[Federal Register Volume 79, Number 77 (Tuesday, April 22, 2014)]
[Rules and Regulations]
[Pages 22378-22381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09161]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[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; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to final and temporary 
regulations (TD 9658), which were published in the Federal Register on 
Thursday, March 6, 2014 (79 FR 12726). The regulations relate to the 
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.

DATES: This correction is effective on April 22, 2014 and is applicable 
on March 6, 2014.

FOR FURTHER INFORMATION CONTACT: Nancy J. Lee, (202) 317-6942 (not a 
toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under section 6045 of the Code. The temporary regulation 
that is the subject of these corrections is Sec.  1.6045-1, promulgated 
under section 6045 of

[[Page 22379]]

the Internal Revenue Code. This regulation affects persons that are 
brokers making certain returns of information with respect to their 
customers.

Need for Correction

    As published, the temporary regulation contains errors in the 
instructions that need to be corrected. First, the instructions 
indicate that Sec.  1.6045-1T is amended. However, the temporary 
regulation is added, not amended. Second, the instructions do not add 
paragraphs (m) through (o), which should be included in the temporary 
regulation by cross-reference to the final regulation. The correcting 
amendments add the temporary regulation, including paragraphs (m) 
through (o).

List of Subjects in CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.6045-1T is added 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).
    (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

[[Page 22380]]

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 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).

[[Page 22381]]

    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) Effective/applicability date--(i) [Reserved]. For further 
guidance, see Sec.  1.6045-1(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 (p) [Reserved]. For further guidance, see Sec.  1.6045-
1(h) through (p).
    (q) Expiration date. The applicability of this section expires on 
February 28, 2017.

Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
[FR Doc. 2014-09161 Filed 4-21-14; 8:45 am]
BILLING CODE 4830-01-P