b)(3)(ii)(B), X is treated as a partnership, since it 
does not appear to be an individual, trust, or estate and cannot be 
treated as an exempt recipient without documentation. Paragraph 
(d)(2)(i) of this section requires USP to apply the provisions of 
Sec. Sec.  1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine whether, 
X is presumed to be a U.S. or foreign partnership. Paragraph 
(d)(2)(i) also states that the presumptions of foreign status for 
payments made with respect to offshore obligations contained in 
Sec. Sec.  1.1441-1(b)(3)(iii)(D) and 1.1441-5(d)(2) do not apply to 
amounts that are not subject to withholding and that are not 
withholdable payments described in paragraph (d)(2)(i). Therefore, 
under Sec. Sec.  1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is 
presumed to be a U.S. partnership because it does not have actual 
knowledge that X's employer identification number begins with the 
digits ``98.'' Therefore, USP must treat X as a U.S. person that is 
not an exempt recipient and report the payment on Form 1099 under 
section 6049. Under Sec.  31.3406(g)-1(e) of this chapter, however, 
USP is not required to backup withhold on the payment unless it has 
actual knowledge that X is a U.S. person that is not an exempt 
recipient.
    Example 6. (i) Facts. The facts are the same as in Example 5, 
except that the interest is paid by F, a non-U.S. payor, as defined 
under paragraph (c)(5) of this section.
    (ii) Analysis. The analysis is the same as under Example 5. 
However, F is a non-U.S. payor paying foreign source interest 
outside the United States, and there is no indication that the 
amount is received in the United States under Sec.  1.6049-4(f)(16). 
Thus, paragraph (b)(6) of this section exempts the payment from 
reporting under section 6049.
    Example 7. (i) Facts. USP, a U.S. payor as defined in paragraph 
(c)(5) of this section that is not an FFI, makes a payment of U.S. 
source interest that is a withholdable payment to NQI, a 
nonqualified intermediary as defined in Sec.  1.1441-1(c)(14), that 
is a certified deemed-compliant FFI under Sec.  1.1471-5(f)(2). The 
interest is paid inside the United States to an account of a bank or 
other financial institution maintained in the United States. NQI has 
provided USP with a nonqualified intermediary withholding 
certificate, as described in Sec.  1.1441-1(e)(3)(iii) that includes 
its chapter 4 status, but has not attached any documentation from 
the persons on whose behalf it acts or a withholding statement as 
described in Sec.  1.1441-1(e)(3)(iv).
    (ii) Analysis. U.S. source interest is an amount subject to 
withholding under Sec.  1.1441-2(a). USP may treat the payment as 
made to a foreign intermediary under Sec.  1.1441-1(b)(3)(v)(A) 
because USP has received a nonqualified intermediary withholding 
certificate from NQI and may except NQI from withholding under 
chapter 4 of the Code given NQI's status for chapter 4 purposes as a 
deemed-compliant FFI. Under paragraph (d)(3)(i) of this section, USP 
must then apply Sec.  1.1471-3(c)(3) to treat the persons on whose 
behalf NQI is acting as the payees. Paragraph (d)(3)(i) of this 
section also requires USP to apply the presumption rules of Sec.  
1.1441-1(b)(3)(v) if it cannot reliably associate the payment with 
valid documentation from a payee. See Sec.  1.1441-1(b)(2)(vii). As 
the payment is a withholdable payment, the interest is treated as 
paid to a nonparticipating FFI under Sec.  1.1471-3(f)(4). 
Therefore, the payment is not subject to reporting on Form 1099 
under paragraph (b)(12) of this section . See Sec.  1.1471-2(a) for 
the withholding requirement with respect to the payment and Sec.  
1.1474-1(d)(2) for the requirement to report the payment on Form 
1042-S.
    Example 8. (i) Facts. The facts are the same as in Example 7, 
except that the interest is paid outside the United States, as 
defined in paragraph (e) of this section to an offshore account, as 
defined in paragraph (c)(1) of this section and is not a 
withholdable payment.
    (ii) Analysis. Under Sec.  1.1441-1(b)(3)(v)(B), the interest is 
treated as paid to an unknown foreign payee because it cannot be 
reliably associated with documentation under Sec.  1.1441-
1(b)(2)(vii). Therefore, the payment is not subject to reporting on 
Form 1099 under paragraph (b)(12) of this section because the 
payment is presumed made to a foreign person. The payment is subject 
to withholding, however, under Sec.  1.1441-1(b) at a rate of 30% 
and is subject to reporting on Form 1042-S under Sec.  1.1461-1(c).
    Example 9. (i) Facts. The facts are the same as in Example 8, 
except that the interest is paid by F, a non-U.S. payor, as defined 
in paragraph (c)(5) of this section.
    (ii) Analysis. The analysis and results are the same as in 
Example 8.
    Example 10. (i) Facts. USP, a U.S. payor as defined in paragraph 
(c)(5) of this section,

