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Irsefile com Publication 547 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Irsefile com Tax questions. Irsefile com Useful Items - You may want to see: What's New Section C of Form 4684 for Ponzi-type investment schemes. Irsefile com  Section C of Form 4684 is new for 2013. Irsefile com You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Irsefile com Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Irsefile com You do not need to complete Appendix A. Irsefile com For details, see Losses from Ponzi-type investment schemes , later. Irsefile com Reminders Future developments. Irsefile com   For the latest information about developments related to Publication 547, such as legislation enacted after it was published, go to www. Irsefile com irs. Irsefile com gov/pub547. Irsefile com Photographs of missing children. Irsefile com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Irsefile com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Irsefile com 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. Irsefile com Introduction This publication explains the tax treatment of casualties, thefts, and losses on deposits. Irsefile com A casualty occurs when your property is damaged as a result of a disaster such as a storm, fire, car accident, or similar event. Irsefile com A theft occurs when someone steals your property. Irsefile com A loss on deposits occurs when your financial institution becomes insolvent or bankrupt. Irsefile com This publication discusses the following topics. Irsefile com Definitions of a casualty, theft, and loss on deposits. Irsefile com How to figure the amount of your gain or loss. Irsefile com How to treat insurance and other reimbursements you receive. Irsefile com The deduction limits. Irsefile com When and how to report a casualty or theft. Irsefile com The special rules for disaster area losses. Irsefile com Forms to file. Irsefile com   Generally, when you have a casualty or theft, you have to file Form 4684. Irsefile com You may also have to file one or more of the following forms. Irsefile com Schedule A (Form 1040). Irsefile com Form 1040NR, Schedule A (for nonresident aliens). Irsefile com Schedule D. Irsefile com Form 4797. Irsefile com For details on which form to use, see How To Report Gains and Losses , later. Irsefile com Condemnations. Irsefile com   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Dispositions of Assets. Irsefile com Workbooks for casualties and thefts. Irsefile com   Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property), is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Irsefile com It includes schedules to help you figure the loss on your home and its contents, and your motor vehicles. Irsefile com   Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook, is available to help you make a list of your stolen or damaged business or income-producing property and figure your loss. Irsefile com Comments and suggestions. Irsefile com   We welcome your comments about this publication and your suggestions for future editions. Irsefile com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Irsefile com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Irsefile com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Irsefile com   You can send your comments from www. Irsefile com irs. Irsefile com gov/formspubs/. Irsefile com Click on “More Information” and then on “Comment on Tax Forms and Publications”. Irsefile com   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. Irsefile com Ordering forms and publications. Irsefile com   Visit www. Irsefile com irs. Irsefile com 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 days after your request is received. Irsefile com Internal Revenue Service 1201 N. Irsefile com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Irsefile com   If you have a tax question, check the information available on IRS. Irsefile com gov or call 1-800-829-1040. Irsefile com We cannot answer tax questions sent to either of the above addresses. Irsefile com Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 551 Basis of Assets 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and   Theft Loss Workbook Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Form 1040NR, Schedule A Itemized Deductions (for nonresident aliens) Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts 4797 Sales of Business Property See How To Get Tax Help near the end of this publication for information about getting publications and forms. Irsefile com Prev  Up  Next   Home   More Online Publications
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Irsefile com 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. Irsefile com S. Irsefile com Taxpayer Identification NumbersUnexpected payment. Irsefile com Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Irsefile com Electronic reporting. Irsefile com Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Irsefile com S. Irsefile com Real Property InterestForeign corporations. Irsefile com Domestic corporations. Irsefile com U. Irsefile com S. Irsefile com real property holding corporations. Irsefile com Partnerships. Irsefile com Trusts and estates. Irsefile com Domestically controlled QIE. Irsefile com Late filing of certifications or notices. Irsefile com Certifications. Irsefile com Liability of agent or qualified substitute. Irsefile com Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Irsefile com Withholding of Tax In most cases, a foreign person is subject to U. Irsefile com S. Irsefile com tax on its U. Irsefile com S. Irsefile com source income. Irsefile com Most types of U. Irsefile com S. Irsefile com source income received by a foreign person are subject to U. Irsefile com S. Irsefile com tax of 30%. Irsefile com 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. Irsefile com The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Irsefile com 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. Irsefile com In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Irsefile com S. Irsefile com source income. Irsefile com Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Irsefile com NRA withholding does not include withholding under section 1445 of the Code (see U. Irsefile com S. Irsefile com Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Irsefile com A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Irsefile com However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Irsefile com S. Irsefile com person is not required to withhold. Irsefile com 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. Irsefile com Withholding Agent You are a withholding agent if you are a U. Irsefile com S. Irsefile com 