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H and r block free file Publication 554 - Introductory Material Table of Contents What's New Reminders IntroductionVolunteer Income Tax Assistance and Tax Counseling for the Elderly. H and r block free file Ordering forms and publications. H and r block free file Tax questions. H and r block free file What's New Alternative minimum tax exemption increased. H and r block free file  The AMT exemption amount has increased to $51,900 ($80,800 if married filing jointly or qualifying widow(er); $40,400 if married filing separately). H and r block free file Earned income credit. H and r block free file  The maximum amount of income you can earn and still get the credit has increased. H and r block free file You may be able to take the credit if you earn less than: $14,340 ($19,680 if married filing jointly), do not have a qualifying child, and are at least 25 years old and under 65, $37,870 ($43,210 if married filing jointly), and you have one qualifying child, $43,038 ($48,378 if married filing jointly), and you have two qualifying children, or $46,227 ($51,567 if married filing jointly), and you have three or more qualifying children. H and r block free file For more information, see Earned Income Credit , later. H and r block free file Exemption phaseout. H and r block free file  You lose at least part of the benefit of your exemptions if your adjusted gross income is above a certain amount. H and r block free file For 2013, the phaseout begins at $150,000 for married individuals filing separate returns; $250,000 for single individuals; $275,000 for heads of household; and $300,000 for married individuals filing joint returns or qualifying widow(er)s. H and r block free file For more information, see Phaseout of Exemptions in Publication 501. H and r block free file Limit on itemized deductions. H and r block free file   Beginning January 1, 2013, itemized deductions for taxpayers with adjusted gross incomes above $150,000 may be reduced. H and r block free file See Overall limitation , later. H and r block free file Medical and dental expenses. H and r block free file   Beginning January 1, 2013, taxpayers 65 and older can deduct only the part of their medical and dental expenses that exceed 7. H and r block free file 5% of their adjusted gross income (10% for taxpayers under 65). H and r block free file Same-sex marriages. H and r block free file  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. H and r block free file For more information, see Publication 501. H and r block free file Reminders Future developments. H and r block free file  For the latest information about developments related to Publication 554, such as legislation enacted after it was published, go to www. H and r block free file irs. H and r block free file gov/pub554. H and r block free file Tax return preparers. H and r block free file  Choose your preparer carefully. H and r block free file If you pay someone to prepare your return, the preparer is required, under the law, to sign the return and fill in the other blanks in the Paid Preparer's area of your return. H and r block free file Remember, however, that you are still responsible for the accuracy of every item entered on your return. H and r block free file If there is any underpayment, you are responsible for paying it, plus any interest and penalty that may be due. H and r block free file Sale of home by surviving spouse. H and r block free file  If you are an unmarried widow or widower, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. H and r block free file For more information, see Sale of Home , later. H and r block free file Third party designee. H and r block free file  You can check the “Yes” box in the Third Party Designee area of your return to authorize the IRS to discuss your return with your preparer, a friend, family member, or any other person you choose. H and r block free file This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. H and r block free file It also allows your designee to perform certain actions. H and r block free file See your income tax return instructions for details. H and r block free file Employment tax withholding. H and r block free file  Your wages are subject to withholding for income tax, social security tax, and Medicare tax even if you are receiving social security benefits. H and r block free file Photographs of missing children. H and r block free file  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H and r block free file Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H and r block free file You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H and r block free file Introduction The purpose of this publication is to provide a general overview of selected topics that are of interest to older taxpayers. H and r block free file The publication will help you determine if you need to file a return and, if so, what items to report on your return. H and r block free file Each topic is discussed only briefly, so you will find references to other free IRS publications that provide more detail on these topics if you need it. H and r block free file Table I has a list of questions you may have about filing your federal tax return. H and r block free file To the right of each question is the location of the answer in this publication. H and r block free file Also, at the back of this publication there is an index to help you search for the topic you need. H and r block free file While most federal income tax laws apply equally to all taxpayers, regardless of age, there are some provisions