[[Page 12807]]

makes a payment of foreign source interest (other than deposit 
interest) to NQI, a foreign corporation and a nonqualified 
intermediary as defined in Sec.  1.1441-1(c)(14). NQI has provided 
USP with a nonqualified intermediary withholding certificate, as 
described in Sec.  1.1441-1(e)(3)(iii), but has not attached any 
documentation from the persons on whose behalf it acts or a 
withholding statement as described in Sec.  1.1441-1(e)(3)(iv).
    (ii) Analysis. Foreign source interest is not an amount subject 
to withholding under chapter 3 of the Code and is not a withholdable 
payment. See Sec. Sec.  1.1441-2(a) and 1.1473-1(a). Under paragraph 
(d)(3)(ii) of this section, amounts that are not subject to 
withholding under chapter 3 of the Code and that are not 
withholdable payments described in paragraph (d)(2)(i) of this 
section that a payor may treat as paid to a foreign intermediary are 
treated as made to an exempt recipient described in Sec.  1.6049-
4(c) absent actual knowledge that the payee is a U.S. person who is 
not an exempt recipient. Therefore, the foreign source interest is 
not subject to reporting on Form 1099.
    Example 11. (i) Facts. USP is a U.S. payor as defined in 
paragraph (c)(5) of this section that is a bank. USP pays U.S. 
source original issue discount from the redemption of an obligation 
described in section 871(g)(1)(B) to NQI, a foreign corporation that 
is a nonqualified intermediary as defined in Sec.  1.1441-1(c)(14. 
The redemption proceeds are not paid outside of the United States as 
they are paid with respect to an account NQI has with a branch of a 
bank in the United States. See Sec.  1.6049-5(c)(2). NQI provides a 
nonqualified intermediary withholding certificate as described in 
Sec.  1.1441-1(e)(3)(iii) that includes a certification of its 
status as a registered deemed-compliant FFI but does not attach any 
payee documentation or a withholding statement described in Sec.  
1.1441-1(e)(3)(iv).
    (ii) Analysis. Under paragraph (d)(3)(ii)(A) of this section, 
USP must treat the payment as made to an undocumented U.S. payee 
that is not an exempt recipient and report the payment on Form 1099. 
Further, because the payment is made inside the United States, the 
exception to backup withholding with respect to offshore obligations 
contained in Sec.  31.3406(g)-1(e) of this chapter does not apply, 
and the payment is subject to backup withholding.
    Example 12. (i) Facts. P, a payor, makes a payment to NQI of 
U.S. source interest on debt obligations issued prior to July 18, 
1984 that mature 30 years from their issuance dates. Therefore, the 
interest does not qualify as portfolio interest under section 871(h) 
or 881(d). Additionally, the interest is not a withholdable payment 
under Sec.  1.1471-2(b) as the interest is a payment with respect to 
a grandfathered obligation for purposes of chapter 4 of the Code. 
NQI, a U.S. payor, is a nonqualified foreign intermediary, as 
defined in Sec.  1.1441-1(c)(14), and has furnished P a valid 
nonqualified intermediary withholding certificate described in Sec.  
1.1441-1(e)(3)(iii) to which it has attached a valid Form W-9 for A, 
and two valid beneficial owner Forms W-8, one for B and one for C. A 
is not an exempt recipient under Sec.  1.6049-4(c). NQI furnishes a 
withholding statement, described in Sec.  1.1441-1(e)(3)(iv), in 
which it allocates 20% of the U.S. source interest to A, but does 
not allocate the remaining 80% of the interest between B and C. B's 
withholding certificate indicates that B is a foreign pension fund, 
exempt from U.S. tax under the U.S. income tax treaty with Country 
T. C's withholding certificate indicates that C is a foreign 
corporation not entitled to a reduced rate of withholding.
