Revisions to Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Revisions of Information Reporting Regulations, 16189-16195 [05-6060]

Download as PDF Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules Comments Due Date (a) The Federal Aviation Administration must receive comments on this AD action by April 29, 2005. Affected ADs (b) This AD supersedes AD 2000–26–07, amendment 39–12057 (66 FR 263, January 3, 2001). Applicability (c) This AD applies to all BAE Systems (Operations) Limited Model BAE 146 and Model Avro 146–RJ series airplanes, certificated in any category. Unsafe Condition (d) This AD was prompted by issuance of a later revision to the airworthiness limitations of the BAe/Avro 146 Aircraft Maintenance Manual, which specifies new inspections and compliance times for inspection and replacement actions. We are issuing this AD to ensure that fatigue cracking of certain structural elements is detected and corrected; such fatigue cracking could adversely affect the structural integrity of these airplanes. Compliance (e) You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Requirements of AD 2000–26–07 Airworthiness Limitations Revision (f) Within 30 days after February 7, 2001 (the effective date of AD 2000–26–07), revise the Airworthiness Limitations Section (ALS) of the Instructions for Continued Airworthiness by incorporating Section 05– 10–01, Revision 65, dated August 3, 1999, of Chapter 5 of the BAe/Avro 146 Aircraft Maintenance Manual (AMM), into the ALS. This section references other sections of the AMM. The applicable revision level of the referenced sections is that in effect on the effective date of this AD. (g) Except as specified in paragraph (j) of this AD: After the actions specified in paragraph (f) of this AD have been accomplished, no alternative inspections or inspection intervals may be approved for the structural elements specified in the document listed in paragraph (f) of this AD. referenced sections is that in effect on the effective date of this AD. Incorporating the new and more restrictive life limits and inspections into the ALS terminates the requirements of paragraphs (f) and (g) of this AD, and after incorporation has been done, the limitations required by paragraph (f) of this AD may be removed from the ALS. (i) Except as specified in paragraph (j) of this AD: After the actions specified in paragraph (h) of this AD have been accomplished, no alternative inspections or inspection intervals may be approved for the structural elements specified in the document listed in paragraph (h) of this AD. Alternative Methods of Compliance (AMOCs) (j)(1) The Manager, International Branch, ANM–116, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19. (2) AMOCs, approved previously in accordance with AD 2000–26–07, are approved as AMOCs for the corresponding requirements of this AD. Related Information (k) None. Issued in Renton, Washington, on March 21, 2005. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. 05–6258 Filed 3–29–05; 8:45 am] BILLING CODE 4910–13–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301 [REG–125443–01] RIN 1545–AY92 Revisions to Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Revisions of Information Reporting Regulations New Requirements of This AD AGENCY: Later Revision for Airworthiness Limitations (h) Within 30 days after the effective date of this AD, revise the ALS of the Instructions for Continued Airworthiness to incorporate new and more restrictive life limits for certain items and new and more restrictive inspections to detect fatigue cracking in certain structures, in accordance with a method approved by the Manager, International Branch, ANM–116, Transport Airplane Directorate, FAA; or the Civil Aviation Authority (or its delegated agent). Section 05–10–01, Revision 81, dated December 15, 2004, of Chapter 5 of the BAe/ Avro 146 AMM is one approved method. This section references other sections of the AMM. The applicable revision level of the SUMMARY: This document contains amendments to final regulations relating to the withholding of income tax under sections 1441 and 1442 on certain U.S. source income paid to foreign persons and related requirements governing collection, deposit, refunds, and credits of withheld amounts under sections 1461 through 1463. Additionally, this document contains amendments to final regulations under sections 6041, 6049, and 6114. These regulations affect VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. PO 00000 Frm 00029 Fmt 4702 Sfmt 4702 16189 persons making payments of U.S. source income to foreign persons. DATES: Written or electronic comments must be received by June 28, 2005. Requests to speak (with outlines of oral comments to be discussed) at the public hearing scheduled for July 13, 2005, at 10 AM must be received by June 22, 2005. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–125443–01), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions also may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG–125443–01), Courier’s Desk, Internal Revenue Service 1111 Constitution Avenue, NW., Washington, DC, or sent electronically, via the IRS Internet site https:// www.irs.gov/regs or via the Federal eRulemaking Portal site at https://www.regulations.gov (IRS and REG–125443–01). The public hearing will be held in the IRS Auditorium, Seventh Floor, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Ethan Atticks, (202) 622–3840 (not a toll free number); concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Robin Jones, (202) 622–7180 (not a toll free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collections of information contained in this notice of proposed rulemaking have been previously reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545–1484. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background In Treasury Decision 8734 (1997–2 C.B. 109 [62 FR 533871]), the Treasury Department and the IRS issued E:\FR\FM\30MRP1.SGM 30MRP1 16190 Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules comprehensive regulations (final regulations) under chapter 3 (sections 1441–1464) and subpart G of Subchapter A of chapter 61 (sections 6041 through 6050S) of the Internal Revenue Code. Those final regulations were amended by TD 8804 (1999–1 C.B. 793 [63 FR 72183]), TD 8856 (2000–1 C.B. 298 [64 FR 73408]), TD 8881 (2000– 1 C.B. 1158 [65 FR 32152]), and TD 9023 (2002–2 C.B. 955 [67 FR 70310]). In Notice 2001–4 (2001–1 C.B. 267), Notice 2001–11 (2001–1 C.B. 464), and Notice 2001–43 (2001–2 C.B. 72), the Treasury Department and the IRS announced the intention to amend the final regulations to address the matters discussed in those notices. These proposed regulations would implement certain changes announced in those notices and other changes. Under section 1441 of the Internal Revenue Code (Code), as amended by the American Jobs Creation Act of 2004 (Public Law 108–357, 118 Stat. 1418), ‘‘interest-related dividends’’ and ‘‘shortterm capital gain dividends’’ paid by regulated investment companies are exempt from withholding. These proposed regulations would amend the withholding rules in order to reflect the treatment of these new categories of dividends. Explanation of Provisions I. Notice 2001–4 A. TIN Requirement for Certain Foreign Grantor Trusts The final regulations provide that a withholding certificate that specifies certain payee information and that meets certain requirements may be used for a variety of purposes, including certifying a payee’s status as a foreign person or foreign intermediary. Section 1.1441–1(e)(4)(vii)(G) of the final regulations provides that a taxpayer identification number (TIN) must be stated on a withholding certificate from a person representing to be a foreign grantor trust with 5 or fewer grantors. After the final regulations took effect, some taxpayers requested documentation and reporting relief for simple and grantor trusts that hold an account with a qualified intermediary (QI). In response to this request, the Treasury Department and the IRS provided in section III.C of Notice 2001– 4 that, if a foreign simple or grantor trust provides a QI with a Form W–8IMY, ‘‘Certificate of Foreign Intermediary, Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding,’’ and the trust has 5 or fewer owners, the IRS will not require the trust to provide the QI with a TIN, notwithstanding § 1.1441–1(e)(4)(vii)(G). VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 Section III.C of Notice 2001–4 was superseded by Rev. Proc. 2003–64 (2003–2 C.B. 306), which provides comprehensive guidance for withholding partnerships and withholding trusts. However, Rev. Proc. 2003–64 does not provide any relief from the TIN requirement of § 1.1441– 1(e)(4)(vii)(G) in the QI context. In addition to requesting reinstatement of the previously granted relief from the TIN requirement in the QI context, withholding agents have requested relief from the TIN requirement beyond the QI context. In light of these requests, the Treasury Department and the IRS have reexamined the TIN requirement of § 1.1441–1(e)(4)(vii)(G) and have concluded that the rule is not serving to enhance enforcement objectives. Therefore, the proposed regulations would reinstate the relief granted in section III.C of Notice 2001–4 for withholding certificates provided to a QI by a foreign grantor trust with 5 or fewer grantors. In addition, the proposed regulations would grant relief from the TIN requirement for withholding certificates that are executed after December 31, 2003 and that are provided to a withholding agent by a foreign grantor trust with 5 or fewer grantors. B. Reporting Relief for U.S. Payors in U.S. Possessions U.S. payors that pay foreign source income outside the United States to U.S. non-exempt recipients generally must report these payments on Form 1099 and, if required, apply backup withholding. After the final regulations became effective, withholding agents requested that the Treasury Department and the IRS reconsider this rule to the extent it requires Form 1099 reporting and backup withholding with respect to income from sources within a possession of the United States paid to a U.S. citizen even if the income is exempt from tax under section 931, 932, or 933. In response to this request, the Treasury Department and the IRS provided in section V.C of Notice 2001– 4 that the final regulations would be amended to provide that income that is derived from sources within a possession of the United States, that is exempt from