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. Irsefile com 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. Irsefile com S. Irsefile com branch of certain foreign banks and insurance companies. Irsefile com 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. Irsefile com Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Irsefile com In most cases, the U. Irsefile com S. Irsefile com person who pays an amount subject to NRA withholding is the person responsible for withholding. Irsefile com However, other persons may be required to withhold. Irsefile com 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. Irsefile com 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. Irsefile com Liability for tax. Irsefile com   As a withholding agent, you are personally liable for any tax required to be withheld. Irsefile com This liability is independent of the tax liability of the foreign person to whom the payment is made. Irsefile com If you fail to withhold and the foreign payee fails to satisfy its U. Irsefile com S. Irsefile com tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Irsefile com   The applicable tax will be collected only once. Irsefile com If the foreign person satisfies its U. Irsefile com S. Irsefile com tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Irsefile com Determination of amount to withhold. Irsefile com   You must withhold on the gross amount subject to NRA withholding. Irsefile com You cannot reduce the gross amount by any deductions. Irsefile com However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Irsefile com   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. Irsefile com In no case, however, should you withhold more than 30% of the total amount paid. Irsefile com Or, you may make a reasonable estimate of the amount from U. Irsefile com S. Irsefile com sources and put a corresponding part of the amount due in escrow until the amount from U. Irsefile com S. Irsefile com sources can be determined, at which time withholding becomes due. Irsefile com When to withhold. Irsefile com   Withholding is required at the time you make a payment of an amount subject to withholding. Irsefile com 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. Irsefile com A payment is considered made to a person if it is paid for that person's benefit. Irsefile com 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. Irsefile com A payment also is considered made to a person if it is made to that person's agent. Irsefile com   A U. Irsefile com S. Irsefile com partnership should withhold when any distributions that include amounts subject to withholding are made. Irsefile com However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Irsefile com S. Irsefile com 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. Irsefile com If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Irsefile com A U. Irsefile com S. Irsefile com 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. Irsefile com To the extent a U. Irsefile com S. Irsefile com 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. Irsefile com 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. Irsefile com (See Returns Required , later. Irsefile com ) 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. Irsefile com Form 1099 reporting and backup withholding. Irsefile com    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Irsefile com S. Irsefile com person. Irsefile com You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Irsefile com S. Irsefile com person that is subject to Form 1099 reporting if any of the following apply. Irsefile com The U. Irsefile com S. Irsefile com person has not provided its taxpayer identification number (TIN) in the manner required. Irsefile com The IRS notifies you that the TIN furnished by the payee is incorrect. Irsefile com There has been a notified payee underreporting. Irsefile com There has been a payee certification failure. Irsefile com In most cases, a TIN must be provided by a U. Irsefile com S. Irsefile com non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Irsefile com A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Irsefile com 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. Irsefile com S. Irsefile com person. Irsefile com For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Irsefile com S. Irsefile com person subject to Form 1099 reporting. Irsefile com See Identifying the Payee , later, for more information. Irsefile com Also see Section S. Irsefile com 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. Irsefile com 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. Irsefile com Wages paid to employees. Irsefile com   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Irsefile com See Pay for Personal Services Performed , later. Irsefile com Effectively connected income by partnerships. Irsefile com   A withholding agent that is a partnership (whether U. Irsefile com S. Irsefile com or foreign) is also responsible for withholding on its income effectively connected with a U. Irsefile com S. Irsefile com trade or business that is allocable to foreign partners. Irsefile com See Partnership Withholding on Effectively Connected Income , later, for more information. Irsefile com U. Irsefile com S. Irsefile com real property interest. Irsefile com   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Irsefile com S. Irsefile com real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Irsefile com S. Irsefile com real property interest to a shareholder, partner, or beneficiary that is a foreign person. Irsefile com See U. Irsefile com S. Irsefile com Real Property Interest , later. Irsefile com Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Irsefile com It does not apply to payments made to U. Irsefile com S. Irsefile com persons. Irsefile com Usually, you determine the payee's status as a U. Irsefile com S. Irsefile com or foreign person based on the documentation that person provides. Irsefile com See Documentation , later. Irsefile com 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. Irsefile com 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. Irsefile com However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Irsefile com U. Irsefile com S. Irsefile com agent of foreign person. Irsefile com   If you make a payment to a U. Irsefile com S. Irsefile com person and you have actual knowledge that the U. Irsefile com S. Irsefile com person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Irsefile com However, if the U. Irsefile com S. Irsefile com 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. Irsefile com   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. Irsefile com S. Irsefile com person and not as a payment to a foreign person. Irsefile