Revisions to Regulations Relating to Withholding of Tax on
Certain U.S. Source Income Paid to Foreign Persons &
Revisions of Information Reporting Regulations. (Page 2)

(v) Withholding certificate from certain U.S. branches. A U.S.
branch certificate is a withholding certificate provided by a U.S.
branch described in paragraph (b)(2)(iv) of this section that is not
the beneficial owner of the income. The withholding certificate is
provided with respect to reportable amounts and must state that such
amounts are not effectively connected with the conduct of a trade or
business in the United States. The withholding certificate must
either transmit the appropriate documentation for the persons for
whom the branch receives the payment (i.e., as an intermediary) or
be provided as evidence of its agreement with the withholding agent
to be treated as a U.S. person with respect to any payment
associated with the certificate. A U.S. branch withholding
certificate is valid only if it is furnished on a Form W-8, an
acceptable substitute form, or such other form as the IRS may
prescribe, it is signed under penalties of perjury by a person
authorized to sign for the branch, its validity has not expired, and
it contains the information, statements, and certifications
described in this paragraph (e)(3)(v). If the certificate is
furnished to transmit withholding certificates and other
documentation, it must contain the information, certifications, and
statements described in paragraphs (e)(3)(v)(A) through (C) of this
section and in paragraphs (e)(3)(iii) and (iv) (alternative
procedures) of this section, applying the term U.S. branch for the
term nonqualified intermediary. If the certificate is furnished
pursuant to an agreement to treat the U.S. branch as a U.S.
person,.120 the information and certifications required on the
withholding certificate are limited to the following--

(A) The name of the person of which the branch is a part and the
address of the branch in the United States;

(B) A certification that the payments associated with the
certificate are not effectively connected with the conduct of its
trade or business in the United States; and

(C) Any other information, certifications, or statements as may be
required by the form or accompanying instructions in addition to, or
in lieu of, the information and certification described in this
paragraph (e)(3)(v).

(vi) Reportable amounts. For purposes of chapter 3 of the Internal
Revenue Code, a nonqualified intermediary, qualified intermediary,
flow-through entity, and U.S. branch described in paragraph (b)(2)
(iv) of this section (other than a U.S. branch that agrees to be
treated as a U.S. person) must provide a withholding certificate and
associated documentation and other information with respect to
reportable amounts. For purposes of the regulations under chapter 3
of the Internal Revenue Code, the term reportable amount means an
amount subject to withholding within the meaning of
§1.1441-2(a), bank deposit interest (including original issue
discount) and similar types of deposit interest described in section
871(i)(2)(A) or 881(d) that are from sources within the United
States, and any amount of interest or original issue discount from
sources within the United States on the redemption of certain short-
term obligations described in section 871(g)(1)(B) or 881(e).
Reportable amounts shall not include amounts received on the sale or
exchange (other than a redemption) of an obligation described in
section 871(g)(1)(B) or 881(e) that is effected at an office outside
the United States. See §1.6045-1(g)(3) to determine whether.121
a sale is effected at an office outside the United States.
Reportable amounts also do not include payments with respect to
deposits with banks and other financial institutions that remain on
deposit for a period of two weeks or less, to amounts of original
issue discount arising from a sale and repurchase transaction that
is completed within a period of two weeks or less, or to amounts
described in §1.6049-5(b)(7), (10) or (11) (relating to certain
obligations issued in bearer form). While short-term OID and bank
deposit interest are not subject to withholding under chapter 3 of
the Internal Revenue Code, such amounts may be subject to
information reporting under section 6049 if paid to a U.S. person
who is not an exempt recipient described in §1.6049-4(c)(1)(ii)
and to backup withholding under section 3406 in the absence of
documentation. See §1.6049-5(d)(3)(iii) for applicable
procedures when such amounts are paid to a foreign intermediary.

(4) * * *

(ii) Period of validity--(A) Three-year period. A withholding
certificate described in paragraph (e)(2)(i) of this section, or a
certificate described in §1.871-14(c)(2)(v) (furnished to
qualify interest as portfolio interest for purposes of sections
871(h) and 881(c)), shall remain valid until the earlier of the last
day of the third calendar year following the year in which the
withholding certificate is signed or the day that a change in
circumstances occurs that makes any information on the certificate
incorrect. For example, a withholding certificate signed on
September 30, 2001, remains valid through December 31, 2004, unless
circumstances change that make the information on the form no longer
correct. Documentary evidence described in §§1.1441-6(c)
(3) or (4) or 1.6049-5(c)(1) shall remain valid until the earlier of
the last day of the third calendar year following the year in
which.122 the documentary evidence is provided to the withholding
agent or the day that a change in circumstances occurs that makes
any information on the documentary evidence incorrect.

(b) * * *

(1) A withholding certificate described in paragraph (e)(2)(ii) of
this section that is furnished with a TIN, provided that the
withholding agent reports at least one payment annually to the
beneficial owner under §1.1461-1(c) or the TIN furnished on the
certificate is reported to the IRS under the procedures described in
§1.1461-1(d). For example, assume a withholding agent receives
a Form W-8 in 2001 from a beneficial owner with respect to an
account that contains bonds, the interest on which must be reported
on Form 1042-S under §1.1461-1(c). The Form W-8 contains a
valid TIN and the withholding agent reports on Forms 1042-S interest
to the beneficial owner for 2001 through 2005. In 2005, the
beneficial owner sells some of the bonds. For purposes of the
exemption from Form 1099 reporting under §1.6045-1(g), the
withholding agent may consider the Form W-8 as valid, even though
the payment of the sales proceeds is not reportable on Form 1042-S
under §1.1461-1(c) and even though the Form W-8 was provided
more than three years previously.

(2) A certificate described in paragraph (e)(3)(ii) of this section
(a qualified intermediary withholding certificate) but not including
the withholding certificates, documentary evidence, statements or
other information associated with the certificate.

(3) A certificate described in paragraph (e)(3)(iii) of this section
(a nonqualified intermediary certificate), but not including the
withholding certificates, documentary evidence, statements or other
information associated with the certificate..123

(4) A certificate described in paragraph (e)(3)(v) of this section
(a U.S. branch withholding certificate), but not including the
withholding certificates, documentary evidence, statements or other
information associated with the certificate.

* * * * *

(6) A certificate described in §1.1441-5(c)(3)(iii) (a
withholding certificate from a nonwithholding foreign partnership)
but not including the withholding certificates, documentary
evidence, statements or other information required to be associated
with the certificate.

* * * * *

(8) A withholding certificate described in §1.1441-5(e)(5)(iii)
provided by a foreign simple trust or a foreign grantor trust to
transmit documentation of beneficiaries or owners, but not including
the withholding certificates, documentary evidence, statements or
other information associated with the certificate.

* * * * *

(iv) Electronic transmission of information--(A) In general. A
withholding agent may establish a system for a beneficial owner or
payee to electronically furnish a Form W-8, an acceptable substitute
Form W-8, or such other form as the Internal Revenue Service may
prescribe. The system must meet the requirements described in
paragraph (e)(4)(iv)(B) of this section. A withholding agent may
accept Forms W-8 that are furnished electronically on or after
January 1, 2000, provided the requirements of paragraph (e)(4)(iv)
(B) of this section are met.

(b) Requirements--

(1) In general. The electronic system must ensure that the
information received is the information sent, and must document all
occasions of user.124 access that result in the submission renewal,
or modification of a Form W-8. In addition, the design and operation
of the electronic system, including access procedures, must make it
reasonably certain that the person accessing the system and
furnishing Form W-8 is the person named in the Form.

(2) Same information as paper Form W-8. The electronic transmission
must provide the withholding agent or payor with exactly the same
information as the paper Form W-8.

(3) Perjury statement and signature requirements. The electronic
transmission must contain an electronic signature by the person
whose name is on the Form W-8 and the signature must be under
penalties of perjury in the manner described in this paragraph (e)
(4)(iv)(B)(3).

(i) Perjury statement. The perjury statement must contain the
language that appears on the paper Form W-8. The electronic system
must inform the person whose name is on the Form W-8 that the person
must make the declaration contained in the perjury statement and
that the declaration is made by signing the Form W-8. The
instructions and the language of the perjury statement must
immediately follow the person's certifying statements and
immediately precede the person's electronic signature.

(ii) Electronic signature. The act of the electronic signature must
be effected by the person whose name is on the electronic Form W-8.
The signature must also authenticate and verify the submission. For
this purpose, the terms authenticate and verify have the same
meanings as they do when applied to a written signature on a paper
Form W-8. An electronic signature can be in any form that satisfies
the foregoing requirements. The electronic signature must be the
final entry in the person's Form W-8 submission..125 (4) Requests
for electronic Form W-8 data. Upon request by the Internal Revenue
Service during an examination, the withholding agent must supply a
hard copy of the electronic Form W-8 and a statement that, to the
best of the withholding agent's knowledge, the electronic Form W-8
was filed by the person whose name is on the form. The hard copy of
the electronic Form W-8 must provide exactly the same information
as, but need not be identical to, the paper Form W-8.

(c) Special requirements for transmission of Forms W-8 by an
intermediary. [Reserved]

* * * * *

(vii) Requirement of taxpayer identifying number. A TIN must be
stated on a withholding certificate when required by this paragraph
(e)(4)(vii). A TIN is required to be stated on--

(A) A withholding certificate on which a beneficial owner is
claiming the benefit of a reduced rate under an income tax treaty
(other than for amounts described in §1.1441- 6(c)(2);

(B) A withholding certificate on which a beneficial owner is
claiming exemption from withholding because income is effectively
connected with a U.S. trade or business;

(C) A withholding certificate on which a beneficial owner is
claiming exemption from withholding under section 871(f) for certain
annuities received under qualified plans;

(D) A withholding certificate on which a beneficial owner is
claiming an exemption based solely on a foreign organization's claim
of tax exempt status under section 501(c) or private foundation
status (however, a TIN is not required from a foreign private
foundation.126 that is subject to the 4-percent tax under section
4948(a) on income if that income would be exempt from withholding
but for section 4948(a) (e.g., portfolio interest));

(E) A withholding certificate from a person representing to be a
qualified intermediary described in paragraph (e)(5)(ii) of this
section;

(F) A withholding certificate from a person representing to be a
withholding foreign partnership described in §1.1441-5(c)(2)
(i));

(G) A withholding certificate from a person representing to be a
foreign grantor trust with 5 or fewer grantors;

(H) A withholding certificate provided by a foreign organization
that is described in section 501(c);

(I) A withholding certificate from a person representing to be a
U.S. branch described in paragraph (b)(2)(iv) of this section.

* * * * *

(ix) * * *

(A) * * *

(4) A withholding agent may rely on documentation furnished by a
beneficial owner or payee to an agent of the withholding agent. The
agent may retain the documentation as part of an information system
maintained for a single or multiple withholding agents provided that
the system permits any withholding agent that uses the system to
easily access data regarding the nature of the documentation, the
information contained in the documentation, and its validity, and
must allow the withholding agent to easily transmit data into the
system regarding any facts of which it becomes aware that may affect
the reliability of the documentation. The withholding agent must be
able to establish how and when it.127 has accessed the data
regarding the documentation and, if applicable, how and when it has
transmitted data regarding any facts of which it became aware that
may affect the reliability of the documentation. In addition, the
withholding agent must be able to establish that any data it has
transmitted to the information system has been processed and
appropriate due diligence has been exercised regarding the validity
of the documentation.

* * * * *

(C) Special rule for brokers--

(1) In general. A withholding agent may rely on the certification of
a broker that the broker holds a valid beneficial owner withholding
certificate described in paragraph (e)(2)(i) of this section or
other appropriate documentation for that beneficial owner with
respect to any readily tradable instrument, as defined in
§31.3406(h)-1( d) of this chapter, if the broker is a United
States person (including a U.S. branch treated as a U.S. person
under paragraph (b)(2)(iv) of this section) that is acting as the
agent of a beneficial owner and the U.S. broker has been provided a
valid Form W-8 or other appropriate documentation. The certification
must be in writing or in electronic form and contain all of the
information required of a nonqualified intermediary under paragraphs
(e)(3)(iv)(B) and (C) of this section. If a U.S. broker chooses to
use this paragraph (e)(4)(ix)(C), that U.S. broker will be solely
responsible for applying the rules of §1.1441- 7(b) to the
withholding certificates or other appropriate documentation. For
purposes of this paragraph (c)(4)(ix)(C), the term broker means a
person treated as a broker under §1.6045- 1(a).

(2) The following example illustrates the rules of this paragraph
(e)(4)(ix)(C): Example. SCO is a U.S. securities clearing
organization that provides clearing services for correspondent
broker, CB, a U.S. corporation. Pursuant to a fully disclosed
clearing agreement, CB fully discloses the identity of each of its
customers to SCO. Part of SCO's clearing duties include the
crediting of income and gross proceeds of readily.128 tradeable
instruments (as defined in §31.3406(h)-1(d)) to each customer's
account. For each disclosed customer that is a foreign beneficial
owner, CB provides SCO with information required under paragraphs
(e)(3)(iv)(B) and (C) of this section that is necessary to apply the
correct rate of withholding and to file Forms 1042-S. SCO may use
the representations and beneficial owner information provided by CB
to determine the proper amount of withholding and to file Forms
1042-S. CB is responsible for determining the validity of the
withholding certificates or other appropriate documentation under
§1.1441- 1(b).

* * * * *

(5) Qualified intermediaries--

(i) General rule. A qualified intermediary, as defined in paragraph
(e)(5)(ii) of this section, may furnish a qualified intermediary
withholding certificate to a withholding agent. The withholding
certificate provides certifications on behalf of other persons for
the purpose of claiming and verifying reduced rates of withholding
under section 1441 or 1442 and for the purpose of reporting and
withholding under other provisions of the Internal Revenue Code,
such as the provisions under chapter 61 and section 3406 (and the
regulations under those provisions). Furnishing such a certificate
is in lieu of transmitting to a withholding agent withholding
certificates or other appropriate documentation for the persons for
whom the qualified intermediary receives the payment, including
interest holders in a qualified intermediary that is fiscally
transparent under the regulations under section 894. Although the
qualified intermediary is required to obtain withholding
certificates or other appropriate documentation from beneficial
owners, payees, or interest holders pursuant to its agreement with
the IRS, it is generally not required to attach such documentation
to the intermediary withholding certificate. Notwithstanding the
preceding sentence a qualified intermediary must provide a
withholding agent with the Forms W-9, or disclose the names,
addresses, and taxpayer identifying numbers, if known, of those U.S.
non-exempt recipients for whom the qualified intermediary receives
reportable amounts (within the meaning of paragraph (e)(3)(vi) of
this section) to.129 the extent required in the qualified
intermediary's agreement with the IRS. A person may claim qualified
intermediary status before an agreement is executed with the IRS if
it has applied for such status and the IRS authorizes such status on
an interim basis under such procedures as the IRS may prescribe.

* * * * *

(iii) Withholding agreement--(A) In general. The IRS may, upon
request, enter into a withholding agreement with a foreign person
described in paragraph (e)(5)(ii) of this section pursuant to such
procedures as the IRS may prescribe in published guidance (see
§601.601(d)(2) of this chapter). Under the withholding
agreement, a qualified intermediary shall generally be subject to
the applicable withholding and reporting provisions applicable to
withholding agents and payors under chapters 3 and 61 of the
Internal Revenue Code, section 3406, the regulations under those
provisions, and other withholding provisions of the Internal Revenue
Code, except to the extent provided under the agreement.

(b) Terms of the withholding agreement. Generally, the agreement
shall specify the type of certifications and documentation upon
which the qualified intermediary may rely to ascertain the
classification (e.g., corporation or partnership) and status (i.e.,
U.S. or foreign) of beneficial owners and payees who receive
payments collected by the qualified intermediary and, if necessary,
entitlement to the benefits of a reduced rate under an income tax
treaty. The agreement shall specify if, and to what extent, the
qualified intermediary may assume primary withholding responsibility
in accordance with paragraph (e)(5)(iv) of this section. It shall
also specify the extent to which applicable return filing and
information reporting requirements are modified so that, in
appropriate cases, the qualified intermediary may report payments to
the IRS on an aggregated basis, without having to.130 disclose the
identity of beneficial owners and payees. However, the qualified
intermediary may be required to provide to the IRS the name and
address of those foreign customers who benefit from a reduced rate
under an income tax treaty pursuant to the qualified intermediary
arrangement for purposes of verifying entitlement to such benefits,
particularly under an applicable limitation on benefits provision.
Under the agreement, a qualified intermediary may agree to act as an
acceptance agent to perform the duties described in
§301.6109-1(d)(3)(iv)(A) of this chapter. The agreement may
specify the manner in which applicable procedures for adjustments
for underwithholding and overwithholding, including refund
procedures, apply in the context of a qualified intermediary
arrangement and the extent to which applicable procedures may be
modified. In particular, a withholding agreement may allow a
qualified intermediary to claim refunds of overwithheld amounts. If
relevant, the agreement shall specify the manner in which the
qualified intermediary may deal with payments to other
intermediaries and flow-through entities. In addition, the agreement
shall specify the manner in which the IRS will verify compliance
with the agreement. In appropriate cases, the IRS may agree to rely
on audits performed by an intermediary's approved auditor. In such a
case, the IRS's audit may be limited to the audit of the auditor's
records (including work papers of the auditor and reports prepared
by the auditor indicating the methodology employed to verify the
entity's compliance with the agreement). For this purpose, the
agreement shall specify the auditor or class of auditors that are
approved. Generally, an auditor will not be approved if the auditor
is not subject to laws, regulations, or rules that impose sanctions
for failure to exercise its independence and to perform the audit
competently. The agreement may include provisions for the assessment
and collection of tax in the event that failure to comply with the
terms of the.131 agreement results in the failure by the withholding
agent or the qualified intermediary to withhold and deposit the
required amount of tax. Further, the agreement may specify the
procedures by which deposits of amounts withheld are to be
deposited, if different from the deposit procedures under the
Internal Revenue Code and applicable regulations. To determine
whether to enter a qualified intermediary withholding agreement and
the terms of any particular withholding agreement, the IRS will
consider appropriate factors including whether or not the foreign
person agrees to assume primary withholding responsibility, the type
of local know-your-customer laws and practices to which it is
subject, the extent and nature of supervisory and regulatory control
exercised under the laws of the foreign country over the foreign
person, the volume of investments in U.S. securities (determined in
dollar amounts and number of account holders), the financial
condition of the foreign person, and whether the qualified
intermediary is a resident of a country with which the United States
has an income tax treaty.

(iv) Assignment of primary withholding responsibility. Any person
who meets the definition of a withholding agent under
§1.1441-7(a) (whether a U.S. person or a foreign person) is
required to withhold and deposit any amount withheld under
§1.1461-1(a) and to make the returns prescribed by
§1.1461-1(b) and (c). If permitted by its qualified
intermediary agreement, a qualified intermediary agreement may,
however, inform a withholding agent from which it receives a payment
that it will assume the primary obligation to withhold, deposit, and
report amounts under chapter 3 of the Internal Revenue Code and/or
under chapter 61 of the Internal Revenue Code and section 3406. If a
withholding agent makes a payment of an amount subject to
withholding, as defined in §1.1441-2(a), or a reportable
payment, as defined in section 3406(b), to a qualified intermediary
that.132 represents to the withholding agent that it has assumed
primary withholding responsibility for the payment, the withholding
agent is not required to withhold on the payment. The withholding
agent is not required to determine that the qualified intermediary
agreement actually permits the qualified intermediary to assume
primary withholding responsibility. A qualified intermediary that
assumes primary withholding responsibility under chapter 3 of the
Internal Revenue Code or primary reporting and backup withholding
responsibility under chapter 61 and section 3406 is not required to
assume primary withholding responsibility for all accounts it has
with a withholding agent but must assume primary withholding
responsibility for all payments made to any one account that it has
with the withholding agent. A qualified intermediary may agree with
the withholding agent to assume primary withholding responsibility
under chapter 3 and section 3406, only if expressly permitted to do
so under its agreement with the IRS.

(v) Withholding statement--(A) In general. A qualified intermediary
must provide each withholding agent from which it receives
reportable amounts, as defined in paragraph (e)(3)(vi) of this
section, as a qualified intermediary with a written statement (the
withholding statement) containing the information specified in
paragraph (e)(5)(v)(B) of this section. A withholding statement is
not required, however, if all of the information a withholding agent
needs to fulfill its withholding and reporting requirements is
contained in the withholding certificate. The qualified intermediary
agreement may require, in appropriate circumstances, the qualified
intermediary to include information in its withholding statement
relating to payments other than payments of reportable amounts. The
withholding statement forms an integral part of the qualified
intermediary's qualified intermediary withholding certificate and
the penalties of perjury statement provided on the withholding.133
certificate shall apply to the withholding statement as well. The
withholding statement may be provided in any manner, and in any
form, to which qualified intermediary and the withholding agent
mutually agree, including electronically. If the withholding
statement is provided electronically, there must be sufficient
safeguards to ensure that the information received by the
withholding agent is the information sent by qualified intermediary
and must also document all occasions of user access that result in
the submission or modification of withholding statement information.
In addition, the electronic system must be capable of providing a
hard copy of all withholding statements provided by the qualified
intermediary. The withholding statement shall be updated as often as
necessary for the withholding agent to meet its reporting and
withholding obligations under chapters 3 and 61 of the Internal
Revenue Code and section 3406. A withholding agent will be liable
for tax, interest, and penalties in accordance with paragraph (b)(7)
of this section to the extent it does not follow the presumption
rules of paragraph (b)(3) of this section, §§1.1441-5(d)
and (e)(6), and 1.6049-5(d) for any payment, or portion thereof, for
which it does not have a valid withholding statement prior to making
a payment.

(b) Content of withholding statement. The withholding statement must
contain sufficient information for a withholding agent to apply the
correct rate of withholding on payments from the accounts identified
on the statement and to properly report such payments on Forms 1042-
S and Forms 1099, as applicable. The withholding statement must--

(1) Designate those accounts for which the qualified intermediary
acts as a qualified intermediary;.134

(2) Designate those accounts for which qualified intermediary
assumes primary withholding responsibility under chapter 3 of the
Internal Revenue Code and/or primary reporting and backup
withholding responsibility under chapter 61 and section 3406; and

(3) Provide information regarding withholding rate pools, as
described in paragraph

(e)(5)(v)(C) of this section.

(c) Withholding rate pools--

(1) In general. Except to the extent it has assumed both primary
withholding responsibility under chapter 3 of the Internal Revenue
Code and primary reporting and backup withholding responsibility
under chapter 61 and section 3406 with respect to a payment, a
qualified intermediary shall provide as part of its withholding
statement the withholding rate pool information that is required for
the withholding agent to meet its withholding and reporting
obligations under chapters 3 and 61 of the Internal Revenue Code and
section 3406. 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 or Form 1099, as applicable, that is subject
to a single rate of withholding. A withholding rate pool may be
established by any reasonable method on which the qualified
intermediary and a withholding agent agree (e.g., by establishing a
separate account for a single withholding rate pool, or by dividing
a payment made to a single account into portions allocable to each
withholding rate pool). To the extent a qualified intermediary does
not assume primary reporting and backup withholding responsibility
under chapter 61 and section 3406, a qualified intermediary's
withholding statement must establish a separate withholding rate
pool for each U.S. non-exempt recipient account holder that the
qualified intermediary has disclosed to the withholding agent unless
the qualified intermediary uses the alternative procedures in
paragraph (e)(5)(v)(C)(2) of this section. A qualified.135
intermediary shall determine withholding rate pools based on valid
documentation that it obtains under its withholding agreement with
the IRS, or if a payment cannot be reliably associated with valid
documentation, under the applicable presumption rules. If a
qualified intermediary has an account holder that is another
intermediary (whether a qualified intermediary or a nonqualified
intermediary) or a flow-through entity, the qualified intermediary
may combine the account holder information provided by the
intermediary or flow-through entity with the qualified
intermediary's direct account holder information to determine the
qualified intermediary's withholding rate pools.