that give special treatment to older taxpayers. H and r block free file The following are some examples. H and r block free file Higher gross income threshold for filing. H and r block free file You must be age 65 or older at the end of the year to get this benefit. H and r block free file You are considered age 65 on the day before your 65th birthday. H and r block free file Therefore, you are considered age 65 at the end of the year if your 65th birthday is on or before January 1 of the following year. H and r block free file Higher standard deduction. H and r block free file If you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. H and r block free file You are considered age 65 at the end of the year if your 65th birthday is on or before January 1 of the following year. H and r block free file Credit for the elderly or the disabled. H and r block free file If you qualify, you may benefit from the credit for the elderly or the disabled. H and r block free file To determine if you qualify and how to figure this credit, see Credit for the Elderly or the Disabled , later. H and r block free file Return preparation assistance. H and r block free file   The IRS wants to make it easier for you to file your federal tax return. H and r block free file You may find it helpful to visit a Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), or American Association of Retired Persons (AARP) Tax-Aide site near you. H and r block free file Volunteer Income Tax Assistance and Tax Counseling for the Elderly. H and r block free file   These programs provide free help for low-income taxpayers and taxpayers age 60 or older to fill in and file their returns. H and r block free file For the VITA/TCE site nearest you, contact your local IRS office. H and r block free file For more information, see Free help with your tax return under How To Get Tax Help. H and r block free file   For the location of an AARP Tax-Aide site in your community, call 1-888-227-7669. H and r block free file When asked, be ready to press in or speak your 5-digit ZIP code. H and r block free file Or, you can visit their website on the Internet at www. H and r block free file aarp. H and r block free file org/money/taxaide. H and r block free file Comments and suggestions. H and r block free file   We welcome your comments about this publication and your suggestions for future editions. H and r block free file   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H and r block free file NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H and r block free file Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H and r block free file   You can send your comments from www. H and r block free file irs. H and r block free file gov/formspubs/. H and r block free file Click on “More Information” and then on “Comment on Tax Forms and Publications. H and r block free file ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H and r block free file Ordering forms and publications. H and r block free file   Visit www. H and r block free file irs. H and r block free file gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 business days after your request is received. H and r block free file Internal Revenue Service 1201 N. H and r block free file Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H and r block free file   If you have a tax question, check the information available on IRS. H and r block free file gov or call 1-800-829-1040. H and r block free file We cannot answer tax questions sent to either of the above addresses. H and r block free file Table I. H and r block free file What You Should Know About Federal Taxes Note. H and r block free file The following is a list of questions you may have about filling out your federal income tax return. H and r block free file  To the right of each question is the location of the answer in this publication. H and r block free file What I Should Know Where To Find the Answer Do I need to file a return? See chapter 1. H and r block free file Is my income taxable or nontaxable?  If it is nontaxable, must I still report it? See chapter 2. H and r block free file How do I report benefits I received from the Social Security Administration or the Railroad Retirement Board?  Are these benefits taxable? See Social Security and Equivalent Railroad Retirement Benefits in chapter 2. H and r block free file Must I report the sale of my home?  If I had a gain, is any part of it taxable? See Sale of Home in chapter 2. H and r block free file What are some of the items that I can deduct to reduce my income? See chapters 3 and 4. H and r block free file How do I report the amounts I set aside for my IRA? See Individual Retirement Arrangement (IRA) Contributions and Deductions in chapter 3. H and r block free file Would it be better for me to claim the standard deduction or itemize my deductions? See chapter 4. H and r block free file What are some of the credits I can claim to reduce my tax? See chapter 5 for discussions on the credit for the elderly or the disabled, the child and dependent care credit, and the earned income credit. H and r block free file Must I make estimated tax payments? See chapter 6. H and r block free file How do I contact the IRS or get more information? See chapter 7. H and r block free file Prev  Up  Next   Home   More Online Publications
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IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply

IR-2014-36, March. 25, 2014

WASHINGTON — The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. 

Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.