taxation under section 931, 932, or 933, and that a payor reasonably believes to be paid to a resident of a possession of the United States is not required to be reported on Form 1099. Section V.C of Notice 2001–4 also provides that U.S payors will not be required to report such income until the regulations are amended. PO 00000 Frm 00030 Fmt 4702 Sfmt 4702 These proposed regulations would amend § 1.6049–5(c) to implement section V.C. of Notice 2001–4, with modifications. The proposed regulations would provide that U.S. payors are not required to report on Form 1099 income from sources within a possession of the United States that is exempt from tax under section 931, section 932, or section 933. Under the proposed regulations, this exception from Form 1099 reporting would be applicable if the payor could reliably associate the payment of such income with valid documentation that supports a claim that the beneficial owner of the payment is a resident of the U.S. possession. In addition, the proposed regulations would add new § 1.1441–1(c)(30), which for these purposes would define possessions of the United States as Guam, American Samoa, the Nothern Mariana Islands, Puerto Rico, and the Virgin Islands. C. Use of Documentary Evidence in Possessions of the United States The final regulations provide certain exceptions from certain information reporting requirements. One such exception applies in cases in which, among other things, a payment is made outside the United States and the payor can rely on appropriate documentation to treat the payment as made to a foreign person. Section 1.6049–5(c)(1) allows a payor to rely on documentary evidence instead of an applicable withholding certificate described in § 1.1441–1(c)(16) (Form W–8) in the case of a payment made to an offshore account. For this purpose, the term offshore account means an account maintained at an office or branch of a U.S. or foreign bank at any location outside the United States and outside of possessions of the United States. When the final regulations took effect, taxpayers requested that the Treasury Department and the IRS consider allowing the use of documentary evidence for an account in a possession of the United States. In response to this request, the Treasury Department and the IRS provided in section V.D of Notice 2001–4 that documentary evidence may be used in lieu of Form W–8 in a possession of the United States and announced the intention to amend § 1.6049–5(c)(1) accordingly. These proposed regulations would implement Section V.D of Notice 2001– 4. D. Information Reporting of Foreign Source Services Income Under section 6041, a U.S. payor must report certain payments made for services performed outside the United E:\FR\FM\30MRP1.SGM 30MRP1 Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules States. However, § 1.6041–4 provides that information reporting is not required if the payee has provided documentation to establish its status as a foreign beneficial owner or a foreign payee, or if the payee is presumed to be a foreign payee under the presumption rules. Under the presumption rules of §§ 1.6049–5(d)(2) and 1.1441– 1(b)(3)(iii), a U.S. payor must presume that the payee is a U.S. payee if the payee is an individual. When the final regulations took effect, U.S. payors commented that these rules were overly burdensome because they require U.S. payors making payments for services performed outside the United States to ask all payees to represent that such payees are not U.S. persons. In response to this comment, the Treasury Department and the IRS provided in section V.E of Notice 2001– 4 that a U.S. payor will not be required to report, under section 6041, income paid for services performed outside the United States if (1) the payee of the income is an individual, (2) the U.S. payor does not know that the payee is a U.S. citizen or resident, (3) the payor does not know, and has no reason to know, that the income is (or may be) effectively connected with the conduct of a trade or business within the United States, and (4) all of the services for which payment is made were performed by the payee outside the United States. The proposed regulations would implement section V.E of Notice 2001– 4. The Treasury Department and the IRS are considering whether there are appropriate circumstances, and if so, an appropriate manner, in which such an exception could be extended to payments made to foreign partnerships. Comments are requested on this issue. II. Notice 2001–11—Reporting/ Withholding on Payments to Financial Institutions in U.S. Possessions Corporations and partnerships organized in a possession of the United States generally are treated as foreign persons for purposes of applying the final regulations. Accordingly, under the final regulations, a possessions financial institution acting as an intermediary is treated as a nonqualified intermediary that must provide documentation and allocation information for the beneficial owners on whose behalf it acts. In contrast, a U.S. branch of a foreign financial institution may agree with a withholding agent to be treated as a U.S. person. See § 1.1441–1(b)(2)(iv)(A) and (E). Under § 1.1441–1(b)(1), if such a U.S. branch agrees to be treated as a U.S. person, payments of U.S. source income made VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 to it will be treated as made to a U.S. payee and therefore will not be subject to withholding under section 1441. Possessions financial institutions generally are subject to all of the withholding and reporting obligations of a U.S. withholding agent. Section 7651. When the final regulations took effect, possessions financial institutions commented that the requirement to provide a withholding agent with customer information should not apply to them, because possessions financial institutions are subject to all of the withholding and information reporting requirements that apply to U.S. withholding agents under Chapters 3 and 61 and section 3406 of the Code, and because they are subject to direct audit supervision by the Internal Revenue Service. In response to these comments, the Treasury Department and the IRS issued Notice 2001–11, which provided that a possessions financial institution will be treated as a U.S. branch that is subject to the rules of § 1.1441–1(b)(2)(iv) and announced the intention to amend the final regulations accordingly. These proposed regulations would implement Notice 2001–11. III. Notice 2001–43 A. Reporting of Treaty-Based Return Positions Section 301.6114–1(a) of the final regulations provides that, if a taxpayer takes a return position that a tax treaty overrules or modifies any provision of the Internal Revenue Code and thereby effects a reduction of any tax at any time, the taxpayer must disclose that return position, either on a statement attached to the return or on a return filed for the purpose of making such disclosure. Section 301.6114–1(b) provides that reporting is required unless it is expressly waived. It further provides a nonexclusive list of particular positions for which reporting is required. Section 301.6114–1(c) provides a list of specific exceptions from the general reporting requirements of § 301.6114–1(a) and (b). When the final regulations took effect, taxpayers requested guidance regarding the scope of the reporting required under § 301.6114–1(a) and (b) in the case of claims for treaty-reduced withholding made by foreign persons that are not individuals or States. In particular, taxpayers requested the following clarification and relief. First, because § 301.6114–1(c)(1)(i) waives reporting only for individuals and States, clarification was requested regarding whether taxpayers that are not individuals or States and that do not PO 00000 Frm 00031 Fmt 4702 Sfmt 4702 16191 meet the requirements to report under § 301.6114–1(b)(4)(ii)(C) are nevertheless required to disclose treatybased return positions described in subparagraph (b)(4)(ii) under the general rules of § 301.6114–1(a) and (b). Second, because § 301.6114–1(c)(2) waives reporting only for individuals who receive less than the threshold amount, a de minimis exception was requested for taxpayers that are not individuals. Third, because the representation under § 1.1441–6(b)(1) (that the beneficial owner will file the statement required under § 301.6114–1(d)) is required when the beneficial owner is related to the withholding agent within the meaning of section 482, and because the filing under § 301.6114–1(b)(4)(ii)(C) is required when the beneficial owner is related to the person obligated to pay the income within the meaning of sections 267(b) and 707(b), clarification was requested regarding coordination of the representation requirement with the filing requirement. Finally, because § 1.1441–6(b)(1) states that the filing requirement applies only to amounts received during the calendar year that exceed $500,000 in the aggregate, and because § 301.6114– 1(a)(1) permits a taxpayer to adopt a taxable year for filing different from the calendar year, taxpayers requested clarification regarding a fiscal-year taxpayer’s obligation to report such amounts. In response to these and other comments, Treasury and the IRS issued Notice 2001–43. Section 2 of Notice 2001–43 provided that the following rules would apply, effective January 1, 2001. First, reporting is waived for a treatybased return position described in § 301.6114–1(b)(4)(ii), unless the conditions in paragraph (b)(4)(ii)(A) and (B) of this section, paragraph (b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii) (D) of this section are met. Second, reporting under § 301.6114– 1(b)(4)(ii)(D) is waived for taxpayers that are not individuals or States and that receive amounts of income subject to withholding that do not exceed $10,000 in the aggregate. Third, the related-person test for purposes of applying the representation requirement of § 1.1441–6(b)(i) was conformed to the related-person test that applies for purposes of the filing requirement of § 301.6114–1(b)(4)(ii)(C). Fourth, the calendar-year rule in § 1.1441–6(b)(1) was replaced with a taxable-year rule to conform to § 301.6114–1(a)(1). These proposed regulations would implement Section 2 of Notice 2001–43. E:\FR\FM\30MRP1.SGM 30MRP1 16192 Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules B. Conversion of Foreign Currency Amounts Section 1.1441–3(e)(2) of the final regulations provides that if an amount subject to tax is paid in a currency other than the U.S. dollar, the