(2) Alternative procedure for U.S. non-exempt recipients. If
permitted under its agreement with the IRS, a qualified intermediary
may, by mutual agreement with a withholding agent, establish a
single zero withholding rate pool that includes U.S. non-exempt
recipient account holders for whom the qualified intermediary has
provided Forms W-9 prior to the withholding agent paying any
reportable payments, as defined in the qualified intermediary
agreement, and a separate withholding rate pool (subject to 31-
percent withholding) that includes only U.S. non-exempt recipient
account holders for whom a qualified intermediary has not provided
Forms W-9 prior to the withholding agent paying any reportable
payments. If a qualified intermediary chooses the alternative
procedure of this paragraph (e)(5)(v)(C)(2), the qualified
intermediary must provide the information required by its qualified
intermediary agreement to the withholding agent no later than
January 15 of the year following the year in which the payments are
paid. Failure to provide such information will result in the
application of penalties to the qualified intermediary under
sections 6721 and 6722, as well as any other applicable penalties,
and may result in the termination of the qualified intermediary's
withholding agreement with the.136 IRS. A withholding agent shall
not be liable for tax, interest, or penalties for failure to backup
withhold or report information under chapter 61 of the Internal
Revenue Code due to solely to the errors or omissions of the
qualified intermediary. If a qualified intermediary fails to provide
the allocation information required by this paragraph (e)(5)(v)(C)
(2), with respect to U.S. non-exempt recipients, the withholding
agent shall report the unallocated amount paid from the withholding
rate pool to an unknown recipient, or otherwise in accordance with
the appropriate Form 1099 and the instructions accompanying the
form.

* * * * *

Par 4. Effective January 1, 2001, §1.1441-2 is amended by:

1. Revising paragraph (a).

2. Revising paragraph (b)(1)(i).

3. Removing paragraph (b)(2)(ii), redesignating paragraph (b)(2)
(iii) as paragraph (b)(2)(ii), and adding the word "and" after the
semicolon in paragraph (b)(2)(i).

4. Revising paragraph (b)(3).

The revisions read as follows:

§1.1441-2 Amounts subject to withholding.

(a) In general. For purposes of the regulations under chapter 3 of
the Internal Revenue Code, the term amounts subject to withholding
means amounts from sources within the United States that constitute
either fixed or determinable annual or periodical income described
in paragraph (b) of this section or other amounts subject to
withholding described in paragraph (c) of this section. For purposes
of this paragraph (a), an amount shall be treated as being from
sources within the United States if the source of the amount cannot
be determined at the time of payment. See §1.1441-3(d)(1) for
determining the.137 amount to be withheld from a payment in the
absence of information at the time of payment regarding the source
of the amount. Amounts subject to withholding include amounts that
are not fixed or determinable annual or periodical income and upon
which withholding is specifically required under a provision of this
section or another section of the regulations under chapter 3 of the
Internal Revenue Code (such as corporate distributions upon which
withholding is required under §1.1441-3(c)(1) that do not
constitute dividend income). Amounts subject to withholding do not
include--

(1) Amounts described in §1.1441-1(b)(4)(i) to the extent they
involve interest on obligations in bearer form or on foreign-
targeted registered obligations (but, in the case of a foreign-
targeted registered obligation, only to the extent of those amounts
paid to a registered owner that is a financial institution within
the meaning of section 871(h)(5)(B) or a member of a clearing
organization which member is the beneficial owner of the
obligation);

(2) Amounts described in §1.1441-1(b)(4)(ii) (dealing with bank
deposit interest and similar types of interest (including original
issue discount) described in section 871(i)(2)(A) or 881(d));

(3) Amounts described in §1.1441-1(b)(4)(iv) (dealing with
interest or original issue discount on certain short-term
obligations described in section 871(g)(1)(B) or 881(e));

(4) Amounts described in §1.1441-1(b)(4)(xx) (dealing with
income from certain gambling winnings exempt from tax under section
871(j));

(5) Amounts paid as part of the purchase price of an obligation sold
or exchanged between interest payment dates, unless the sale or
exchange is part of a plan the principal.138 purpose of which is to
avoid tax and the withholding agent has actual knowledge or reason
to know of such plan;

(6) Original issue discount paid as part of the purchase price of an
obligation sold or exchanged in a transaction other than a
redemption of such obligation, unless the purchase is part of a plan
the principal purpose of which is to avoid tax and the withholding
agent has actual knowledge or reason to know of such plan; and

(7) Insurance premiums paid with respect to a contract that is
subject to the section 4371 excise tax.

(b) Fixed or determinable annual or periodical income--(1) In
general--

(i) Definition.

For purposes of chapter 3 of the Internal Revenue Code and the
regulations thereunder, fixed or determinable annual or periodical
income includes all income included in gross income under section 61
(including original issue discount) except for the items specified
in paragraph (b)(2) of this section. Items of income that are
excluded from gross income under a provision of law without regard
to the U.S. or foreign status of the owner of the income, such as
interest excluded from gross income under section 103(a) or
qualified scholarship income under section 117, shall not be treated
as fixed or determinable annual or periodical income under chapter 3
of the Internal Revenue Code. Income excluded from gross income
under section 892 (income of foreign governments) or section 115
(income of a U.S. possession) is fixed or determinable annual or
periodical income since the exclusion from gross income under those
sections is dependent on the foreign status of the owner of the
income. See §1.306-3(h) for treating income from the
disposition of section 306 stock as fixed or determinable annual or
periodical income.

* * * * *

(3) Original issue discount--

(i) Amount subject to tax. An amount representing original issue
discount is fixed or determinable annual or periodical income that
is subject to tax under sections 871(a)(1)(C) and 881(a)(3) to the
extent provided in those sections and this paragraph (b)(3) if not
otherwise excluded under paragraph (a) of this section. An amount of
original issue discount is subject to tax with respect to a foreign
beneficial owner of an obligation carrying original issue discount
upon a sale or exchange of the obligation or when a payment is made
on such obligation. The amount taxable is the amount of original
issue discount that accrued while the foreign person held the
obligation up to the time that the obligation is sold or exchanged
or that a payment is made on the obligation, reduced by any amount
of original issue discount that was taken into account prior to that
time (due to a payment made on the obligation). In the case of a
payment made on the obligation, the tax due on the amount of
original issue discount may not exceed the amount of the payment
reduced by the tax imposed on any portion of the payment that is
qualified stated interest.

(ii) Amounts subject to withholding. A withholding agent must
withhold on the taxable amount of original issue discount paid on
the redemption of an original issue discount obligation unless an
exception to withholding applies (e.g., portfolio interest or treaty
exception). In addition, withholding is required on the taxable
amount of original issue discount upon the sale or exchange of an
original issue discount obligation, other than in a redemption, to
the extent the withholding agent has actual knowledge or reason to
know that the sale or exchange is part of a plan the principal
purpose of which is to avoid tax. If a withholding agent cannot
determine the taxable amount of original issue discount on the
redemption of an original issue discount obligation (or on the sale
or exchange of such.140 an obligation if the principal purpose of
the sale is to avoid tax), then it must withhold on the entire
amount of original issue discount accrued from the date of issue
until the date of redemption (or the date the obligation is sold or
exchanged) determined on the basis of the most recently published
"List of Original Issue Discount Instruments" (IRS Publication 1212,
available from the IRS Forms Distribution Center) or similar list
published by the IRS as if the beneficial owner of the obligation
had held the obligation since its original issue.

(iii) Exceptions to withholding. To the extent that this paragraph
(b)(3) applies to require withholding by a person other than an
issuer of an original issue discount obligation, or the issuer's
agent, it shall apply only to obligations issued after December 31,
2000.

* * * * *

Par. 5. Effective January 1, 2001, §1.1441-3 is amended by:

1. Revising paragraph (b)(2)(i).

2. Revising paragraph (c)(1).

3. Revising paragraph (c)(4)(i)(C).

The revisions read as follows: §1.1441-3 Determination of
amounts to be withheld.

* * * * *

(b) * * *

(2) No withholding between interest payment dates--

(i) In general. A withholding agent is not required to withhold
under §1.1441-1 upon interest accrued on the date of a sale or
exchange of a debt obligation when that sale occurs between two
interest payment dates (even though the amount is treated as
interest under §1.61-7(c) or (d) and is subject to tax under
section 871 or 881). See §1.6045-1(c) for reporting
requirements by brokers with respect to sale proceeds. See
§1.61-7(c) regarding the character of payments received by the
acquirer of an obligation subsequent to such acquisition (that is,
as a return of capital or interest accrued after the acquisition).
Any exemption from withholding pursuant to this paragraph (b)(2)(i)
applies without a requirement that documentation be furnished to the
withholding agent. However, documentation may have to be furnished
for purposes of the information reporting provisions under section
6045 or 6049 and backup withholding under section 3406. The
exemption from withholding granted by this paragraph

(b)(2) is not a determination that the accrued interest is not fixed
or determinable annual or periodical income under section 871(a) or
881(a).

* * * * *

(c) Corporate distributions--(1) General rule. A corporation making
a distribution with respect to its stock or any intermediary
(described in §1.1441-1(c)(13)) making a payment of such a
distribution is required to withhold under section 1441, 1442, or
1443 on the entire amount of the distribution, unless it elects to
reduce the amount of withholding under the provisions of this
paragraph (c). Any exceptions from withholding provided by this
paragraph (c) apply without any requirement to furnish documentation
to the withholding agent. However, documentation may have to be
furnished for purposes of the information reporting provisions under
section 6042 or 6045 and backup withholding under section 3406. See
§1.1461-1(c) to determine whether amounts excepted from
withholding under this section are considered amounts that are
subject to reporting.

* * * * *

(4) * * *

(i) * * *

(C) Coordination with REIT withholding. Withholding is required
under section 1441 (or 1442 or 1443) on the portion of a
distribution from a REIT that is not designated as a capital gain
dividend, a return of basis, or a distribution in excess of a
shareholder's adjusted basis in the stock of the REIT that is
treated as a capital gain under section 301(c)(3). A distribution in
excess of a shareholder's adjusted basis in the stock of the REIT
is, however, subject to withholding under section 1445, unless the
interest in the REIT is not a U.S. real property interest (e.g., an
interest in a domestically controlled REIT under.142 section 897(h)
(2)). In addition, withholding is required under section 1445 on the
portion of the distribution designated by a REIT as a capital gain
dividend. See §1.1445-8. * * * * * Par. 6. Effective January 1,
2001, §1.1441-4 is amended by:

1. Revising paragraph (a)(3)(i).

2. Revising paragraph (b)(1)(ii).

The revisions read as follows:

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

(a) * * *

(3) Income on notional principal contracts--

(i) General rule. A withholding agent that pays amounts attributable
to a notional principal contract described in §1.863-7(a) or
1.988- 2(e) shall have no obligation to withhold on the amounts paid
under the terms of the notional principal contract regardless of
whether a withholding certificate is provided. However, a
withholding agent must file returns under §1.1461-1(b) and (c)
reporting the income that it must treat as effectively connected
with the conduct of a trade or business in the United States under
the provisions of this paragraph (a)(3). Except as otherwise
provided in paragraph (a)(3)(ii) of this section, a withholding
agent must treat the income as effectively connected with the
conduct of a U.S. trade or business if the income is paid to, or to
the account of, a qualified business unit of a foreign person
located in the United States or, if the payment is paid to, or to
the account of, a qualified business unit of a foreign person
located outside the United States, the withholding agent knows, or
has reason to know, the payment is effectively connected with the
conduct of a trade or.143 business within the United States. Income
on a notional principal contract does not include the amount
characterized as interest under the provisions of §1.446-3(g)
(4).

* * * * *

(b) * * *

(1) * * *

(ii) Such compensation would be subject to withholding under section
3402 but for the provisions of section 3401(a) (not including
section 3401(a)(6)) and the regulations under that section. This
paragraph (b)(1)(ii) does not apply to payments to a nonresident
alien individual from any trust described in section 401(a), any
annuity plan described in section 403(a), any annuity, custodial
account, or retirement income account described in section 403(b),
or an individual retirement account or individual retirement annuity
described in section 408. Instead, these payments are subject to
withholding under this section to the extent they are exempted from
the definition of wages under section 3401(a)(12) or to the extent
they are from an annuity, custodial account, or retirement income
account described in section 403(b), or an individual retirement
account or individual retirement annuity described in section 408.
Thus, for example, payments to a nonresident alien individual from a
trust described in section 401(a) are subject to withholding under
section 1441 and not under section 3405 or section 3406.

* * * * *

Par. 7. Effective January 1, 2001, in §1.1441-5 paragraphs (a)
through (e) are revised to read as follows:.144 §1.1441-5
Withholding on payments to partnerships, trusts, and estates.

(a) In general. This section describes the rules that apply to
payments made to partnerships, trusts, and estates. Paragraph (b) of
this section prescribes the rules that apply to a withholding agent
making a payment to a U.S. partnership, trust, or estate. It also
prescribes the obligations of a U.S. partnership, trust, or estate
that makes a payment to a foreign partner, beneficiary, or owner.
Paragraph (c) of this section prescribes rules that apply to a
withholding agent that makes a payment to a foreign partnership.
Paragraph (d) of this section provides presumption rules that apply
to payments made to foreign partnerships. Paragraph (e) of this
section prescribes rules, including presumption rules, that apply to
a withholding agent that makes a payment to a foreign trust or
foreign estate.

(b) Rules applicable to U.S. partnerships, trusts, and estates--(1)
Payments to U.S. partnerships, trusts, and estates. No withholding
is required under section 1.1441-1(b)(1) on a payment of an amount
subject to withholding (as defined in §1.1441-2(a)) that a
withholding agent may treat as made to a U.S. payee. Therefore, if a
withholding agent can reliably associate (within the meaning of
§1.1441-2(b)(vii)) a Form W-9 provided in accordance with
§1.1441-1(d)(2) or (4) by a U.S. partnership, U.S. trust, or a
U.S. estate the withholding agent may treat the payment as made to a
U.S. payee and the payment is not subject to withholding under
section 1441 even though the partnership, trust, or estate may have
foreign partners, beneficiaries, or owners. A withholding agent is
also not required to withhold under section 1441 on a payment it
makes to an entity presumed to be a U.S. payee under paragraphs (d)
(2) and (e)(6)(ii) of this section..145 (2) Withholding by U.S.
payees--

(i) U.S. partnerships--(A) In general. A U.S. partnership is
required to withhold under §1.1441-1 as a withholding agent on
an amount subject to withholding (as defined in §1.1441-2(a))
that is includible in the gross income of a partner that is a
foreign person. Subject to paragraph (b)(2)(v) of this section, a
U.S. partnership shall withhold when any distributions that include
amounts subject to withholding (including guaranteed payments made
by a U.S. partnership) are made. To the extent a foreign partner's
distributive share of income subject to withholding has not actually
been distributed to the foreign partner, the U.S. partnership must
withhold on the foreign partner's distributive share of the income
on the earlier of the date that the statement required under section
6031(b) is mailed or otherwise provided to the partner or the due
date for furnishing the statement.

(b) Effectively connected income of partners. Withholding on items
of income that are effectively connected income in the hands of the
partners who are foreign persons is governed by section 1446 and not
by this section. In such a case, partners in a domestic partnership
are not required to furnish a withholding certificate in order to
claim an exemption from withholding under section 1441(c)(1) and
§1.1441-4.

(ii) U.S. simple trusts. A U.S. trust that is described in section
651(a) (a U.S. simple trust) is required to withhold under chapter 3
of the Internal Revenue Code as a withholding agent on the
distributable net income includible in the gross income of a foreign
beneficiary to the extent the distributable net income is an amount
subject to withholding (as defined in §1.1441-2(a)). A U.S.
simple trust shall withhold when a distribution is made to a foreign
beneficiary. The U.S. trust may make a reasonable estimate of the
portion of the.146 distribution that constitutes distributable net
income consisting of an amount subject to withholding and apply the
appropriate rate of withholding to the estimated amount. If, at the
end of the taxable year in which the distribution is made, the U.S.
simple trust determines that it underwithheld under section 1441 or
1442, the trust shall be liable as a withholding agent for the
amount under withheld under section 1461. No penalties shall be
imposed for failure to withhold and deposit the tax if the U.S.
simple trust's estimate was reasonable and the trust pays the
underwithheld amount on or before the due date of Form 1042 under
section 1461. Any payment of underwithheld amounts by the U.S.
simple trust shall not be treated as income subject to additional
withholding even if that amount is treated as additional income to
the foreign beneficiary, unless the additional amount is income to
the foreign beneficiary as a result of a contractual arrangement
between the parties regarding the satisfaction of the foreign
beneficiary's tax liability. To the extent a U.S. simple trust is
required to, but does not, distribute such income to a foreign
beneficiary, the U.S. trust must withhold on the foreign
beneficiary's allocable share at the time the income is required
(without extension) to be reported on Form 1042-S under
§1.1461-1(c).

(iii) U.S. complex trusts and U.S. estates. A U.S. trust that is not
a trust described in section 651(a) (a U.S. complex trust) is
required to withhold under chapter 3 of the Internal Revenue Code as
a withholding agent on the distributable net income includible in
the gross income of a foreign beneficiary to the extent the
distributable net income consists of an amount subject to
withholding (as defined in §1.1441-2(a)) that is, or is
required to be, distributed currently. The U.S. complex trust shall
withhold when a distribution is made to a foreign beneficiary. The
trust may use the same procedures.147 regarding an estimate of the
amount subject to withholding as a U.S. simple trust under paragraph
(b)(2)(ii) of this section. To the extent an amount subject to
withholding is required to be, but is not actually distributed, the
U.S. complex trust must withhold on the foreign beneficiary's
allocable share at the time the income is required to be reported on
Form 1042-S under §1.1461-1(c), without extension. A U.S.
estate is required to withhold under chapter 3 of the Internal
Revenue Code on the distributable net income includible in the gross
income of a foreign beneficiary to the extent the distributable net
income consists of an amount subject to withholding (as defined in
§1.1441-2(a)) that is actually distributed. A U.S. estate may
also use the reasonable estimate procedures of paragraph (b)(2)(ii)
of this section. However, those procedures apply to an estate that
has a taxable year other than a calendar year only if the estate
files an amended return on Form 1042 for the calendar year in which
the distribution was made and pays the underwithheld tax and
interest within 60 days after the close of the taxable year in which
the distribution was made.

(iv) U.S. grantor trusts. A U.S. trust that is described in section
671 through 679 (a U.S. grantor trust) must withhold on any income
includible in the gross income of a foreign person that is treated
as an owner of the grantor trust to the extent the amount includible
consists of an amount that is subject to withholding (as described
in §1.1441-2(a)). The withholding must occur at the time the
income is received by, or credited to, the trust.

(v) Subsequent distribution. If a U.S. partnership or U.S. trust
withholds on a foreign partner, beneficiary, or owner's share of an
amount subject to withholding before the.148 amount is actually
distributed to the partner, beneficiary, or owner, withholding is
not required when the amount is subsequently distributed.

(c) Foreign partnerships--(1) Determination of payee--

(i) Payments treated as made to partners. Except as otherwise
provided in paragraph (c)(1)(ii) of this section, the payees of a
payment to a person that the withholding agent may treat as a
nonwithholding foreign partnership under paragraph (c)(3)(i) or (d)
(2) of this section are the partners (looking through partners that
are foreign intermediaries or flow-through entities) as follows--

(A) If the withholding agent can reliably associate a partner's
distributive share of the payment with a valid Form W-9 provided
under §1.1441-1(d), the partner is a U.S. payee;

(B) If the withholding agent can reliably associate a partner's
distributive share of the payment with a valid Form W-8, or other
appropriate documentation, provided under §1.1441-1(e)(1)(ii),
the partner is a payee that is a foreign beneficial owner;

(C) If the withholding agent can reliably associate a partner's
distributive share of the payment with a qualified intermediary
withholding certificate under §1.1441-1(e)(3)(ii), a
nonqualified intermediary withholding certificate under
§1.1441-1(e)(3)(iii), or a U.S. branch certificate under
§1.1441-1(e)(3)(v), then the rules of §1.1441-1(b)(2)(v)
shall apply to determine who the payee is in the same manner as if
the partner's distributive share of the payment had been paid
directly to such intermediary or U.S. branch;

(D) If the withholding agent can reliably associate the partner's
distributive share with a withholding foreign partnership
certificate under paragraph (c)(2)(iv) of this section or a
nonwithholding foreign partnership certificate under paragraph (c)
(3)(iii) of this section, then.149 the rules of this paragraph (c)
(1)(i) or paragraph (c)(1)(ii) of this section shall apply to
determine whether the payment is treated as made to the partners of
the higher-tier partnership under this paragraph (c)(1)(i) or to the
higher-tier partnership itself (under the rules of paragraph (c)(1)
(ii) of this section) in the same manner as if the partner's
distributive share of the payment had been paid directly to the
higher-tier foreign partnership;

(E) If the withholding agent can reliably associate the partner's
distributive share with a withholding certificate described in
paragraph (e) of this section regarding a foreign trust or estate,
then the rules of paragraph (e) of this section shall apply to
determine who the payees are; and

(F) If the withholding agent cannot reliably associate the partner's
distributive share with a withholding certificate or other
appropriate documentation, the partners are considered to be the
payees and the presumptions described in paragraph (d)(3) of this
section shall apply to determine their classification and status.

(ii) Payments treated as made to the partnership. A payment to a
person that the withholding agent may treat as a foreign partnership
is treated as a payment to the foreign partnership and not to its
partners only if--

(A) The withholding agent can reliably associate the payment with a
withholding certificate described in paragraph (c)(2)(iv) of this
section (withholding certificate of a withholding foreign
partnership);.150

(B) The withholding agent can reliably associate the payment with a
withholding certificate described in paragraph (c)(3)(iii) of this
section (nonwithholding foreign partnership) certifying that the
payment is income that is effectively connected with the conduct of
a trade or business in the United States; or

(C) The withholding agent can treat the income as effectively
connected income under the presumption rules of §1.1441-4(a)(2)
(ii) or (3)(i).

(iii) Rules for reliably associating a payment with documentation.
For rules regarding the reliable association of a payment with
documentation, see §1.1441-1(b)(2)(vii). In the absence of
documentation, see §§1.1441-1(b)(3) and 1.6049-5(d) and
paragraphs (d) and (e)(6) of this section for applicable
presumptions.

(iv) Examples. The rules of paragraphs (c)(1)(i) and (ii) of this
section are illustrated by the following examples: Example 1. FP is
a nonwithholding foreign partnership organized in Country X. FP has
two partners, FC, a foreign corporation, and USP, a U.S.
partnership. USWH, a U.S. withholding agent, makes a payment of U.S.
source interest to FP. FP has provided USWH with a valid
nonwithholding foreign partnership certificate, as described in
paragraph (c)(3)(iii) of this section, with which it associates a
beneficial owner withholding certificate from FC and a Form W-9 from
USP together with the withholding statement required by paragraph
(c)(3)(iv) of this section. USWH can reliably associate the payment
of interest with the withholding certificates from FC and USP. Under
paragraph (c)(1)(i) of this section, the payees of the interest
payment are FC and USP.

Example 2. The facts are the same as in Example 1, except that FP1,
a nonwithholding foreign partnership, is a partner in FP rather than
USP. FP1 has two partners, A and B, both foreign persons. FP
provides USWH with a valid nonwithholding foreign partnership
certificate, as described in paragraph (c)(3)(iii) of this section,
with which it associates a beneficial owner withholding certificate
from FC and a nonwithholding foreign partnership certificate from
FP1. In addition, foreign beneficial owner withholding certificates
from A and B are associated with the nonwithholding foreign
partnership withholding certificate from FP1. FP also provides the
withholding statement required by.151 paragraph (c)(3)(iv) of this
section. USWH can reliably associate the interest payment with the
withholding certificates provided by FC, A, and B. Therefore, under
paragraph (c)(1)(i) of this section, the payees of the interest
payment are FC, A, and B.