com You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Irsefile com Disregarded entities. Irsefile com   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. Irsefile com The payee of a payment made to a disregarded entity is the owner of the entity. Irsefile com   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. Irsefile com   If the owner is a U. Irsefile com S. Irsefile com person, you do not apply NRA withholding. Irsefile com However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Irsefile com 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. Irsefile com Flow-Through Entities The payees of payments (other than income effectively connected with a U. Irsefile com S. Irsefile com trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Irsefile com This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Irsefile com Income that is, or is deemed to be, effectively connected with the conduct of a U. Irsefile com S. Irsefile com trade or business of a flow-through entity is treated as paid to the entity. Irsefile com All of the following are flow-through entities. Irsefile com A foreign partnership (other than a withholding foreign partnership). Irsefile com A foreign simple or foreign grantor trust (other than a withholding foreign trust). Irsefile com A fiscally transparent entity receiving income for which treaty benefits are claimed. Irsefile com See Fiscally transparent entity , later. Irsefile com 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. Irsefile com You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Irsefile com You must determine whether the owners or beneficiaries of a flow-through entity are U. Irsefile com S. Irsefile com 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. Irsefile com 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. Irsefile com 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. Irsefile com See Documentation and Presumption Rules , later. Irsefile com Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Irsefile com Foreign partnerships. Irsefile com    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. Irsefile com 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. Irsefile com 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. Irsefile com 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. Irsefile com Example 1. Irsefile com A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Irsefile com S. Irsefile com citizen. Irsefile com You make a payment of U. Irsefile com S. Irsefile com source interest to the partnership. Irsefile com 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. Irsefile com S. Irsefile com citizen. Irsefile com The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Irsefile com You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Irsefile com Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Irsefile com Report the payment to the U. Irsefile com S. Irsefile com citizen on Form 1099-INT. Irsefile com Example 2. Irsefile com A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Irsefile com The second partnership has two partners, both nonresident alien individuals. Irsefile com You make a payment of U. Irsefile com S. Irsefile com source interest to the first partnership. Irsefile com 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. Irsefile com In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Irsefile com The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Irsefile com 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. Irsefile com Example 3. Irsefile com You make a payment of U. Irsefile com S. Irsefile com source dividends to a withholding foreign partnership. Irsefile com The partnership has two partners, both foreign corporations. Irsefile com 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. Irsefile com You must treat the partnership as the payee of the dividends. Irsefile com Foreign simple and grantor trust. Irsefile com   A trust is foreign unless it meets both of the following tests. Irsefile com A court within the United States is able to exercise primary supervision over the administration of the trust. Irsefile com One or more U. Irsefile com S. Irsefile com persons have the authority to control all substantial decisions of the trust. Irsefile com   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Irsefile com A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Irsefile com   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Irsefile com The payees of a payment made to a foreign grantor trust are the owners of the trust. Irsefile com 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. Irsefile com 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. Irsefile com Example. Irsefile com A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Irsefile com S. Irsefile com citizen. Irsefile com You make a payment of interest to the foreign trust. Irsefile com 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. Irsefile com S. Irsefile com citizen. Irsefile com 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. Irsefile com You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Irsefile com Report the payment to the nonresident aliens on Forms 1042-S. Irsefile com Report the payment to the U. Irsefile com S. Irsefile com citizen on Form 1099-INT. Irsefile com Fiscally transparent entity. Irsefile com   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. Irsefile com 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. Irsefile com ). Irsefile com 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. Irsefile com 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. Irsefile com 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. Irsefile com   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Irsefile com Example. Irsefile com 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. Irsefile com A has two interest holders, B and C. Irsefile com B is a corporation organized under the laws of country Y. Irsefile com C is a corporation organized under the laws of country Z. Irsefile com Both countries Y and Z have an income tax treaty in force with the United States. Irsefile com A receives royalty income from U. Irsefile com S. Irsefile com sources that is not effectively connected with the conduct of a trade or business in the United States. Irsefile com For U. Irsefile com S. Irsefile com income tax purposes, A is treated as a partnership. Irsefile com 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. Irsefile com 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. Irsefile com Accordingly, A is fiscally transparent in its jurisdiction, country X. Irsefile com B and C are not fiscally transparent under the laws of their respective countries of incorporation. Irsefile