amount of withholding under section 1441 shall be determined by applying the applicable rate of withholding to the foreign currency amount and by converting the amount withheld into U.S. dollars at the spot rate on the date of payment. A withholding agent that makes regular or frequent payments in foreign currency is permitted to use a month end spot rate or a monthly average spot rate. After the final regulations took effect, some withholding agents that make regular and frequent payments in foreign currency commented that the permitted conversion conventions can expose them to currency risks that would require management by means of hedging transactions. Also, they commented that permitted conventions can require multiple accounting adjustments when payment amounts in the base currency are adjusted or corrected in the course of processing and settlement. They requested that they be permitted to use the spot rate on the date the amount of tax is deposited. In response to this comment, in Section 3 of Notice 2001–43, the Treasury Department and the IRS provided that a withholding agent that makes regular or frequent payments in foreign currency is permitted to convert the amount withheld into U.S. dollars at the spot rate on the day the tax is deposited, provided that the deposit is made within seven days of the date of payment. Section 3 of Notice 2001–43 also provided that taxpayers using this alternative convention must do so consistently for all nondollar amounts withheld and from year to year. It also provided that such convention could not be changed without the consent of the Commissioner. These proposed regulations would implement Section 3 of Notice 2001–43. IV. The American Jobs Creation Act of 2004 The final regulations provide generally that if the amount of distributions designated by a regulated investment company as being subject to 852(b)(3)(C) (relating to capital-gain dividends) or 852(b)(5)(A) (relating to exempt-interest dividends) exceeds the amount that may be designated under those sections for the taxable year, then no penalties will be asserted for any resulting underwithholding if the designations were based on a reasonable estimate, as defined in regulations, and VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 the adjustments to amount withheld are made in accordance with regulations. § 1.1441–3(c)(3)(i). These proposed regulations would extend the reasonable-estimate rule to cover distributions designated as being subject to new section 871(k)(1)(C) (relating to interest-related dividends) or 871(k)(2)(C) (relating to short-term capital gain dividends). Proposed Effective Date These regulations are proposed to be applicable when final regulations are published in the Federal Register. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and, because the regulations do not impose a new collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) that are submitted timely (in the manner described in the ADDRESSES portion of this preamble) to the IRS. The Treasury Department and the IRS request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing has been scheduled for July 13, 2005, beginning at 10 a.m. in the IRS Auditorium (7th Floor), Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to PO 00000 Frm 00032 Fmt 4702 Sfmt 4702 attend the hearing, see the FOR FURTHER portion of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments must submit written comments and an outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by Wednesday, June 8. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for reviewing outlines has passed. Copies of the agenda will be available free of charge at the hearing. INFORMATION CONTACT Drafting Information The principal author of the proposed regulations is Ethan Atticks, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1441–1 is amended as follows: 1. Paragraph (b)(2)(iv)(A) is revised. 2. Paragraph (b)(3)(iii)(E) is added. 3. Paragraph (c)(30) is added. 4. Paragraph (e)(4)(vii)(G) is revised. The revisions and additions read as follows: § 1.1441–1 Requirement for the deduction and withholding of tax on payments to foreign persons. * * * * * (b) * * * (2) * * * (iv) Payments to a U.S. branch of certain foreign banks or foreign insurance companies—(A) U.S. branch treated as a U.S. person in certain cases. A payment to a U.S. branch of a foreign E:\FR\FM\30MRP1.SGM 30MRP1 Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules person is a payment to a foreign person. However, a U.S. branch described in this paragraph (b)(2)(iv)(A) and a withholding agent (including another U.S. branch described in this paragraph (b)(2)(iv)(A)) may agree to treat the branch as a U.S. person for purposes of withholding on specified payments to the U.S. branch. Notwithstanding the preceding sentence, a withholding agent making a payment to a U.S. branch treated as a U.S. person under this paragraph (b)(2)(iv)(A) shall not treat the branch as a U.S. person for purposes of reporting the payment made to the branch. Therefore, a payment to such U.S. branch shall be reported on Form 1042-S under § 1.1461–1(c). Further, a U.S. branch that is treated as a U.S. person under this paragraph (b)(2)(iv)(A) shall not be treated as a U.S. person for purposes of the withholding certificate it may provide to a withholding agent. Therefore, the U.S. branch must furnish a U.S. branch withholding certificate on Form W–8 as provided in paragraph (e)(3)(v) of this section and not a Form W–9. An agreement to treat a U.S. branch as a U.S. person must be evidenced by a U.S. branch withholding certificate described in paragraph (e)(3)(v) of this section furnished by the U.S. branch to the withholding agent. A U.S. branch described in this paragraph (b)(2)(iv)(A) is any U.S. branch of a foreign bank subject to regulatory supervision by the Federal Reserve Board or a U.S. branch of a foreign insurance company required to file an annual statement on a form approved by the National Association of Insurance Commissioners with the Insurance Department of a State, a Territory, or the District of Columbia. In addition, a financial institution organized in a possession of the United States will be treated as a U.S. branch for purposes of this paragraph (b)(2)(iv)(A). The Internal Revenue Service (IRS) may approve a list of U.S. branches that may qualify for treatment as a U.S. person under this paragraph (b)(2)(iv)(A) (see § 601.601(d)(2) of this chapter). See § 1.6049–5(c)(5)(vi) for the treatment of U.S. branches as U.S. payors if they make a payment that is subject to reporting under chapter 61 of the Internal Revenue Code. Also see § 1.6049–5(d)(1)(ii) for the treatment of U.S. branches as foreign payees under chapter 61 of the Internal Revenue Code. * * * * * (3) * * * (iii) * * * (E) Certain payments for services. A payment for services is presumed to be made to a foreign person if— VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 (1) The payee is an individual; (2) The withholding agent does not know, or have reason to know, that the payee is a U.S. citizen or resident; (3) The withholding agent does not know, or have reason to know, that the income is (or may be) effectively connected with the conduct of a trade or business within the United States; and (4) All of the services for which the payment is made were performed by the payee outside of the United States. * * * * * (c) * * * (30) Possessions of the United States. For purposes of the regulations under chapter 3 and 61 of the Internal Revenue Code, possessions of the United States means Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands. * * * * * (e) * * * (4) * * * (vii) * * * (G) A withholding certificate executed on or before December 31, 2003 from a person representing to be a grantor trust with 5 or fewer grantors, except where such withholding certificate is provided to a qualified intermediary. * * * * * Par. 3. Section 1.1441–3 is amended by revising paragraphs (c)(3) and (e)(2) to read as follows: § 1.1441–3 withheld. Determination of amounts to be * * * * * (c) * * * (3) Special rules in the case of distributions from a regulated investment company—(i) General rule. If the amount of any distributions designated as being subject to section 852(b)(3)(C) or 5(A), or 871(k)(1)(C) or (2)(C), exceeds the amount that may be designated under those sections for the taxable year, then no penalties will be asserted for any resulting underwithholding if the designations were based on a reasonable estimate (made pursuant to the same procedures as described in paragraph (c)(2)(ii)(A) of this section) and the adjustments to the amount withheld are made within the time period described in paragraph (c)(2)(ii)(B) of this section. Any adjustment to the amount of tax due and paid to the IRS by the withholding agent as a result of underwithholding shall not be treated as a distribution for purposes of section 562(c) and the regulations thereunder. Any amount of U.S. tax that a foreign shareholder is treated as having paid on the undistributed capital gain of a regulated PO 00000 Frm 00033 Fmt 4702 Sfmt 4702 16193 investment company under section 852(b)(3)(D) may be claimed by the foreign shareholder as a credit or refund under § 1.1464–1. (ii) Reliance by intermediary on reasonable estimate. For purposes of determining whether a payment is a distribution designated as subject to section 852(b)(3)(C) or (5)(A), or 871(k)(1)(C) or (2)(C), a withholding agent that is not the distributing regulated investment company may, absent actual knowledge or reason to know otherwise, rely on the designations that the distributing company represents have been made in accordance with paragraph (c)(3)(i) of this section. Failure by the withholding agent to withhold the required amount due to a failure by the regulated investment company to reasonably estimate the required amounts or to properly communicate the relevant information to the withholding agent shall be imputed to the distributing company. In such a case, the IRS may collect from the distributing company any underwithheld amount and subject the company to applicable interest and penalties as a withholding agent. * * * * * (e) * * * (2) Payments in foreign currency. If the amount subject to withholding tax is paid in a currency other than the U.S. dollar, the amount of withholding under section 1441 shall be determined by applying the applicable rate of withholding to the foreign currency amount and converting the amount withheld into