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Page Last Reviewed or Updated: 25-Mar-2014

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H and r block free file Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. H and r block free file S. H and r block free file Taxpayer Identification NumbersUnexpected payment. H and r block free file Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. H and r block free file Electronic reporting. H and r block free file Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. H and r block free file S. H and r block free file Real Property InterestForeign corporations. H and r block free file Domestic corporations. H and r block free file U. H and r block free file S. H and r block free file real property holding corporations. H and r block free file Partnerships. H and r block free file Trusts and estates. H and r block free file Domestically controlled QIE. H and r block free file Late filing of certifications or notices. H and r block free file Certifications. H and r block free file Liability of agent or qualified substitute. H and r block free file Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). H and r block free file Withholding of Tax In most cases, a foreign person is subject to U. H and r block free file S. H and r block free file tax on its U. H and r block free file S. H and r block free file source income. H and r block free file Most types of U. H and r block free file S. H and r block free file source income received by a foreign person are subject to U. H and r block free file S. H and r block free file tax of 30%. H and r block free file A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. H and r block free file The tax is generally withheld (NRA withholding) from the payment made to the foreign person. H and r block free file The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. H and r block free file In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. H and r block free file S. H and r block free file source income. H and r block free file Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. H and r block free file NRA withholding does not include withholding under section 1445 of the Code (see U. H and r block free file S. H and r block free file Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). H and r block free file A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. H and r block free file However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. H and r block free file S. H and r block free file person is not required to withhold. H and r block free file In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. H and r block free file Withholding Agent You are a withholding agent if you are a U. H and r block free file S. H and r block free file or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. H and r block free file A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. H and r block free file S. H and r block free file branch of certain foreign banks and insurance companies. H and r block free file You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. H and r block free file Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. H and r block free file In most cases, the U. H and r block free file S. H and r block free file person who pays an amount subject to NRA withholding is the person responsible for withholding. H and r block free file However, other persons may be required to withhold. H and r block free file For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. H and r block free file In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. H and r block free file Liability for tax. H and r block free file   As a withholding agent, you are personally liable for any tax required to be withheld. H and r block free file This liability is independent of the tax liability of the foreign person to whom the payment is made. H and r block free file If you fail to withhold and the foreign payee fails to satisfy its U. H and r block free file S. H and r block free file tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. H and r block free file   The applicable tax will be collected only once. H and r block free file If the foreign person satisfies its U. H and r block free file S. H and r block free file tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. H and r block free file Determination of amount to withhold. H and r block free file   You must withhold on the gross amount subject to NRA withholding. H and r block free file You cannot reduce the gross amount by any deductions. H and r block free file However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. H and r block free file   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. H and r block free file In no case, however, should you withhold more than 30% of the total amount paid. H and r block free file Or, you may make a reasonable estimate of the amount from U. H and r block free file S. H and r block free file sources and put a corresponding part of the amount due in escrow until the amount from U. H and r block free file S. H and r block free file sources can be determined, at which time withholding becomes due. H and r block free file When to withhold. H and r block free file   Withholding is required at the time you make a payment of an amount subject to withholding. H and r block free file A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. H and r block free file A payment is considered made to a person if it is paid for that person's benefit. H and r block free file For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. H and r block free file A payment also is considered made to a person if it is made to that person's agent. H and r block free file   A U. H and r block free file S. H and r block free file partnership should withhold when any distributions that include amounts subject to withholding are made. H and r block free file However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. H and r block free file S. H and r block free file partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. H and r block free file If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. H and r block free file A U. H and r block free file S. H and r block free file trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. H and r block free file To the extent a U. H and r block free file S. H and r block free file trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. H and r block free file Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. H and r block free file (See Returns Required , later. H and r block free file ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. H and r block free file Form 1099 reporting and backup withholding. H and r block free file    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. H and r block free file S. H and r block free file person. H and r block free file You must withhold 28% (backup withholding rate) from a reportable payment made to a U. H and r block free file S. H and r block free file person that is subject to Form 1099 reporting if any of the following apply. H and r block free file The U. H and r block free file S. H and r block free file person has not provided its taxpayer identification number (TIN) in the manner required. H and r block free file The IRS notifies you that the TIN furnished by the payee is incorrect. H and r block free file There has been a notified payee underreporting. H and r block free file There has been a payee certification failure. H and r block free file In most cases, a TIN must be provided by a U. H and r block free file S. H and r block free file non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. H and r block free file A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. H and r block free file You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. H and r block free file S. H and r block free file person. H and r block free file For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. H and r block free file S. H and r block free file person subject to Form 1099 reporting. H and r block free file See Identifying the Payee , later, for more information. H and r block free file Also see Section S. H and r block free file Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. H and r block free file Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. H and r block free file Wages paid to employees. H and r block free file   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. H and r block free file See Pay for Personal Services Performed , later. H and r block free file Effectively connected income by partnerships. H and r block free file   A withholding agent that is a partnership (whether U. H and