Example 3. USWH makes a payment of U.S. source dividends to WFP, a
withholding foreign partnership. WFP has two partners, FC1 and FC2,
both foreign corporations. USWH can reliably associate the payment
with a valid withholding foreign partnership withholding certificate
from WFP. Therefore, under paragraph (c)(1)(ii)(A) of this section,
WFP is the payee of the dividends.

Example 4. USWH makes a payment of U.S. source royalties to FP, a
foreign partnership. USWH can reliably associate the royalties with
a valid withholding certificate from FP on which FP certifies that
the income is effectively connected with the conduct of a trade or
business in the United States. Therefore, under paragraph (c)(1)(ii)
(B) of this section, FP is the payee of the royalties.

(2) Withholding foreign partnerships--

(i) Reliance on claim of withholding foreign partnership status. A
withholding foreign partnership is a foreign partnership that has
entered into an agreement with the Internal Revenue Service (IRS),
as described in paragraph (c)(2)(ii) of this section, with respect
to distributions and guaranteed payments it makes to its partners. A
withholding agent that can reliably associate a payment with a
certificate described in paragraph (c)(2)(iv) of this section may
treat the person to whom it makes the payment as a withholding
foreign partnership for purposes of withholding under chapter 3 of
the Internal Revenue Code, information reporting under chapter 61 of
the Internal Revenue Code, backup withholding under section 3406,
and withholding under other provisions of the Internal Revenue Code.
Furnishing such a certificate is in lieu of transmitting to a
withholding agent withholding certificates or other appropriate
documentation for its partners. Although the withholding foreign
partnership generally will be required to obtain withholding
certificates or other appropriate documentation from its partners
pursuant to its agreement with the IRS, it will generally not be
required to attach such documentation to its withholding foreign
partnership withholding certificate. A foreign.152 partnership may
act as a qualified intermediary under §1.1441-1(e)(5) with
respect to payments it makes to persons other than its partners. In
addition, the IRS may permit a foreign partnership to act as a
qualified intermediary under §1.1441-1(e)(5)(ii)(D) with
respect to its partners in appropriate circumstances.

(ii) Withholding agreement. The IRS may, upon request, enter into a
withholding agreement with a foreign partnership pursuant to such
procedures as the IRS may prescribe in published guidance (see
§601.601(d)(2) of this chapter). Under the withholding
agreement, a foreign partnership shall generally be subject to the
applicable withholding and reporting provisions applicable to
withholding agents and payors under chapters 3 and 61 of the
Internal Revenue Code, section 3406, the regulations under those
provisions, and other withholding provisions of the Internal Revenue
Code, except to the extent provided under the agreement. Under the
agreement, a foreign partnership may agree to act as an acceptance
agent to perform the duties described in §301.6109- 1(d)(3)(iv)
(A) of this chapter. The agreement may specify the manner in which
applicable procedures for adjustments for underwithholding and
overwithholding, including refund procedures, apply to the
withholding foreign partnership and its partners and the extent to
which applicable procedures may be modified. In particular, a
withholding agreement may allow a withholding foreign partnership to
claim refunds of overwithheld amounts on behalf of its customers. In
addition, the agreement must specify the manner in which the IRS
will audit the foreign partnership's books and records in order to
verify the partnership's compliance with its agreement. A
withholding foreign partnership must file a return on Form 1042 and
information returns on Form 1042-S. The withholding foreign
partnership.153 agreement may also require a withholding foreign
partnership to file a partnership return under section 6031(a) and
partner statements under 6031(b).

(iii) Withholding responsibility. A withholding foreign partnership
must assume primary withholding responsibility under chapter 3 of
the Internal Revenue Code. It is not required to provide information
to the withholding agent regarding each partner's distributive share
of the payment. The withholding foreign partnership will be
responsible for reporting the payments under §1.1461-1(c) and
chapter 61 of the Internal Revenue Code. A withholding agent making
a payment to a withholding foreign partnership is not required to
withhold any amount under chapter 3 of the Internal Revenue Code on
a payment to the withholding foreign partnership, unless it has
actual knowledge or reason to know that the foreign partnership is
not a withholding foreign partnership. The withholding foreign
partnership shall withhold the payments under the same procedures
and at the same time as prescribed for withholding by a U.S.
partnership under paragraph (b)(2) of this section, except that, for
purposes of determining the partner's status, the provisions of
paragraph (d)(4) of this section shall apply.

(iv) Withholding certificate from a withholding foreign partnership.
The rules of §1.1441-1(e)(4) shall apply to withholding
certificates described in this paragraph (c)(2)(iv). A withholding
certificate furnished by a withholding foreign partnership is valid
with regard to any partner on whose behalf the certificate is
furnished only if it is furnished on a Form W-8, an acceptable
substitute form, or such other form as the IRS may prescribe, it is
signed under penalties of perjury by a partner with authority to
sign for the partnership, its.154 validity has not expired, and it
contains the information, statement, and certifications described in
this paragraph (c)(2)(iv) as follows--

(A) The name, permanent residence address (as described in
§1.1441-1(e)(2)(ii)), and the employer identification number of
the partnership, and the country under the laws of which the
partnership is created or governed;

(B) A certification that the partnership is a withholding foreign
partnership within the meaning of paragraph (c)(2)(i) of this
section; and

(C) Any other information, certifications or statements as may be
required by the withholding foreign partnership agreement with the
IRS or the form or accompanying instructions in addition to, or in
lieu of, the information, statements, and certifications described
in this paragraph (c)(2)(iv).

(3) Nonwithholding foreign partnerships--

(i) Reliance on claim of foreign partnership status. A withholding
agent may treat a person as a nonwithholding foreign partnership if
it receives from that person a nonwithholding foreign partnership
withholding certificate as described in paragraph (c)(3)(iii) of
this section. A withholding agent that does not receive a
nonwithholding foreign partnership withholding certificate, or does
not receive a valid withholding certificate, from an entity it
knows, or has reason to know, is a foreign partnership, must apply
the presumption rules of §§1.1441-1(b)(3) and 1.6049-5(d)
and paragraphs (d) and (e)(6) of this section. In addition, to the
extent a withholding agent cannot, prior to a payment, reliably
associate the payment with valid documentation from a payee that is
associated with the nonwithholding foreign partnership
withholding.155 certificate or has insufficient information to
report the payment on Form 1042-S or Form 1099, to the extent
reporting is required, must also apply the presumption rules. See
§1.1441-1(b)(2)(vii)(A) and (B) for rules regarding reliable
association. See paragraph (c)(3)(iv) of this section and
§1.1441-1(e)(3)(iv) for alternative procedures permitting
allocation information to be received after a payment is made.

(ii) Reliance on claim of reduced withholding by a partnership for
its partners. This paragraph (c)(3)(ii) describes the manner in
which a withholding agent may rely on a claim of reduced withholding
when making a payment to a nonwithholding foreign partnership. To
the extent that a withholding agent treats a payment to a
nonwithholding foreign partnership as a payment to the
nonwithholding foreign partnership's partners (whether direct or
indirect) in accordance with paragraph (c)(1)(i) of this section, it
may rely on a claim for reduced withholding by the partner if, prior
to the payment, the withholding agent can reliably associate the
payment (within the meaning of §1.1441-1(b)(2)(vii)) with a
valid withholding certificate or other appropriate documentation
from the partner that establishes entitlement to a reduced rate of
withholding. A withholding certificate or other appropriate
documentation that establishes entitlement to a reduced rate of
withholding is a beneficial owner withholding certificate described
in §1.1441-1(e)(2)(i), documentary evidence described in
§1.1441-6(c)(3) or (4) or 1.6049-5(c)(1) (for a partner
claiming to be a foreign person and a beneficial owner, determined
under the provisions of §1.1441-1(c)(6)), a Form W-9 described
in §1.1441-1(d) (for a partner claiming to be a U.S. payee), or
a withholding foreign partnership withholding certificate described
in paragraph (c)(2)(iv) of this section. Unless a nonwithholding
foreign partnership withholding certificate is provided for income
claimed to be effectively connected with the conduct of a trade or
business in the United.156 States, a claim must be presented for
each portion of the payment that represents an item of income
includible in the distributive share of a partner as required under
paragraph (c)(3)(iii)(C) of this section. When making a claim for
several partners, the partnership may present a single
nonwithholding foreign partnership withholding certificate to which
the partners' certificates or other appropriate documentation are
associated. Where the nonwithholding foreign partnership withholding
certificate is provided for income claimed to be effectively
connected with the conduct of a trade or business in the United
States under paragraph (c)(3)(iii)(D) of this section, the claim may
be presented without having to identify any partner's distributive
share of the payment.

(iii) Withholding certificate from a nonwithholding foreign
partnership. A nonwithholding foreign partnership shall provide a
nonwithholding foreign partnership withholding certificate with
respect to reportable amounts received by the nonwithholding foreign
partnership. A nonwithholding foreign partnership withholding
certificate is valid only to the extent it is furnished on a Form
W-8 (or an acceptable substitute form or such other form as the IRS
may prescribe), it is signed under penalties of perjury by a partner
with authority to sign for the partnership, its validity has not
expired, and it contains the information, statements, and
certifications described in this paragraph (c)(3)(iii) and paragraph
(c)(3)(iv) of this section, and the withholding certificates and
other appropriate documentation for all the persons to whom the
certificate relates are associated with the certificate. The rules
of §1.1441-1(e)(4) shall apply to withholding certificates
described in this paragraph (c)(3)(iii). No withholding certificates
or other appropriate documentation from persons who derive income
through a partnership (whether or not U.S. exempt recipients) are
required to be associated with the nonwithholding foreign
partnership.157 withholding certificate if the certificate is
furnished solely for income claimed to be effectively connected with
the conduct of a trade or business in the United States. Withholding
certificates and other appropriate documentation that may be
associated with the nonwithholding foreign partnership withholding
certificate consist of beneficial owner withholding certificates
under §1.1441-1(e)(2)(i), intermediary withholding certificates
under §1.1441-1(e)(3)(i), withholding foreign partnership
withholding certificates under paragraph (c)(2)(iv) of this section,
nonwithholding foreign partnership withholding certificates under
this paragraph (c)(3)(iii), withholding certificates from foreign
trusts or estates under paragraph (e) of this section, documentary
evidence described in §1.1441-6(c)(3) or (4) or documentary
evidence described in §1.6049-5(c)(1), and any other
documentation or certificates applicable under other provisions of
the Internal Revenue Code or regulations that certify or establish
the status of the payee or beneficial owner as a U.S. or a foreign
person. Nothing in this paragraph (c)(3)(iii) shall require a
nonwithholding foreign partnership to furnish original
documentation. Copies of certificates or documentary evidence may be
transmitted to the U.S. withholding agent, in which case the
nonwithholding foreign partnership must retain the original
documentation for the same time period that the copy is required to
be retained by the withholding agent under §1.1441- 1(e)(4)
(iii) and must provide it to the withholding agent upon request. The
information, statement, and certifications required on the
withholding certificate are as follows--

(A) The name, permanent residence address (as described in
§1.1441-1(e)(2)(ii)), and the employer identification number of
the partnership, if any, and the country under the laws of which the
partnership is created or governed;.158

(B) A certification that the person whose name is on the certificate
is a foreign partnership;

(C) A withholding statement associated with the nonwithholding
foreign partnership withholding certificate that provides all of the
information required by paragraph (c)(3)(iv) of this section and
§1.1441-1(e)(3)(iv). No withholding statement is required,
however, for a nonwithholding foreign partnership withholding
certificate furnished for income claimed to be effectively connected
with the conduct of a trade or business in the United States;

(D) A certification that the income is effectively connected with
the conduct of a trade or business in the United States, if
applicable; and

(E) Any other information, certifications, or statements required by
the form or accompanying instructions in addition to, or in lieu of,
the information and certifications described in this paragraph (c)
(3)(iii).

(iv) Withholding statement provided by nonwithholding foreign
partnership. The provisions of §1.1441-1(e)(3)(iv) (regarding a
withholding statement) shall apply to a nonwithholding foreign
partnership by substituting the term nonwithholding foreign
partnership for the term nonqualified intermediary.

(v) Withholding and reporting by a foreign partnership. A
nonwithholding foreign partnership described in this paragraph (c)
(3) that receives an amount subject to withholding (as defined in
§1.1441-2(a)) shall be required to withhold and report such
payment under chapter 3 of the Internal Revenue Code and the
regulations thereunder except as otherwise provided in this
paragraph (c)(3)(v). A nonwithholding foreign.159 partnership shall
not be required to withhold and report if it has provided a valid
nonwithholding foreign partnership withholding certificate, it has
provided all of the information required by paragraph (c)(3)(iv) of
this section (withholding statement), and it does not know, and has
no reason to know, that another withholding agent failed to withhold
the correct amount or failed to report the payment correctly under
§1.1461-1(c). A withholding foreign partnership's obligations
to withhold and report shall be determined in accordance with its
withholding foreign partnership agreement.

(d) Presumption rules--

(1) In general. This paragraph (d) contains the applicable
presumptions for a withholding agent (including a partnership) to
determine the classification and status of a partnership and its
partners in the absence of documentation. The provisions of
§1.1441-1(b)(3)(iv) (regarding the 90-day grace period) and
§1.1441- 1(b)(3)(vii) through (ix) shall apply for purposes of
this paragraph (d).

(2) Determination of partnership status as U.S. or foreign in the
absence of documentation. In the absence of a valid representation
of U.S. partnership status in accordance with paragraph (b)(1) of
this section or of foreign partnership status in accordance with
paragraph (c)(2)(i) or (3)(i) of this section, the withholding agent
shall determine the classification of the payee under the
presumptions set forth in §1.1441- 1(b)(3)(ii). If the
withholding agent treats the payee as a partnership under
§1.1441- 1(b)(3)(ii), the withholding agent shall presume the
partnership to be a U.S. partnership unless there are indicia of
foreign status. If there are indicia of foreign status, the
withholding agent may presume the partnership to be foreign. Indicia
of foreign status exist only if the withholding agent has actual
knowledge of the payee's employer identification.160 number and that
number begins with the two digits "98," the withholding agent's
communications with the payee are mailed to an address in a foreign
country, or the payment is made outside the United States (as
defined in §1.6049-5(e)). For rules regarding reliable
association with a withholding certificate from a domestic or a
foreign partnership, see §1.1441-1(b)(2)(vii).

(3) Determination of partners' status in the absence of certain
documentation. If a nonwithholding foreign partnership has provided
a nonwithholding foreign partnership withholding certificate under
paragraph (c)(3)(iii) of this section that would be valid except
that the withholding agent cannot reliably associate all or a
portion of the payment with valid documentation from a partner of
the partnership, then the withholding agent may apply the
presumption rule of this paragraph (d)(3) with respect to all or a
portion of the payment for which documentation has not been
received. See §1.1441-1(b)(2)(vii)(A) and (B) for rules
regarding reliable association. The presumption rule of this
paragraph (d)(3) also applies to a person that is presumed to be a
foreign partnership under the rule of paragraph (d)(2) of this
section. Any portion of a payment that the withholding agent cannot
treat as reliably associated with valid documentation from a partner
may be presumed made to a foreign payee. As a result, any payment of
an amount subject to withholding is subject to withholding at a rate
of 30 percent. Any payment that is presumed to be made to an
undocumented foreign payee must be reported on Form 1042-S. See
§1.1461-1(c).

(4) Determination by a withholding foreign partnership of the status
of its partners. A withholding foreign partnership shall determine
whether the partners or some other persons are the payees of the
partners' distributive shares of any payment made by a.161
withholding foreign partnership by applying the rules of
§1.1441-1(b)(2), paragraph (c)(1) of this section (in the case
of a partner that is a foreign partnership), and paragraph (e)(3) of
this section (in the case of a partner that is a foreign estate or a
foreign trust). Further, the provisions of paragraph (d)(3) of this
section shall apply to determine the status of partners and the
applicable withholding rates to the extent that, at the time the
foreign partnership is required to withhold on a payment, it cannot
reliably associate the amount with documentation for any one or more
of its partners.

(e) Foreign trusts and estates--

(1) In general. This paragraph (e) provides rules applicable to
payments of amounts subject to withholding (as defined in
§1.1441-2(a)) that a withholding agent may treat as made to any
foreign trust or a foreign estate. For rules relating to payments to
a U.S. trust or a U.S. estate, see paragraph (b) of this section.
For the definitions of foreign simple trust, foreign complex trust,
and foreign grantor trust, see §1.1441-1(c)(24), (25), and
(26).

(2) Payments to foreign complex trusts and foreign estates. Under
§1.1441- 1(c)(6)(ii)(D), a foreign complex trust or foreign
estate is generally considered to be the beneficial owner of income
paid to the foreign complex trust or foreign estate. See paragraph
(e)(4) of this section for rules describing when a withholding agent
may treat a payment as made to a foreign complex trust or a foreign
estate.

(3) Payees of payments to foreign simple trusts and foreign grantor
trusts--

(i) Payments for which beneficiaries and owners are payees. For
purposes of the regulations under chapters 3 and 61 of the Internal
Revenue Code and section 3406, a foreign simple trust is not a
beneficial owner or a payee of a payment. Also, a foreign grantor
trust (or a.162 portion of a trust that is a foreign grantor trust)
is not considered a beneficial owner or a payee of a payment. Except
as otherwise provided in paragraph (e)(3)(ii) of this section, the
payees of a payment made to a person that the withholding agent may
treat as a foreign simple trust or a foreign grantor trust (or a
portion of a trust that is a foreign grantor trust) are determined
under the rules of this paragraph (e)(3)(i). The payees shall be
treated as the beneficial owners if they may be so treated under
§1.1441-1(c)(6)(ii)(C) and they provide documentation
supporting their status as the beneficial owners. The payees of a
payment to a foreign simple trust or foreign grantor trust are
determined as follows--

(A) If the withholding agent can reliably associate a payment with a
valid Form W-9 provided under §1.1441-1(d) from a beneficiary
or owner of the foreign trust, then the beneficiary or owner is a
U.S. payee;

(B) If the withholding agent can reliably associate a payment with a
valid Form W-8, or other appropriate documentation, provided under
§1.1441-1(e)(1)(ii) from a beneficiary or owner of the foreign
trust, then the beneficiary or owner is a payee that is a foreign
beneficial owner;

(C) If the withholding agent can reliably associate a payment with a
qualified intermediary withholding certificate under
§1.1441-1(e)(3)(ii), a nonqualified intermediary withholding
certificate under §1.1441-1(e)(3)(ii), or a U.S. branch
withholding certificate under §1.1441-1(e)(3)(v), then the
rules of §1.1441-1(b)(2)(v) shall apply to determine the payee
in the same manner as if the payment had been paid directly to such
intermediary or U.S. branch;.163

(D) If the withholding agent can reliably associate a payment with a
withholding foreign partnership withholding certificate under
paragraph (c)(2)(iv) of this section or a nonwithholding foreign
partnership withholding certificate under paragraph (c)(3)(iii) of
this section, then the rules of paragraph (c)(1)(i) or (ii) of this
section shall apply to determine the payee;

(E) If the withholding agent can reliably associate the payment with
a foreign simple trust withholding certificate or a foreign grantor
trust withholding certificate (both described in paragraph (e)(5)
(iii) of this section) from a second or higher-tier foreign simple
trust or foreign grantor trust, then the rules of this paragraph (e)
(3)(i) or paragraph (e)(3)(ii) of this section shall apply to
determine whether the payment is treated as made to a beneficiary or
owner of the higher-tier trust or to the trust itself in the same
manner as if the payment had been made directly to the higher-tier
trust; and

(F) If the withholding agent cannot reliably associate a payment
with a withholding certificate or other appropriate documentation,
the payees shall be determined by applying the presumptions
described in paragraph (e)(6) of this section.

(ii) Payments for which trust is payee. A payment to a person that
the withholding agent may treat as made to a foreign trust under
paragraph (e)(5)(iii) of this section is treated as a payment to the
trust, and not to a beneficiary of the trust, only if--

(A) The withholding agent can reliably associate the payment with a
foreign complex trust withholding certificate under paragraph (e)(4)
of this section;.164

(B) The withholding agent can reliably associate the payment with a
foreign simple trust withholding certificate under paragraph (e)(5)
(iii) of this section certifying that the payment is income that is
treated as effectively connected with the conduct of a trade or
business in the United States; or

(C) The withholding agent can treat the income as effectively
connected income under the presumption rules of §1.1441-4(a)(3)
(i).

(4) Reliance on claim of foreign complex trust or foreign estate
status. A withholding agent may treat a payment as made to a foreign
complex trust or a foreign estate if the withholding agent can
reliably associate the payment with a beneficial owner withholding
certificate described in §1.1441-1(e)(2)(i) or other
documentary evidence under §1.1441- 6(c)(3) or (4) (regarding a
claim for treaty benefits) or §1.6049-5(c)(1) (regarding
documentary evidence to establish foreign status for purposes of
chapter 61 of the Internal Revenue Code) that establishes the
foreign complex trust or foreign estate's status as a beneficial
owner. See paragraph (e)(6) of this section for presumption rules if
documentation is lacking.

(5) Foreign simple trust and foreign grantor trust--

(i) Reliance on claim of foreign simple trust or foreign grantor
trust status. A withholding agent may treat a person as a foreign
simple trust or foreign grantor trust if it receives from that
person a foreign simple trust or foreign grantor trust withholding
certificate as described in paragraph (e)(5)(iii) of this section. A
withholding agent must apply the presumption rules of
§§1.1441-1(b)(3) and 1.6049-5(d) and paragraphs (d) and
(e)(6) of this section to the extent it cannot, prior to the
payment, reliably associate a payment (within the meaning of
§1.1441-1(b)(2)(vii)) with a.165 valid foreign simple trust or
foreign grantor trust withholding certificate, it cannot reliably
determine how much of the payment relates to valid documentation
provided by a payee (e.g., a person that is not itself a
nonqualified intermediary, flow-through entity, or U.S. branch)
associated with the foreign simple trust or foreign grantor trust
withholding certificate, or it does not have sufficient information
to report the payment on Form 1042-S or Form 1099, if reporting is
required. See §1.1441-1(b)(2)(vii)(A) and (B).

(ii) Reliance on claim of reduced withholding by a foreign simple
trust or foreign grantor trust for its beneficiaries or owners. This
paragraph (e)(5)(ii) describes the manner in which a withholding
agent may rely on a claim of reduced withholding when making a
payment to a foreign simple trust or foreign grantor trust. To the
extent that a withholding agent treats a payment to a foreign simple
trust or foreign grantor trust as a payment to payees other than the
trust in accordance with paragraph (e)(3)(i) of this section, it may
rely on a claim for reduced withholding by a beneficiary or owner
if, prior to the payment, the withholding agent can reliably
associate the payment (within the meaning of §1.1441- 1(b)(2)
(vii)) with a valid withholding certificate or other appropriate
documentation from a payee or beneficial owner that establishes
entitlement to a reduced rate of withholding. A withholding
certificate or other appropriate documentation that establishes
entitlement to a reduced rate of withholding is a beneficial owner
withholding certificate described in §1.1441-1(e)(2)(i) or
documentary evidence described in §1.1441-6(c)(3) or(4) or in
§1.6049-5(c)(1) (for a beneficiary or owner claiming to be a
foreign person and a beneficial owner, determined under the
provisions of §1.1441-1(c)(6)), a Form W-9 described in
§1.1441-1(d) (for a beneficiary or owner claiming to be a U.S.
payee), or a withholding foreign partnership withholding certificate
described in paragraph (c)(2)(iv) of this section..166 Unless a
foreign simple trust or foreign grantor trust withholding
certificate is provided for income treated as income effectively
connected with the conduct of a trade or business in the United
States, a claim must be presented for each payee's portion of the
payment. When making a claim for several payees, the trust may
present a single foreign simple trust or foreign grantor trust
withholding certificate with which the payees' certificates or other
appropriate documentation are associated. Where the foreign simple
trust or foreign grantor trust withholding certificate is provided
for income that is treated as effectively connected with the conduct
of a trade or business in the United States under paragraph (e)(5)
(iii)(D) of this section, the claim may be presented without having
to identify any beneficiary's or grantor's distributive share of the
payment.