com 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. Irsefile com 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. Irsefile com S. Irsefile com source royalty income for purposes of the U. Irsefile com S. Irsefile com -Y income tax treaty. Irsefile com 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. Irsefile com Therefore, A is not treated as fiscally transparent under the laws of country Z. Irsefile com Accordingly, C is not treated as deriving its share of the U. Irsefile com S. Irsefile com source royalty income for purposes of the U. Irsefile com S. Irsefile com -Z income tax treaty. Irsefile com 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. Irsefile com This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Irsefile com 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. Irsefile com An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Irsefile com A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Irsefile com 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. Irsefile com You must determine whether the customers or account holders of a foreign intermediary are U. Irsefile com S. Irsefile com or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Irsefile com You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Irsefile com 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. Irsefile com See Documentation and Presumption Rules , later. Irsefile com Nonqualified intermediary. Irsefile com   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Irsefile com The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Irsefile com Example. Irsefile com You make a payment of interest to a foreign bank that is a nonqualified intermediary. Irsefile com 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. Irsefile com S. Irsefile com person for whom the bank is collecting the payments. Irsefile com 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. Irsefile com The account holders are the payees of the interest payment. Irsefile com 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. Irsefile com S. Irsefile com person on Form 1099-INT. Irsefile com Qualified intermediary. Irsefile com   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Irsefile com S. Irsefile com intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Irsefile com 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. Irsefile com In this situation, the QI is required to withhold the tax. Irsefile com You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Irsefile com   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. Irsefile com 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. Irsefile com S. Irsefile com person. Irsefile com Branches of financial institutions. Irsefile com   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. Irsefile com The countries with approved KYC rules are listed on IRS. Irsefile com gov. Irsefile com QI withholding agreement. Irsefile com   Foreign financial institutions and foreign branches of U. Irsefile com S. Irsefile com financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Irsefile com   A QI is entitled to certain simplified withholding and reporting rules. Irsefile com In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Irsefile com   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Irsefile com These forms, and the procedures required to obtain a QI withholding agreement are available at www. Irsefile com irs. Irsefile com gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Irsefile com Documentation. Irsefile com   A QI is not required to forward documentation obtained from foreign account holders to the U. Irsefile com S. Irsefile com withholding agent from whom the QI receives a payment of U. Irsefile com S. Irsefile com source income. Irsefile com The QI maintains such documentation at its location and provides the U. Irsefile com S. Irsefile com withholding agent with withholding rate pools. Irsefile com A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Irsefile com   A QI is required to provide the U. Irsefile com S. Irsefile com withholding agent with information regarding U. Irsefile com S. Irsefile com persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Irsefile com   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. Irsefile com 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. Irsefile com Form 1042-S reporting. Irsefile com   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. Irsefile com Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Irsefile com Collective refund procedures. Irsefile com   A QI may seek a refund on behalf of its direct account holders. Irsefile com 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. Irsefile com U. Irsefile com S. Irsefile com branches of foreign banks and foreign insurance companies. Irsefile com   Special rules apply to a U. Irsefile com S. Irsefile com branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Irsefile com If you agree to treat the branch as a U. Irsefile com S. Irsefile com person, you may treat the branch as a U. Irsefile com S. Irsefile com payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Irsefile com S. Irsefile com branch on which the agreement is evidenced. Irsefile com If you treat the branch as a U. Irsefile com S. Irsefile com payee, you are not required to withhold. Irsefile com Even though you agree to treat the branch as a U. Irsefile com S. Irsefile com person, you must report the payment on Form 1042-S. Irsefile com   A financial institution organized in a U. Irsefile com S. Irsefile com possession is treated as a U. Irsefile com S. Irsefile com branch. Irsefile com The special rules discussed in this section apply to a possessions financial institution. Irsefile com   If you are paying a U. Irsefile com S. Irsefile com 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. Irsefile com S. Irsefile com person for amounts subject to NRA withholding. Irsefile com Consequently, amounts not subject to NRA withholding that are paid to a U. Irsefile com S. Irsefile com branch are not subject to Form 1099 reporting or backup withholding. Irsefile com   Alternatively, a U. Irsefile com S. Irsefile com branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Irsefile com 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. Irsefile com See Nonqualified Intermediaries under  Documentation, later. Irsefile com   If the U. Irsefile com S. Irsefile com 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. Irsefile com Withholding foreign partnership and foreign trust. Irsefile com   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. Irsefile com 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. Irsefile com   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. Irsefile