r block free file S. H and r block free file or foreign) is also responsible for withholding on its income effectively connected with a U. H and r block free file S. H and r block free file trade or business that is allocable to foreign partners. H and r block free file See Partnership Withholding on Effectively Connected Income , later, for more information. H and r block free file U. H and r block free file S. H and r block free file real property interest. H and r block free file   A withholding agent also may be responsible for withholding if a foreign person transfers a U. H and r block free file S. H and r block free file real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. H and r block free file S. H and r block free file real property interest to a shareholder, partner, or beneficiary that is a foreign person. H and r block free file See U. H and r block free file S. H and r block free file Real Property Interest , later. H and r block free file Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. H and r block free file It does not apply to payments made to U. H and r block free file S. H and r block free file persons. H and r block free file Usually, you determine the payee's status as a U. H and r block free file S. H and r block free file or foreign person based on the documentation that person provides. H and r block free file See Documentation , later. H and r block free file However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. H and r block free file Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. H and r block free file However, there are situations in which the payee is a person other than the one to whom you actually make a payment. H and r block free file U. H and r block free file S. H and r block free file agent of foreign person. H and r block free file   If you make a payment to a U. H and r block free file S. H and r block free file person and you have actual knowledge that the U. H and r block free file S. H and r block free file person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. H and r block free file However, if the U. H and r block free file S. H and r block free file person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. H and r block free file   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. H and r block free file S. H and r block free file person and not as a payment to a foreign person. H and r block free file You may be required to report the payment on Form 1099 and, if applicable, backup withhold. H and r block free file Disregarded entities. H and r block free file   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. H and r block free file The payee of a payment made to a disregarded entity is the owner of the entity. H and r block free file   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. H and r block free file   If the owner is a U. H and r block free file S. H and r block free file person, you do not apply NRA withholding. H and r block free file However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. H and r block free file You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. H and r block free file Flow-Through Entities The payees of payments (other than income effectively connected with a U. H and r block free file S. H and r block free file trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. H and r block free file This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. H and r block free file Income that is, or is deemed to be, effectively connected with the conduct of a U. H and r block free file S. H and r block free file trade or business of a flow-through entity is treated as paid to the entity. H and r block free file All of the following are flow-through entities. H and r block free file A foreign partnership (other than a withholding foreign partnership). H and r block free file A foreign simple or foreign grantor trust (other than a withholding foreign trust). H and r block free file A fiscally transparent entity receiving income for which treaty benefits are claimed. H and r block free file See Fiscally transparent entity , later. H and r block free file In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. H and r block free file You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. H and r block free file You must determine whether the owners or beneficiaries of a flow-through entity are U. H and r block free file S. H and r block free file or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. H and r block free file You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. H and r block free file If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. H and r block free file See Documentation and Presumption Rules , later. H and r block free file Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. H and r block free file Foreign partnerships. H and r block free file    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. H and r block free file If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. H and r block free file However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. H and r block free file If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. H and r block free file Example 1. H and r block free file A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. H and r block free file S. H and r block free file citizen. H and r block free file You make a payment of U. H and r block free file S. H and r block free file source interest to the partnership. H and r block free file It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. H and r block free file S. H and r block free file citizen. H and r block free file The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. H and r block free file You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. H and r block free file Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. H and r block free file Report the payment to the U. H and r block free file S. H and r block free file citizen on Form 1099-INT. H and r block free file Example 2. H and r block free file A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. H and r block free file The second partnership has two partners, both nonresident alien individuals. H and r block free file You make a payment of U. H and r block free file S. H and r block free file source interest to the first partnership. H and r block free file It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. H and r block free file In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. H and r block free file The Forms W-8IMY from the partnerships have complete withholding statements associated with them. H and r block free file Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. H and r block free file Example 3. H and r block free file You make a payment of U. H and r block free file S. H and r block free file source dividends to a withholding foreign partnership. H and r block free file The partnership has two partners, both foreign corporations. H and r block free file You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. H and r block free file You must treat the partnership as the payee of the dividends. H and r block free file Foreign simple and grantor trust. H and r block free file   A trust is foreign unless it meets both of the following tests. H and r block free file A court within the United States is able to exercise primary supervision over the administration of the trust. H and r block free file One or more U. H and r block free file S. H and r block free file persons have the authority to control all substantial decisions of the trust. H and r block free file   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. H and r block free file A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. H and r block free file   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. H and r block free file The payees of a payment made to a foreign grantor trust are the owners of the trust. H and r block free file However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. H and r block free file If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. H and r block free file Example. H and r block free file A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. H and r block free file S. H and r block free file citizen. H and r block free file You make a payment of interest to the foreign trust. H and r block free file It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. H and r block free file S. H and r block free file citizen. H and r block free file The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. H and r block free file You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. H and r block free file Report the payment to the nonresident