(iii) Withholding certificate from foreign simple trust or foreign
grantor trust. A withholding certificate furnished by a foreign
simple trust or a foreign grantor trust that is not a withholding
foreign trust (within the meaning of paragraph (e)(5)(v) of this
section) is valid only if it is furnished on a Form W-8, an
acceptable substitute form, or such other form as the IRS may
prescribe, it is signed under penalties of perjury by a trustee, its
validity has not expired, it contains the information, statements,
and certifications required by this paragraph (e)(5)(iii) and
§1.1441-1(e)(3)(iv), and the withholding certificates or other
appropriate documentation for all of the payees (as determined under
paragraph (e)(3)(i) of this section) to whom the certificate relates
are associated with the foreign simple trust or foreign grantor
trust withholding certificate. The rules of §1.1441-1(e)(4)
shall apply to withholding certificates described in this paragraph
(e)(5)(iii). No withholding certificates or other appropriate
documentation from persons who derive income through a foreign
simple trust or a foreign grantor trust (whether or not U.S. exempt
recipients) are required.167 to be associated with the foreign
simple trust or foreign grantor trust withholding certificate if the
certificate is furnished solely for income that is treated as
effectively connected with the conduct of a trade or business in the
United States. Withholding certificates and other appropriate
documentation (as determined under paragraph (e)(3)(i) of this
section) that may be associated with a foreign simple trust or
foreign grantor trust withholding certificate consist of beneficial
owner withholding certificates under §1.1441-1(e)(2)(i),
intermediary withholding certificates under §1.1441-1(e)(3)(i),
withholding foreign partnership withholding certificates under
paragraph (c)(2)(iv) of this section, nonwithholding foreign
partnership withholding certificates under paragraph (c)(3)(iii) of
this section, withholding certificates from foreign trusts or
estates under paragraph (e)(4) or (5)(iii) of this section,
documentary evidence described in §§1.1441-6(c)(3) or (4),
or 1.6049-5(c)(1), and any other documentation or certificates
applicable under other provisions of the Internal Revenue Code or
regulations that certify or establish the status of the payee or
beneficial owner as a U.S. or a foreign person. Nothing in this
paragraph (e)(5)(iii) shall require a foreign simple trust or
foreign grantor trust to provide original documentation. Copies of
certificates or documentary evidence may be passed up to the U.S.
withholding agent, in which case the foreign simple trust or foreign
grantor trust must retain the original documentation for the same
time period that the copy is required to be retained by the
withholding agent under §1.1441-1(e)(4)(iii) and must provide
it to the withholding agent upon request. The information,
statement, and certifications required on a foreign simple trust or
foreign grantor trust withholding certificate are as follows--.168

(A) The name, permanent residence address (as described in
§1.1441-1(e)(2)(ii)), and the employer identification number,
if required, of the trust and the country under the laws of which
the trust is created;

(B) A certification that the person whose name is on the certificate
is a foreign simple trust or a foreign grantor trust;

(C) A withholding statement associated with the foreign simple trust
or foreign grantor trust withholding certificate that provides all
of the information required by paragraph (e)(5)(iv) of this section.
No withholding statement is required, however, for a foreign simple
trust withholding certificate furnished for income that is treated
as effectively connected with the conduct of a trade or business in
the United States;

(D) A certification on a foreign simple trust withholding
certificate that the income is treated as effectively connected with
the conduct of a trade or business in the United States, if
applicable; and

(E) Any other information, certifications, or statements required by
the form or accompanying instructions in addition to, or in lieu of,
the information, certifications, and statements described in this
paragraph (e)(5)(iii);

(iv) Withholding statement provided by a foreign simple trust or
foreign grantor trust. The provisions of §1.1441-1(e)(3)(iv)
(regarding a withholding statement) shall apply to a foreign simple
trust or foreign grantor trust by substituting the term foreign
simple trust or foreign grantor trust for the term nonqualified
intermediary..169

(v) Withholding foreign trusts. The IRS may enter an agreement with
a foreign trust to treat the trust or estate as a withholding
foreign trust. Such an agreement shall generally follow the same
principles as an agreement with a withholding foreign partnership
under paragraph (c)(2)(ii) of this section. A withholding agent may
treat a payment to a withholding foreign trust in the same manner
the withholding agent would treat a payment to a withholding foreign
partnership. The IRS may also enter an agreement to treat a trust as
a qualified intermediary in appropriate circumstances. See
§1.1441-1(e)(5)(ii)(D).

(6) Presumption rules--

(i) In general. This paragraph (e)(6) contains the applicable
presumptions for a withholding agent (including a trust or estate)
to determine the classification and status of a trust or estate and
its beneficiaries or owners in the absence of valid documentation.
The provisions of §1.1441-1(b)(3)(iv) (regarding the 90-day
grace period) and §1.1441-1(b)(3)(vii) through (ix) shall apply
for purposes of this paragraph (e)(6).

(ii) Determination of status as U.S. or foreign trust or estate in
the absence of documentation. In the absence of valid documentation
that establishes the U.S. status of a trust or estate under
paragraph (b)(1) of this section and of documentation that
establishes the foreign status of a trust or estate under paragraph
(e)(4) or (5)(iii) of this section, the withholding agent shall
determine the classification of the payee based upon the
presumptions set forth in §1.1441-1(b)(3)(ii). If, based upon
those presumptions, the withholding agent classifies the payee as a
trust or estate, the trust or estate shall be presumed to be a U.S.
trust or U.S. estate unless there are indicia of foreign status, in
which case the trust or estate shall be presumed to be foreign.
Indicia of foreign status.170 exists if the withholding agent has
actual knowledge of the payee's employer identification number and
that number begins with the two digits "98," the withholding agent's
communications with the payee are mailed to an address in a foreign
country, or the payment is made outside the United States (as
defined in §1.6049-5(e)). If an undocumented payee is presumed
to be a foreign trust it shall be presumed to be a foreign complex
trust. If a withholding agent has documentary evidence that
establishes that an entity is a foreign trust, but the withholding
agent cannot determine whether the foreign trust is a complex trust,
a simple trust, or foreign grantor trust, the withholding agent may
presume that the trust is a foreign complex trust.

(iii) Determination of beneficiary or owner's status in the absence
of certain documentation. If a foreign simple trust or foreign
grantor trust has provided a foreign simple trust or foreign grantor
trust withholding certificate under paragraph (e)(5)(iii) of this
section but the payment to such trust cannot be reliably associated
with valid documentation from a specific beneficiary or owner of the
trust, then any portion of a payment that a withholding agent cannot
treat as reliably associated with valid documentation from a
beneficiary or owner may be presumed made to a foreign payee. As a
result, any payment of an amount subject to withholding is subject
to withholding at a rate of 30 percent. Any such payment that is
presumed to be made to an undocumented foreign person must be
reported on Form 1042-S. See §1.1461-1(c).

* * * * *

Par. 8. Effective January 1, 2001, §1.1441-6 is amended by:.171

1. Revising paragraphs (b)(1), (b)(2), and (b)(3).

2. Removing paragraph (b)(4) and redesignating paragraph (b)(5) as
new paragraph (b)(4).

3. Revising paragraphs (c) and (e). The revisions read as follows:
§1.1441-6 Claim of reduced withholding under an income tax
treaty.

* * * * *

(b) Reliance on claim of reduced withholding under an income tax
treaty--(1) In general. The withholding imposed under section 1441,
1442, or 1443 on any payment to a foreign person is eligible for
reduction under the terms of an income tax treaty only to the extent
that such payment is treated as derived by a resident of an
applicable treaty jurisdiction, such resident is a beneficial owner,
and all other requirements for benefits under the treaty are
satisfied. See section 894 and the regulations thereunder to
determine whether a resident of a treaty country derives the income.
Absent actual knowledge or reason to know otherwise, a withholding
agent may rely on a claim that a beneficial owner is entitled to a
reduced rate of withholding based upon an income tax treaty if,
prior to the payment, the withholding agent can reliably associate
the payment with a beneficial owner withholding certificate,
described in §1.1441-1(e)(2), that contains the information
necessary to support the claim, or, in the case of a payment of
income described in paragraph (c)(2) of this section made outside
the United States with respect to an offshore.172 account,
documentary evidence described in paragraphs (c)(3), (4) and (5) of
this section. See §§1.6049-5(e) for the definition of
payments made outside the United States and 1.6049-5(c)(1) for the
definition of offshore account. For purposes of this paragraph (b)
(1), a beneficial owner withholding certificate described in
§1.1441-1(e)(2)(i) contains information necessary to support
the claim for a treaty benefit only if it includes the beneficial
owner's taxpayer identifying number (except as otherwise provided in
paragraph (c)(1) of this section) and the representations that the
beneficial owner derives the income under section 894 and the
regulations thereunder, if required, and meets the limitation on
benefits provisions of the treaty, if any. The withholding
certificate must also contain any other representations required by
this section and any other information, certifications, or
statements as may be required by the form or accompanying
instructions in addition to, or in place of, the information and
certifications described in this section. Absent actual knowledge or
reason to know that the claims are incorrect (and subject to the
standards of knowledge in §1.1441-7(b)), a withholding agent
may rely on the claims made on a withholding certificate or on
documentary evidence. A withholding agent may also rely on the
information contained in a withholding statement provided under
§§1.1441-1(e)(3)(iv) and 1.1441-5(c)(3)(iv) and (e)(5)(iv)
to determine whether the appropriate statements regarding section
894 and limitation on benefits have been provided in connection with
documentary evidence. If the beneficial owner is a person related to
the withholding agent within the meaning of section 482, the
withholding certificate must also contain a representation that the
beneficial owner will file the statement required under
§301.6114- 1(d) of this chapter (if applicable). The
requirement to file an information statement under section 6114 for
income subject to withholding applies only to amounts received
during the.173 calendar year that, in the aggregate, exceed
$500,000. See §301.6114-1(d) of this chapter. The Internal
Revenue Service (IRS) may apply the provisions of §1.1441-1(e)
(1)(ii)(B) to notify the withholding agent that the certificate
cannot be relied upon to grant benefits under an income tax treaty.
See §1.1441-1(e)(4)(viii) regarding reliance on a withholding
certificate by a withholding agent. The provisions of
§1.1441-1(b)(3)(iv) dealing with a 90- day grace period shall
apply for purposes of this section.

(2) Payment to fiscally transparent entity--

(i) In general. If the person claiming a reduced rate of withholding
under an income tax treaty is the interest holder of an entity that
is considered to be fiscally transparent (as defined in the
regulations under section 894) by the interest holder's jurisdiction
with respect to an item of income, then, with respect to such income
derived by that person through the entity, the entity shall be
treated as a flow- through entity and may provide a flow-through
withholding certificate with which the withholding certificate or
other documentary evidence of the interest holder that supports the
claim for treaty benefits is associated. For purposes of the
preceding sentence, interest holders do not include any direct or
indirect interest holders that are themselves treated as fiscally
transparent entities with respect to that income by the interest
holder's jurisdiction. See §1.1441-1(c)(23) and (e)(3)(i) for
the definition of flow-through entity and flow-through withholding
certificate. The entity may provide a beneficial owner withholding
certificate, or beneficial owner documentation, with respect to any
remaining portion of the income to the extent the entity is
receiving income and is not treated as fiscally transparent by its
own jurisdiction. Further, the entity may claim a reduced rate of
withholding with respect to the portion of a payment for which it is
not treated as fiscally transparent if it meets all the requirements
to make such a claim and, in the case of treaty benefits, it
provides the.174 documentation required by paragraph (b)(1) of this
section. If dual claims, as described in paragraph (b)(2)(iii) of
this section, are made, multiple withholding certificates may have
to be furnished. Multiple withholding certificates may also have to
be furnished if the entity receives income for which a reduction of
withholding is claimed under a provision of the Internal Revenue
Code (e.g., portfolio interest) and income for which a reduction of
withholding is claimed under an income tax treaty.

(ii) Certification by qualified intermediary. Notwithstanding
paragraph (b)(2)(i) of this section, a foreign entity that is
fiscally transparent, as defined in the regulations under section
894, that is also a qualified intermediary for purposes of claiming
a reduced rate of withholding under an income tax treaty for its
interest holders (who are deriving the income paid to the entity as
residents of an applicable treaty jurisdiction) may furnish a single
qualified intermediary withholding certificate, as described in
§1.1441-1(e)(3)(ii), for amounts for which it claims a reduced
rate of withholding under an income tax treaty on behalf of its
interest holders.

(iii) Dual treatment. Under paragraph (b)(2)(i) of this section, a
withholding agent may make a payment to a foreign entity that is
simultaneously claiming to be the beneficial owner of a portion of
the income (whether or not it is also claiming a reduced rate of tax
on its own behalf) and a reduced rate on behalf of persons in their
capacity as interest holders in the entity with respect to the same,
or a different, portion of the income. If the same portion of a
payment may be reliably associated with both the entity's claim and
an interest holder's claim, the withholding agent may choose to
reject both claims and request new documentation and information
allocating the payment among the beneficial owners of the.175
payment or the withholding agent may choose which claim to apply. If
the entity and the interest holder's claims are reliably associated
with separate portions of the payment, the withholding agent may, at
its option, accept such dual claims based on withholding
certificates or other appropriate documentation furnished by the
entity and its interest holders with respect to their respective
shares of the payment even though this will result in the
withholding agent treating the entity differently with respect to
different portions of the same payment. Alternatively, the
withholding agent may choose to apply only the claim made by the
entity, provided the entity may be treated as a beneficial owner of
the income. If the withholding agent does not accept claims for a
reduced rate of withholding presented by any one or more of the
interest holders, or by the entity, any interest holder or the
entity may subsequently claim a refund or credit of any amount so
withheld to the extent the interest holder's or entity's share of
such withholding exceeds the amount of tax due.

(iv) Examples. The following examples illustrate the rules of this
paragraph (b)(2): Example 1.

      (i) Facts.

     Entity E is a business organization formed under the laws of
country Y. Country Y has an income tax treaty with the United
States. The treaty contains a limitation on benefits provision. E
receives U.S. source royalties from withholding agent W and claims a
reduced rate of withholding under the U.S.-Y tax treaty on its own
behalf (rather than on behalf of its interest holders). E furnishes
a beneficial owner withholding certificate described in paragraph
(b)(1) of this section that represents that E is a resident of
country Y (within the meaning of the U.S.-Y tax treaty), is the
beneficial owner of the income, derives the income under section 894
and the regulations thereunder, and is not precluded from claiming
benefits by the treaty's limitation on benefits provision.

(ii) Analysis. Absent actual knowledge or reason to know otherwise,
W may rely on the representations made by E to apply a reduced rate
of withholding.

Example 2.

      (i) Facts.

     The facts are the same as under Example 1, except that one of
E's interest holders, H, is an entity organized in country Z. The
U.S.-Z tax treaty reduces the rate on royalties to zero whereas the
rate on royalties under the U.S.-Y tax treaty applicable to E is 5
percent. H is not fiscally transparent under country Z's tax law
with respect to such income. H furnishes a beneficial owner
withholding certificate to E that represents that H derives, within
the meaning of section 894 and the regulations.176 thereunder, its
share of the royalty income paid to E as a resident of country Z, is
the beneficial owner of the royalty income, and is not precluded
from claiming treaty benefits by virtue of the limitation on
benefits provision in the U.S.-Z treaty. E furnishes to W a flow-
through withholding certificate described in §1.1441-1(e)(3)(i)
to which it attaches H's beneficial owner withholding certificate
and a withholding statement for the portion of the payment that H
claims as its distributive share of the royalty income. E also
furnishes to W a beneficial owner withholding certificate for itself
for the portion of the payment that H does not claim as its
distributive share.

(ii) Analysis. Absent actual knowledge or reason to know otherwise,
W may rely on the documentation furnished by E to treat the royalty
payment to a single foreign entity (E) as derived by different
residents of tax treaty countries as a result of the claims
presented under different treaties. W may, at its option, grant dual
treatment, that is, a reduced rate of zero percent under the U.S.-Z
treaty on the portion of the royalty payment that H claims to derive
as a resident of country Z and a reduced rate of 5 percent under the
U.S.-Y treaty for the balance. However, under paragraph (b)(2)(iii)
of this section, W may, at its option, treat E as the only relevant
person deriving the royalty and grant benefits under the U.S.-Y
treaty only.

Example 3.

      (i) Facts.

     E is a business organization formed under the laws of country
X. Country X has an income tax treaty with the United States. E has
two interest holders, H1, organized in country Y, and H2, organized
in country Z. E receives from W, a U.S. withholding agent, U.S.
source royalties and interest that is eligible for the portfolio
interest exception under sections 871(h) and 881(c), provided W
receives the appropriate beneficial owner statement required under
section 871(h)(5). E is classified as a corporation under U.S. tax
law principles. Country X, E's country of organization, treats E as
an entity that is not fiscally transparent with respect to items of
income under the regulations under section 894. Under the U.S.-X
income tax treaty, royalties are subject to 5 percent rate of
withholding. Country Y, H1's country of organization, treats E as
fiscally transparent with respect to items of income under section
894 and H1 as not fiscally transparent with respect to items of
income. Under the country Y-U.S. income tax treaty, royalties are
exempt from U.S. tax. Country Z, H2's country of organization,
treats E as not fiscally transparent under section 894 with respect
to items of income. E provides W with a flow-through beneficial
owner withholding certificate with which it associates a beneficial
owner withholding certificate from H1. H1's withholding certificate
states that H1 is a resident of country Y, derives the royalty
income under section 894, meets the applicable limitations on
benefits provisions of the U.S.-Y treaty, and is the beneficial
owner of the income. The withholding statement attached to E's flow-
through withholding certificate allocates one-half of the royalty
payment to H1. E also provides W with a beneficial owner withholding
certificate for the interest income and the remaining one-half of
the royalty income. The withholding certificate states that E is a
resident of country X, derives the royalty income under section 894,
meets the limitation on benefits provisions of the U.S.-X treaty,
and is the beneficial owner of the income.

(ii) Analysis. Absent actual knowledge or reason to know that the
claims are incorrect, W may treat one-half of the royalty derived by
E as subject to a 5 percent withholding rate and one-half of the
royalty as derived by H1 and subject to no withholding.

Further, it may treat all of the interest as being paid to E and as
qualifying for the portfolio interest exception. W can, at its
option, treat the entire royalty as paid to E and subject it to
withholding at a 5 percent rate of withholding. In that case, H1
would be entitled to claim a refund with respect to its one-half of
the royalty.

(3) Certified TIN. The IRS may issue guidance requiring a foreign
person claiming treaty benefits and for whom a TIN is required to
establish with the IRS, at the time the TIN is requested or after
the TIN is issued, that the person is a resident in a treaty country
and meets other conditions (such as limitation on benefits
provisions) of the treaty. See §601.601(d)(2) of this chapter.

* * * * *

(c) Exemption from requirement to furnish a taxpayer identifying
number and special documentary evidence rules for certain
income--(1) General rule. In the case of income described in
paragraph (c)(2) of this section, a withholding agent may rely on a
beneficial owner withholding certificate described in paragraph (b)
(1) of this section without regard to the requirement that the
withholding certificate include the beneficial owner's taxpayer
identifying number. In the case of payments of income described in
paragraph (c)(2) of this section made outside the United States (as
defined in §1.6049-5(e)) with respect to an offshore account
(as defined in §1.6049-5(c)(1)), a withholding agent may, as an
alternative to a withholding certificate described in paragraph (b)
(1) of this section, rely on a certificate of residence described in
paragraph (c)(3) of this section or documentary evidence described
in paragraph (c)(4) of this section, relating to the beneficial
owner, that the withholding agent has reviewed and maintains in its
records in accordance with §1.1441- 1(e)(4)(iii). In the case
of a payment to a person other than an individual, the certificate
of.178 residence or documentary evidence must be accompanied by the
statements described in paragraphs (c)(5)(i) and (ii) of this
section regarding limitation on benefits and whether the amount paid
is derived by such person or by one of its interest holders. The
withholding agent maintains the reviewed documents by retaining
either the documents viewed or a photocopy thereof and noting in its
records the date on which, and by whom, the documents were received
and reviewed. This paragraph (c)(1) shall not apply to amounts that
are exempt from withholding based on a claim that the income is
effectively connected with the conduct of a trade or business in the
United States.

(2) Income to which special rules apply. The income to which
paragraph (c)(1) of this section applies is dividends and interest
from stocks and debt obligations that are actively traded, dividends
from any redeemable security issued by an investment company
registered under the Investment Company Act of 1940 (15 U.S.C.
80a-1), 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 Securities and Exchange
Commission under the Securities Act of 1933 (15 U.S.C. 77a) and
amounts paid with respect to loans of securities described in this
paragraph (c)(2). For purposes of this paragraph (c)(2), a stock or
debt obligation is actively traded if it is actively traded within
the meaning of section 1092(d) and §1.1092(d)-1 when
documentation is provided.

(3) Certificate of residence. A certificate of residence referred to
in paragraph (c)(1) of this section is a certification issued by an
appropriate tax official of the treaty country of which the taxpayer
claims to be a resident that the taxpayer has filed its most recent
income tax return as a resident of that country (within the meaning
of the applicable tax treaty)..179 The certificate of residence must
have been issued by such official within three years prior to its
being presented to the withholding agent, or such other period as
the IRS may prescribe in published guidance (see §601.601(d)(2)
of this chapter). See §1.1441- 1(e)(4)(ii)(A) for the period
during which a withholding agent may rely on a certificate of
residence. The competent authorities may agree to a different
procedure for certifying residence, in which case such procedure
shall govern for payments made to a person claiming to be a resident
of the country with which such an agreement is in effect.

(4) Documentary evidence establishing residence in the treaty
country--

(i)Individuals. For an individual, the documentary evidence referred
to in paragraph (c)(1) of this section is any documentation that
includes the individuals name, address, and photograph, is an
official document issued by an authorized governmental body (i.e., a
government or agency thereof, or a municipality), and has been
issued no more than three years prior to presentation to the
withholding agent. A document older than three years may be relied
upon as proof of residence only if it is accompanied by additional
evidence of the person's residence in the treaty country (e.g., a
bank statement, utility bills, or medical bills). Documentary
evidence must be in the form of original documents or certified
copies thereof.

(ii) Persons other than individuals. For a person other than an
individual, the documentary evidence referred to in paragraph (c)(1)
of this section is any documentation that includes the name of the
entity and the address of its principal office in the treaty
country, and is an official document issued by an authorized
governmental body (e.g., a government or agency thereof, or a
municipality)..180

(5) Statements regarding entitlement to treaty benefits--

(i) Statement regarding conditions under a limitation on benefits
provision. In addition to the documentary evidence described in (c)
(4)(ii) of this section, a taxpayer that is not an individual must
provide a statement that it meets one or more of the conditions set
forth in the limitation on benefits article (if any, or in a similar
provision) contained in the applicable tax treaty.

(ii) Statement regarding whether the taxpayer derives the income. A
taxpayer that is not an individual must also provide, in addition to
the documentary evidence and the statement described in paragraph
(c)(5)(i) of this section, a statement that any income for which it
intends to claim benefits under an applicable income tax treaty is
income that will properly be treated as derived by itself as a
resident of the applicable treaty jurisdiction within the meaning of
section 894 and the regulations thereunder. This requirement does
not apply if the taxpayer furnishes a certificate of residence that
certifies that fact.

* * * * *

(e) Competent authority. The procedures described in this section
may be modified to the extent the U.S. competent authority may agree
with the competent authority of a country with which the United
States has an income tax treaty in effect.

* * * * *

Par. 9. Effective January 1, 2001, §1.1441-7 is amended by: 1.
Revising paragraphs (a), (b)(2) and (b)(3). 2. Adding paragraphs (b)
(4) through (b)(11). The revisions and additions read as follows:
§1.1441-7 General provisions relating to withholding agents.