com A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Irsefile com 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. Irsefile com WP and WT withholding agreements. Irsefile com   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Irsefile com Also see the following items. Irsefile com Revenue Procedure 2004-21. Irsefile com Revenue Procedure 2005-77. Irsefile com Employer identification number (EIN). Irsefile com   A completed Form SS-4 must be submitted with the application for being a WP or WT. Irsefile com The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Irsefile com Documentation. Irsefile com   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. Irsefile com 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. Irsefile com The Form W-8IMY must contain the WP-EIN or WT-EIN. Irsefile com Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Irsefile com 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. Irsefile com S. Irsefile com person. Irsefile com It also includes a foreign branch of a U. Irsefile com S. Irsefile com financial institution if the foreign branch is a qualified intermediary. Irsefile com In most cases, the U. Irsefile com S. Irsefile com branch of a foreign corporation or partnership is treated as a foreign person. Irsefile com Nonresident alien. Irsefile com   A nonresident alien is an individual who is not a U. Irsefile com S. Irsefile com citizen or a resident alien. Irsefile com A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Irsefile com Married to U. Irsefile com S. Irsefile com citizen or resident alien. Irsefile com   Nonresident alien individuals married to U. Irsefile com S. Irsefile com citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Irsefile com However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Irsefile com Wages paid to these individuals are subject to graduated withholding. Irsefile com See Wages Paid to Employees—Graduated Withholding . Irsefile com Resident alien. Irsefile com   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. Irsefile com Green card test. Irsefile com 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. Irsefile com This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Irsefile com Substantial presence test. Irsefile com An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Irsefile com 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. Irsefile com   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. Irsefile com This exception is for a limited period of time. Irsefile com   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Irsefile com Note. Irsefile com   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. Irsefile com For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Irsefile com Resident of a U. Irsefile com S. Irsefile com possession. Irsefile com   A bona fide resident of Puerto Rico, the U. Irsefile com S. Irsefile com Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Irsefile com S. Irsefile com citizen or a U. Irsefile com S. Irsefile com national is treated as a nonresident alien for the withholding rules explained here. Irsefile com 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. Irsefile com   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Irsefile com S. Irsefile com Possessions. Irsefile com Foreign corporations. Irsefile com   A foreign corporation is one that does not fit the definition of a domestic corporation. Irsefile com 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. Irsefile com Guam or Northern Mariana Islands corporations. Irsefile com   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). Irsefile com Note. Irsefile com   The provisions discussed below under U. Irsefile com S. Irsefile com 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. Irsefile com U. Irsefile com S. Irsefile com Virgin Islands and American Samoa corporations. Irsefile com   A corporation created or organized in, or under the laws of, the U. Irsefile com S. Irsefile com 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. Irsefile com S. Irsefile com 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. Irsefile com S. Irsefile com Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Irsefile com Foreign private foundations. Irsefile com   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Irsefile com 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. Irsefile com Other foreign organizations, associations, and charitable institutions. Irsefile com   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. Irsefile com 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. Irsefile com   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Irsefile com   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. Irsefile com U. Irsefile com S. Irsefile com branches of foreign persons. Irsefile com   In most cases, a payment to a U. Irsefile com S. Irsefile com branch of a foreign person is a payment made to the foreign person. Irsefile com However, you may treat payments to U. Irsefile com S. Irsefile com branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Irsefile com S. Irsefile com regulatory supervision as payments made to a U. Irsefile com S. Irsefile com person, if you and the U. Irsefile com S. Irsefile com branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Irsefile com For this purpose, a financial institution organized under the laws of a U. Irsefile com S. Irsefile com possession is treated as a U. Irsefile com S. Irsefile com branch. Irsefile com 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. Irsefile com The payee is a U. Irsefile com S. Irsefile com person. Irsefile com The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Irsefile com In most cases, you must get the documentation before you make the payment. Irsefile com The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Irsefile com See Standards of Knowledge , later. Irsefile com If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Irsefile com 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. Irsefile com The specific types of documentation are discussed in this section. Irsefile com However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Irsefile com 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. Irsefile com Section 1446 withholding. Irsefile com   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Irsefile com 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. Irsefile com 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. Irsefile com Joint owners. Irsefile com    If you make a payment to joint owners, you need to get documentation from each owner. Irsefile com Form W-9. Irsefile com   In most cases, you can treat the payee as a U. Irsefile com S. Irsefile