    (ii) Analysis. As the interest is not a withholdable payment 
under paragraph (d)(3)(i) of this section, P applies the rules of 
Sec.  1.1441-1(b)(2)(v) to determine the payees of the interest even 
though NQI has not certified its status for purposes of chapter 4 of 
the Code. Under that section, the payees are the persons on whose 
behalf NQI acts--A, B and C. Because P can reliably associate 20% of 
the payment with valid documentation provided by A, P must treat 20% 
of the interest as paid to A, a U.S. person not exempt from 
reporting, and report the payment on Form 1099. P cannot reliably 
associate the remaining 80% of the payment with valid documentation 
under Sec.  1.1441-1(b)(2)(vii) and, therefore, under paragraph 
(d)(3)(i) of this section must apply the presumption rules of Sec.  
1.1441-1(b)(3)(v). Under that section, the interest is presumed paid 
to an unknown foreign payee. Under paragraph (b)(12) of this 
section, P is not required to report the interest presumed paid to a 
foreign person on Form 1099. Under Sec.  1.1441-1(b), 80% of the 
interest is subject to 30% withholding, however, and the interest is 
reportable on Form 1042-S under Sec.  1.1461-1(c).
    Example 13. (i) Facts. The facts are the same as in Example 12, 
except that P can reliably associate 30% of the payment of interest 
to B, but cannot reliably associate the remaining 70 percent with A 
or C.
    (ii) Analysis. Under paragraph (d)(3)(i) of this section, P 
applies the rules of Sec.  1.1441-1(b)(2)(v) to determine the payees 
of the interest. Under that section, the payees are the persons on 
whose behalf NQI acts--A, B and C. Because P can reliably associate 
30% of the payment with B, a foreign pensions fund exempt from 
withholding under an income tax treaty, P may treat that payment as 
paid to B and not subject to reporting on Form 1099 under paragraph 
(b)(12) of this section. P cannot reliably associate the remaining 
70% of the payment with valid documentation under Sec.  1.1441-
1(b)(2)(vii) and, therefore, under paragraph (d)(3)(i) of this 
section must apply the presumption rules of Sec.  1.1441-1(b)(3)(v). 
Under that section, the interest is presumed paid to an unknown 
foreign payee. Under paragraph (b)(12) of this section, P is not 
required to report the interest presumed paid to a foreign person on 
Form 1099. Under Sec.  1.1441-1(b), 80% of the interest is subject 
to 30% withholding, however, and the interest is reportable on Form 
1042-S under Sec.  1.1461-1(c).
    Example 14. (i) Facts. The facts are the same as in Example 12, 
except that P also makes a payment of foreign source interest to 
NQI.
    (ii) Analysis. Under paragraph (d)(3)(ii), P may treat the 
foreign source interest as paid to an exempt recipient as defined in 
Sec.  1.6049-4(c) and not subject to reporting on Form 1099 even 
though some or all of the foreign source interest may in fact be 
owned by A, the U.S. person that is not exempt from reporting.
    Example 15. (i) Facts. The facts are the same as in Example 12, 
except that NQI is a non-U.S. payor.
    (ii) Analysis. The analysis is the same as under Example 12 with 
respect to B and C. However, because NQI is a non-U.S. payor, it may 
under Sec.  1.6049-4(c)(4)(iii) allocate the portion of the payment 
to A to a chapter 4 withholding rate pool of U.S. payees on a 
withholding statement provided to P in lieu of furnishing the Form 
W-9 to P when NQI reports the payments in accordance with Sec.  
1.6049-4(c)(4)(i). In such a case, provided that P obtains a 
certification form confirming NQI's status as a participating FFI, P 
is excepted from reporting the payment under paragraph (b)(14) of 
this section because P can reliably associate the payment with the 
documentation provided by NQI.