U.S. dollars on the date of payment at the spot rate (as defined in § 1.988–1(d)(1)) in effect on that date. A withholding agent making regular or frequent payments in foreign currency may use a month-end spot rate or a monthly average spot rate. In addition, such a withholding agent may use the spot rate on the date the amount of tax is deposited (within the meaning of § 1.6302–2(a)), provided that such deposit is made within seven days of the date of the payment giving rise to the obligation to withhold. A spot rate convention must be used consistently for all non-dollar amounts withheld and from year to year. Such convention cannot be changed without the consent of the Commissioner. The U.S. dollar amount so determined shall be treated by the beneficial owner as the amount of tax paid on the income for purposes of determining the final U.S. tax liability and, if applicable, claiming a refund or credit of tax. * * * * * Par. 4. In § 1.1441–6, paragraph (b)(1) is revised to read as follows: E:\FR\FM\30MRP1.SGM 30MRP1 16194 Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules § 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, as 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 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 § 1.1441–6(g)) 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 VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 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 related to the person obligated to pay the income, within the meaning of section 267(b) or 707(b), 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 taxpayer’s taxable 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 90day grace period shall apply for purposes of this section. * * * * * Par. 5. Section 1.6049–5 is amended as follows: 1. Paragraph (c)(1) is revised. 2. Paragraphs (c)(5)(i), (ii), (iii), (iv), (v) and (vi) are redesignated as paragraphs (c)(5)(i)(A), (B), (C), (D), (E), and (F), respectively. 3. A new heading is added to paragraph (c)(5)(i). 4. New paragraph (c)(5)(ii) is added. The revisions and additions read as follows: § 1.6049–5 Interest and original issue discount subject to reporting after December 31, 1982. * * * * * (c) Applicable rules—(1) Documentary evidence for offshore accounts and for possessions accounts. A payor may rely on documentary evidence described in this paragraph (c)(1) instead of a beneficial owner withholding certificate described in § 1.1441–1(e)(2)(i) in the case of a payment made outside the United States to an offshore account, in the case of a payment made to a U.S. possessions account or, in the case of broker proceeds described in § 1.6045–1(c)(2), in the case of a sale effected outside the United States (as defined in § 1.6045– PO 00000 Frm 00034 Fmt 4702 Sfmt 4702 1(g)(3)(iii)(A)). For purposes of this paragraph (c)(1), an offshore account means an account maintained at an office or branch of a U.S. or foreign bank or other financial institution at any location outside the United States (i.e., other than in any of the fifty States or the District of Columbia) and outside of possessions of the United States. Thus, for example, an account maintained in a foreign country at a branch of a U.S. bank or of a foreign subsidiary of a U.S. bank is an offshore account. For purposes of this paragraph (c)(1), a U.S. possessions account means an account maintained at an office or branch of a U.S. or foreign bank or other financial institution located within a possession of the United States. For the definition of a payment made outside the United States, see paragraph (e) of this section. A payor may rely on documentary evidence if the payor has established procedures to obtain, review, and maintain documentary evidence sufficient to establish the identity of the payee and the status of that person as a foreign person (including, but not limited to, documentary evidence described in § 1.1441–6(c)(3) or (4)); and the payor obtains, reviews, and maintains such documentary evidence in accordance with those procedures. A payor maintains the documents reviewed by retaining the original, certified copy, or a photocopy (or microfiche or similar means of record retention) of the documents reviewed and noting in its records the date on which and by whom the document was received and reviewed. Documentary evidence furnished for the payment of an amount subject to withholding under chapter 3 of the Code must contain all of the information that is necessary to complete a Form 1042–S for that payment. 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. * * * * * (5) * * * (i) Definition. * * * (ii) Reporting by U.S. payors in U.S. possessions. U.S. payors are not required to report on Form 1099 income that is from sources within a possession of the United States and that is exempt from taxation under section 931, 932, or 933, each of which sections exempts E:\FR\FM\30MRP1.SGM 30MRP1 Federal Register / Vol. 70, No. 60 / Wednesday, March 30, 2005 / Proposed Rules certain income from sources within a possession of the United States paid to a bona fide resident of that possession. For purposes of this paragraph (c)(5)(ii), a U.S. payor may treat the beneficial owner as a bona fide resident of the possession of the United States from which the income is sourced if, prior to payment of the income, the U.S. payor can reliably associate the payment with valid documentation that supports the claim of residence in the possession of the United States from which the income is sourced. This paragraph (c)(5)(ii) shall not apply if the U.S. payor has actual knowledge or reason to know that the documentation is unreliable or incorrect or that the income does not satisfy the requirements for exemption under section 931, 932, or 933. For the rules determining whether income is from sources within a possession of the United States, see section 937(b) and the regulations thereunder. * * * * * PART 301—PROCEDURE AND ADMINISTRATION Authority: 26 U.S.C. 7805 * * * Par. 7. In § 301.6114–1 is amended as follows: 1. Paragraphs (c)(1)(i) through (c)(1)(vii) are redesignated as paragraphs (c)(1)(ii) through (c)(1)(viii), respectively. 2. New paragraph (c)(1)(i) is added. 3. Paragraph (c)(7) is added. The additions and revision read as follows: Treaty-based return * * * * * (c) * * * (1) * * * (i) For amounts received on or after January 1, 2001, return positions described in paragraph (b)(4)(ii) of this section, unless the conditions in paragraphs (b)(4)(ii)(A) and (B) of this section, paragraph (b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii)(D) of this section are met; * * * * * (7) Reporting under paragraph (b)(4)(ii)(D) of this section is waived with respect to a taxable year for taxpayers that are not individuals or states and that, on or after January 1, 2001, receive amounts of income subject to withholding that do not exceed VerDate jul<14>2003 14:59 Mar 29, 2005 Jkt 205001 Mark E. Matthews, Deputy Commissioner for Services and Enforcement. [FR Doc. 05–6060 Filed 3–29–05; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 110 [CGD05–04–043] RIN 1625–AA01 Anchorage Grounds, Hampton Roads, VA Coast Guard, DHS. Supplemental notice of proposed rulemaking. AGENCY: ACTION: The Coast Guard proposes to revise the anchorage regulations in the Port of Hampton Roads. Infrastructure improvements and increases in vessel traffic and draft entering the port have prompted this proposed rulemaking. The proposed changes to this regulation will ensure that the Hampton Roads Anchorage Grounds continue to safely support current and future vessel anchoring demands. This supplemental notice of proposed rulemaking (SNPRM) discusses changes made to Anchorages J, K, and, L since publication of the notice of proposed rulemaking (NPRM) in the Federal Register on September 27, 2004 (69 FR 57656). The changes are explained in the section titled ‘‘Discussion of Proposed Rule’’ section of this document. DATES: Comments must be received on or before April 29, 2005. ADDRESSES: You may mail comments and related material to Commander (oan), Fifth Coast Guard District, 431 Crawford Street, Room 401, Portsmouth, VA 23704–5004. Commander (oan), Fifth Coast Guard District, maintains the public docket for this rulemaking. Comments and material received from the public, as well as documents indicated in this preamble as being available in the docket, will become part of this docket and will be available for inspection or copying at the Fifth Coast Guard District between 9 a.m. and 3 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Lieutenant Junior Grade Timothy Martin, Fifth Coast Guard District (oan), SUMMARY: Par. 6. The authority citation for part 301 continues to read, in part, as follows: § 301.6114–1 positions. $10,000 in the aggregate for such taxable year. * * * * * PO 00000 Frm 00035 Fmt 4702 Sfmt 4702 16195 (757) 398–6285, between 9 a.m. and 3 p.m., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: Request for Comments We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (CGD05–04–043), indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please, submit all comments and related material in an unbound format, no larger than 81⁄2 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them. Public Meeting We do not now plan to hold a public meeting. But, you may submit a request for a meeting by writing to the Aids to Navigation and Waterways Management Branch at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register. Regulatory History On September 27, 2004 the Coast Guard published a NPRM in the Federal Register titled ‘‘Anchorage Grounds, Hampton Roads, VA’’ (69 FR 57656). This SNPRM provides further opportunity for the public to comment on changes made to Anchorages J, K, and L. Background and Purpose Recreational, public, and commercial vessels use the Hampton Roads Anchorage Grounds. General regulations covering the anchorage of vessels in the port are set out in 33 CFR 110.168. In June 1986, the U.S. Army Corps of Engineers (USACE) completed a study of the Norfolk Harbor, including its anchorages. The study is entitled, ‘‘General Design Memorandum 1, Norfolk Harbor and Channels, Virginia, Main Report.’’ Comments from the Coast Guard, Navy, Virginia Port Authority, Virginia Pilots Association and Hampton Roads Maritime Association requesting improvements to Anchorages F and K were considered in the study. Anchorage F currently has two 400yard radius berths. The USACE, in 1998, constructed a single 500-yard radius E:\FR\FM\30MRP1.SGM 30MRP1