com person if the payee gives you a Form W-9. Irsefile com The Form W-9 can be used only by a U. Irsefile com S. Irsefile com person and must contain the payee's taxpayer identification number (TIN). Irsefile com If there is more than one owner, you may treat the total amount as paid to a U. Irsefile com S. Irsefile com person if any one of the owners gives you a Form W-9. Irsefile com See U. Irsefile com S. Irsefile com Taxpayer Identification Numbers , later. Irsefile com U. Irsefile com S. Irsefile com persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Irsefile com Form W-8. Irsefile com   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Irsefile com Until further notice, you can rely upon Forms W-8 that contain a P. Irsefile com O. Irsefile com 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. Irsefile com S. Irsefile com person and that a street address is available. Irsefile com You may rely on Forms W-8 for which there is a U. Irsefile com S. Irsefile com mailing address provided you received the form prior to December 31, 2001. Irsefile com   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Irsefile com You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Irsefile com S. Irsefile com possession. Irsefile com Other documentation. Irsefile com   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Irsefile com 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. Irsefile com These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Irsefile com 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. Irsefile com Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Irsefile com   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. Irsefile com   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. Irsefile com 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. Irsefile com Claiming treaty benefits. Irsefile com   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. Irsefile com S. Irsefile com 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. Irsefile com   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. Irsefile com   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Irsefile com See Fiscally transparent entity discussed earlier under Flow-Through Entities. Irsefile com   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Irsefile com 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. Irsefile com   The exemptions from, or reduced rates of, U. Irsefile com S. Irsefile com tax vary under each treaty. Irsefile com You must check the provisions of the tax treaty that apply. Irsefile com 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. Irsefile com   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. Irsefile com 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. Irsefile com Exceptions to TIN requirement. Irsefile com   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. Irsefile com Income from marketable securities (discussed next). Irsefile com Unexpected payments to an individual (discussed under U. Irsefile com S. Irsefile com Taxpayer Identification Numbers ). Irsefile com Marketable securities. Irsefile com   A Form W-8BEN provided to claim treaty benefits does not need a U. Irsefile com S. Irsefile com TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Irsefile com For this purpose, income from a marketable security consists of the following items. Irsefile com Dividends and interest from stocks and debt obligations that are actively traded. Irsefile com Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Irsefile com 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. Irsefile com Income related to loans of any of the above securities. Irsefile com Offshore accounts. Irsefile com   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. Irsefile com   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. Irsefile com 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. Irsefile com An offshore account is an account maintained at an office or branch of a U. Irsefile com S. Irsefile com or foreign bank or other financial institution at any location outside the United States. Irsefile com   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Irsefile com This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Irsefile com 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. Irsefile com Documentary evidence. Irsefile com   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. Irsefile com 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. Irsefile com 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. Irsefile com 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. Irsefile com 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. Irsefile com 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. Irsefile com   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. Irsefile com (See Effectively Connected Income , later. Irsefile com )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Irsefile com   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Irsefile com S. Irsefile com trade or business is subject to withholding under section 1446. Irsefile com 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. Irsefile com    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. Irsefile com Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Irsefile com   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. Irsefile com S. Irsefile com 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. Irsefile com   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. Irsefile com   See Foreign Governments and Certain Other Foreign Organizations , later. Irsefile com 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. Irsefile com 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. Irsefile com The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Irsefile com Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Irsefile com S. Irsefile com Branches for United States Tax Withholding. Irsefile com   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Irsefile com S. Irsefile com 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. Irsefile com S. Irsefile com branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Irsefile com S. Irsefile com 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. Irsefile com For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Irsefile com 1446-5. Irsefile com Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Irsefile com 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. Irsefile com The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Irsefile com 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. Irsefile com Responsibilities. Irsefile com   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Irsefile