    (e) Determination of whether amounts are considered paid outside 
the United States--(1) In general. For purposes of section 6049 and 
this section, an amount is considered to be paid by a payor or 
middleman outside the United States if the payor or middleman completes 
the acts necessary to effect payment outside the United States. See 
paragraphs (e)(2) through (5) of this section for further clarification 
of where amounts are considered paid. A payment shall not be considered 
to be made within the United States for purposes of section 6049 merely 
by reason of the fact that it is made on a draft drawn on a United 
States bank account or by a wire or other electronic transfer from a 
United States account.
    (2) Amounts paid with respect to deposits or accounts with banks 
and other financial institutions. Notwithstanding paragraph (e)(1) of 
this section, an amount paid by a bank or other financial institution 
with respect to a deposit or with respect to an account with the 
institution is considered paid at the branch or office at which the 
amount is credited unless the amount is collected by the financial 
institution as the agent of the payee. However, an amount will not be 
considered to be paid at the branch or office where the amount is 
considered to be credited unless the branch or office is a permanent 
place of business that is regularly maintained, occupied, and used to 
carry on a banking or similar financial business; the business is 
conducted by at least one employee of the branch or office who is 
regularly in attendance at such place of business during normal 
business hours; and the branch or office receives deposits and

[[Page 12808]]

engages in one or more of the other activities described in Sec.  
1.864-4(c)(5)(i).
    (3) Coupon bonds and discount obligations in bearer form. 
Notwithstanding paragraph (e)(1) of this section, an amount paid with 
respect to a bond with coupons attached (including a certificate of 
deposit with detachable interest coupons) or a discount obligation that 
is not in registered form (within the meaning of section 163(f) and the 
regulations thereunder) is considered to be paid where the coupon or 
the discount obligation is presented to the payor or its paying agent 
for payment.
    (4) Foreign-targeted registered obligations. Notwithstanding 
paragraph (e)(1) of this section, where the payor is the issuer or the 
issuer's agent, an amount is considered paid outside the United States 
with respect to a foreign-targeted registered obligation issued before 
January 1, 2016, as described in Sec.  1.871-14(e)(2), if either the 
amount is paid by transfer to an account maintained by the registered 
owner outside the United States, or by mail to an address of the 
registered owner outside the United States, or by credit to an 
international account. For purposes of this paragraph (e)(4), the term 
international account means the book-entry account of a financial 
institution (within the meaning of section 871(h)(4)(B)) or of an 
international financial organization with the Federal Reserve Bank of 
New York for which the Federal Reserve Bank of New York maintains 
records that specifically identify an international financial 
organization or a financial institution (within the meaning of section 
871(h)(4)(B)) as either a non-United States person or a foreign branch 
of a United States person as registered owner. An international 
financial organization is a central bank or monetary authority of a 
foreign government or a public international organization of which the 
United States is a member to the extent that such central bank, 
authority, or organization holds obligations solely for its own account 
and is exempt from tax under section 892 or 895.
    (5) Examples. The application of the provisions of this paragraph 
(e) are illustrated by the following examples:

    Example 1. FC is a foreign corporation that is not a U.S. payor 
or U.S. middleman, as defined in paragraph (c)(5) of this section. A 
holds FC coupon bonds that are not in registered form under section 
163(f) and the regulations thereunder. FB, a foreign branch of DC, 
is the designated paying agent with respect to the bonds issued by 
FC. A does not have an account with FB. A presents a coupon from a 
FC bond for payment to FB at its office outside the United States. 
FB pays A with a check drawn against a bank account maintained in 
the United States. For purposes of section 6049, the place of 
payment of interest on the FC bond by FB to A is considered to be 
outside the United States under paragraph (e)(3) of this section.
    Example 2. Individual C deposits funds in an account with FB, a 
foreign country X branch of DB, a U.S. corporation engaged in the 
commercial banking business. FB maintains an office and employees in 
foreign country X, accepts deposits, and conducts one or more of the 
other activities listed in Sec.  1.864-4(c)(5)(i). The terms of C's 
deposit provide that it will be payable with accrued interest. Under 
paragraph (e)(2) of this section, FB is considered to pay the 
interest on C's deposit outside the United States.
    Example 3. DC, a U.S. corporation engaged in the commercial 
banking business, maintains FB, a branch in foreign country X. FB 
has an office and employees in foreign country X, accepts deposits, 
and engages in one or more of the other activities listed in Sec.  
1.864-4(c)(5)(i). D, a United States citizen, purchases a 
certificate of deposit issued in 1980 by FB. The certificate of 
deposit has a maturity of 20 years and has detachable interest 
coupons payable at six-month intervals. D presents some of the 
coupons at the U.S. office of DC and receives payment in cash. 
Because the coupon is presented to DC for payment within the United 
States, DC is considered to have made the payment within the United 
States under paragraph (e)(3) of this section.
    Example 4. FB is recognized by both foreign country X and by the 
Federal Reserve Bank as a foreign country X branch of DC, a U.S. 
corporation engaged in the commercial banking business. A local 
foreign country X bank serves as FB's resident agent in Country X. 
FB maintains no physical office or employees in foreign country X. 
All the records, accounts, and transactions of FB are handled at the 
United States office of DC. E deposits funds in an amount maintained 
with FB. Interest earned on the deposit is periodically credited to 
E's account with FB by employees of DC. For purposes of section 
6049, the place of payment of the interest on E's deposit with FB is 
considered to be within the United States by reason of paragraphs 
(e)(1) and (e)(2) of this section.
    Example 5. DC is a U.S. corporation. A holds bonds that were 
issued by DC in registered form under section 163(f), as in effect 
prior to the amendment by section 502 of the HIRE Act of 2010, and 
the regulations thereunder and that are foreign-targeted registered 
obligations as defined in Sec.  1.871-14(e)(2). DB, a commercial 
banking business, is the registrar of bonds issued by DC. Interest 
on the DC bonds is paid to A and other bondholders by check prepared 
by DB at its principal office inside the United States and mailed 
from there to A's address outside the United States. The check is 
drawn on a United States account maintained by DC with DB within the 
United States. The place of payment to A by DB of the interest on 
the DC bonds is considered to be outside the United States under 
paragraph (e)(4) of this section.

    (f) through (g)(1) [Reserved]. For further guidance, see Sec.  
1.6049-5(f) through (g)(1).
    (2) The provisions of paragraphs (b)(6) through (8), (b)(10)(i) 
through (b)(11)(ii)(A), (b)(12), (b)(14) (b)(15), (c)(1) through 
(c)(4), (c)(5)(i)(F), (c)(6), (d)(1) through (d)(1)(ii), (d)(2)(i) 
through (iii), (d)(3)(i) through (d)(3)(iii)(A), (d)(4), and (e)(1) 
through (5) of this section apply to payments made after June 30, 2014.
    (h) Expiration date. The applicability of this section expires on 
February 28, 2017.