Agencies

[Federal Register Volume 70, Number 60 (Wednesday, March 30, 2005)]
[Proposed Rules]
[Pages 16189-16195]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6060]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-125443-01]
RIN 1545-AY92


Revisions to Regulations Relating to Withholding of Tax on 
Certain U.S. Source Income Paid to Foreign Persons and Revisions of 
Information Reporting Regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains amendments to final regulations 
relating to the withholding of income tax under sections 1441 and 1442 
on certain U.S. source income paid to foreign persons and related 
requirements governing collection, deposit, refunds, and credits of 
withheld amounts under sections 1461 through 1463. Additionally, this 
document contains amendments to final regulations under sections 6041, 
6049, and 6114. These regulations affect persons making payments of 
U.S. source income to foreign persons.

DATES: Written or electronic comments must be received by June 28, 
2005. Requests to speak (with outlines of oral comments to be 
discussed) at the public hearing scheduled for July 13, 2005, at 10 AM 
must be received by June 22, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-125443-01), room 
5203, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions also may be hand-delivered Monday 
through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR 
(REG-125443-01), Courier's Desk, Internal Revenue Service 1111 
Constitution Avenue, NW., Washington, DC, or sent electronically, via 
the IRS Internet site https://www.irs.gov/regs or via the Federal 
eRulemaking Portal site at https://www.regulations.gov (IRS and REG-
125443-01). The public hearing will be held in the IRS Auditorium, 
Seventh Floor, Internal Revenue Building, 1111 Constitution Avenue, 
NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Ethan Atticks, (202) 622-3840 (not a toll free number); concerning 
submissions of comments, the hearing, and/or to be placed on the 
building access list to attend the hearing, Robin Jones, (202) 622-7180 
(not a toll free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been previously reviewed and approved by the Office of 
Management and Budget in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)) under control number 1545-1484.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    In Treasury Decision 8734 (1997-2 C.B. 109 [62 FR 533871]), the 
Treasury Department and the IRS issued

[[Page 16190]]

comprehensive regulations (final regulations) under chapter 3 (sections 
1441-1464) and subpart G of Subchapter A of chapter 61 (sections 6041 
through 6050S) of the Internal Revenue Code. Those final regulations 
were amended by TD 8804 (1999-1 C.B. 793 [63 FR 72183]), TD 8856 (2000-
1 C.B. 298 [64 FR 73408]), TD 8881 (2000-1 C.B. 1158 [65 FR 32152]), 
and TD 9023 (2002-2 C.B. 955 [67 FR 70310]).
    In Notice 2001-4 (2001-1 C.B. 267), Notice 2001-11 (2001-1 C.B. 
464), and Notice 2001-43 (2001-2 C.B. 72), the Treasury Department and 
the IRS announced the intention to amend the final regulations to 
address the matters discussed in those notices. These proposed 
regulations would implement certain changes announced in those notices 
and other changes.
    Under section 1441 of the Internal Revenue Code (Code), as amended 
by the American Jobs Creation Act of 2004 (Public Law 108-357, 118 
Stat. 1418), ``interest-related dividends'' and ``short-term capital 
gain dividends'' paid by regulated investment companies are exempt from 
withholding. These proposed regulations would amend the withholding 
rules in order to reflect the treatment of these new categories of 
dividends.

Explanation of Provisions

I. Notice 2001-4

A. TIN Requirement for Certain Foreign Grantor Trusts
    The final regulations provide that a withholding certificate that 
specifies certain payee information and that meets certain requirements 
may be used for a variety of purposes, including certifying a payee's 
status as a foreign person or foreign intermediary. Section 1.1441-
1(e)(4)(vii)(G) of the final regulations provides that a taxpayer 
identification number (TIN) must be stated on a withholding certificate 
from a person representing to be a foreign grantor trust with 5 or 
fewer grantors.
    After the final regulations took effect, some taxpayers requested 
documentation and reporting relief for simple and grantor trusts that 
hold an account with a qualified intermediary (QI). In response to this 
request, the Treasury Department and the IRS provided in section III.C 
of Notice 2001-4 that, if a foreign simple or grantor trust provides a 
QI with a Form W-8IMY, ``Certificate of Foreign Intermediary, Flow-
Through Entity, or Certain U.S. Branches for United States Tax 
Withholding,'' and the trust has 5 or fewer owners, the IRS will not 
require the trust to provide the QI with a TIN, notwithstanding Sec.  
1.1441-1(e)(4)(vii)(G). Section III.C of Notice 2001-4 was superseded 
by Rev. Proc. 2003-64 (2003-2 C.B. 306), which provides comprehensive 
guidance for withholding partnerships and withholding trusts. However, 
Rev. Proc. 2003-64 does not provide any relief from the TIN requirement 
of Sec.  1.1441-1(e)(4)(vii)(G) in the QI context.
    In addition to requesting reinstatement of the previously granted 
relief from the TIN requirement in the QI context, withholding agents 
have requested relief from the TIN requirement beyond the QI context. 
In light of these requests, the Treasury Department and the IRS have 
reexamined the TIN requirement of Sec.  1.1441-1(e)(4)(vii)(G) and have 
concluded that the rule is not serving to enhance enforcement 
objectives. Therefore, the proposed regulations would reinstate the 
relief granted in section III.C of Notice 2001-4 for withholding 
certificates provided to a QI by a foreign grantor trust with 5 or 
fewer grantors. In addition, the proposed regulations would grant 
relief from the TIN requirement for withholding certificates that are 
executed after December 31, 2003 and that are provided to a withholding 
agent by a foreign grantor trust with 5 or fewer grantors.
B. Reporting Relief for U.S. Payors in U.S. Possessions
    U.S. payors that pay foreign source income outside the United 
States to U.S. non-exempt recipients generally must report these 
payments on Form 1099 and, if required, apply backup withholding. After 
the final regulations became effective, withholding agents requested 
that the Treasury Department and the IRS reconsider this rule to the 
extent it requires Form 1099 reporting and backup withholding with 
respect to income from sources within a possession of the United States 
paid to a U.S. citizen even if the income is exempt from tax under 
section 931, 932, or 933.
    In response to this request, the Treasury Department and the IRS 
provided in section V.C of Notice 2001-4 that the final regulations 
would be amended to provide that income that is derived from sources 
within a possession of the United States, that is exempt from taxation 
under section 931, 932, or 933, and that a payor reasonably believes to 
be paid to a resident of a possession of the United States is not 
required to be reported on Form 1099. Section V.C of Notice 2001-4 also 
provides that U.S payors will not be required to report such income 
until the regulations are amended.
    These proposed regulations would amend Sec.  1.6049-5(c) to 
implement section V.C. of Notice 2001-4, with modifications. The 
proposed regulations would provide that U.S. payors are not required to 
report on Form 1099 income from sources within a possession of the 
United States that is exempt from tax under section 931, section 932, 
or section 933. Under the proposed regulations, this exception from 
Form 1099 reporting would be applicable if the payor could reliably 
associate the payment of such income with valid documentation that 
supports a claim that the beneficial owner of the payment is a resident 
of the U.S. possession.
    In addition, the proposed regulations would add new Sec.  1.1441-
1(c)(30), which for these purposes would define possessions of the 
United States as Guam, American Samoa, the Nothern Mariana Islands, 
Puerto Rico, and the Virgin Islands.
C. Use of Documentary Evidence in Possessions of the United States
    The final regulations provide certain exceptions from certain 
information reporting requirements. One such exception applies in cases 
in which, among other things, a payment is made outside the United 
States and the payor can rely on appropriate documentation to treat the 
payment as made to a foreign person. Section 1.6049-5(c)(1) allows a 
payor to rely on documentary evidence instead of an applicable 
withholding certificate described in Sec.  1.1441-1(c)(16) (Form W-8) 
in the case of a payment made to an offshore account. For this purpose, 
the term offshore account means an account maintained at an office or 
branch of a U.S. or foreign bank at any location outside the United 
States and outside of possessions of the United States.
    When the final regulations took effect, taxpayers requested that 
the Treasury Department and the IRS consider allowing the use of 
documentary evidence for an account in a possession of the United 
States. In response to this request, the Treasury Department and the 
IRS provided in section V.D of Notice 2001-4 that documentary evidence 
may be used in lieu of Form W-8 in a possession of the United States 
and announced the intention to amend Sec.  1.6049-5(c)(1) accordingly.
    These proposed regulations would implement Section V.D of Notice 
2001-4.
D. Information Reporting of Foreign Source Services Income
    Under section 6041, a U.S. payor must report certain payments made 
for services performed outside the United