(a) Withholding agent defined--

(1) In general. For purposes of chapter 3 of the Internal Revenue
Code and the regulations under such chapter, the term withholding
agent means any person, U.S. or foreign, that has the control,
receipt, custody, disposal, or payment of an item of income of a
foreign person subject to withholding, including (but not limited
to) a foreign intermediary described in §1.1441-1(e)(3)(i), a
foreign partnership, or a U.S. branch described in §1.1441-1(b)
(2)(iv)(A) or (E). See §§1.1441-1(b)(2) and (3) and
1.1441-5(c), (d), and (e), for rules to determine whether a payment
is considered made to a foreign person. Any person who meets the
definition of a withholding agent is required to deposit any tax
withheld under §1.1461-1(a) and to make the returns prescribed
by §1.1461-1(b) and (c), except as otherwise may be required by
a qualified intermediary withholding agreement, a withholding
foreign partnership agreement, or a withholding foreign trust
agreement. When several persons qualify as withholding agents with
respect to a single payment, only one tax is required to be withheld
and deposited. See §1.1461-1. A person who, as a nominee
described in §1.6031(c)-1T, has furnished to a partnership all
of the information required to be furnished under
§1.6031(c)-1T(a) shall not be treated as.182 a withholding
agent if it has notified the partnership that it is treating the
provision of information to the partnership as a discharge of its
obligations as a withholding agent.

(2) Examples. The following examples illustrate the rules of
paragraph (a)(1) of this section: Example 1. USB is a broker
organized in the United States. USB pays U.S. source dividends and
interest, which are amounts subject to withholding under
§1.1441-2(a), to FC, a foreign corporation that has an
investment account with USB. USB is a withholding agent as defined
in paragraph (a)(1) of this section.

Example 2. USB is a bank organized in the United States. FB is a
bank organized in country X. X has an omnibus account with USB
through which FB invests in debt and equity instruments that pay
amounts subject to withholding as defined in §1.1441-2(a). FB
is a nonqualified intermediary, as defined in §1.1441-1(c)(14).
Both USB and FB are withholding agents as defined in paragraph (a)
(1) of this section.

Example 3. The facts are the same as in Example 2, except that FB is
a qualified intermediary. Both USB and FB are withholding agents as
defined in paragraph (a)(1) of this section.

Example 4. FB is a bank organized in country X. FB has a branch in
the United States. FB's branch has customers that are foreign
persons who receive amounts subject to withholding, as defined in
§1.1441-2(a). FB is a withholding agent under paragraph (a)(1)
of this section and is required to withhold and report payments of
amounts subject to withholding in accordance with chapter 3 of the
Internal Revenue Code.

Example 5. X is a foreign corporation. X pays dividends to
shareholders who are foreign persons. Under section 861(a)(2)(B), a
portion of the dividends are from sources within the United States
and constitute amounts subject to withholding within the meaning of
§1.1441-2(a). The dividends are not subject to tax under
section 884(a). See 884(e)(3). X is a withholding agent under
paragraph (a)(1) of this section.

(b) * * *

(2) Reason to know. A withholding agent shall be considered to have
reason to know if its knowledge of relevant facts or of statements
contained in the withholding.183 certificates or other documentation
is such that a reasonably prudent person in the position of the
withholding agent would question the claims made.

(3) Financial institutions--limits on reason to know. For purposes
of this paragraph (b)(3) and paragraphs (b)(4) through (b)(10) of
this section, the terms withholding certificate, documentary
evidence, and documentation are defined in §1.1441-1(c)(16),
(17) and (18). Except as otherwise provided in paragraphs (b)(4)
through (b)(9) of this section, a withholding agent that is a
financial institution (including a regulated investment company)
that has a direct account relationship with a beneficial owner (a
direct account holder) has a reason to know, with respect to amounts
described in §1.1441-6(c)(2), that documentation provided by
the direct account holder is unreliable or incorrect only if one or
more of the circumstances described in paragraphs (b)(4) through (b)
(9) of this section exist. If a direct account holder has provided
documentation that is unreliable or incorrect under the rules of
paragraph (b)(4) through (b)(9) of this section, the withholding
agent may require new documentation. Alternatively, the withholding
agent may rely on the documentation originally provided if the rules
of paragraphs (b)(4) through (b)(9) of this section permit such
reliance based on additional statements and documentation. Paragraph
(b)(10) of this section provides limits on reason to know for
financial institutions that receive beneficial owner documentation
from persons (indirect account holders) that have an account
relationship with, or an ownership interest in, a direct account
holder. For rules regarding reliance on Form W-9, see
§31.3406(g)-3(e)(2) of this chapter.

(4) Rules applicable to withholding certificates--

(i) In general. A withholding agent has reason to know that a
beneficial owner withholding certificate provided by a direct.184
account holder in connection with a payment of an amount described
in §1.1441-6(c)(2) is unreliable or incorrect if the
withholding certificate is incomplete with respect to any item on
the certificate that is relevant to the claims made by the direct
account holder, the withholding certificate contains any information
that is inconsistent with the direct account holder's claim, the
withholding agent has other account information that is inconsistent
with the direct account holder's claim, or the withholding
certificate lacks information necessary to establish entitlement to
a reduced rate of withholding. For purposes of establishing a direct
account holder's status as a foreign person or resident of a treaty
country a withholding certificate shall be considered unreliable or
inconsistent with an account holder's claims only if it is not
reliable under the rules of paragraphs (b)(5) and (6) of this
section. A withholding agent that relies on an agent to review and
maintain a withholding certificate is considered to know or have
reason to know the facts within the knowledge of the agent.

(ii) Examples. The rules of paragraph (b)(4) of this section are
illustrated by the following examples: Example 1. F, a foreign
person that has a direct account relationship with USB, a bank that
is a U.S. person, provides USB with a beneficial owner withholding
certificate for the purpose of claiming a reduced rate of
withholding on U.S. source dividends. F resides in a treaty country
that has a limitation on benefits provision in its income tax treaty
with the United States. The withholding certificate, however, does
not contain a statement regarding limitations on benefits or
deriving the income under section 894 as required by
§1.1441-6(b)(1). USB cannot rely on the withholding certificate
to grant a reduced rate of withholding because it is incomplete with
respect to the claim made by F.

Example 2. F, a foreign person that has a direct account
relationship with USB, a broker that is a U.S. person, provides USB
with a withholding certificate for the purpose of claiming the
portfolio interest exception under section 881(c), which applies to
foreign corporations. F indicates on its withholding certificate,
however, that it is a partnership. USB may not treat F as a
beneficial owner of the interest for purposes of the portfolio.185
interest exception because F has indicated on its withholding
certificate that it is a foreign partnership, and therefore under
§1.1441-1(c)(6)(ii) it is not the beneficial owner of the
interest payment.

(5) Withholding certificate--establishment of foreign status. A
withholding agent has reason to know that a beneficial owner
withholding certificate (as defined in §1.1441- 1(e)(2))
provided by a direct account holder in connection with a payment of
an amount described in §1.1441-6(c)(2) is unreliable or
incorrect for purposes of establishing the account holder's status
as a foreign person if the certificate is described in paragraph (b)
(5)(i) or (ii) of this section.

(i) A withholding certificate is unreliable or incorrect if the
withholding certificate has a permanent residence address (as
defined in §1.1441-1(e)(2)(ii)) in the United States, the
withholding certificate has a mailing address in the United States,
the withholding agent has a residence or mailing address as part of
its account information that is an address in the United States, or
the direct account holder notifies the withholding agent of a new
residence or mailing address in the United States (whether or not
provided on a withholding certificate). A withholding agent may,
however, rely on the beneficial owner withholding certificate as
establishing the account holder's foreign status if it may do so
under the provisions of paragraph (b)(5)(i)(A) or (B) of this
section.

(a) A withholding agent may treat a direct account holder as a
foreign person if the beneficial owner withholding certificate has
been provided by an individual and--

(1) The withholding agent has in its possession or obtains
documentary evidence (which does not contain a U.S. address) that
has been provided within the past three years, was valid at the time
it was provided, the documentary evidence supports the claim of
foreign status, and the direct account holder provides the
withholding agent with a reasonable explanation, in writing,
supporting the account holder's foreign status; or

(2) The account is maintained at an office of the withholding agent
outside the United States and the withholding agent is required to
report annually a payment to the direct account holder on a tax
information statement that is filed with the tax authority of the
country in which the office is located and that country has an
income tax treaty in effect with the United States.

(b) A withholding agent may treat an account holder as a foreign
person if the beneficial owner withholding certificate has been
provided by an entity that the withholding agent does not know, or
does not have reason to know, is a flow-through entity and--

(1) The withholding agent has in its possession, or obtains,
documentation that substantiates that the entity is actually
organized or created under the laws of a foreign country; or

(2) The account is maintained at an office of the withholding agent
outside the United States and the withholding agent is required to
report annually a payment to the direct account holder on a tax
information statement that is filed with the tax authority of the
country in which the office is located and that country has an
income tax treaty in effect with the United States.

(ii) A beneficial owner withholding certificate is unreliable or
incorrect if it is provided with respect to an offshore account (as
defined in §1.6049-5(c)(1)) and the direct account.187 holder
has standing instructions directing the withholding agent to pay
amounts from its account to an address or an account maintained in
the United States. The withholding agent may treat the direct
account holder as a foreign person, however, if the direct account
holder provides a reasonable explanation in writing that supports
its foreign status.

(6) Withholding certificate--claim of reduced rate of withholding
under treaty. A withholding agent has reason to know that a
withholding certificate (other than Form W-9) provided by a direct
account holder in connection with a payment of an amount described
in §1.1441-6(c)(2) is unreliable or incorrect for purposes of
establishing that the direct account holder is a resident of a
country with which the United States has an income tax treaty if it
is described in paragraphs (b)(6)(i) through (iii) of this section.

(i) A beneficial owner withholding certificate is unreliable or
incorrect if the permanent residence address on the beneficial owner
withholding certificate is not in the country whose treaty is
invoked, or the direct account holder notifies the withholding agent
of a new permanent residence address that is not in the treaty
country. A withholding agent may, however, treat a direct account
holder as entitled to a reduced rate of withholding under an income
tax treaty if the direct account holder provides a reasonable
explanation for the permanent residence address outside the treaty
country (e.g., the address is the address of a branch of the
beneficial owner located outside the treaty country in which the
entity is a resident) or the withholding agent has in its
possession, or obtains, documentary evidence that establishes
residency in a treaty country.

(ii) A beneficial owner withholding certificate is unreliable or
incorrect if the permanent residence address on the withholding
certificate is in the applicable treaty.188 country but the
withholding certificate contains a mailing address outside the
treaty country or the withholding agent has a mailing address as
part of its account information that is outside the treaty country.
A mailing address that is a P.O. Box, in-care-of address, or address
at a financial institution (if the financial institution is not a
beneficial owner) shall not preclude a withholding agent from
treating the direct account holder as a resident of a treaty country
if such address is in the treaty country. If a withholding agent has
a mailing address (whether or not contained on the withholding
certificate) outside the applicable treaty country, the withholding
agent may nevertheless treat a direct account holder as a resident
of an applicable treaty country if--

(A) The withholding agent has in its possession, or obtains,
additional documentation supporting the direct account holder's
claim of residence in the applicable treaty country (and the
additional documentation does not contain an address outside the
treaty country);

(B) The withholding agent has in its possession, or obtains,
documentation that establishes that the direct account holder is an
entity organized in a treaty country (or an entity managed and
controlled in a treaty country, if the applicable treaty so
requires);

(C) The withholding agent knows that the address outside the
applicable treaty country (other than a P.O. box, or in-care-of
address) is a branch of a bank or insurance company that is a
resident of the applicable treaty country; or

(D) The withholding agent obtains a written statement from the
direct account holder that reasonably establishes entitlement to
treaty benefits..189 (iii) A beneficial owner withholding
certificate is unreliable or incorrect to establish entitlement to a
reduced rate of withholding under an income tax treaty if the direct
account holder has standing instructions for the withholding agent
to pay amounts from its account to an address or an account outside
the treaty country unless the direct account holder provides a
reasonable explanation, in writing, establishing the direct account
holder's residence in the applicable treaty country.

(7) Documentary evidence. A withholding agent shall not treat
documentary evidence provided by a direct account holder as valid if
the documentary evidence does not reasonably establish the identity
of the person presenting the documentary evidence. For example,
documentary evidence is not valid if it is provided in person by a
direct account holder that is a natural person and the photograph or
signature on the documentary evidence, if any, does not match the
appearance or signature of the person presenting the document. A
withholding agent shall not rely on documentary evidence to reduce
the rate of withholding that would otherwise apply under the
presumption rules of §§1.1441-1(b)(3), 1.1441-5(d) and (e)
(6), and 1.6049-5(d) if the documentary evidence contains
information that is inconsistent with the direct account holder's
claim of a reduced rate of withholding, the withholding agent has
other account information that is inconsistent with the direct
account holder's claim, or the documentary evidence lacks
information necessary to establish entitlement to a reduced rate of
withholding. For example, if a direct account holder provides
documentary evidence to claim treaty benefits and the documentary
evidence establishes the direct account holder's status as a foreign
person and a resident of a treaty country, but the account holder
fails to provide the treaty statements required by §1.1441-6(c)
(5), the documentary evidence does not establish the direct account
holder's.190 entitlement to a reduced rate of withholding. For
purposes of establishing a direct account holder's status as a
foreign person or resident of a country with which the United States
has an income tax treaty with respect to income described in
§1.1441-6(c)(2), documentary evidence shall be considered
unreliable or incorrect only if it is not reliable under the rules
of paragraph (b)(8) and (9) of this section.

(8) Documentary evidence--establishment of foreign status. A
withholding agent has reason to know that documentary evidence
provided in connection with a payment of an amount described in
§1.1441-6(c)(2) is unreliable or incorrect for purposes of
establishing the direct account holder's status as a foreign person
if the documentary evidence is described in paragraphs (b)(8)(i),
(ii), (iii) or (iv) of this section.

(i) A withholding agent shall not treat documentary evidence
provided by an account holder after December 31, 2000, as valid for
purposes of establishing the direct account holder's foreign status
if the only mailing or residence address that is available to the
withholding agent is an address at a financial institution (unless
the financial institution is a beneficial owner of the income), an
in-care-of address, or a P.O. box. In this case, the withholding
agent must obtain additional documentation that is sufficient to
establish the direct account holder's status as a foreign person. A
withholding agent shall not treat documentary evidence provided by
an account holder before January 1, 2001, as valid for purposes of
establishing a direct account holder's status as a foreign person if
it has actual knowledge that the direct account holder is a U.S.
person or if it has a mailing or residence address for the direct
account holder in the United States. If a withholding agent has an
address for the direct account holder in the United States, the
withholding agent may.191 nevertheless treat the direct account
holder as a foreign person if it can so treat the direct account
holder under the rules of paragraph (b)(8)(ii) of this section.

(ii) Documentary evidence is unreliable or incorrect to establish a
direct account holder's status as a foreign person if the
withholding agent has a mailing or residence address (whether or not
on the documentation) for the direct account holder in the United
States or if the direct account holder notifies the withholding
agent of a new address in the United States. A withholding agent
may, however, rely on documentary evidence as establishing the
direct account holder's foreign status if it may do so under the
provisions of paragraph (b)(8)(ii)(A) or (B) of this section.

(a) A withholding agent may treat a direct account holder that is an
individual as a foreign person even if it has a mailing or residence
address for the direct account holder in the United States if the
withholding agent--

(1) Has in its possession or obtains additional documentary evidence
(which does not contain a U.S. address) supporting the claim of
foreign status and a reasonable explanation in writing supporting
the account holder's foreign status;

(2) Has in its possession or obtains a valid beneficial owner
withholding certificate on Form W-8 and the Form W-8 contains a
permanent residence address outside the United States and a mailing
address outside the United States (or if a mailing address is inside
the United States the direct account holder provides a reasonable
explanation in writing supporting the direct account holder's
foreign status); or.192

(3) The account is maintained at an office of the withholding agent
outside the United States and the withholding agent is required to
report annually a payment to the direct account holder on a tax
information statement that is filed with the tax authority of the
country in which the office is located and that country has an
income tax treaty in effect with the United States.

(b) A withholding agent may treat a direct account holder that is an
entity (other than a flow-through entity) as a foreign person even
if it has a mailing or residence address for the direct account
holder in the United States if the withholding agent--

(1) Has in its possession, or obtains, documentation that
substantiates that the entity is actually organized or created under
the laws of a foreign country;

(2) Obtains a valid beneficial owner withholding certificate on Form
W-8 and the Form W-8 contains a permanent residence address outside
the United States and a mailing address outside the United States
(or if a mailing address is inside the United States the direct
account holder provides additional documentary evidence sufficient
to establish the direct account holder's foreign status); or

(3) The account is maintained at an office of the withholding agent
outside the United States and the withholding agent is required to
report annually a payment to the direct account holder on a tax
information statement that is filed with the tax authority of the
country in which the office is located and that country has an
income tax treaty in effect with the United States..193

(iii) Documentary evidence is unreliable or incorrect if the direct
account holder has standing instructions directing the withholding
agent to pay amounts from its account to an address or an account
maintained in the United States. The withholding agent may treat the
direct account holder as a foreign person, however, if the account
holder provides a reasonable explanation in writing that supports
its foreign status.

(9) Documentary evidence--claim of reduced rate of withholding under
treaty. A withholding agent has reason to know that documentary
evidence provided in connection with a payment of an amount
described in §1.1441-6(c)(2) is unreliable or incorrect for
purposes of establishing that a direct account holder is a resident
of a country with which the United States has an income tax treaty
if it is described in paragraph (b)(9)(i) or (ii) of this section.

(i) Documentary evidence is unreliable or incorrect if the
withholding agent has a mailing or residence address for the direct
account holder (whether or not on the documentary evidence) that is
outside the applicable treaty country, or the only address that the
withholding agent has (whether in or outside of the applicable
treaty country) is a P.O. box, an in-care-of address, or the address
of a financial institution (if the financial institution is not the
beneficial owner). If a withholding agent has a mailing or residence
address for the direct account holder outside the applicable treaty
country, the withholding agent may nevertheless treat a direct
account holder as a resident of an applicable treaty country if the
withholding agent--

(A) Has in its possession, or obtains, additional documentary
evidence supporting the direct account holder's claim of residence
in the applicable treaty country (and the.194 documentary evidence
does not contain an address outside the applicable treaty country, a
P.O. box, an in-care-of address, or the address of a financial
institution);

(B) Has in its possession, or obtains, documentary evidence that
establishes the direct account holder is an entity organized in a
treaty country (or an entity managed and controlled in a treaty
country, if the applicable treaty so requires); or

(C) Obtains a valid beneficial owner withholding certificate on Form
W-8 that contains a permanent residence address and a mailing
address in the applicable treaty country.

(ii) Documentary evidence is unreliable or incorrect if the direct
account holder has standing instructions directing the withholding
agent to pay amounts from its account to an address or an account
maintained outside the treaty country unless the direct account
holder provides a reasonable explanation, in writing, establishing
the direct account holder's residence in the applicable treaty
country.

(10) Limits on reason to know--indirect account holders. A financial
institution that receives documentation from a payee through a
nonqualified intermediary, a flow-through entity, or a U.S. branch
described in §1.1441-1(b)(2)(iv) (other than a U.S. branch that
is treated as a U.S. person) with respect to a payment of an amount
described in §1.1441- 6(c)(2) has reason to know that the
documentation is unreliable or incorrect if a reasonably prudent
person in the position of a withholding agent would question the
claims made. This standard requires, but is not limited to, a
withholding agent's compliance with the rules of paragraphs (b)(10)
(i) through (iii)..195 (i) The withholding agent must review the
withholding statement described in §1.1441-1(e)(3)(iv) and may
not rely on information in the statement to the extent the
information does not support the claims made for any payee. For this
purpose, a withholding agent may not treat a payee as a foreign
person if an address in the United States is provided for such payee
and may not treat a person as a resident of a country with which the
United States has an income tax treaty if the address for that
person is outside the applicable treaty country. Notwithstanding a
U.S. address or an address outside a treaty country, the withholding
agent may treat a payee as a foreign person or a foreign person as a
resident of a treaty country if a reasonable explanation is
provided, in writing, by the nonqualified intermediary, flow-through
entity, or U.S. branch supporting the payee's foreign status or the
foreign person's residency in a treaty country.

(ii) The withholding agent must review each withholding certificate
in accordance with the requirements of paragraphs (b)(5) and (6) of
this section and verify that the information on the withholding
certificate is consistent with the information on the withholding
statement required under §1.1441-1(e)(3)(iv). If there is a
discrepancy between the withholding certificate and the withholding
statement, the withholding agent may choose to rely on the
withholding certificate, if valid, and instruct the nonqualified
intermediary, flow-through entity, or U.S. branch to correct the
withholding statement or apply the presumption rules of
§§1.1441-1(b), 1.1441-5(d) and (e)(6), and 1.6049-5(d) to
the payment allocable to the payee who provided the withholding
certificate. A withholding agent that receives a withholding
certificate before December 31, 2001, is not required to review the
information on withholding certificates or determine if it is
consistent with the information on the withholding statement until
December 31, 2001. A withholding agent may withhold.196 and report
in accordance with a withholding statement until December 31, 2001,
unless it has actually performed the verification procedures
required by this paragraph (b)(10)(ii) and determined that the
withholding statement is inaccurate with respect to a particular
payee.

(iii) The withholding agent must review the documentary evidence
provided by the nonqualified intermediary, flow-through entity, or
U.S. branch to determine that there is no obvious indication that
the payee is a U.S. non-exempt recipient or that the documentary
evidence does not establish the identity of the person who provided
the documentation (e.g., the documentary evidence does not appear to
be an identification document).

(11) Additional guidance. The IRS may prescribe other circumstances
for which a withholding certificate or documentary evidence is
unreliable or incorrect in addition to the circumstances described
in paragraph (b) of this section to establish an account holder's
status as a foreign person or a beneficial owner entitled to a
reduced rate of withholding in published guidance (see
§601.601(d)(2) of this chapter).

* * * * *

Par. 10. Effective January 1, 2001, §1.1441-9 is amended by
revising paragraph (b)(2) to read as follows: §1.1441-9
Exemption from withholding on exempt income of a foreign tax-exempt
organization, including foreign private foundations.

* * * * * (b) * * *

(2) Withholding certificate. A withholding certificate under this
paragraph (b)(2) is valid only if it is a Form W-8 and if, in
addition to other applicable requirements, the Form W-8 includes the
taxpayer identifying number of the organization whose name is on the
certificate, and it certifies that the Internal Revenue Service
(IRS) has issued a favorable determination letter (and the date
thereof) that is currently in effect, what portion, if any, of the
amounts paid constitute income includible under section 512 in
computing the organization's unrelated business taxable income, and,
if the organization is described in section 501(c)(3), whether it is
a private foundation described in section 509. Notwithstanding the
preceding sentence, if the organization cannot certify that it has
been issued a favorable determination letter that is still in
effect, its withholding certificate is nevertheless valid under this
paragraph (b)(2) if the organization attaches to the withholding
certificate an opinion that is acceptable to the withholding agent
from a U.S. counsel (or any other person as the IRS may prescribe in
published guidance (see §601.601(d)(2) of this chapter))
concluding that the organization is described in section 501(c). If
the determination letter or opinion of counsel to which the
withholding certificate refers concludes that the organization is
described in section 501(c)(3), and the certificate further
certifies that the organization is not a private foundation
described in section 509, an affidavit of the organization setting
forth sufficient facts concerning the operations and support of the
organization for the Internal Revenue Service (IRS) to determine
that such organization would be likely to qualify as an organization
described in section 509(a)(1), (2), (3), or (4) must be attached to
the withholding certificate. An organization that provides an
opinion of U.S. counsel or an affidavit may provide the same opinion
or affidavit to more than one withholding agent provided that the
opinion is acceptable to each withholding agent who receives it in
conjunction with a withholding certificate. Any such opinion of
counsel or affidavit must be renewed whenever there is a change in
facts or circumstances that are relevant to determine the
organization's status under section 501(c) or, if relevant, that the
organization is or is not a private foundation described in section
509.