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

0
Par. 35. The authority citation for part 31 continues to read in part 
as follows:

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

0
Par. 36. In Sec.  31.3406(g)-1, paragraph (e) is revised to read as 
follows:


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

* * * * *
    (e) [Reserved]. For further guidance, see Sec.  31.3406(g)-1T(e).
* * * * *

0
Par. 37. Section 31.3406(g)-1T is added to read as follows:


Sec.  31.3406(g)-1T  Exception for payments to certain payees and 
certain other payments (temporary).

    (a) through (d) [Reserved]. For further guidance, see Sec.  
31.3406(g)-1(a) through (d).
    (e) Certain reportable payments made outside the United States by 
foreign persons, foreign offices of United States banks and brokers, 
and others. For reportable payments made after June 30, 2014, a payor 
is not required to backup withhold under section 3406 on a reportable 
payment that is paid and received outside the United States (as defined 
in Sec.  1.6049-4(f)(16)) with respect to an offshore obligation (as 
defined in Sec.  1.6049-5(c)(1)) or on gross proceeds from a sale 
effected outside the United States (as defined in Sec.  1.6045-
1(g)(3)(iii)), unless the payor has actual knowledge that the payee is 
a United States person. Further, no backup withholding is required for 
reportable a payment of an amount already withheld upon by a 
participating FFI (as defined in Sec.  1.1471-1(b)(91)) or another 
payor in accordance with the withholding provisions under chapters 3 or 
4 of the Code and the regulations under those chapters even if the 
payee is a known U.S. person. For example, a participating FFI is not 
required to backup withhold on a reportable

[[Page 12809]]

payment allocable to its chapter 4 withholding rate pool (as defined in 
Sec.  1.6049-4(f)(5)) of recalcitrant account holders (as described in 
Sec.  1.6049-4(f)(11)), if withholding was applied to the payment 
(either by the participating FFI or another payor) pursuant to Sec.  
1.1471-4(b) or Sec.  1.1471-2(a). For rules applicable to notional 
principal contracts, see Sec.  1.6041-1(d)(5) of this chapter. For 
rules applicable to reportable payments made before July 1, 2014, see 
this paragraph (e) as in effect and contained in 26 CFR part 1 revised 
April 1, 2013.)
    (f) [Reserved]. For further guidance, see Sec.  31.3406(g)-1(f) 
introductory text through (f)(5).
    (g) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 38. In Sec.  31.3406(h)-2, paragraph (a)(3)(i) is revised to read 
as follows:


Sec.  31.3406(h)-2  Special rules.

    (a) * * *
    (3) * * *
    (i) [Reserved]. For further guidance, see Sec.  31.3406(h)-
2T(a)(3)(i).
* * * * *

0
Par. 39. Section 31.3406(h)-2T is added to read as follows:


Sec.  31.3406(h)-2T  Special rules (temporary).

    (a) through (a)(2) [Reserved]. For further guidance, see Sec.  
31.3406(h)-2(a) introductory text through (a)(2).
    (3) Joint foreign payees--(i) In general. If the relevant payee 
listed on a jointly owned account or instrument provides a Form W-8 or 
documentary evidence described in Sec.  1.1441-1(e)(1)(ii) regarding 
its foreign status, withholding under section 3406 applies unless every 
joint payee provides the statement regarding foreign status (under the 
provisions of chapters 3 or 61 of the Internal Revenue Code and the 
regulations under those provisions); any one of the joint owners who 
has not established foreign status provides a taxpayer identification 
number to the payor in the manner required in Sec. Sec.  31.3406(d)-1 
through 31.3406(d)-5; or, in the case of a withholdable payment (as 
defined in Sec.  1.6049-4(f)(15)), any joint payee does not appear to 
be an individual as described in Sec.  1.1471-3(f)(7). See Sec.  
1.6049-5(d)(2)(iii) of this chapter for corresponding joint payees 
provisions.
    (a)(3)(ii) through (h) [Reserved]. For further guidance, see Sec.  
31.3406(h)-2(a)(3)(ii) through (h).
    (i) Expiration date. The applicability of this section expires on 
February 28, 2017.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 40. The authority citation for part 301 continues to read in part 
as follows:

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


0
Par. 41. In Sec.  301.6402-3, paragraphs (e) and (f) are revised to 
read as follows:


Sec.  301.6402-3  Special rules applicable to income tax.