[[Page 16191]]

States. However, Sec.  1.6041-4 provides that information reporting is 
not required if the payee has provided documentation to establish its 
status as a foreign beneficial owner or a foreign payee, or if the 
payee is presumed to be a foreign payee under the presumption rules. 
Under the presumption rules of Sec. Sec.  1.6049-5(d)(2) and 1.1441-
1(b)(3)(iii), a U.S. payor must presume that the payee is a U.S. payee 
if the payee is an individual.
    When the final regulations took effect, U.S. payors commented that 
these rules were overly burdensome because they require U.S. payors 
making payments for services performed outside the United States to ask 
all payees to represent that such payees are not U.S. persons.
    In response to this comment, the Treasury Department and the IRS 
provided in section V.E of Notice 2001-4 that a U.S. payor will not be 
required to report, under section 6041, income paid for services 
performed outside the United States if (1) the payee of the income is 
an individual, (2) the U.S. payor does not know that the payee is a 
U.S. citizen or resident, (3) the payor does not know, and has no 
reason to know, that the income is (or may be) effectively connected 
with the conduct of a trade or business within the United States, and 
(4) all of the services for which payment is made were performed by the 
payee outside the United States.
    The proposed regulations would implement section V.E of Notice 
2001-4. The Treasury Department and the IRS are considering whether 
there are appropriate circumstances, and if so, an appropriate manner, 
in which such an exception could be extended to payments made to 
foreign partnerships. Comments are requested on this issue.

II. Notice 2001-11--Reporting/Withholding on Payments to Financial 
Institutions in U.S. Possessions

    Corporations and partnerships organized in a possession of the 
United States generally are treated as foreign persons for purposes of 
applying the final regulations. Accordingly, under the final 
regulations, a possessions financial institution acting as an 
intermediary is treated as a nonqualified intermediary that must 
provide documentation and allocation information for the beneficial 
owners on whose behalf it acts. In contrast, a U.S. branch of a foreign 
financial institution may agree with a withholding agent to be treated 
as a U.S. person. See Sec.  1.1441-1(b)(2)(iv)(A) and (E). Under Sec.  
1.1441-1(b)(1), if such a U.S. branch agrees to be treated as a U.S. 
person, payments of U.S. source income made to it will be treated as 
made to a U.S. payee and therefore will not be subject to withholding 
under section 1441. Possessions financial institutions generally are 
subject to all of the withholding and reporting obligations of a U.S. 
withholding agent. Section 7651.
    When the final regulations took effect, possessions financial 
institutions commented that the requirement to provide a withholding 
agent with customer information should not apply to them, because 
possessions financial institutions are subject to all of the 
withholding and information reporting requirements that apply to U.S. 
withholding agents under Chapters 3 and 61 and section 3406 of the 
Code, and because they are subject to direct audit supervision by the 
Internal Revenue Service.
    In response to these comments, the Treasury Department and the IRS 
issued Notice 2001-11, which provided that a possessions financial 
institution will be treated as a U.S. branch that is subject to the 
rules of Sec.  1.1441-1(b)(2)(iv) and announced the intention to amend 
the final regulations accordingly.
    These proposed regulations would implement Notice 2001-11.

III. Notice 2001-43

A. Reporting of Treaty-Based Return Positions
    Section 301.6114-1(a) of the final regulations provides that, if a 
taxpayer takes a return position that a tax treaty overrules or 
modifies any provision of the Internal Revenue Code and thereby effects 
a reduction of any tax at any time, the taxpayer must disclose that 
return position, either on a statement attached to the return or on a 
return filed for the purpose of making such disclosure. Section 
301.6114-1(b) provides that reporting is required unless it is 
expressly waived. It further provides a nonexclusive list of particular 
positions for which reporting is required. Section 301.6114-1(c) 
provides a list of specific exceptions from the general reporting 
requirements of Sec.  301.6114-1(a) and (b).
    When the final regulations took effect, taxpayers requested 
guidance regarding the scope of the reporting required under Sec.  
301.6114-1(a) and (b) in the case of claims for treaty-reduced 
withholding made by foreign persons that are not individuals or States. 
In particular, taxpayers requested the following clarification and 
relief.
    First, because Sec.  301.6114-1(c)(1)(i) waives reporting only for 
individuals and States, clarification was requested regarding whether 
taxpayers that are not individuals or States and that do not meet the 
requirements to report under Sec.  301.6114-1(b)(4)(ii)(C) are 
nevertheless required to disclose treaty-based return positions 
described in subparagraph (b)(4)(ii) under the general rules of Sec.  
301.6114-1(a) and (b).
    Second, because Sec.  301.6114-1(c)(2) waives reporting only for 
individuals who receive less than the threshold amount, a de minimis 
exception was requested for taxpayers that are not individuals.
    Third, because the representation under Sec.  1.1441-6(b)(1) (that 
the beneficial owner will file the statement required under Sec.  
301.6114-1(d)) is required when the beneficial owner is related to the 
withholding agent within the meaning of section 482, and because the 
filing under Sec.  301.6114-1(b)(4)(ii)(C) is required when the 
beneficial owner is related to the person obligated to pay the income 
within the meaning of sections 267(b) and 707(b), clarification was 
requested regarding coordination of the representation requirement with 
the filing requirement.
    Finally, because Sec.  1.1441-6(b)(1) states that the filing 
requirement applies only to amounts received during the calendar year 
that exceed $500,000 in the aggregate, and because Sec.  301.6114-
1(a)(1) permits a taxpayer to adopt a taxable year for filing different 
from the calendar year, taxpayers requested clarification regarding a 
fiscal-year taxpayer's obligation to report such amounts.
    In response to these and other comments, Treasury and the IRS 
issued Notice 2001-43. Section 2 of Notice 2001-43 provided that the 
following rules would apply, effective January 1, 2001.
    First, reporting is waived for a treaty-based return position 
described in Sec.  301.6114-1(b)(4)(ii), unless the conditions in 
paragraph (b)(4)(ii)(A) and (B) of this section, paragraph 
(b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii) (D) of this 
section are met.
    Second, reporting under Sec.  301.6114-1(b)(4)(ii)(D) is waived for 
taxpayers that are not individuals or States and that receive amounts 
of income subject to withholding that do not exceed $10,000 in the 
aggregate.
    Third, the related-person test for purposes of applying the 
representation requirement of Sec.  1.1441-6(b)(i) was conformed to the 
related-person test that applies for purposes of the filing requirement 
of Sec.  301.6114-1(b)(4)(ii)(C).
    Fourth, the calendar-year rule in Sec.  1.1441-6(b)(1) was replaced 
with a taxable-year rule to conform to Sec.  301.6114-1(a)(1).
    These proposed regulations would implement Section 2 of Notice 
2001-43.