* * * * *

Par. 12. Effective January 1, 2001, §1.1461-1 is amended by:

1. Removing the last sentence of paragraph (a)(1).

2. Removing paragraphs (b)(2) and (b)(3) and redesignating paragraph
(b)(4) as new paragraph (b)(2).

3. Revising paragraphs (c)(1), (c)(2), (c)(3), and (c)(4).

4. Removing paragraphs (c)(5), (c)(6), and (c)(7), and redesignating
paragraph

(c)(8) as new paragraph (c)(5). The revisions read as follows:
§1.1461-1 Payment and returns of tax withheld.

* * * * *

(c) Information returns--(1) Filing requirement--

(i) In general. A withholding agent (other than an individual who is
not acting in the course of a trade or business with respect.199 to
a payment) must make an information return on Form 1042-S (or such
other form as the IRS may prescribe) to report the amounts subject
to reporting, as defined in paragraph

(c)(2) of this section, that were paid during the preceding calendar
year. Notwithstanding the preceding sentence, any person that
withholds or is required to withhold an amount under sections 1441,
1442, or 1443 must file a Form 1042-S for the payment withheld upon
whether or not that person is engaged in a trade or business and
whether or not the payment is an amount subject to reporting. A Form
1042-S shall be prepared for each recipient of an amount subject to
reporting. The Form 1042-S shall be prepared in such manner as the
form and accompanying instructions prescribe. One copy of the Form
1042- S shall be filed with the IRS on or before March 15 of the
calendar year following the year in which the amount subject to
reporting was paid. It shall be filed with a transmittal form as
provided in the instructions to the Form 1042-S and to the
transmittal form. Withholding certificates, documentary evidence, or
other statements or documentation provided to a withholding agent
are not required to be attached to the form. Another copy of the
Form 1042-S must be furnished to the recipient for whom the form is
prepared (or any other person, as required under this paragraph (c)
or the instructions to the form) on or before March 15 of the
calendar year following the year in which the amount subject to
reporting was paid. The withholding agent must retain a copy of each
Form 1042-S for the statute of limitations on assessment and
collection applicable to the Form 1042 to which the Form 1042-S
relates.

(ii) Recipient--(A) Defined. For purposes of this section, the term
recipient means--.200

(1) A beneficial owner as defined in §1.1441-1(c)(6), including
a foreign estate or a foreign complex trust, as defined in
§1.1441-1(c)(25);

(2) A qualified intermediary as defined in §1.1441-1(e)(5)(ii);

(3) A withholding foreign partnership as defined in
§1.1441-5(c)(2) or a withholding foreign trust under
§1.1441-5(e)(5)(v);

(4) An authorized foreign agent as defined in §1.1441-7(c);

(5) A U.S. branch that is treated as a U.S. person under
§1.1441-1(b)(2)(iv)(A);

(6) A nonwithholding foreign partnership or a foreign simple trust
as defined in §1.1441-1(c)(24), but only to the extent the
income is (or is treated as) effectively connected with the conduct
of a trade or business in the United States by such entity;

(7) A payee, as defined in §1.1441-1(b)(2) that is presumed to
be a foreign person under the presumption rules of §1.1441-1(b)
(3); 1.1441-5(d) or (e)(6), or 1.6049-5(d); and

(8) Any other person as required on Form 1042-S or the instructions
to the form.

(b) Persons that are not recipients. A recipient does not include--

(1) A nonqualified intermediary;

(2) A payment to a wholly-owned entity that is disregarded under
§301.7701-2(c)(2) of this chapter as an entity separate from
its owner;.201

(3) A flow-through entity, as defined in §1.1441-1(c)(23) (to
the extent it is receiving amounts subject to reporting other than
income effectively connected with the conduct of a trade or business
in the United States); and

(4) A U.S. branch described in §1.1441-1(b)(2)(iv) that is not
treated as a U.S. person under that section.

(2) Amounts subject to reporting--

(i) In general. Subject to the exceptions described in paragraph (c)
(2)(ii) of this section, amounts subject to reporting on Form 1042-S
are amounts paid to a foreign payee (including persons presumed to
be foreign) that are amounts subject to withholding as defined in
§1.1441-2(a). Amounts subject to reporting include amounts
subject to withholding even if no amount is deducted and withheld
from the payment because of a treaty or Internal Revenue Code
exception to taxation or because an amount withheld was reimbursed
to the payee under the adjustment procedures of §1.1461-2. In
addition, amounts subject to reporting include any amounts paid to a
foreign payee on which a withholding agent withheld an amount
(either under chapter 3 of the Internal Revenue Code or section
3406) whether or not the amount is subject to withholding. Amounts
subject to reporting include, but are not limited to, the following
items--

(A) The entire amount of a corporate distribution (whether actual or
deemed) irrespective of any estimate of the portion of the
distribution that represents a taxable dividend;.202

(B) Interest, including the portion of a notional principal contract
payment that is characterized as interest. Interest shall also be
reported on Form 1042-S if it is bank deposit interest paid to
nonresident alien individuals as required under §1.6049-8;

(C) Rents;

(D) Royalties;

(E) Compensation for dependent and independent personal services
performed in the United States;

(F) Annuities;

(G) Pension distributions and other deferred income;

(H) Gambling winnings that are not exempt from tax under section
871(j);

(I) Income from the cancellation of indebtedness unless the
withholding agent is unrelated to the debtor and does not have
knowledge of the facts that give rise to the payment (see
§1.1441-2(d));

(J) Amounts that are (or are presumed to be) effectively connected
with the conduct of a trade or business in the United States
(including deposit interest as defined in sections 871(i)(2)(A) and
881(d)) even if no withholding certificate is required to be
furnished by the payee or beneficial owner. In the case of amounts
paid on a notional principal contract described in §1.1441-4(a)
(3) that are presumed to be effectively connected with the.203
conduct of a trade or business in the United States, the amount
required to be reported is limited to the amount of cash paid from
the notional principal contract;

(K) Scholarship, fellowship, or grant income and compensation for
personal services that is not excludible from gross income under
section 117 (whether or not the taxable scholarship, fellowship,
grant income, or compensation for personal services is exempt from
tax under an income tax treaty) paid to foreign students, trainees,
teachers, or researchers;

(L) Amounts paid to foreign governments, international
organizations, or the Bank for International Settlements, whether or
not documentation must be provided; and

(M) Original issue discount paid on the redemption of an OID
obligation. The amount to be reported is the amount of OID
includible in the gross income of the holder of the obligation, if
known, or, if not known, the total amount of original issue discount
determined as if the holder held the obligation from its original
issuance. A withholding agent may determine the total amount of OID
by using the most recently published "List of Original Issue
Discount Instruments," (Publication 1212, available from the IRS
Forms Distribution Centers).

(ii) Exceptions to reporting. The amounts listed in this paragraph
(c)(2)(ii) are not required to be reported on Form 1042-S--(

(A) Interest (including original issue discount) that is deposit
interest under sections 871(i)(2)(A) and 881(d) and that is not
effectively connected with the conduct of a trade or business in the
United States, unless reporting is required under §1.6049-8
(regarding.204 payments to certain foreign residents) or is interest
that is effectively connected with the conduct of a trade or
business in the United States;

(B) Interest or original issue discount on certain short-term
obligations, described in section 871(g)(1)(B) or 881(a)(3);

(C) Interest paid on obligations sold between interest payment dates
and the portion of the purchase price of an OID obligation that is
sold or exchanged in a transaction other than a redemption, unless
the sale or exchange is part of a plan, the principal purpose of
which is to avoid tax and the withholding agent has actual knowledge
or reason to know of such plan (see §1.1441-2(a)(5) and (6));

(D) Any item required to be reported on a Form W-2, including an
item required to be shown on Form W-2 solely by reason of
§1.6041-2 (relating to return of information for payments to
employees) or §1.6052-1 (relating to information regarding
payment of wages in the form of group-term life insurance);

(E) Any item required to be reported on Form 1099, and such other
forms as are prescribed pursuant to the information reporting
provisions of sections 6041 through 6050P and the regulations under
those sections;

(F) Amounts paid on a notional principal contract described in
§1.1441-4(a)(3)(i) that are not effectively connected with the
conduct of a trade or business in the United States (or not treated
as effectively connected pursuant to §1.1441-4(a)(3)(ii));.205

(G) Amounts required to be reported on Form 8288 (U.S. Withholding
Tax Return for Dispositions by Foreign Persons of U.S. Real Property
Interests) or Form 8804 (Annual Return for Partnership Withholding
Tax (section 1446)). A withholding agent that must report a
distribution partly on a Form 8288 or 8804 and partly on a Form
1042-S may elect to report the entire amount on a Form 8288 or 8804;

(H) Interest (including original issue discount) paid with respect
to foreign-targeted registered obligations described in
§1.871-14(e)(2) to the extent the documentation requirements
described in §1.871-14(e)(3) and (4) are required to be
satisfied (taking into account the provisions of §1.871-14(e)
(4)(ii), if applicable;

(I) Interest on a foreign targeted bearer obligation (see
§§1.1441-1(b)(4)(i) and 1.1441-2(a));

(J) Gain described in section 301(c)(3); and

(K) Amounts described in §1.1441-1(b)(4)(xviii) (dealing with
certain amounts paid by the U.S. government).

(3) Required information. The information required to be furnished
under this paragraph (c)(3) shall be based upon the information
provided by or on behalf of the recipient of an amount subject to
reporting (as corrected and supplemented based on the withholding
agent's actual knowledge) or the presumption rules of
§§1.1441-1(b)(3), 1.1441-4(a); 1.1441-5(d) and (e);
1.1441-9(b)(3) or 1.6049-5(d). The Form 1042-S must include the
following information, if applicable--.206

(i) The name, address, and taxpayer identifying number of the
withholding agent;

(ii) A description of each category of income paid based on the
income codes provided on the form (e.g., interest, dividends,
royalties, etc.) and the aggregate amount in each category expressed
in U.S. dollars;

(iii) The rate of withholding applied or the basis for exempting the
payment from withholding (based on exemption codes provided on the
form); (iv) The name and address of the recipient;

(v) The name and address of any nonqualified intermediary, flow-
through entity, or U.S. branch as described in §1.1441-1(b)(2)
(iv) (other than a branch that is treated as a U.S. person) to which
the payment was made;

(vi) The taxpayer identifying number of the recipient if required
under §1.1441- 1(e)(4)(vii) or if actually known to the
withholding agent making the return;

(vii) The taxpayer identifying number of a nonqualified intermediary
or flow-through entity (to the extent it is not a recipient) or
other flow-through entity to the extent it is known to the
withholding agent;

(viii) The country (based on the country codes provided on the form)
of the recipient and of any nonqualified intermediary or flow-
through entity the name of which appears on the form; and.207 (ix)
Such information as the form or the instructions may require in
addition to, or in lieu of, information required under this
paragraph (c)(3).

(4) Method of reporting--

(i) Payments by U.S. withholding agents to recipients. A withholding
agent that is a U.S. person (other than a foreign branch of a U.S.
person that is a qualified intermediary as defined in
§1.1441-1(e)(5)(ii)) and that makes payments of amounts subject
to reporting on Form 1042-S must file a separate Form 1042-S for
each recipient who receives such amount. For purposes of this
paragraph (c)(4), a U.S. person includes a U.S. branch described in
§1.1441-1(e)(2)(iv)(A) or (E) that agrees to be treated as a
U.S. person. Except as may otherwise be required on Form 1042-S or
the instructions to the form, only payments for which the income
code, exemption code, withholding rate and recipient code are the
same may be reported on a single Form 1042-S. See paragraph (c)(4)
(ii) of this section for reporting of payments made to a person that
is not a recipient.

(a) Payments to beneficial owners. If a U.S. withholding agent makes
a payment directly to a beneficial owner it must complete Form 1042-
S treating the beneficial owner as the recipient. Under the grace
period rule of §1.1441-1(b)(3)(iv), a U.S. withholding agent
may, under certain circumstances, treat a payee as a foreign person
while the withholding agent awaits a valid withholding certificate.
A U.S. withholding agent who relies on the grace period rule to
treat a payee as a foreign person must file a Form 1042-S to report
all payments on Form 1042-S during the period that person was
presumed to be foreign even if that person is later determined to be
a U.S. person based on appropriate documentation or is presumed to
be a U.S. person after the grace period ends. In the case of joint
owners, a withholding agent may provide a single Form 1042-S made
out to the.208 owner whose status the U.S. withholding agent relied
upon to determine the applicable rate of withholding. If, however,
any one of the owners requests its own Form 1042-S, the withholding
agent must furnish a Form 1042-S to the person who requests it. If
more than one Form 1042-S is issued for a single payment, the
aggregate amount paid and tax withheld that is reported on all Forms
1042-S cannot exceed the total amounts paid to joint owners and the
tax withheld thereon.

(b) Payments to a qualified intermediary, a withholding foreign
partnership, or a withholding foreign trust. A U.S. withholding
agent that makes payments to a qualified intermediary (whether or
not the qualified intermediary assumes primary withholding
responsibility), a withholding foreign partnership, or a withholding
foreign trust shall complete Forms 1042-S treating the qualified
intermediary or withholding foreign partnership as the recipient.
The U.S. withholding agent must complete a separate Form 1042-S for
each withholding rate pool. A withholding rate pool is a payment of
a single type of income (determined by the income codes on Form
1042-S) that is subject to a single rate of withholding. A qualified
intermediary that does not assume primary withholding responsibility
on all payments it receives provides information regarding the
proportions of income subject to a particular withholding rate to
the withholding agent on a withholding statement associated with a
qualified intermediary withholding certificate. A qualified
intermediary may provide a U.S. withholding agent with information
regarding withholding rate pools for U.S. non-exempt recipients (as
defined under §1.1441-1(c)(21)). Amounts paid with respect to
such withholding rate pools must be reported on Form 1099 completed
for each U.S. non-exempt recipient to the extent they are subject to
Form 1099 reporting. These amounts must not be reported on Form
1042-S. In addition, the qualified.209 intermediary may provide the
U.S. withholding agent information regarding withholding rate pools
for U.S. persons that are exempt recipients as defined under
§1.1441-1(c)(20). If such information is provided, a U.S.
withholding agent should not report such withholding rate pools on
Form 1042-S.

(c) Amounts paid to U.S. branches treated as U.S. persons. A U.S.
withholding agent making a payment to a U.S. branch of a foreign
person described in §1.1441- 1(b)(2)(iv) shall complete Form
1042-S as follows--

(1) If the branch has provided the U.S. withholding agent with a
withholding certificate that evidences its agreement with the
withholding agent to be treated as a U.S. person, the U.S.
withholding agent files Forms 1042-S treating the U.S. branch as the
recipient;

(2) If the branch has provided the U.S. withholding agent with a
withholding certificate that transmits information regarding
beneficial owners, qualified intermediaries, withholding foreign
partnerships, or other recipients, the U.S. withholding agent must
complete a separate Form 1042-S for each recipient whose
documentation is associated with the U.S. branch's withholding
certificate; or

(3) If the U.S. withholding agent cannot reliably associate a
payment with a valid withholding certificate from the U.S. branch,
it shall treat the U.S. branch as the recipient and report the
income as effectively connected with the conduct of a trade or
business in the United States.

(D) Amounts paid to an authorized foreign agent. If a U.S.
withholding agent makes a payment to an authorized foreign agent,
the withholding agent files Forms 1042-S treating the authorized
foreign agent as the recipient, provided that the authorized foreign
agent reports the payments on Forms 1042-S to each recipient to
which it makes payments. If the authorized foreign agent fails to
report the amounts paid on Forms 1042-S for each recipient to which
the payment is made, the U.S. withholding agent remains responsible
for such reporting.

(e) Dual Claims. A U.S. withholding agent may make a payment to a
foreign entity that is simultaneously claiming a reduced rate of tax
on its own behalf for a portion of the payment and a reduced rate on
behalf of persons in their capacity as interest holders in that
entity on the remaining portion. See §1.1441-6(b)(2)(iii). If
the claims are consistent and the withholding agent accepts the
multiple claims, the withholding agent must file a separate Form
1042-S for those payments for which the entity is treated as the
beneficial owner and Forms 1042-S for each of the interest holder in
the entity for which the interest holder is treated as the
recipient. For those payments for which the interest holder in an
entity is treated as the recipient, the U.S. withholding agent shall
prepare the Form 1042-S in the same manner as a payment made to a
nonqualified intermediary or flow-through entity as set forth in
paragraph (c)(4)(ii) of this section. If the claims are consistent
but the withholding agent has not chosen to accept the multiple
claims, or if the claims are inconsistent, the withholding agent
must file a separate Form 1042-S for the person or persons it has
chosen to treat as the recipients.

(ii) Payments made by U.S. withholding agents to persons that are
not recipients--(A) Amounts paid to a nonqualified intermediary, a
flow-through entity, and certain U.S. branches. If a U.S.
withholding agent makes a payment to a nonqualified intermediary, a
flow-through entity, or a U.S. branch described in §1.1441-1(b)
(2)(iv) (other than a branch that agrees to be treated as a U.S.
person), it must complete a separate Form 1042-S for each recipient
to the extent the withholding agent can reliably associate a payment
with valid documentation (within the meaning of §1.1441-1(b)(2)
(vii)) from the recipient which is associated with the withholding
certificate provided by the nonqualified intermediary, flow-through
entity, or U.S. branch. If a payment is made through tiers of
nonqualified intermediaries or flow-through entities, the
withholding agent must nevertheless complete Form 1042-S for the
recipients to the extent it can reliably associate the payment with
documentation from the recipients. A withholding agent that is
completing a Form 1042-S for a recipient that receives a payment
through a nonqualified intermediary, a flow-through entity, or a
U.S. branch must include on the Form 1042-S the name of the
nonqualified intermediary or flow-through entity from which the
recipient directly receives the payment.

If a U.S. withholding agent cannot reliably associate the payment,
or any portion of the payment, with valid documentation from a
recipient either because no such documentation has been provided or
because the nonqualified intermediary, flow-through entity, or U.S.
branch has failed to provide sufficient allocation information so
that the withholding agent can associate the payment, or any portion
thereof, with valid documentation, then the withholding agent must
report the payments as made to an unknown recipient in accordance
with the appropriate presumption rules for that payment. Thus, if
under the presumption rules the payment is presumed to be made to a
foreign person, the withholding agent must generally withhold 30
percent of the payment and report the payment on Form 1042-S made
out to an unknown recipient and shall also include the name of the
nonqualified intermediary or flow-through entity that received the
payment on behalf of the unknown recipient. If, however, the
recipient is presumed to be a U.S. non-exempt recipient (as defined
in §1.1441-1(c)(21)), the withholding agent must withhold on
the payment as required under section 3406 and report the payment as
made to an unknown recipient on the appropriate Form 1099 as
required under chapter 61 of the Internal Revenue Code.

(b) Disregarded entities. If a U.S. withholding agent makes a
payment to a disregarded entity but receives a valid withholding
certificate or other documentary evidence from a foreign person that
is the single owner of a disregarded entity, the withholding agent
must file a Form 1042-S treating the foreign single owner as the
recipient. The taxpayer identifying number on the Form 1042-S, if
required, must be the foreign single owner's TIN.

(iii) Reporting by qualified intermediaries, withholding foreign
partnerships, and withholding foreign trusts. A qualified
intermediary, a withholding foreign partnership, and a withholding
foreign trust shall report payments on Form 1042-S as provided in
their agreements with the IRS and the instructions to the form.

(iv) Reporting by a nonqualified intermediary, flow-through entity,
and certain U.S. branches. A nonqualified intermediary, flow-through
entity, or U.S. branch described in §1.1441-1(e)(2)(iv) (other
than a U.S. branch that is treated as a U.S. person) is a
withholding agent and must file Forms 1042-S for amounts paid to
recipients in the same.213 manner as a U.S. withholding agent. A
Form 1042-S will not be required, however, if another withholding
agent has reported the same amount to the same recipient for which
the nonqualified intermediary, flow-through entity, or U.S. branch
would be required to file a return and the entire amount that should
be withheld from such payment has been withheld. A nonqualified
intermediary, flow-through entity, or U.S. branch must report
payments made to recipients to the extent it has failed to provide
the appropriate documentation to another withholding agent together
with the information required for that withholding agent to reliably
associate the payment with the recipient documentation or to the
extent it knows, or has reason to know, that less than the required
amount has been withheld. A nonqualified intermediary or flow-
through entity that is required to report a payment on Form 1042-S
must follow the same rules as apply to a U.S. withholding agent
under paragraph (c)(4)(i) and (ii) of this section.

(v) Pro rata reporting for allocation failures. If a nonqualified
intermediary, flow-through entity, or U.S. branch described in
§1.1441-1(b)(2)(iv) (other than a branch treated as a U.S.
person) that uses the alternative procedures of §1.1441-1(e)(3)
(iv)(D) fails to provide information sufficient to allocate the
amount subject to reporting paid to a withholding rate pool to the
payees identified for that pool, then the withholding agent shall
report the payment in accordance with the rule provided in
§1.1441-1(e)(3)(iv)(D)(6).

(vi) Other withholding agents. Any person that is a withholding
agent not described in paragraph (c)(4)(i), (iii), or (iv) of this
section (e.g., a foreign person that is not a qualified
intermediary, flow-through entity, or U.S. branch) shall file Form
1042-S in the same manner as a U.S. withholding agent and in
accordance with the instructions to the form..214

* * * * *

Par. 11. Effective January 1, 2001, §1.6041-1 is amended by
revising paragraph (d)(5) to read as follows: § 1.6041-1 Return
of information as to payments of $600 or more.

* * * * *

(d) * * *

(5) Notional principal contracts. Except as provided in paragraphs
(b)(5)(i) and (ii) of this section, amounts paid after December 31,
2000, with respect to notional principal contracts referred to in
§1.863-7 or 1.988-2(e) to persons who are not described in
§1.6049-4(c)(1)(ii) are required to be reported in returns of
information under this section. The amount required to be reported
under this paragraph (d)(5) is limited to the amount of cash paid
from the notional principal contract as described in
§1.446-3(d). A non-periodic payment is reportable for the year
in which an actual payment is made. Any amount of interest
determined under the provisions of §1.446-3(g)(4) (dealing with
interest in the case of a significant non-periodic payment) is
reportable under this paragraph (d)(5) and not under section 6049
(see §1.6049-5(b)(15)). See §1.6041-4(a)(4) for reporting
exceptions regarding payments to foreign persons. See, however,
§1.1461-1(c)(1) for reporting amounts described under this
paragraph (d)(5) that are paid to foreign persons. The provisions of
§1.6049-5(d) shall apply for determining whether a payment with
respect to a notional principal contract is made to a foreign
person. See §1.6049-4(a) for a definition.215 of payor. For
purposes of this paragraph (d)(5), a payor includes a middleman
defined in §1.6049-4(f)(4).

(i) An amount paid with respect to a notional principal contract is
not required to be reported if the payment is made outside the
United States (as defined in §1.6049-5(e)) by a non-U.S. payor
or a non-U.S. middleman.

(ii) An amount paid with respect to a notional principal contract is
not required to be reported if the payment is made outside the
United States (as defined in §1.6049-5(e)) by a payor that has
no actual knowledge that the payee is a U.S. person, and the payor
is--

(A) A U.S. payor or U.S. middleman that is not a U.S. person (such
as a controlled foreign corporation defined in section 957(a) or
certain foreign corporations or foreign partnerships engaged in a
U.S. trade or business); or

(B) A foreign branch of a U.S. bank. See §1.6049-5(c)(5) for a
definition of a U.S. payor, a U.S. middleman, a non-U.S. payor, and
a non-U.S. middleman.

* * * * *

Par. 12. Effective January 1, 2001, §1.6041-4 is amended by 1.
Revising paragraph (a)(3). 2. Adding paragraph (a)(6). The revision
and addition read as follows:.216 §1.6041-4 Foreign-related
items and other exceptions.