aliens on Forms 1042-S. H and r block free file Report the payment to the U. H and r block free file S. H and r block free file citizen on Form 1099-INT. H and r block free file Fiscally transparent entity. H and r block free file   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. H and r block free file The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. H and r block free file ). H and r block free file The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. H and r block free file An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. H and r block free file Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. H and r block free file   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. H and r block free file Example. H and r block free file Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. H and r block free file A has two interest holders, B and C. H and r block free file B is a corporation organized under the laws of country Y. H and r block free file C is a corporation organized under the laws of country Z. H and r block free file Both countries Y and Z have an income tax treaty in force with the United States. H and r block free file A receives royalty income from U. H and r block free file S. H and r block free file sources that is not effectively connected with the conduct of a trade or business in the United States. H and r block free file For U. H and r block free file S. H and r block free file income tax purposes, A is treated as a partnership. H and r block free file Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. H and r block free file The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. H and r block free file Accordingly, A is fiscally transparent in its jurisdiction, country X. H and r block free file B and C are not fiscally transparent under the laws of their respective countries of incorporation. H and r block free file Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. H and r block free file Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. H and r block free file S. H and r block free file source royalty income for purposes of the U. H and r block free file S. H and r block free file -Y income tax treaty. H and r block free file Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. H and r block free file Therefore, A is not treated as fiscally transparent under the laws of country Z. H and r block free file Accordingly, C is not treated as deriving its share of the U. H and r block free file S. H and r block free file source royalty income for purposes of the U. H and r block free file S. H and r block free file -Z income tax treaty. H and r block free file Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. H and r block free file This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. H and r block free file You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. H and r block free file An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. H and r block free file A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. H and r block free file In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. H and r block free file You must determine whether the customers or account holders of a foreign intermediary are U. H and r block free file S. H and r block free file or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. H and r block free file You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. H and r block free file If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. H and r block free file See Documentation and Presumption Rules , later. H and r block free file Nonqualified intermediary. H and r block free file   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. H and r block free file The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. H and r block free file Example. H and r block free file You make a payment of interest to a foreign bank that is a nonqualified intermediary. H and r block free file The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. H and r block free file S. H and r block free file person for whom the bank is collecting the payments. H and r block free file The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. H and r block free file The account holders are the payees of the interest payment. H and r block free file You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. H and r block free file S. H and r block free file person on Form 1099-INT. H and r block free file Qualified intermediary. H and r block free file   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. H and r block free file S. H and r block free file intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. H and r block free file You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. H and r block free file In this situation, the QI is required to withhold the tax. H and r block free file You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. H and r block free file   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. H and r block free file If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. H and r block free file S. H and r block free file person. H and r block free file Branches of financial institutions. H and r block free file   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. H and r block free file The countries with approved KYC rules are listed on IRS. H and r block free file gov. H and r block free file QI withholding agreement. H and r block free file   Foreign financial institutions and foreign branches of U. H and r block free file S. H and r block free file financial institutions can enter into an agreement with the IRS to be a qualified intermediary. H and r block free file   A QI is entitled to certain simplified withholding and reporting rules. H and r block free file In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. H and r block free file   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. H and r block free file These forms, and the procedures required to obtain a QI withholding agreement are available at www. H and r block free file irs. H and r block free file gov/Businesses/Corporations/Qualified-Intermediaries-(QI). H and r block free file Documentation. H and r block free file   A QI is not required to forward documentation obtained from foreign account holders to the U. H and r block free file S. H and r block free file withholding agent from whom the QI receives a payment of U. H and r block free file S. H and r block free file source income. H and r block free file The QI maintains such documentation at its location and provides the U. H and r block free file S. H and r block free file withholding agent with withholding rate pools. H and r block free file A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. H and r block free file   A QI is required to provide the U. H and r block free file S. H and r block free file withholding agent with information regarding U. H and r block free file S. H and r block free file persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. H and r block free file   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. H and r block free file This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. H and r block free file Form 1042-S reporting. H and r block free file   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. H and r block free file Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). H and r block free file Collective refund procedures. H and r block free file   A QI may seek a refund on behalf of its direct account holders. H and r block free file The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. H and r block free file U. H and r block free file S. H and r block free file branches of foreign banks and foreign insurance companies. H and r block free file   Special rules apply to a U. H and r block free file S. H and r block free file branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. H and r block free file If you agree to treat the branch as a U. H and r block free file S. H and r block free file person, you may treat the branch as a U. H and r block free file S. H and r block free file payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. H and r block free file S. H and r block free file branch on which the agreement is evidenced. H and r block free file If you treat the branch as a U. H and r block free file S. H and r block free file payee, you are not required to withhold. H and r block free file Even though you agree to treat the branch as a U. H and r block free file S. H and r block free file person, you must report the payment on Form 1042-S. H and r block free file   A financial institution organized in a U. H and r block free file S. H and r block free file