Final Regs Address Withholding, Reporting for U.S. Source Payments

Final Regs Address Withholding, Reporting for U.S. Source Payments

Internal Revenue Service

The IRS has published final regulations (T.D. 9890) that provide guidance on specified due diligence and reporting rules applicable to persons making some U.S. source payments to foreign persons, and guidance on some aspects of reporting by foreign financial institutions on U.S. accounts. Effective January 2, 2020, the final regs adopt, with changes, proposed regs (<a href="/lr/resolve//1r3gn">REG-134247-16</a>, <a href="/lr/resolve//1r3gp">REG-103477-14</a>) under chapters 3 and 4 that were issued in December 2016. Corresponding temporary regs (<a href="/lr/resolve//d0cm">T.D. 9808</a>, <a href="/lr/resolve//d0cn">T.D. 9809</a>) are removed. Some of the changes under the final regs consider specified provisions of proposed regs (<a href="/lr/resolve//28p94">REG-132881-17</a>) that were issued in December 2018 to reduce burdens under the chapter 3 and chapter 4 regulations. Some of the 2018 proposed changes relate to the requirement that a withholding certificate or treaty statement provided with documentary evidence by a treaty claimant that is an entity must identify the applicable limitation on benefits provision that the entity meets to be eligible for treaty benefits. Other 2018 proposed changes relate to the documentation that a withholding agent may rely on to treat an address provided by an account holder that is subject to a hold mail instruction as a permanent residence address for purposes of an account holder’s claim of foreign status or benefits under an income tax treaty. The final regs incorporate the 2018 proposed reg changes regarding those requirements. Treasury and the IRS intend to finalize the remaining provisions of the 2018 proposed regs in future guidance. Regarding the requirement for a withholding agent to obtain a foreign taxpayer identification number and date of birth, the final regs incorporate the chapter 3 temporary regs and provisions in <a href="/lr/resolve//1wdkw">Notice 2017-46</a> and <a href="/lr/resolve//26y79">Notice 2018-20</a> with minor changes and clarifications. To give withholding agents flexibility, Treasury and the IRS have determined that a separate written statement is an acceptable way for a withholding agent to collect an account holder’s foreign TIN if some requirements are met. For withholding statement purposes, the regs also include a change regarding the requirement for chapter 4 recipient codes and clarify that the general standards of knowledge that apply to withholding agents apply to a nonqualified intermediary. To provide additional flexibility, the final regs amend the rules regarding electronic signatures for purposes of chapters 3 and 4 to generally allow a withholding agent to consider other documentation or information showing that a withholding certificate was electronically signed. In response to comments, the regs clarify that a separate request and authorization to obtain a withholding certificate or statement from a third-party repository is not required for each payment made by a withholding agent in some cases. The final regs adopt, without change, the standard of knowledge in the chapter 3 temporary regs for reliance on a limitation on benefits provision associated with a treaty claim made on a withholding certificate. They also incorporate the January 1, 2020, extension under the 2018 proposed regs for withholding agents to obtain treaty statements with the specific limitation on benefits provisions identified for preexisting accounts. The final regs incorporate the same exception to the three-year validity period for treaty statements that is provided in the 2018 regs but do not include the record retention requirement for treaty statements from publicly traded corporations. Provisions of the 2018 proposed regs that modified the requirements for reliance on an address subject to a hold mail instruction are included in the final regs. The final regs include technical corrections and conforming changes to final rules under chapters 3, 4, and 61. Specified sections of <a href="/lr/resolve//1fxbv">Notice 2016-8</a> and <a href="/lr/resolve//1wdkw">Notice 2017-46</a> are obsolete as of January 2, 2020.

At 85 FR 13045, March 6, 2020, the IRS made <a href="/lr/resolve/corrections/2c7xy" id="2bqqq-0000003" title="corrections">corrections</a> to the following Treasury Decision and the changes have been incorporated in the associated regulations.

The IRS has published final regulations (T.D. 9890) that provide guidance on specified due diligence and reporting rules applicable to persons making some U.S. source payments to foreign persons, and guidance on some aspects of reporting by foreign financial institutions on U.S. accounts.

The IRS has published final regulations (T.D. 9890) that provide guidance on specified due diligence and reporting rules applicable to persons making some U.S. source payments to foreign persons, and guidance on some aspects of reporting by foreign financial institutions on U.S. accounts. Effective January 2, 2020, the final regs adopt, with changes, proposed regs (REG-134247-16, REG-103477-14) under chapters 3 and 4 that were issued in December 2016. Corresponding temporary regs (T.D. 9808, T.D. 9809) are removed. Some of the changes under the final regs consider specified provisions of proposed regs (REG-132881-17) that were issued in December 2018 to reduce burdens under the chapter 3 and chapter 4 regulations. Some of the 2018 proposed changes relate to the requirement that a withholding certificate or treaty statement provided with documentary evidence by a treaty claimant that is an entity must identify the applicable limitation on benefits provision that the entity meets to be eligible for treaty benefits. Other 2018 proposed changes relate to the documentation that a withholding agent may rely on to treat an address provided by an account holder that is subject to a hold mail instruction as a permanent residence address for purposes of an account holder’s claim of foreign status or benefits under an income tax treaty. The final regs incorporate the 2018 proposed reg changes regarding those requirements. Treasury and the IRS intend to finalize the remaining provisions of the 2018 proposed regs in future guidance. Regarding the requirement for a withholding agent to obtain a foreign taxpayer identification number and date of birth, the final regs incorporate the chapter 3 temporary regs and provisions in Notice 2017-46 and Notice 2018-20 with minor changes and clarifications. To give withholding agents flexibility, Treasury and the IRS have determined that a separate written statement is an acceptable way for a withholding agent to collect an account holder’s foreign TIN if some requirements are met. For withholding statement purposes, the regs also include a change regarding the requirement for chapter 4 recipient codes and clarify that the general standards of knowledge that apply to withholding agents apply to a nonqualified intermediary. To provide additional flexibility, the final regs amend the rules regarding electronic signatures for purposes of chapters 3 and 4 to generally allow a withholding agent to consider other documentation or information showing that a withholding certificate was electronically signed. In response to comments, the regs clarify that a separate request and authorization to obtain a withholding certificate or statement from a third-party repository is not required for each payment made by a withholding agent in some cases. The final regs adopt, without change, the standard of knowledge in the chapter 3 temporary regs for reliance on a limitation on benefits provision associated with a treaty claim made on a withholding certificate. They also incorporate the January 1, 2020, extension under the 2018 proposed regs for withholding agents to obtain treaty statements with the specific limitation on benefits provisions identified for preexisting accounts. The final regs incorporate the same exception to the three-year validity period for treaty statements that is provided in the 2018 regs but do not include the record retention requirement for treaty statements from publicly traded corporations. Provisions of the 2018 proposed regs that modified the requirements for reliance on an address subject to a hold mail instruction are included in the final regs. The final regs include technical corrections and conforming changes to final rules under chapters 3, 4, and 61. Specified sections of Notice 2016-8 and Notice 2017-46 are obsolete as of January 2, 2020.

Sec. 1441 Withholding of tax on nonresident aliens

Sec. 1471 Withholdable payments to foreign financial institutions

Sec. 1474 Special rules

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Final Regs Address Withholding, Reporting for U.S. Source Payments