[[Page 16192]]

B. Conversion of Foreign Currency Amounts
    Section 1.1441-3(e)(2) of the final regulations provides that if an 
amount subject to tax is paid in a currency other than the U.S. dollar, 
the amount of withholding under section 1441 shall be determined by 
applying the applicable rate of withholding to the foreign currency 
amount and by converting the amount withheld into U.S. dollars at the 
spot rate on the date of payment. A withholding agent that makes 
regular or frequent payments in foreign currency is permitted to use a 
month end spot rate or a monthly average spot rate.
    After the final regulations took effect, some withholding agents 
that make regular and frequent payments in foreign currency commented 
that the permitted conversion conventions can expose them to currency 
risks that would require management by means of hedging transactions. 
Also, they commented that permitted conventions can require multiple 
accounting adjustments when payment amounts in the base currency are 
adjusted or corrected in the course of processing and settlement. They 
requested that they be permitted to use the spot rate on the date the 
amount of tax is deposited.
    In response to this comment, in Section 3 of Notice 2001-43, the 
Treasury Department and the IRS provided that a withholding agent that 
makes regular or frequent payments in foreign currency is permitted to 
convert the amount withheld into U.S. dollars at the spot rate on the 
day the tax is deposited, provided that the deposit is made within 
seven days of the date of payment. Section 3 of Notice 2001-43 also 
provided that taxpayers using this alternative convention must do so 
consistently for all nondollar amounts withheld and from year to year. 
It also provided that such convention could not be changed without the 
consent of the Commissioner.
    These proposed regulations would implement Section 3 of Notice 
2001-43.

IV. The American Jobs Creation Act of 2004

    The final regulations provide generally that if the amount of 
distributions designated by a regulated investment company as being 
subject to 852(b)(3)(C) (relating to capital-gain dividends) or 
852(b)(5)(A) (relating to exempt-interest dividends) exceeds the amount 
that may be designated under those sections for the taxable year, then 
no penalties will be asserted for any resulting underwithholding if the 
designations were based on a reasonable estimate, as defined in 
regulations, and the adjustments to amount withheld are made in 
accordance with regulations. Sec.  1.1441-3(c)(3)(i). These proposed 
regulations would extend the reasonable-estimate rule to cover 
distributions designated as being subject to new section 871(k)(1)(C) 
(relating to interest-related dividends) or 871(k)(2)(C) (relating to 
short-term capital gain dividends).

Proposed Effective Date

    These regulations are proposed to be applicable when final 
regulations are published in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations, and, because 
the regulations do not impose a new collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) that are submitted timely (in the manner 
described in the ADDRESSES portion of this preamble) to the IRS. The 
Treasury Department and the IRS request comments on the clarity of the 
proposed rules and how they can be made easier to understand. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for July 13, 2005, beginning at 
10 a.m. in the IRS Auditorium (7th Floor), Internal Revenue Building, 
1111 Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the 10th Street entrance, located 
between Constitution and Pennsylvania Avenues, NW. In addition, all 
visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 30 minutes before the hearing 
starts. For information about having your name placed on the building 
access list to attend the hearing, see the FOR FURTHER INFORMATION 
CONTACT portion of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments must submit written comments and an 
outline of the topics to be discussed and the time to be devoted to 
each topic (a signed original and eight (8) copies) by Wednesday, June 
8. A period of 10 minutes will be allotted to each person for making 
comments. An agenda showing the scheduling of the speakers will be 
prepared after the deadline for reviewing outlines has passed. Copies 
of the agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of the proposed regulations is Ethan Atticks, 
Office of Associate Chief Counsel (International). However, other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.1441-1 is amended as follows:
    1. Paragraph (b)(2)(iv)(A) is revised.
    2. Paragraph (b)(3)(iii)(E) is added.
    3. Paragraph (c)(30) is added.
    4. Paragraph (e)(4)(vii)(G) is revised.
    The revisions and additions read as follows:


Sec.  1.1441-1  Requirement for the deduction and withholding of tax on 
payments to foreign persons.

* * * * *
    (b) * * *
    (2) * * *
    (iv) Payments to a U.S. branch of certain foreign banks or foreign 
insurance companies--(A) U.S. branch treated as a U.S. person in 
certain cases. A payment to a U.S. branch of a foreign

[[Page 16193]]

person is a payment to a foreign person. However, a U.S. branch 
described in this paragraph (b)(2)(iv)(A) and a withholding agent 
(including another U.S. branch described in this paragraph 
(b)(2)(iv)(A)) may agree to treat the branch as a U.S. person for 
purposes of withholding on specified payments to the U.S. branch. 
Notwithstanding the preceding sentence, a withholding agent making a 
payment to a U.S. branch treated as a U.S. person under this paragraph 
(b)(2)(iv)(A) shall not treat the branch as a U.S. person for purposes 
of reporting the payment made to the branch. Therefore, a payment to 
such U.S. branch shall be reported on Form 1042-S under Sec.  1.1461-
1(c). Further, a U.S. branch that is treated as a U.S. person under 
this paragraph (b)(2)(iv)(A) shall not be treated as a U.S. person for 
purposes of the withholding certificate it may provide to a withholding 
agent. Therefore, the U.S. branch must furnish a U.S. branch 
withholding certificate on Form W-8 as provided in paragraph (e)(3)(v) 
of this section and not a Form W-9. An agreement to treat a U.S. branch 
as a U.S. person must be evidenced by a U.S. branch withholding 
certificate described in paragraph (e)(3)(v) of this section furnished 
by the U.S. branch to the withholding agent. A U.S. branch described in 
this paragraph (b)(2)(iv)(A) is any U.S. branch of a foreign bank 
subject to regulatory supervision by the Federal Reserve Board or a 
U.S. branch of a foreign insurance company required to file an annual 
statement on a form approved by the National Association of Insurance 
Commissioners with the Insurance Department of a State, a Territory, or 
the District of Columbia. In addition, a financial institution 
organized in a possession of the United States will be treated as a 
U.S. branch for purposes of this paragraph (b)(2)(iv)(A). The Internal 
Revenue Service (IRS) may approve a list of U.S. branches that may 
qualify for treatment as a U.S. person under this paragraph 
(b)(2)(iv)(A) (see Sec.  601.601(d)(2) of this chapter). See Sec.  
1.6049-5(c)(5)(vi) for the treatment of U.S. branches as U.S. payors if 
they make a payment that is subject to reporting under chapter 61 of 
the Internal Revenue Code. Also see Sec.  1.6049-5(d)(1)(ii) for the 
treatment of U.S. branches as foreign payees under chapter 61 of the 
Internal Revenue Code.
* * * * *
    (3) * * *
    (iii) * * *
    (E) Certain payments for services. A payment for services is 
presumed to be made to a foreign person if--
    (1) The payee is an individual;
    (2) The withholding agent does not know, or have reason to know, 
that the payee is a U.S. citizen or resident;
    (3) The withholding agent does not know, or have reason to know, 
that the income is (or may be) effectively connected with the conduct 
of a trade or business within the United States; and
    (4) All of the services for which the payment is made were 
performed by the payee outside of the United States.
* * * * *
    (c) * * *
    (30) Possessions of the United States. For purposes of the 
regulations under chapter 3 and 61 of the Internal Revenue Code, 
possessions of the United States means Guam, American Samoa, the 
Northern Mariana Islands, Puerto Rico, and the Virgin Islands.
* * * * *
    (e) * * *
    (4) * * *
    (vii) * * *
    (G) A withholding certificate executed on or before December 31, 
2003 from a person representing to be a grantor trust with 5 or fewer 
grantors, except where such withholding certificate is provided to a 
qualified intermediary.
* * * * *
    Par. 3. Section 1.1441-3 is amended by revising paragraphs (c)(3) 
and (e)(2) to read as follows:


Sec.  1.1441-3  Determination of amounts to be withheld.