possession is treated as a U. H and r block free file S. H and r block free file branch. H and r block free file The special rules discussed in this section apply to a possessions financial institution. H and r block free file   If you are paying a U. H and r block free file S. H and r block free file branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. H and r block free file S. H and r block free file person for amounts subject to NRA withholding. H and r block free file Consequently, amounts not subject to NRA withholding that are paid to a U. H and r block free file S. H and r block free file branch are not subject to Form 1099 reporting or backup withholding. H and r block free file   Alternatively, a U. H and r block free file S. H and r block free file branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. H and r block free file In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. H and r block free file See Nonqualified Intermediaries under  Documentation, later. H and r block free file   If the U. H and r block free file S. H and r block free file branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. H and r block free file Withholding foreign partnership and foreign trust. H and r block free file   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. H and r block free file A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. H and r block free file   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. H and r block free file A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. H and r block free file You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. H and r block free file WP and WT withholding agreements. H and r block free file   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. H and r block free file Also see the following items. H and r block free file Revenue Procedure 2004-21. H and r block free file Revenue Procedure 2005-77. H and r block free file Employer identification number (EIN). H and r block free file   A completed Form SS-4 must be submitted with the application for being a WP or WT. H and r block free file The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. H and r block free file Documentation. H and r block free file   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. H and r block free file The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. H and r block free file The Form W-8IMY must contain the WP-EIN or WT-EIN. H and r block free file Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. H and r block free file A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. H and r block free file S. H and r block free file person. H and r block free file It also includes a foreign branch of a U. H and r block free file S. H and r block free file financial institution if the foreign branch is a qualified intermediary. H and r block free file In most cases, the U. H and r block free file S. H and r block free file branch of a foreign corporation or partnership is treated as a foreign person. H and r block free file Nonresident alien. H and r block free file   A nonresident alien is an individual who is not a U. H and r block free file S. H and r block free file citizen or a resident alien. H and r block free file A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. H and r block free file Married to U. H and r block free file S. H and r block free file citizen or resident alien. H and r block free file   Nonresident alien individuals married to U. H and r block free file S. H and r block free file citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. H and r block free file However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. H and r block free file Wages paid to these individuals are subject to graduated withholding. H and r block free file See Wages Paid to Employees—Graduated Withholding . H and r block free file Resident alien. H and r block free file   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. H and r block free file Green card test. H and r block free file An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. H and r block free file This is known as the green card test because these aliens hold immigrant visas (also known as green cards). H and r block free file Substantial presence test. H and r block free file An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. H and r block free file Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. H and r block free file   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. H and r block free file This exception is for a limited period of time. H and r block free file   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. H and r block free file Note. H and r block free file   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. H and r block free file For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). H and r block free file Resident of a U. H and r block free file S. H and r block free file possession. H and r block free file   A bona fide resident of Puerto Rico, the U. H and r block free file S. H and r block free file Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. H and r block free file S. H and r block free file citizen or a U. H and r block free file S. H and r block free file national is treated as a nonresident alien for the withholding rules explained here. H and r block free file A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. H and r block free file   For more information, see Publication 570, Tax Guide for Individuals With Income From U. H and r block free file S. H and r block free file Possessions. H and r block free file Foreign corporations. H and r block free file   A foreign corporation is one that does not fit the definition of a domestic corporation. H and r block free file A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. H and r block free file Guam or Northern Mariana Islands corporations. H and r block free file   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). H and r block free file Note. H and r block free file   The provisions discussed below under U. H and r block free file S. H and r block free file Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. H and r block free file U. H and r block free file S. H and r block free file Virgin Islands and American Samoa corporations. H and r block free file   A corporation created or organized in, or under the laws of, the U. H and r block free file S. H and r block free file Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. H and r block free file S. H and r block free file Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. H and r block free file S. H and r block free file Virgin Islands, American Samoa, Guam, the CNMI, or the United States. H and r block free file Foreign private foundations. H and r block free file   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. H and r block free file Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. H and r block free file Other foreign organizations, associations, and charitable institutions. H and r block free file   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. H and r block free file In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. H and r block free file   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. H and r block free file   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. H and r block free file U. H and r block free file S. H and r block free file branches of foreign persons. H and r block free file   In most cases, a payment to a U. H and r block free file S. H and r block free file branch of a foreign person is a payment made to the foreign person. H and r block free file However, you may treat payments to U. H and r block free file S. H and r block free file branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. H and r block free file S. H and r block free file regulatory supervision as payments made to a U. H and r block free file S. H and r block free file person, if you and the U. H and r block free file S. H and r block free file branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. H and r block free file For this purpose, a financial institution organized under the laws of a U. H and r block free file S. H and r block free file possession is treated as a U. H and r block free file S. H and r block free file branch. H and r block free file Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. H and r block free file The payee is a U. H and r block free file S. H and r block free file person. H and r block free file The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. H and r block free file In most cases, you must get the documentation before you make the payment. H and r block free file