Qualified intermediaries. A branch of a financial institution may not act as a qualified intermediary in a country that does not have approved know-your-customer rules. See Qualified intermediary under Foreign Intermediaries.

U.S. real property interest. .  The rules related to distributions of the gain from the disposition of a U.S. real property interest by a mutual fund or other regulated investment company (RIC) have been modified. See U.S. Real Property Interest, for more information.

Interest-related dividends and short-term capital gain dividends received from mutual funds. For tax years beginning after 2007, the exemption from withholding on certain interest-related dividends and short-term capital gain dividends paid by a mutual fund or other regulated investment company will no longer apply.

Portfolio interest paid to 10% owners. New rules establish when the 10% ownership test applies to interest distributions that may otherwise qualify as portfolio interest. These rules can be found in section 1.871-14(g) of the regulations.

Failure to withhold — interest and penalties. Withholding agents are not liable for interest and penalties for failure to withhold tax if the liability is satisfied by the payee or other withholding agent.

New treaty and protocols. The United States has exchanged instruments of ratification for a new income tax treaty with Belgium and new protocols with Denmark, Finland, and Germany. Belgium. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after February 1, 2008. For other taxes, the treaty is effective for tax periods beginning on or after January 1, 2008. A person entitled to benefits under the previous treaty can elect to have that treaty apply in its entirety for a twelve-month period following the date the new treaty would otherwise apply. Denmark. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after February 1, 2008. For other taxes, the protocol is effective for tax periods beginning on or after January 1, 2008. Finland. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after February 1, 2008. However, the provisions for dividends covered by footnotes oo and ss in Table 1 (at the end of this publication), are effective January 1, 2007. For other taxes, the protocol is effective for tax years beginning on or after January 1, 2008. Germany. The provisions relating to withholding tax at source are effective for amounts paid or credited on or after January 1, 2007. For other taxes, the treaty is effective for tax years beginning on or after January 1, 2008. A person entitled to benefits under the treaty before modification by this protocol can elect to have the unmodified treaty apply in its entirety for a twelve-month period following the date the protocol would otherwise apply.

Magnetic media. .  Beginning with tax year 2008, processing year 2009, the IRS will no longer accept tape cartridges. You will not be able to use magnetic media to file Form 1042-S.

Note. This publication serves as the Small Entity Compliance Guide required by section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, P.L. 104-121.

Form W-8. There are four forms in the W-8 series. The form to use depends on the type of certification being made. As used in this publication, the term “Form W-8” refers to the appropriate document. For more information, see Documentation, later.

Electronic deposit rules. You must use the Electronic Federal Tax Payment System (EFTPS) to make electronic deposits of all depository tax liabilities you incur after 2007, if you meet either of the following conditions.

If you do not meet these conditions, electronic deposits are voluntary. For more information about depositing electronically, see Publication 966, The Secure Way to Pay Your Federal Taxes.

Filing electronically. If you file Form 1042-S electronically, you will use the Filing Information Returns Electronically (FIRE) system. You get to the system through the Internet at fire.irs.gov. For files submitted on the FIRE system, it is the responsibility of the filer to verify the results of the transmission within 5 business days. The IRS will not mail error reports for files that are bad.

IRS taxpayer identification numbers for aliens. The IRS will issue an individual taxpayer identification number (ITIN) to an alien who does not have and is not eligible to get a social security number (SSN). An ITIN is for tax use only. It does not entitle an alien to social security benefits or change his or her employment or immigration status under U.S. law. For more information on ITINs, see U.S. Taxpayer Identification Numbers, later.

Real estate mortgage investment conduits (REMIC). Excess inclusion income is treated as income from sources in the United States. The date an excess inclusion allocated to a foreign person by certain pass-through entities is subject to withholding is, generally, the close of the entity's tax year. An excess inclusion is not eligible for any reduction in withholding tax (by treaty or otherwise). See REMIC excess inclusions.

Partnership withholding on effectively connected income (ECI). A partnership must withhold tax on ECI allocated to a foreign partner. However, a publicly traded partnership (PTP) cannot elect to withhold tax based on ECI allocable to its foreign partners. The PTP must withhold on the distribution of that income to its foreign partners. For more information, see Publicly Traded Partnerships under Partnership Withholding on Effectively Connected Income.

Dematerialized book-entry systems. .  Under these systems, bonds are required to be represented only by book entries. Generally, these bonds are considered to be in registered form. See Reduced Rates of Withholding on Interest.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations. Specifically, it describes the persons responsible for withholding (withholding agents), the types of income subject to withholding, and the information return and tax return filing obligations of withholding agents. In addition to discussing the rules that apply generally to payments of U.S. source income to foreign persons, it also contains sections on the withholding that applies to the disposition of U.S. real property interests and the withholding by partnerships on income effectively connected with the active conduct of a U.S. trade or business.