(a) * * *

(3) Returns of information are not required for amounts paid by a
foreign intermediary described in §1.1441-1(c)(13) that it has
received in its capacity as an intermediary and that are associated
with a valid withholding certificate described in §1.1441-1(e)
(3)(ii) or (iii) and payments made by a U.S. branch of a foreign
bank or of a foreign insurance company described in
§1.1441-1(b)(2)(iv) (other than a U.S. branch that is treated
as a U.S. person) that are associated with a valid withholding
certificate described in §1.1441-1(e)(3)(v), which certificate
the intermediary or branch has furnished to the payor or middleman
from whom it has received the payment, unless, and to the extent,
the intermediary or branch knows that the payments are required to
be reported under §1.6041-1 and were not so reported. For
example, if a foreign intermediary or U.S. branch described in
§1.1441-1(b)(2)(iv) fails to provide information regarding U.S.
persons that are not exempt from reporting under §1.6041-3(q)
to the person from whom the intermediary or U.S. branch receives the
payment, the foreign intermediary or U.S. branch must report the
payment on an information return. The exception of this paragraph
(a)(3) shall not apply to a qualified intermediary that assumes
reporting responsibility under chapter 61 of the Internal Revenue
Code.

* * * * * *

(6) For rules concerning direct sellers, see §1.6041A-1(d)(3)
(i)(C).

* * * * *

Par. 13. Effective January 1, 2001, §1.6041A-1 is amended by:
1. Revising paragraph (d)(3)(i)(B). 2. Adding paragraph (d)(3)(i)
(C). The revision and addition read as follows: §1.6041A-1
Returns regarding payments of remuneration for services and certain
direct sales.

* * * * *

(d) * * *

(3) * * * (i) * * *

(B) Returns of information are not required for payments of
remuneration for services from sources outside the United States
(determined under the provisions of part I, subchapter N, chapter 1
of the Internal Revenue Code and the regulations under those
provisions) if payments are made outside the United States by a non-
U.S. payor or non U.S. middleman. For a definition of non U.S. payor
or non-U.S. middleman, see §1.6049- 5(c)(5). For circumstances
in which a payment is considered to be made outside the United
States, see §1.6049-5(e).

(c) Returns of information are not required under sections 6041 or
6041A for amounts paid outside of the United States (within the
meaning of §1.6049-5(e)) as.218 remuneration for services as a
direct seller (within the meaning of section 3508) performed outside
of the United States or for sales described in section 6041A(b) made
outside of the United States of consumer products for resale outside
of the United States.

* * * * *

Par. 14. Effective January 1, 2001, §1.6042-3 is amended by
revising paragraph (b)(1)(vi) to read as follows:

§1.6042-3 Dividends subject to reporting.

* * * * *

(b) * * * (1) * * *

(vi) Payments made by a foreign intermediary described in
§1.1441-1(c)(13) of amounts that it has received in its
capacity as an intermediary and that are associated with a valid
withholding certificate described in §1.1441-1(e)(3)(ii) or
(iii) and payments made by a U.S. branch of a foreign bank or of a
foreign insurance company described in §1.1441- 1(b)(2)(iv)
(other than a U.S. branch that is treated as a U.S. person) that are
associated with a valid withholding certificate described in
§1.1441-1(e)(3)(v), which certificate the intermediary or
branch has furnished to the payor or middleman from whom it has
received the payment, unless, and to the extent, the intermediary or
branch knows that the payments are required to be reported under
§1.6042-2 and were not so reported. For example, if a foreign
intermediary or U.S. branch described in §1.1441-1(b)(2)(iv)
fails to provide information regarding U.S. persons that are not
exempt from reporting under §1.6049-.219 4(c)(1)(ii) to the
person from whom the intermediary or U.S. branch receives the
payment, the amount paid by the foreign intermediary or U.S. branch
to such person is a dividend. The exception of this paragraph (b)(1)
(vi) shall not apply to a qualified intermediary that assumes
reporting responsibility under chapter 61 of the Internal Revenue
Code. * * * * *

Par. 15. Effective January 1, 2001, §1.6045-1 is amended by: 1.
Removing the last sentence of paragraph (g)(1)(i) and adding two new
sentences in its place. 2. Revising paragraph (g)(3)(iv). 3.
Revising paragraph (g)(4), Example 7. 4. Adding Examples 8 and 9 to
paragraph (g)(4). The additions and revisions read as follows:
§1.6045-1 Returns of information of brokers and barter
exchanges.

* * * * *

(g) * * * (1) * * *

(i) * * * For purposes of this paragraph (g)(1)(i), a broker that is
required to obtain, or chooses to obtain, a beneficial owner
withholding certificate described in §1.1441-.220 1(e)(2)(i)
from an individual may rely on the withholding certificate only to
the extent the certificate includes a certification that the
beneficial owner has not been, and at the time the certificate is
furnished, reasonably expects not to be present in the United States
for a period aggregating 183 days or more during each calendar year
to which the certificate pertains. The certification is not required
if a broker receives documentary evidence under §1.6049-5(c)(1)
or (4). * * * * *

(3) * * * (iv) Special rules where the customer is a foreign
intermediary or certain U.S. branches. A foreign intermediary, as
defined in §1.1441-1(c)(13), is an exempt foreign person,
except when the broker has actual knowledge (within the meaning of
§1.6049- 5(c)(3)) that the person for whom the intermediary
acts is a U.S. person that is not exempt from reporting under
§5f.6045-1(c)(3) of this chapter or the broker is required to
presume under §1.6049-5(d)(3) that the payee is a U.S. person
that is not an exempt recipient. If an intermediary, as defined in
§1.1441-1(c)(13), or a U.S. branch described in §1.1441-
1(b)(2)(iv) (other than a U.S. branch that is treated as a U.S.
person) receives a payment from a payor or middleman, which payment
the payor or middleman can associate with a valid withholding
certificate described in §1.1441-1(e)(3)(ii), (iii), or (v)
furnished by such intermediary or U.S. branch, then the intermediary
or U.S. branch is not required to report such payment when it, in
turn, pays the amount to the person whose name is on the certificate
furnished by the intermediary or U.S. branch to the payor or
middleman, unless, and to the extent, the intermediary or U.S.
branch knows that the payment is required to be

reported under this section and was not so reported. For example, if
a foreign intermediary or U.S. branch fails to provide information
regarding U.S. persons that are not exempt from reporting under
§5f.6045-1(c)(3) of this chapter to the person from whom the
intermediary or U.S. branch receives the payment, the foreign
intermediary or U.S. branch must report the payment on an
information return. The exception of this paragraph (g)(3)(iv) shall
not apply to a qualified intermediary that assumes reporting
responsibility under chapter 61 of the Internal Revenue Code.

(4) * * * Example 7. Customer A, an individual, owns U.S. corporate
bonds issued in registered form after July 18, 1984 and carrying a
stated rate of interest. The bonds are held through an account with
foreign bank, X, and are held in street name. X is a wholly-owned
subsidiary of a U.S. company and is not a qualified intermediary
within the meaning of §1.1441-1(e)(5)(ii). X has no
documentation regarding A. A instructs X to sell the bonds. In order
to effect the sale, X acts through its agent in the United States,
Y. Y sells the bonds and remits the sales proceeds to X. X credits
A's account in the foreign country. X does not provide documentation
to Y.

(i) Y's obligations to withhold and report. Y treats X as the
customer, and not A, because Y cannot treat X as an intermediary
because it has received no documentation from X. Y is not required
to report the sales proceeds under the multiple broker exception
under §5f.6045-1(c)(3)(ii) of this chapter, because X is an
exempt recipient. Further, Y is not required to report the amount of
accrued interest paid to X on Form 1042-S under §1.1461-1(c)(2)
(ii) because accrued interest is not an amount subject to reporting
unless the withholding agent knows that the obligation is being sold
with a primary purpose of avoiding tax.

(ii) X's obligations to withhold and report. Although X has
effected, within the meaning of paragraph (a)(1) of this section,
the sale of a security at an office outside the United States under
paragraph (g)(3)(iii) of this section, X is treated as a broker,
under paragraph (a)(1) of this section, because as a wholly-owned
subsidiary of a U.S. corporation, X is a U.S. payor . See
§1.6049-5(c)(5). Under the presumptions described in
§1.6049-5(d)(2), X must presume that, with respect to the sales
proceeds, A is a U.S. person who is not an exempt recipient.
Therefore the payment of sales proceeds to A by X is reportable on a
Form 1099 under paragraph (c)(2) of this section. X has no
obligation to backup withhold on the payment based on the exemption
under §31.3406(g)-1(e) of this chapter, unless X has actual
knowledge that A is a U.S. person that is not an exempt recipient. X
is also required to separately report the accrued interest (see
paragraph (d)(3).222 of this section) on Form 1099 under section
6049 because A is also presumed to be a U.S. person who is not an
exempt recipient under the presumption rule in §1.6049-5(d)(2)
and §1.1441-1(b)(3)(iii) since accrued interest is not an
amount subject to reporting and therefore the presumption of foreign
status for offshore accounts under §1.1441- 1(b)(3)(iii)(D)
does not apply.

Example 8. The facts are the same as in Example 7, except that
instead of U.S. corporate bonds that carry stated interest, A owns
original issue discount instruments described in section 871(g)(1)
(B)(i) (i.e., obligations payable 183 days or less from the date of
original issue). In addition, the sale is in a transaction other
than a redemption.

(i) Y's obligations to withhold and report. Y is not required to
report the sales proceeds under the multiple broker exception under
§5f.6045-1(c)(3)(ii) of this chapter, because X is an exempt
recipient.

(ii) X's obligations to withhold and report. Although X has
effected, within the meaning of paragraph (a)(1) of this section,
the sale of a security at an office outside the United States under
paragraph (g)(3)(iii) of this section, X is treated as a broker,
under paragraph (a)(1) of this section, because as a wholly-owned
subsidiary of a U.S. corporation, X is a U.S. payor. See
§1.6049-5(c)(5). Under the presumptions described in
§1.6049-5(d)(2), X must presume that, with respect to the sales
proceeds, A is a U.S. person who is not an exempt recipient.
Therefore the payment of sales proceeds to A by X is reportable on a
Form 1099 under paragraph (c)(2) of this section. X has no
obligation to backup withhold on the payment based on the exemption
under §31.3406(g)-1(e) of this chapter, unless X has actual
knowledge that A is a U.S. person that is not an exempt recipient. X
is not required to separately report the amount of accrued original
issue discount. See paragraph (d)(3) of this section.

Example 9. The facts are the same as in Example 8, except that X is
a foreign corporation that is not a U.S. payor under
§1.6049-5(c).

(i) Y's obligations to withhold and report. Y is not required to
report the sales proceeds under the multiple broker exception under
§5f.6045-1(c)(3)(ii) of this chapter, because X is the person
responsible for paying the proceeds from the sale to A.

(ii) X's obligations to withhold and report. Although A is presumed
to be a U.S. payee under the presumptions of §1.6049-5(d)(2), X
is not considered to be a broker under paragraph (a)(1) of this
section because it is a not a U.S. payor under §1.6049-5(c)(5).
Therefore X is not required to report the sale under paragraph (c)
(2) of this section.

* * * * *

Par. 16. Effective January 1, 2001, §1.6049-4 is amended by
revising the introductory text of paragraph (c)(1)(ii) to read as
follows:.223 §1.6049-4 Return of information as to interest
paid and original issue discount includible in gross income after
December 31, 1982. * * * * *

(c) * * * (1) * * *

(ii) Exempt recipient defined. The term exempt recipient means any
person described in paragraphs (c)(1)(ii)(A) through (Q) of this
section. An exempt recipient is generally exempt from information
reporting without filing a certificate claiming exempt status unless
the provisions of this paragraph (c)(1)(ii) require a payee to file
a certificate. A payor may, in any case, require a payee that is a
U.S. person not otherwise required to file a certificate under this
paragraph (c)(1)(ii) to file a certificate in order to qualify as an
exempt recipient. See §31.3406(h)-3(a)(1)(iii) and (c)(2) of
this chapter for the certificate that a payee that is a U.S. person
must provide when a payor requires the certificate to treat the
payee as an exempt recipient under this paragraph (c)(1)(ii). A
payor may treat a payee as an exempt recipient based upon a properly
completed form as described in §31.3406(h)-3(e)(2) of this
chapter, its actual knowledge that the payee is a person described
in this paragraph (c)(1)(ii), or the indicators described in this
paragraph (c)(1)(ii). * * * * *

Par. 17. Effective January 1, 2001, §1.6049-5 is amended by:

1. Adding a sentence at the end of paragraph (b)(10)(ii)..224

2. Adding a sentence at the end of the introductory text language of
paragraph (b)(11).

3. Revising paragraph (b)(14).

4. Adding a sentence at the end of paragraph (c)(1).

5. Revising paragraph (c)(4).

6. In paragraph (c)(6), removing Example 3 and redesignating
Examples 4 and

5 as Examples 3 and 4, respectively; in newly designated Example 3,
revise the language "The facts are the same as in Example 3" to read
"The facts are the same as in Example 2"; in addition, in newly
designated Example 4, revise the language "The facts are the same as
in Example 4" to read "The facts are the same as in Example 3".

7. Revising the first sentence of paragraph (d)(1) introductory
text.

8. Revising paragraphs (d)(2)(i) and (d)(2)(ii), (d)(3), and (d)(4).

9. Removing paragraph (d)(5).

The additions and revisions read as follows: §1.6049-5 Interest
and original issue discount subject to reporting after December 31,
1982.

* * * * *

(b) * * *

(10) * * *

(ii) * * * The exemption from reporting described in this paragraph
(b)(10) shall not apply if the payor has actual knowledge that the
payee is a U.S. person who is not an exempt recipient.

(11) * * * The exemption from reporting described in this paragraph
(b)(11) shall not apply if the payor has actual knowledge that the
payee is a U.S. person who is not an exempt recipient. * * * * *

(14) Payments made by a foreign intermediary described in
§1.1441-1(e)(3)(i) of amounts that it has received in its
capacity as an intermediary and that are associated with a valid
withholding certificate described in §1.1441-1(e)(3)(ii) or
(iii) and payments made by a U.S. branch of a foreign bank or of a
foreign insurance company described in §1.1441- 1(b)(2)(iv)
(other than a U.S. branch that is treated as a U.S. person) that are
associated with a valid withholding certificate described in
§1.1441-1(e)(3)(v), which certificate the intermediary or
branch has furnished to the payor or middleman from whom it has
received the payment, unless, and to the extent, the intermediary or
branch knows that the payments are required to be reported under
§1.6049-4 and were not so reported. For example, if a foreign
intermediary or U.S. branch described in §1.1441-1(b)(2)(iv)
fails to provide information regarding U.S. persons that are not
exempt from reporting under §1.6049- 4(c)(1)(ii) to the person
from whom the intermediary or U.S. branch receives the payment,.226
the amount paid by the foreign intermediary or U.S. branch to such
person is interest or original issue discount. The exception of this
paragraph (b)(14) shall not apply to a qualified intermediary that
assumes reporting responsibility under chapter 61 of the Internal
Revenue Code.

* * * * *

(c) * * * (1) * * *

A payor may also rely on documentary evidence associated with a
flow-through withholding certificate for payments treated as made to
foreign partners of a nonwithholding foreign partnership, as defined
in §1.1441-1(c)(28), the foreign beneficiaries of a foreign
simple trust, as defined in §1.1441-1(c)(24), or foreign owners
of a foreign grantor trust, as defined in §1.1441-1(c)(26),
even though the partnership or trust account is maintained in the
United States.

* * * * *

(4) Special documentation rules for certain payments. This paragraph
(c)(4) modifies the provisions of paragraph (c)(1) of this section
for payments to offshore accounts maintained at a bank or other
financial institution of amounts that are not subject to withholding
under chapter 3 of the Internal Revenue Code, other than amounts
described in paragraph (d)(3)(iii) of this section (dealing with
U.S. short-term OID and U.S. bank deposit interest). Amounts are not
subject to withholding under chapter 3 of the Internal Revenue Code
if they are not included in the definition of amounts subject to
withholding under §1.1441-2(a) (e.g., deposit interest with
foreign branches of U.S. banks, foreign source income, or broker
proceeds).

(i) Special rule when non-renewable documentary evidence is
customary. If it is customary in the country in which a branch or
office of a bank or other financial institution is located to obtain
documentary evidence described in paragraph (c)(1) of this section,
but it is not customary for such documentary evidence to be renewed,
then a payor may, in lieu of obtaining a withholding certificate,
request such documentary evidence for an account maintained at such
branch or office. The bank or other financial institution may rely
on such documentary evidence to treat a person as a foreign person
without renewing such documentary evidence in accordance with
paragraph (c)(2) of this section and §1.1441- 1(e)(4)(ii) if it
may rely on the documentary evidence as sufficient to establish the
person's foreign status under §1.1441-7(b)(7) and (8). If,
however, the bank or other financial institution may, under
§1.1441-7(b)(8) treat a payee as a foreign person even though
it has a residence or mailing address for the payee in the United
States, or has standing instructions to pay amounts from its account
to an address in the United States or an account maintained in the
United States, then the payor shall rely on the documentary evidence
only for a period of three full calendar years after the calendar
year in which the documentary evidence is provided to the payor or,
if earlier, until the payor is aware of a change of circumstances
that affects the validity of the documentation as establishing the
payee's status as a foreign person.

(ii) Statement in lieu of documentary evidence. If under the local
laws, regulations, or practices applicable to a type of account or
transaction it is not customary to obtain documentary evidence
described in paragraph (c)(1) of this section, the bank or other
financial institution may, instead of obtaining a beneficial owner
withholding certificate described in §1.1441-1(e)(2)(i) or
documentary evidence described in paragraph (c)(1) of.228 this
section, establish a payee's foreign status based on the statement
described in this paragraph (4)(ii) (or such substitute statement as
the Internal Revenue Service may prescribe) made on an account
opening form. The statement shall be valid only if the mailing and
residence addresses of the payee are outside the United States and
there are not other indicia of U.S. status. If reliance is not
permitted because there are indicia of U.S. status then the payor
must obtain either documentary evidence described in paragraph (c)
(1) of this section or a Form W-8 described in §1.1441-1(e)(2)
(i) to treat the customer as a foreign payee. In such a case, the
form or documentary evidence must be renewed every three years in
accordance with the renewal procedures set forth in §1.1441-
1(e)(4)(ii)(A) for as long as indicia of U.S. status continue to be
present. The statement referred to in this paragraph (c)(4)(i) of
this section must appear near the signature line and must read as
follows:

By opening this account and signing below, the account owner
represents and warrants that he/she/it is not a U.S. person for
purposes of U.S. Federal income tax and that he/she/it is not acting
for, or on behalf of, a U.S. person. A false statement or
misrepresentation of tax status by a U.S. person could lead to
penalties under U.S. law. If your tax status changes and you become
a U.S. citizen or a resident, you must notify us within 30 days.

(iii) Continuous validity of declaration of foreign status subject
to due diligence by financial institution. A declaration of foreign
status described in paragraph (c)(4)(ii) of this section does not
expire unless the bank or financial institution becomes aware of
circumstances indicating that the customer may be a U.S. person..229
(iv) Exception for existing accounts. The rules of paragraphs (c)(4)
(i) and (iii) of this section shall apply to accounts opened on or
after January 1, 2001. For accounts opened before 2001, a bank or
other financial institution may rely on the rules contained in
§§35a.9999-3(ii) Q&A 34 and 35a.9999-4T Q&A 1 and 5 of
this chapter in effect prior to January 1, 2001 (see 26 CFR Parts
30-39 revised as of April 1, 2000). * * * * *

(d) * * *

(1) Identifying the payee. The provisions of §§1.1441-1(b)
(2), 1.1441- 5(c)(1), (e)(2) and (3) shall apply (by applying the
term payor instead of the term withholding agent) to identify the
payee for purposes of this section (and other sections of the
regulations under this chapter to which this paragraph (d)(1)
applies), except to the extent provided in this paragraph (d)(1) in
the case of a payment of amounts that are not subject to withholding
under chapter 3 of the Internal Revenue Code. * * *

* * * * *

(2) Presumptions of classification and U.S. or foreign status in the
absence of documentation--

(i) In general. Except as otherwise provided in this paragraph (d)
(2)(i), for purposes of this section (and other sections of
regulations under this chapter to which this paragraph (d)(2)
applies), the provisions of §1.1441-1(b)(3)(i) through (ix) and
§1.1441-5(d) and (e)(6) shall apply (by applying the term payor
instead of the term withholding agent) to determine the
classification (e.g., individual, corporation, partnership, trust),
status (i.e., a U.S. or a foreign person), and other relevant
characteristics (e.g., beneficial owner or intermediary) of a payee
if a payment cannot be reliably associated with valid.230
documentation under §1.1441-1(b)(2)(vii) irrespective of
whether the payments are subject to withholding under chapter 3 of
the Internal Revenue Code. The provisions of §1.1441- 1(b)(3)
(iii)(D) and (vii)(B) shall not apply, however, to payments to
amounts that are not subject to withholding. The rules of
§1.1441-1(b)(2)(vii) shall apply for purposes of determining
when a payment can reliably be associated with documentation, by
applying the term payor instead of the term withholding agent. For
this purpose, the documentary evidence or statement described in
paragraph (c)(4) of this section can be treated as documentation
with which a payment can be associated.

(ii) Grace period in the case of indicia of a foreign payee. When
the conditions of this paragraph (d)(2)(ii) are satisfied, the 30-
day grace period provisions under section 3406(e) shall not apply
and the provisions of this paragraph (d)(2)(ii) shall apply instead.
A payor that, at any time during the grace period described in this
paragraph (d)(2)(ii), credits an account with payments described in
§1.1441-6(c)(2) (or credits an account with broker proceeds
from securities described in §1.1441-6(c)(2)), that are
reportable under sections 6042, 6045, 6049, or 6050N may, instead of
treating the account as owned by a U.S. person and applying backup
withholding under section 3406, if applicable, choose to treat the
account as owned by a foreign person if, at the beginning of the
grace period, the address that the payor has in its records for the
account holder is in a foreign country, the payor has been furnished
the information contained in a withholding certificate described in
§1.1441-1(e)(2)(i) or (3)(i) (by way of a facsimile copy of the
certificate or other non-qualified electronic transmission of the
information required to be stated on the certificate), or the payor
holds a withholding certificate that is no longer reliable other
than because the validity period as described in §1.1441-1(e)
(4)(ii)(A) has expired. In the case of a newly.231 opened account,
the grace period begins on the date that the payor first credits the
account. In the case of an existing account for which the payor
holds a Form W-8 or documentary evidence of foreign status, the
grace period begins on the date that the payor first credits the
account after the existing documentation held with regard to the
account can no longer be relied upon (other than because the
validity period described in §1.1441- 1(e)(4)(ii)(A) has
expired). A new account shall be treated as an existing account if
the account holder already holds an account at the branch location
at which the new account is opened. It shall also be treated as an
existing account if an account is held at another branch location if
the institution maintains a coordinated account information system
described in §1.1441-1(e)(4)(ix). The grace period terminates
on the earlier of the close of the 90th day from the date on which
the grace period begins or the date that the documentation is
provided. The grace period also terminates when the remaining
balance in the account (due to withdrawals or otherwise) is equal to
or less than 31 percent of the total amounts credited since the
beginning of the grace period that would be subject to backup
withholding if the provisions of this paragraph (d)(2)(ii) did not
apply. At the end of the grace period, the payor shall treat the
amounts credited to the account during the grace period as paid to a
U.S. or foreign payee depending upon whether documentation has been
furnished and the nature of any such documentation furnished upon
which the payor may rely to treat the account as owned by a U.S. or
foreign payee. If the documentation has not been received on or
before the date of expiration of the grace period, the payor may
also apply the presumptions described in this paragraph (d) to
amounts credited to the account after the date on which the grace
period expires (until such time as the payor can reliably associate
the documentation with amounts credited). See.232
§31.6413(a)-3(a)(1)(iv) of this chapter for treating backup
withheld amounts under section 3406 as erroneously withheld when the
documentation establishing foreign status is furnished prior to the
end of the calendar year in which backup withholding occurs. If the
provisions of this paragraph (d)(2)(ii) apply, the provisions of
§31.3406(d)-3 of this chapter shall not apply. For purposes of
this paragraph (d)(2)(ii), an account holder's reinvestment of gross
proceeds of a sale into other instruments constitutes a withdrawal
and a non-qualified electronic transmission of information on a
withholding certificate is a transmission that is not in accordance
with the provisions of §1.1441-1(e)(4)(iv). See
§1.1092(d)-1 for a definition of the term actively traded for
purposes of this paragraph (d)(2)(ii).