The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. H and r block free file See Standards of Knowledge , later. H and r block free file If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. H and r block free file For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. H and r block free file The specific types of documentation are discussed in this section. H and r block free file However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. H and r block free file As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. H and r block free file Section 1446 withholding. H and r block free file   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. H and r block free file In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. H and r block free file This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. H and r block free file Joint owners. H and r block free file    If you make a payment to joint owners, you need to get documentation from each owner. H and r block free file Form W-9. H and r block free file   In most cases, you can treat the payee as a U. H and r block free file S. H and r block free file person if the payee gives you a Form W-9. H and r block free file The Form W-9 can be used only by a U. H and r block free file S. H and r block free file person and must contain the payee's taxpayer identification number (TIN). H and r block free file If there is more than one owner, you may treat the total amount as paid to a U. H and r block free file S. H and r block free file person if any one of the owners gives you a Form W-9. H and r block free file See U. H and r block free file S. H and r block free file Taxpayer Identification Numbers , later. H and r block free file U. H and r block free file S. H and r block free file persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. H and r block free file Form W-8. H and r block free file   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. H and r block free file Until further notice, you can rely upon Forms W-8 that contain a P. H and r block free file O. H and r block free file box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. H and r block free file S. H and r block free file person and that a street address is available. H and r block free file You may rely on Forms W-8 for which there is a U. H and r block free file S. H and r block free file mailing address provided you received the form prior to December 31, 2001. H and r block free file   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. H and r block free file You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. H and r block free file S. H and r block free file possession. H and r block free file Other documentation. H and r block free file   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. H and r block free file The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. H and r block free file These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. H and r block free file Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. H and r block free file Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. H and r block free file   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. H and r block free file   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. H and r block free file For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. H and r block free file Claiming treaty benefits. H and r block free file   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. H and r block free file S. H and r block free file TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. H and r block free file   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. H and r block free file   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. H and r block free file See Fiscally transparent entity discussed earlier under Flow-Through Entities. H and r block free file   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. H and r block free file For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. H and r block free file   The exemptions from, or reduced rates of, U. H and r block free file S. H and r block free file tax vary under each treaty. H and r block free file You must check the provisions of the tax treaty that apply. H and r block free file Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. H and r block free file   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. H and r block free file You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. H and r block free file Exceptions to TIN requirement. H and r block free file   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. H and r block free file Income from marketable securities (discussed next). H and r block free file Unexpected payments to an individual (discussed under U. H and r block free file S. H and r block free file Taxpayer Identification Numbers ). H and r block free file Marketable securities. H and r block free file   A Form W-8BEN provided to claim treaty benefits does not need a U. H and r block free file S. H and r block free file TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. H and r block free file For this purpose, income from a marketable security consists of the following items. H and r block free file Dividends and interest from stocks and debt obligations that are actively traded. H and r block free file Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). H and r block free file Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. H and r block free file Income related to loans of any of the above securities. H and r block free file Offshore accounts. H and r block free file   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. H and r block free file   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. H and r block free file However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. H and r block free file An offshore account is an account maintained at an office or branch of a U. H and r block free file S. H and r block free file or foreign bank or other financial institution at any location outside the United States. H and r block free file   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. H and r block free file This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. H and r block free file In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. H and r block free file Documentary evidence. H and r block free file   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. H and r block free file To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. H and r block free file Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. H and r block free file Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. H and r block free file In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. H and r block free file Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. H and r block free file   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. H and r block free file (See Effectively Connected Income , later. H and r block free file )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. H and r block free file   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. H and r block free file S. H and r block free file trade or business is subject to withholding under section 1446. H and r block free file If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. H and r block free file    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. H and r block free file Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. H and r block free file   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. H and r block free file S. H and r block free file possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. H and r block free file   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. H and r block free file   See Foreign Governments and Certain Other Foreign Organizations , later. H and r block free file Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. H and r block free file The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. H and r block free file The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. H and r block free file Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. H and r block free file S. H and r block free file Branches for United States Tax Withholding. H and r block free file   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. H and r block free file S. H and r block free file branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. H and r block free file S. H and r block free file branch of a foreign bank or insurance company and either is agreeing to be treated as a U. H and r block free file S. H and r block free file person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. H and r block free