* * * * *
    (c) * * *
    (3) Special rules in the case of distributions from a regulated 
investment company--(i) General rule. If the amount of any 
distributions designated as being subject to section 852(b)(3)(C) or 
5(A), or 871(k)(1)(C) or (2)(C), exceeds the amount that may be 
designated under those sections for the taxable year, then no penalties 
will be asserted for any resulting underwithholding if the designations 
were based on a reasonable estimate (made pursuant to the same 
procedures as described in paragraph (c)(2)(ii)(A) of this section) and 
the adjustments to the amount withheld are made within the time period 
described in paragraph (c)(2)(ii)(B) of this section. Any adjustment to 
the amount of tax due and paid to the IRS by the withholding agent as a 
result of underwithholding shall not be treated as a distribution for 
purposes of section 562(c) and the regulations thereunder. Any amount 
of U.S. tax that a foreign shareholder is treated as having paid on the 
undistributed capital gain of a regulated investment company under 
section 852(b)(3)(D) may be claimed by the foreign shareholder as a 
credit or refund under Sec.  1.1464-1.
    (ii) Reliance by intermediary on reasonable estimate. For purposes 
of determining whether a payment is a distribution designated as 
subject to section 852(b)(3)(C) or (5)(A), or 871(k)(1)(C) or (2)(C), a 
withholding agent that is not the distributing regulated investment 
company may, absent actual knowledge or reason to know otherwise, rely 
on the designations that the distributing company represents have been 
made in accordance with paragraph (c)(3)(i) of this section. Failure by 
the withholding agent to withhold the required amount due to a failure 
by the regulated investment company to reasonably estimate the required 
amounts or to properly communicate the relevant information to the 
withholding agent shall be imputed to the distributing company. In such 
a case, the IRS may collect from the distributing company any 
underwithheld amount and subject the company to applicable interest and 
penalties as a withholding agent.
* * * * *
    (e) * * *
    (2) Payments in foreign currency. If the amount subject to 
withholding tax is paid in a currency other than the U.S. dollar, the 
amount of withholding under section 1441 shall be determined by 
applying the applicable rate of withholding to the foreign currency 
amount and converting the amount withheld into U.S. dollars on the date 
of payment at the spot rate (as defined in Sec.  1.988-1(d)(1)) in 
effect on that date. A withholding agent making regular or frequent 
payments in foreign currency may use a month-end spot rate or a monthly 
average spot rate. In addition, such a withholding agent may use the 
spot rate on the date the amount of tax is deposited (within the 
meaning of Sec.  1.6302-2(a)), provided that such deposit is made 
within seven days of the date of the payment giving rise to the 
obligation to withhold. A spot rate convention must be used 
consistently for all non-dollar amounts withheld and from year to year. 
Such convention cannot be changed without the consent of the 
Commissioner. The U.S. dollar amount so determined shall be treated by 
the beneficial owner as the amount of tax paid on the income for 
purposes of determining the final U.S. tax liability and, if 
applicable, claiming a refund or credit of tax.
* * * * *
    Par. 4. In Sec.  1.1441-6, paragraph (b)(1) is revised to read as 
follows:

[[Page 16194]]

Sec.  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, as described in Sec.  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 
account, documentary evidence described in paragraphs (c)(3), (4), and 
(5) of this section. See Sec.  1.6049-5(e) for the definition of 
payments made outside the United States and Sec.  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 Sec.  
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 Sec.  1.1441-6(g)) 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 Sec.  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 Sec. Sec.  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 related to the 
person obligated to pay the income, within the meaning of section 
267(b) or 707(b), the withholding certificate must also contain a 
representation that the beneficial owner will file the statement 
required under Sec.  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 taxpayer's taxable year that, in the aggregate, exceed $500,000. 
See Sec.  301.6114-1(d) of this chapter. The Internal Revenue Service 
(IRS) may apply the provisions of Sec.  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 Sec.  1.1441-
1(e)(4)(viii) regarding reliance on a withholding certificate by a 
withholding agent. The provisions of Sec.  1.1441-1(b)(3)(iv) dealing 
with a 90-day grace period shall apply for purposes of this section.
* * * * *
    Par. 5. Section 1.6049-5 is amended as follows:
    1. Paragraph (c)(1) is revised.
    2. Paragraphs (c)(5)(i), (ii), (iii), (iv), (v) and (vi) are 
redesignated as paragraphs (c)(5)(i)(A), (B), (C), (D), (E), and (F), 
respectively.
    3. A new heading is added to paragraph (c)(5)(i).
    4. New paragraph (c)(5)(ii) is added.
    The revisions and additions read as follows:


Sec.  1.6049-5  Interest and original issue discount subject to 
reporting after December 31, 1982.

* * * * *
    (c) Applicable rules--(1) Documentary evidence for offshore 
accounts and for possessions accounts. A payor may rely on documentary 
evidence described in this paragraph (c)(1) instead of a beneficial 
owner withholding certificate described in Sec.  1.1441-1(e)(2)(i) in 
the case of a payment made outside the United States to an offshore 
account, in the case of a payment made to a U.S. possessions account 
or, in the case of broker proceeds described in Sec.  1.6045-1(c)(2), 
in the case of a sale effected outside the United States (as defined in 
Sec.  1.6045-1(g)(3)(iii)(A)). For purposes of this paragraph (c)(1), 
an offshore account means an account maintained at an office or branch 
of a U.S. or foreign bank or other financial institution at any 
location outside the United States (i.e., other than in any of the 
fifty States or the District of Columbia) and outside of possessions of 
the United States. Thus, for example, an account maintained in a 
foreign country at a branch of a U.S. bank or of a foreign subsidiary 
of a U.S. bank is an offshore account. For purposes of this paragraph 
(c)(1), a U.S. possessions account means an account maintained at an 
office or branch of a U.S. or foreign bank or other financial 
institution located within a possession of the United States. For the 
definition of a payment made outside the United States, see paragraph 
(e) of this section. A payor may rely on documentary evidence if the 
payor has established procedures to obtain, review, and maintain 
documentary evidence sufficient to establish the identity of the payee 
and the status of that person as a foreign person (including, but not 
limited to, documentary evidence described in Sec.  1.1441-6(c)(3) or 
(4)); and the payor obtains, reviews, and maintains such documentary 
evidence in accordance with those procedures. A payor maintains the 
documents reviewed by retaining the original, certified copy, or a 
photocopy (or microfiche or similar means of record retention) of the 
documents reviewed and noting in its records the date on which and by 
whom the document was received and reviewed. Documentary evidence 
furnished for the payment of an amount subject to withholding under 
chapter 3 of the Code must contain all of the information that is 
necessary to complete a Form 1042-S for that payment. 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 Sec.  1.1441-
1(c)(28), the foreign beneficiaries of a foreign simple trust, as 
defined in Sec.  1.1441-1(c)(24), or foreign owners of a foreign 
grantor trust, as defined in Sec.  1.1441-1(c)(26), even though the 
partnership or trust account is maintained in the United States.
* * * * *
    (5) * * * (i) Definition. * * *
    (ii) Reporting by U.S. payors in U.S. possessions. U.S. payors are 
not required to report on Form 1099 income that is from sources within 
a possession of the United States and that is exempt from taxation 
under section 931, 932, or 933, each of which sections exempts

[[Page 16195]]

certain income from sources within a possession of the United States 
paid to a bona fide resident of that possession. For purposes of this 
paragraph (c)(5)(ii), a U.S. payor may treat the beneficial owner as a 
bona fide resident of the possession of the United States from which 
the income is sourced if, prior to payment of the income, the U.S. 
payor can reliably associate the payment with valid documentation that 
supports the claim of residence in the possession of the United States 
from which the income is sourced. This paragraph (c)(5)(ii) shall not 
apply if the U.S. payor has actual knowledge or reason to know that the 
documentation is unreliable or incorrect or that the income does not 
satisfy the requirements for exemption under section 931, 932, or 933. 
For the rules determining whether income is from sources within a 
possession of the United States, see section 937(b) and the regulations 
thereunder.
* * * * *

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 6. The authority citation for part 301 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 7. In Sec.  301.6114-1 is amended as follows:
    1. Paragraphs (c)(1)(i) through (c)(1)(vii) are redesignated as 
paragraphs (c)(1)(ii) through (c)(1)(viii), respectively.
    2. New paragraph (c)(1)(i) is added.
    3. Paragraph (c)(7) is added.
    The additions and revision read as follows:


Sec.  301.6114-1  Treaty-based return positions.

* * * * *
    (c) * * * (1) * * *
    (i) For amounts received on or after January 1, 2001, return 
positions described in paragraph (b)(4)(ii) of this section, unless the 
conditions in paragraphs (b)(4)(ii)(A) and (B) of this section, 
paragraph (b)(4)(ii)(C) of this section, or paragraph (b)(4)(ii)(D) of 
this section are met;
* * * * *
    (7) Reporting under paragraph (b)(4)(ii)(D) of this section is 
waived with respect to a taxable year for taxpayers that are not 
individuals or states and that, on or after January 1, 2001, receive 
amounts of income subject to withholding that do not exceed $10,000 in 
the aggregate for such taxable year.
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-6060 Filed 3-29-05; 8:45 am]
BILLING CODE 4830-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.