* * * * *
    (e) [Reserved]. For further guidance, see Sec.  301.6402-3T(e).
    (f) Effective/applicability date. (1) References in paragraph (e) 
of this section to Form 8805 or other statements required under Sec.  
1.1446-3(d)(2) shall apply to partnership taxable years beginning after 
April 29, 2008.
    (2) [Reserved]. For further guidance, see Sec.  301.6402-3T(f)(ii).
    Par. 42. Section 301.6402-3T is added to read as follows:


Sec.  301.6402-3T  Special rules applicable to income tax (temporary).

    (a) through (d) [Reserved]. For further guidance, see Sec.  
301.6402-3(a) through (d).
    (e) In the case of a nonresident alien individual or foreign 
corporation, the appropriate income tax return on which the claim for 
refund or credit is made must contain the tax identification number of 
the taxpayer required pursuant to section 6109 and the entire amount of 
income of the taxpayer subject to tax, even if the tax liability for 
that income was fully satisfied at source through withholding under 
chapters 3 or 4 of the Internal Revenue Code (Code). Also, if the 
overpayment of tax resulted from the withholding of tax at source under 
chapters 3 or 4 of the Code, a copy of the Form 1042-S, ``Foreign 
Person's U.S. Source Income subject to Withholding,'' Form 8805, 
``Foreign Partner's Information Statement of Section 1446 Withholding 
Tax,'' or other statement (required under Sec.  1.1446-3(d)(2) of this 
chapter) required to be provided to the beneficial owner or partner 
pursuant to Sec.  1.1461-1(c)(1)(i), Sec.  1.1474-1(d)(1)(i), or Sec.  
1.1446-3(d) of this chapter must be attached to the return. For 
purposes of claiming a refund, the Form 8805 or other statement must 
include the taxpayer identification number of the beneficial owner or 
partner even if not otherwise required. No claim for refund or credit 
under chapter 65 of the Code may be made by the taxpayer for any amount 
that the payor has repaid to the taxpayer pursuant to reimbursement or 
set-off procedures (described in Sec.  1.1461-2(a)(2),(3) or Sec.  
1.1474-2(a)(3), (4) of this chapter). In addition, no claim for refund 
or credit may be made by a taxpayer for any amount that has been repaid 
to a qualified intermediary (as described in Sec.  1.1441-1(e)(5)(ii)) 
or a participating FFI (as described in Sec.  1.1471-1(b)(91)) pursuant 
to a collective refund filed by such entity on behalf of the taxpayer. 
See Sec.  1.1441-1(e)(5)(iii) (describing a qualified intermediary 
agreement) and Sec.  1.1471-4(h) (describing a collective refund). Upon 
request, a taxpayer must also submit such documentation as the IRS, may 
require establishing that the taxpayer is the beneficial owner of the 
income for which a claim for refund or credit is being made and 
verifying the grounds and facts set forth in taxpayer's claim as 
required by Sec.  301.6402-2(b)(1). See Sec.  1.1474-5 for additional 
requirements that may apply in the case of a refund of tax withheld 
under chapter 4.
    (f) and (f)(1) [Reserved]. For further guidance, see Sec.  
301.6402-3(f) introductory text and (f)(1).
    (2) References in paragraph (e) of this section to amounts withheld 
under chapter 4 of the Code and claims made with respect to amounts 
withheld under chapter 4 of the Code shall apply to withholdable 
payments made after June 30, 2014.
    (g) Expiration date. The applicability of this section expires on 
February 28, 2017.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: February 14, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-03991 Filed 2-28-14; 4:15 pm]
BILLING CODE 4830-01-P