file For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. H and r block free file 1446-5. H and r block free file Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. H and r block free file A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. H and r block free file The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. H and r block free file The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. H and r block free file Responsibilities. H and r block free file   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. H and r block free file However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. H and r block free file Instead, it provides you with a withholding statement that contains withholding rate pool information. H and r block free file A 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. H and r block free file A qualified intermediary is required to provide you with information regarding U. H and r block free file S. H and r block free file persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. H and r block free file S. H and r block free file person unless it has assumed Form 1099 reporting and backup withholding responsibility. H and r block free file For the alternative procedure for providing rate pool information for U. H and r block free file S. H and r block free file non-exempt persons, see the Form W-8IMY instructions. H and r block free file   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. H and r block free file   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. H and r block free file Primary responsibility not assumed. H and r block free file   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. H and r block free file Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. H and r block free file S. H and r block free file person subject to Form 1099 reporting and/or backup withholding. H and r block free file The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. H and r block free file Primary NRA withholding responsibility assumed. H and r block free file   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. H and r block free file S. H and r block free file person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. H and r block free file The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. H and r block free file Primary NRA and Form 1099 responsibility assumed. H and r block free file   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. H and r block free file It is not necessary to associate the payment with withholding rate pools. H and r block free file Example. H and r block free file You make a payment of dividends to a QI. H and r block free file It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. H and r block free file S. H and r block free file individual who provides it with a Form W-9. H and r block free file Each customer is entitled to 20% of the dividend payment. H and r block free file The QI does not assume any primary withholding responsibility. H and r block free file The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. H and r block free file S. H and r block free file individual. H and r block free file You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. H and r block free file The part of the payment allocable to the U. H and r block free file S. H and r block free file individual (20%) is reportable on Form 1099-DIV. H and r block free file Smaller partnerships and trusts. H and r block free file   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. H and r block free file It is a foreign partnership or foreign simple or grantor trust. H and r block free file It is a direct account holder of the QI. H and r block free file It does not have any partner, beneficiary, or owner that is a U. H and r block free file S. H and r block free file person or a pass- through partner, beneficiary, or owner. H and r block free file   For information on these rules, see section 4A. H and r block free file 01 of the QI agreement. H and r block free file This is found in Appendix 3 of Revenue Procedure 2003-64. H and r block free file Also see Revenue Procedure 2004-21. H and r block free file Related partnerships and trusts. H and r block free file    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. H and r block free file It is a foreign partnership or foreign simple or grantor trust. H and r block free file It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. H and r block free file For information on these rules, see section 4A. H and r block free file 02 of the QI agreement. H and r block free file This is found in Appendix 3 of Revenue Procedure 2003-64. H and r block free file Also see Revenue Procedure 2005-77. H and r block free file Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. H and r block free file S. H and r block free file branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. H and r block free file S. H and r block free file branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. H and r block free file The NQI, flow-through entity, or U. H and r block free file S. H and r block free file branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. H and r block free file A withholding statement must be updated to keep the information accurate prior to each payment. H and r block free file Withholding statement. H and r block free file   In most cases, a withholding statement must contain the following information. H and r block free file The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. H and r block free file The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. H and r block free file The status of the person for whom the documentation has been provided, such as whether the person is a U. H and r block free file S. H and r block free file exempt recipient (U. H and r block free file S. H and r block free file person exempt from Form 1099 reporting), U. H and r block free file S. H and r block free file non-exempt recipient (U. H and r block free file S. H and r block free file person subject to Form 1099 reporting), or a foreign person. H and r block free file For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. H and r block free file S. H and r block free file branch. H and r block free file The type of recipient the person is, based on the recipient codes used on Form 1042-S. H and r block free file Information allocating each payment, by income type, to each payee (including U. H and r block free file S. H and r block free file exempt and U. H and r block free file S. H and r block free file non-exempt recipients) for whom documentation has been provided. H and r block free file The rate of withholding that applies to each foreign person to whom a payment is allocated. H and r block free file A foreign payee's country of residence. H and r block free file If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. H and r block free file ). H and r block free file In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. H and r block free file The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. H and r block free file S. H and r block free file branch from which the payee will directly receive a payment. H and r block free file Any other information a withholding agent requests to fulfill its reporting and withholding obligations. H and r block free file Alternative procedure. H and r block free file   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. H and r block free file S. H and r block free file exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. H and r block free file To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. H and r block free file You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. H and r block free file    This alternative procedure cannot be used for payments to U. H and r block free file S. H and r block free file non-exempt recipients. H and r block free file Therefore, an NQI must always provide you with allocation information for all U. H and r block free file S. H and r block free file non-exempt recipients prior to a payment being made. H and r block free file Pooled withholding information. H and r block free file   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. H and r block free file A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. H and r block free file For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). H and r block free file The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. H and r block free file Failure to provide allocation information. H and r block free file   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. H and r block free file You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . H and r block free file An NQI is deemed to have f