* * * * *

(3) Payments to foreign intermediaries or flow-through entities--

(i) Payments of amounts subject to withholding under chapter 3 of
the Internal Revenue Code. In the case of payments of amounts that
the payor may treat as made to a foreign intermediary or flow-
through entity in accordance with §§1.1441-1(b)(3)(ii)(C)
and (b)(3)(v)(A), 1.1441-5(c) or (e) and that are subject to
withholding under §1.1441-2(a), the provisions of
§§1.1441- 1(b)(2)(v) and 1.1441-5(c)(1), (e)(2), and (3)
shall apply (by applying the term payor instead of the term
withholding agent) to identify the payee. If a payment of an amount
subject to withholding cannot be reliably associated with valid
documentation from a payee in accordance with §1.1441-1(b)(2)
(vii) the presumption rules of §1.1441-1(b)(3)(v) and
§1.1441-5(d) and (e)(6) shall apply to determine the payee's
status for purposes of this section (and other sections of
regulations under this chapter to which this paragraph (d)(3)
applies).

(ii) Payments of amounts not subject to withholding under chapter 3
of the Internal Revenue Code. Except as provided in paragraph (d)(3)
(iii) of this section, amounts that are not subject to withholding
under chapter 3 of the Internal Revenue Code that the payor may
treat as paid to a foreign intermediary or flow-through entity shall
be treated as made to an exempt recipient described in
§1.6049-4(c) except to the extent that the payor has actual
knowledge that any person for whom the intermediary or flow-through
entity is collecting the payment is a U.S. person who is not an
exempt recipient. In the case of such actual knowledge, the payor
shall treat the payment that it knows is allocable to such U.S.
person as a payment to a U.S. payee who is not an exempt recipient
and has actual knowledge of the amount allocable to such a person.

(iii) Special rule for payments of certain short-term original issue
discount and bank deposit interest--

(A) General rule. A payment of U.S. source deposit interest
described in section 871(i)(2)(A) or 881(d)(3) or interest or
original issue discount on the redemption of an obligation with a
maturity from the date of issue of 183 days or less (short-term OID)
described in section 871(g)(1)(B) or 881(e) that the payor may treat
as paid to a foreign intermediary or flow-through entity in
accordance with the provisions of §1.1441- 1(b)(3)(ii)(C), (v)
(A), §1.1441-5(d) or (e), shall be treated as paid to an
undocumented U.S. payee that is not an exempt recipient under
paragraph §1.6049-4(c) unless the payor has documentation from
the payees of the payment and the payment is allocated to foreign
payees, as a group, and to each U.S. non-exempt recipient payee. See
§1.1441- 1(e)(3)(iv)(C)(2)..234 (B) Payee may be an
intermediary. If a payment is made to a person described in
§1.6049-4(c)(1)(ii) that has not provided an intermediary
withholding certificate under §1.1441-1(e)(3)(i) but the payor
knows or has reason to know that the payee may be an intermediary,
the payor must apply the rules of paragraph (d)(3)(iii)(A) of this
section. A payor has reason to know that such a person may be an
intermediary if that person has provided documentation as an
intermediary for another account with the same payor.

(iv) Short-term deposits and repurchase transactions. The provisions
of paragraph (d)(3)(ii) of this section and not paragraph (d)(3)
(iii) of this section shall apply to deposits with banks and other
financial institutions that remain on deposit for a period of two
weeks or less, to amounts of original issue discount arising from a
sale and repurchase transaction that is completed within a period of
two weeks or less, or to amounts described in paragraphs (b)(7),
(10) and (11) of this section (relating to certain obligations
issued in bearer form).

(4) Examples. The rules of paragraphs (d)(1) through (3) of this
section are illustrated by the following examples: Example 1.

      (i) Facts.

     USP is a U.S. payor as defined in paragraph (c)(5) of this
section. USP pays interest from sources within the United States to
an account maintained in the United States by X. The interest is not
deposit interest described in sections 871(i)(2)(A) or 881(d). USP
does not have a withholding certificate from X as defined in
§1.1441-1(c)(16). Moreover, USP cannot treat X as an exempt
recipient, as defined in §1.6049-4(c)(1)(ii), without
documentation and there is no indication that X is an individual,
trust, or estate.

(ii) Analysis. The U.S. source interest is an amount subject to
withholding as defined in §1.1441-2(a). Under paragraph (d)(1)
of this section, USP must apply the provisions of
§§1.1441-1(b)(2) and 1.1441-5(c) and (e) to determine the
payee of the interest. Under §1.1441-1(b)(2)(i), X, the person
to whom the payment is made, is considered to be the payee, unless X
is determined to be a flow-through entity, in which case the rules
of.235 §1.1441-5 apply to determine the payee. Under paragraph
(d)(2)(i) of this section, the rules of §1.1441-1(b)(3)(ii)
apply to determine the classification of a payee as an individual,
trust, estate, corporation, or partnership. Under §1.1441-1(b)
(3)(ii)(B), X is presumed to be a partnership, since X does not
appear to be an individual, trust or estate, and X cannot be
presumed to be an exempt recipient in the absence of documentation.
Paragraph (d)(2)(i) of this section requires USP to apply the
provisions of §§1.1441-1(b)(3)(iii) and 1.1441-5(d) to
determine whether X is presumed to be a U.S. or foreign partnership.
Under §§1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is
presumed to be a U.S. partnership in absence of any indicia of
foreign partnership status. The U.S. source interest paid to X is
reportable under section 6049 on Form 1099 and the interest is
subject to backup withholding under section 3406 because X has not
provided its TIN on a valid Form W-9.

Example 2.

      (i) Facts.

     The facts are the same as in Example 1, except that the
interest paid by USP is from sources outside the United States.

(ii) Analysis. Interest from sources outside the United States is
not an amount subject to withholding, as defined in
§1.1441-2(a). Under paragraph (d)(1) of this section, USP must
apply the provisions of §§1.1441-1(b)(2) and 1.1441-5(c)
and (e) to determine the payee. Under §1.1441-1(b)(2)(i), X,
the person to whom the payment is made, is considered to be the
payee, unless X is determined to be a flow-through entity, in which
case the rules of §1.1441-5(c) or (e) apply to determine the
payee. Under paragraph (d)(2)(i) of this section, the rules of
§1.1441-1(b)(3)(ii) apply to determine the classification of a
payee as an individual, trust, estate, corporation, or partnership.
These rules apply irrespective of whether the payment is an amount
subject to withholding. Under §1.1441- 1(b)(3)(ii)(B), X is
presumed to be a partnership, since X does not appear to be an
individual, trust or estate, and X cannot be presumed to be an
exempt recipient in the absence of documentation. Paragraph (d)(2)
(i) of this section requires USP to apply the provisions of
§§1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine
whether, X is presumed to be a U.S. or foreign partnership. Under
§§1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to
be a U.S. partnership in absence of any indicia of foreign
partnership status. The foreign source interest is a payment subject
to reporting on Form 1099 under §1.6049- 5(a). Further, because
X is a non-exempt recipient that has failed to provide its TIN on a
valid Form W-9, the foreign source interest is subject to backup
withholding under section 3406.

Example 3.

      (i) Facts.

     USP is a U.S. payor as defined in paragraph (c)(5) of this
section. USP makes a payment of U.S. source interest outside the
United States to an offshore account of X. See paragraphs (c)(1) for
a definition of offshore account and (e) for a payment outside the
United States. USP does not have a withholding certificate from X as
defined in §1.1441-1(c)(16) nor does it have documentary
evidence as described in §1.1441-1(e)(1)(ii)(A)(2) and
1.6049-5(c)(1).

(ii) Analysis. The interest is an amount subject to withholding as
defined in §1.1441- 2(a). Under paragraph (d)(1) of this
section, USP must apply the provisions of §1.1441- 1(b)(2) and
§1.1441-5(c) and (e) to determine the payee. Under
§1.1441-1(b)(2)(i), X, the person to whom the payment is made,
is considered to be the payee, unless X is determined to be a flow-
through entity, in which case the rules of §1.1441-5(c) or (e)
apply to determine the payee. Under paragraph (d)(2)(i) of this
section, the rules of §1.1441-.236 1(b)(3)(ii) apply to
determine the classification of a payee as an individual, trust,
estate, corporation, or partnership. Under §1.1441-1(b)(3)(ii)
(B), X is presumed to be a partnership, since X does not appear to
be an individual, trust or estate, and X cannot be presumed to be an
exempt recipient in the absence of documentation. Paragraph (d)(2)
(i) of this section requires USP to apply the provisions of
§§1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine
whether, X is presumed to be a U.S. or foreign partnership. Under
§§1.1441- 1(b)(3)(iii)(D) and 1.1441-5(d)(2), X is
presumed to be a foreign partnership. Therefore, under paragraph (d)
(1) of this section and §1.1441-5(c)(1)(i)(E), the payees of
the interest are presumed to be the partners of X. Under
§1.1441-5(d)(3), the partners are presumed to be undocumented
foreign persons. Therefore, USP must withhold 30 percent of the
interest payment under §1.1441-1(b)(1) and report the payment
on Form 1042-S in accordance with §1.1461-1(c).

Example 4.

      (i) Facts.

     The facts are the same as in Example 3, except that the
interest is paid by F, a non-U.S. payor.

(ii) Analysis. The analysis and result are the same as in Example 3.
F is a withholding agent under §1.1441-7 and its status as a
non-U.S. payor under paragraph (c)(5) of this section is irrelevant.

Example 5.

      (i) Facts.

     USP is a U.S. payor as defined in paragraph (c)(5) of this
section. USP makes a payment outside the United States of interest
from sources outside the United States to an offshore account of X.
USP does not have a withholding certificate from X as defined in
§1.1441-1(c)(16) nor does it have documentary evidence as
described in §§1.1441-1(e)(1)(ii)(A)(2) and 1.6049-5(c)
(1). USP does not have actual knowledge of an employer
identification number for X. X does not appear to be an individual,
trust, or estate and cannot be treated as an exempt recipient, as
defined in §1.6049-4(c)(1)(ii) in the absence of documentation.

(ii) Analysis. The interest is not an amount subject to withholding
as defined in §1.1441-2(a). Under paragraph (d)(1) of this
section, USP must apply the rules of §§1.1441-1(b)(2) and
1.1441-5(c) and (e) to determine the payee of the interest. Under
§1.1441-1(b)(2)(i), X, the person to whom the payment is made,
is considered to be the payee, unless X is determined to be a flow-
through entity, in which case the rules of §1.1441-5(c) or (e)
apply to determine the payee. Under paragraph (d)(2)(i) of this
section, §1.1441-1(b)(3)(ii) applies to determine X's
classification as an individual, trust, estate, corporation or
partnership. Under §1.1441-1(b)(3)(ii)(B), X is treated as a
partnership, since it does not appear to be an individual, trust, or
estate and cannot be treated as an exempt recipient without
documentation. Paragraph (d)(2)(i) of this section requires USP to
apply the provisions of §§1.1441-1(b)(3)(iii) and
1.1441-5(d) to determine whether, X is presumed to be a U.S. or
foreign partnership. Paragraph (d)(2)(i) also states that the
presumptions of foreign status for payments made to offshore
accounts contained in §§1.1441-1(b)(3)(iii)(D) and
1.1441-5(d)(2) do not apply to amounts that are not subject to
withholding. Therefore, under §§1.1441-1(b)(3)(iii) and
1.1441-5(d)(2), X is presumed to be a U.S. partnership because it
does not have actual knowledge that X's employer identification
number begins with the digits "98." Therefore, USP must treat X as a
U.S. person that is not an exempt recipient and report the payment
on Form 1099 under section 6049. Under §31.3406(g)-1(e) of this
chapter, however, USP is not required to backup.237 withhold on the
payment unless it has actual knowledge that X is a U.S. person that
is not an exempt recipient.

Example 6.

      (i) Facts.

     The facts are the same as in Example 5, except that the
interest is paid by F, a non-U.S. payor, as defined under paragraph
(c)(5) of this section.

(ii) Analysis. The analysis is the same as under Example 5. However,
because F is a non-U.S. payor paying foreign source interest outside
the United States, paragraph (b)(6) of this section exempts the
payment from reporting under section 6049.

Example 7.

      (i) Facts.

     USP, a U.S. payor as defined in paragraph (c)(5) of this
section, makes a payment of U.S. source interest to NQI, a foreign
corporation and a nonqualified intermediary as defined in
§1.1441-1(c)(14). The interest is not deposit interest as
defined in sections 871(i)(2)(A) and 881(d). The interest is paid
inside the United States to an account maintained in the United
States. NQI has provided USP with a nonqualified intermediary
withholding certificate, as described in §1.1441-1(e)(3)(iii),
but has not attached any documentation from the persons on whose
behalf it acts or a withholding statement as described in
§1.1441-1(e)(3)(iv).

(ii) Analysis. U.S. source interest is an amount subject to
withholding under §1.1441-2(a). USP may treat the payment as
made to a foreign intermediary under §1.1441-1(b)(3)(v)(A)
because USP has received a nonqualified intermediary withholding
certificate from NQI. Under paragraph (d)(3)(i) of this section, USP
must apply §1.1441- 1(b)(2)(v) to determine the payees of the
payment. Under §1.1441-1(b)(2)(v)(A), USP must treat the
persons on whose behalf NQI is acting as the payees. Paragraph (d)
(3)(i) of this section also requires USP to apply the presumption
rules of §1.1441-1(b)(3)(v) if it cannot reliably associate the
payment with valid documentation from a payee. See §1.1441-
1(b)(2)(vii). Under §1.1441-1(b)(3)(v)(B), the interest is
treated as paid to an unknown foreign payee because it cannot be
reliably associated with documentation under §1.1441- 1(b)(2)
(vii). Therefore, the payment is not subject to reporting on Form
1099 under paragraph (b)(12) of this section because the payment is
presumed made to a foreign person. The payment is subject to
withholding, however, under §1.1441-1(b) at a rate of 30
percent and is subject to reporting on Form 1042-S under
§1.1461-1(c).

Example 8.

      (i) Facts.

     The facts are the same as in Example 7, except that the
interest is paid outside the United States, as defined in paragraph
(e) of this section to an offshore account, as defined in paragraph
(c)(1) of this section.

(ii) Analysis. The analysis and results are the same as in Example
7. The rules of §1.1441-1(b)(3)(v) apply irrespective of where
the account is maintained or the payment made.

Example 9.

      (i) Facts.

     The facts are the same as in Example 8, except that the
interest is paid by F, a non-U.S. payor, as defined in paragraph (c)
(5) of this section.

(ii) Analysis. The analysis and results are the same as in Example
7.

Example 10.

(i) USP, a U.S. payor as defined in paragraph (c)(5) of this
section, makes a payment of foreign source interest to NQI, a
foreign corporation and a nonqualified intermediary as defined in
§1.1441-1(c)(14). NQI has provided USP with a nonqualified.238
intermediary withholding certificate, as described in
§1.1441-1(e)(3)(iii), but has not attached any documentation
from the persons on whose behalf it acts or a withholding statement
as described in §1.1441-1(e)(3)(iv).

(ii) Analysis. Foreign source interest is not an amount subject to
withholding under chapter 3 of the Internal Revenue Code. See
§1.1441-2(a). Under paragraph (d)(3)(ii)(A) of this section,
amounts that are not subject to withholding under chapter 3 of the
Internal Revenue Code that a payor may treat as paid to a foreign
intermediary are treated as made to an exempt recipient described in
§1.6049-4(c). Therefore, the foreign source interest is not
subject to reporting on Form 1099.

Example 11.

      (i) Facts.

     USP is a U.S. payor as defined in paragraph (c)(5) of this
section. USP pays U.S. source original issue discount from the
redemption of an obligation described in section 871(g)(1)(B) to
NQI, a foreign corporation that is a nonqualified intermediary as
defined in §1.1441-1(c)(14). The redemption proceeds are paid
to an account NQI has with USP in the United States. NQI provides a
nonqualified intermediary withholding certificate as described in
§1.1441-1(e)(3)(iii) but does not attach any payee
documentation or a withholding statement described in
§1.1441-1(e)(3)(iv).

(ii) Analysis. Under paragraph (d)(3)(ii)(A) of this section, USP
must treat the payment as made to an undocumented U.S. payee that is
not an exempt recipient and report the payment on Form 1099.
Further, because the payment is made inside the United States, the
exception to backup withholding for offshore accounts contained in
§31.3406(g)-1( e) of this chapter does not apply and the
payment is subject to backup withholding.

Example 12.

      (i) Facts.

     P, a payor, makes a payment to NQI of U.S. source interest on
debt obligations issued prior to July 18, 1984. Therefore, the
interest does not qualify as portfolio interest under section 871(h)
or 881(d). NQI is a nonqualified foreign intermediary, as defined in
§1.1441-1(c)(14), and has furnished P a valid nonqualified
intermediary withholding certificate described in §1.1441-1(e)
(3)(iii) to which it has attached a valid Form W-9 for A, and two
valid beneficial owner Forms W-8, one for B and one for C. A is not
an exempt recipient under §1.6049-4(c). NQI furnishes a
withholding statement, described in §1.1441-1(e)(3)(iv), in
which it allocates 20 percent of the U.S. source interest to A, but
does not allocate the remaining 80 percent of the interest between B
and C. B's withholding certificate indicates that B is a foreign
pension fund, exempt from U.S. tax under the U.S. income tax treaty
with Country T. C's withholding certificate indicates that C is a
foreign corporation not entitled to a reduced rate of withholding.

(ii) Analysis. Under paragraph (d)(3)(i) of this section, P applies
the rules of §1.1441-1(b)(2)(v) to determine the payees of the
interest. Under that section, the payees are the persons on whose
behalf NQI acts--A, B and C. Because P can reliably associate 20
percent of the payment with valid documentation provided by A, P
must treat 20 percent of the interest as paid to A, a U.S. person
not exempt from reporting, and report the payment on Form 1099. P
cannot reliably associate the remaining 80 percent of the payment
with valid documentation under §1.1441-1(b)(2)(vii) and,
therefore, under paragraph (d)(3)(i) of this section must apply the
presumption rules of §1.1441-1(b)(3)(v). Under that section,
the interest is presumed paid to an unknown foreign payee. Under
paragraph (b)(12) of this section, P is not required to report the
interest presumed paid to.239 a foreign person on Form 1099. Under
§1.1441-1(b), 80 percent of the interest is subject to 30
percent withholding, however, and the interest is reportable on Form
1042-S under §1.1461-1(c).

Example 13.

      (i) Facts.

     The facts are the same as in Example 12, except that P can
reliably associate 30 percent of the payment of interest to B, but
cannot reliably associate the remaining 70 percent with A or C.

(ii) Analysis. Under paragraph (d)(3)(i) of this section, P applies
the rules of §1.1441-1(b)(2)(v) to determine the payees of the
interest. Under that section, the payees are the persons on whose
behalf NQI acts--A, B and C. Because P can reliably associate 30
percent of the payment with B, a foreign pensions fund exempt from
withholding under an income tax treaty, P may treat that payment as
paid to B and not subject to reporting on Form 1099 under paragraph
(b)(12) of this section. P cannot reliably associate the remaining
70 percent of the payment with valid documentation under
§1.1441-1(b)(2)(vii) and, therefore, under paragraph (d)(3)(i)
of this section must apply the presumption rules of
§1.1441-1(b)(3)(v). Under that section, the interest is
presumed paid to an unknown foreign payee. Under paragraph (b)(12)
of this section, P is not required to report the interest presumed
paid to a foreign person on Form 1099. Under §1.1441-1(b), 80
percent of the interest is subject to 30 percent withholding,
however, and the interest is reportable on Form 1042-S under
§1.1461-1(c).

Example 14.

      (i) Facts.

     The facts are the same as in Example 12, except that P also
makes a payment of foreign source interest to NQI.

(ii) Analysis. Under paragraph (d)(3)(ii)(A), P may treat the
foreign source interest as paid to an exempt recipient as defined in
§1.6049-4(c) and not subject to reporting on Form 1099 even
though some or all of the foreign source interest may in fact be
owned by A, the U.S. person that is not exempt from reporting.

* * * * *

Parts 1 and 31 [Amended ] Par. 18. Effective January 1, 2001, in the
list below, for each section indicated in the left column remove the
language in the middle column and add the language in the right
column:

Section Remove Add

1.1441-1(b)(1), first to a beneficial owner to a payee that is a
sentence that is a U.S. person U.S. person

1.1441-1(b)(2)(iii)(A), 1.1441-6(b)(4) 1.1441-6(b)(2) last sentence

1.1441-1(b)(2)(iii)(B), 1.1441-6(b)(4) 1.1441-6(b)(2) third sentence

1.1441-1(b)(2)(vi), second 1.6049-5(c)(4) 1.6049-5(c)(1) sentence

1.1441-1(b)(4)(iii), last §1.6049-5(c)(4) §1.6049-5(c)(1)
sentence

1.1441-1(b)(4)(v), third §1.6049-5(c)(4) §1.6049-5(c)
sentence

1.1441-1(b)(4)(xviii), third is required is not required sentence

1.1441-1(b)(7)(i)(A) §1.1441-4(a)(2)(i) §1.1441-4(a)(2)
(ii) or (3) or (3)(i)

1.1441-1(b)(7)(iii), first §1.1441-4(a)(2)(i) §1.1441-4(a)
(2)(ii) sentence or (3) or (3)(i)

1.14441-1(b)(9), second a withholding certificate an intermediary or
sentence flow-through withholding

certificate 1.1441-1(b)(9), second a U.S. beneficial owner a U.S.
payee sentence

1.1441-1(e)(1)(ii)(A)(2) with respect to an to an offshore account
offshore account

1.1441-1(e)(2)(i), fifth See §1.1441-6(b)(4)(ii) See
§1.1441-6(b)(2) sentence

1.1441-1(e)(2)(ii), sixth See §1.1441-6(b)(4)(i) See
§1.1441-6(b) sentence

1.1441-1(e)(4)(viii), introductory §1.1441-6(b)(2)(ii)
§1.1441-6(c)(2) text, second sentence

1.1441-1(e)(4)(viii), third §1.1441-6(b)(4)(ii)
§1.1441-6(b)(1) sentence

1.1441-3(c)(2)(i), introductory estimate of earnings estimates under
this text, second sentence and profits, paragraph (c)(2),

1.1441-4(a)(3)(ii) payment to a foreign payment shall financial
institution (within the meaning of §1.165-12(c)(1)(iv)) shall
1.1441-4(a)(3)(ii) counterparty payee

1.1441-7(b)(1), first is incorrect. is unreliable or incorrect.
sentence

1.1441-7(b)(1), third contained in, or attached contained in, or
associated sentence to, a withholding with, a withholding
certificate certificate

1.1441-7(b)(1), third are not correct and are incorrect or
unreliable sentence and

1.1461-1(b)(2), first Form 1042X Form 1042 sentence

1.6045-1(g)(1)(i), first or presumed to be made to or presumed to be
made sentence a foreign payee under to a foreign payee under
§1.6049-5(d)(2), (3), (4), or (5). §1.6049-5(d)(2) or (3).

1.6045-1(j), first the end of the second February 28 of the sentence
calendar month following calendar following the close of year the
calendar year of such reporting period

1.6049-4(c)(1)(ii)(A), meets the meets one of the second sentence

1.6049-5(b)(12), first or presumed to be made to a or presumed to be
made sentence foreign payee under paragraph to a foreign payee under
(d)(2), (3), (4), or (5) of this paragraph (d)(2) of (3) of.243
section. this section

31.3406(h)-3(a), the payee certifies a payee that is a U.S.
introductory text, person certifies first sentence.

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

Approved: May 5, 2000

Jonathan Talisman
Deputy Assistant Secretary of the Treasury

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