com However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Irsefile com Instead, it provides you with a withholding statement that contains withholding rate pool information. Irsefile com 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. Irsefile com A qualified intermediary is required to provide you with information regarding U. Irsefile com S. Irsefile com persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Irsefile com S. Irsefile com person unless it has assumed Form 1099 reporting and backup withholding responsibility. Irsefile com For the alternative procedure for providing rate pool information for U. Irsefile com S. Irsefile com non-exempt persons, see the Form W-8IMY instructions. Irsefile com   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. Irsefile com   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Irsefile com Primary responsibility not assumed. Irsefile com   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. Irsefile com Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Irsefile com S. Irsefile com person subject to Form 1099 reporting and/or backup withholding. Irsefile com 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. Irsefile com Primary NRA withholding responsibility assumed. Irsefile com   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. Irsefile com S. Irsefile com person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Irsefile com 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. Irsefile com Primary NRA and Form 1099 responsibility assumed. Irsefile com   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. Irsefile com It is not necessary to associate the payment with withholding rate pools. Irsefile com Example. Irsefile com You make a payment of dividends to a QI. Irsefile com 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. Irsefile com S. Irsefile com individual who provides it with a Form W-9. Irsefile com Each customer is entitled to 20% of the dividend payment. Irsefile com The QI does not assume any primary withholding responsibility. Irsefile com 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. Irsefile com S. Irsefile com individual. Irsefile com 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. Irsefile com The part of the payment allocable to the U. Irsefile com S. Irsefile com individual (20%) is reportable on Form 1099-DIV. Irsefile com Smaller partnerships and trusts. Irsefile com   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. Irsefile com It is a foreign partnership or foreign simple or grantor trust. Irsefile com It is a direct account holder of the QI. Irsefile com It does not have any partner, beneficiary, or owner that is a U. Irsefile com S. Irsefile com person or a pass- through partner, beneficiary, or owner. Irsefile com   For information on these rules, see section 4A. Irsefile com 01 of the QI agreement. Irsefile com This is found in Appendix 3 of Revenue Procedure 2003-64. Irsefile com Also see Revenue Procedure 2004-21. Irsefile com Related partnerships and trusts. Irsefile com    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Irsefile com It is a foreign partnership or foreign simple or grantor trust. Irsefile com 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. Irsefile com For information on these rules, see section 4A. Irsefile com 02 of the QI agreement. Irsefile com This is found in Appendix 3 of Revenue Procedure 2003-64. Irsefile com Also see Revenue Procedure 2005-77. Irsefile com Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Irsefile com S. Irsefile com 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. Irsefile com S. Irsefile com branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Irsefile com The NQI, flow-through entity, or U. Irsefile com S. Irsefile com branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Irsefile com A withholding statement must be updated to keep the information accurate prior to each payment. Irsefile com Withholding statement. Irsefile com   In most cases, a withholding statement must contain the following information. Irsefile com The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Irsefile com The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Irsefile com The status of the person for whom the documentation has been provided, such as whether the person is a U. Irsefile com S. Irsefile com exempt recipient (U. Irsefile com S. Irsefile com person exempt from Form 1099 reporting), U. Irsefile com S. Irsefile com non-exempt recipient (U. Irsefile com S. Irsefile com person subject to Form 1099 reporting), or a foreign person. Irsefile com 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. Irsefile com S. Irsefile com branch. Irsefile com The type of recipient the person is, based on the recipient codes used on Form 1042-S. Irsefile com Information allocating each payment, by income type, to each payee (including U. Irsefile com S. Irsefile com exempt and U. Irsefile com S. Irsefile com non-exempt recipients) for whom documentation has been provided. Irsefile com The rate of withholding that applies to each foreign person to whom a payment is allocated. Irsefile com A foreign payee's country of residence. Irsefile com If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Irsefile com ). Irsefile com 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. Irsefile com The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Irsefile com S. Irsefile com branch from which the payee will directly receive a payment. Irsefile com Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Irsefile com Alternative procedure. Irsefile com   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Irsefile com S. Irsefile com exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Irsefile com 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. Irsefile com You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Irsefile com    This alternative procedure cannot be used for payments to U. Irsefile com S. Irsefile com non-exempt recipients. Irsefile com Therefore, an NQI must always provide you with allocation information for all U. Irsefile com S. Irsefile com non-exempt recipients prior to a payment being made. Irsefile com Pooled withholding information. Irsefile com   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. Irsefile com 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. Irsefile com 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). Irsefile com 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. Irsefile com Failure to provide allocation information. Irsefile com   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. Irsefile com You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Irsefile com An NQI is deemed to have f