Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, 5873-5995 [2013-01025]
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Vol. 78
Monday,
No. 18
January 28, 2013
Part II
Department of the Treasury
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Internal Revenue Service
26 CFR Parts 1 and 301
Regulations Relating to Information Reporting by Foreign Financial
Institutions and Withholding on Certain Payments to Foreign Financial
Institutions and Other Foreign Entities; Final Rule
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Federal Register / Vol. 78, No. 18 / Monday, January 28, 2013 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9610]
RIN 1545–BK68
Regulations Relating to Information
Reporting by Foreign Financial
Institutions and Withholding on
Certain Payments to Foreign Financial
Institutions and Other Foreign Entities
Internal Revenue Service (IRS),
Treasury.
ACTION: Final Regulations.
AGENCY:
This document contains final
regulations under chapter 4 of Subtitle
A (sections 1471 through 1474) of the
Internal Revenue Code of 1986 (Code)
regarding information reporting by
foreign financial institutions (FFIs) with
respect to U.S. accounts and
withholding on certain payments to
FFIs and other foreign entities. These
regulations affect persons making
certain U.S.-related payments to FFIs
and other foreign entities and payments
by FFIs to other persons.
DATES: Effective date. These regulations
are effective January 28, 2013.
Applicability dates. For dates of
applicability, see §§ 1.1471–1(c);
1.1471–2(a)(1); 1.1471–2(a)(2)(i), (ii),
(iii)(A); 1.1471–2(a)(4)(ii); 1.1471–
3(d)(1); 1.1471–3(d)(4)(i), (ii); (iv);
1.1471–3(d)(6)(v); 1.1471–
3(d)(11)(viii)(A); 1471–3(d)(12)(iii)(B);
1471–3(e)(3)(ii); 1471–3(e)(4)(vii)(B);
1.1471–4(b)(1), (4); 1.1471–4(d)(7);
1.1471–4(e)(2)(v); 1.1471–4(e)(3)(iv);
1.1471–5(f)(2)(iv); 1.1471–6(i); 1.1472–
1(b); 1.1473–1(a)(1)(ii) and 1.1473–
1(a)(4)(vi); 1.1474–1(d)(4)(iii)(C) and
1.1474–1(i); 1.1474–2(c); 1.1471–3(c);
1.1474–4(b); 1.1474–5(c); 1.1474–6(f);
1.1474–7(c); 301.1474–1(e).
FOR FURTHER INFORMATION CONTACT: John
Sweeney, (202) 622–3840 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
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I. In General
This document contains final
amendments to the Income Tax
Regulations (CFR parts 1 and 301) under
sections 1471 through 1474 of the Code
(commonly known as the Foreign
Account Tax Compliance Act, or
FATCA). On March 18, 2010, the Hiring
Incentives to Restore Employment Act
of 2010, Public Law 111–147 (the HIRE
Act), added chapter 4 of Subtitle A
(chapter 4), comprised of sections 1471
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through 1474, to the Code. Chapter 4
generally requires U.S. withholding
agents to withhold tax on certain
payments to foreign financial
institutions (FFIs) that do not agree to
report certain information to the
Internal Revenue Service (IRS) regarding
their United States accounts (U.S.
accounts), and on certain payments to
certain nonfinancial foreign entities
(NFFEs) that do not provide information
on their substantial United States
owners (substantial U.S. owners) to
withholding agents. Since the
enactment of chapter 4, the Department
of the Treasury (Treasury Department)
and the IRS have issued preliminary
guidance on the implementation of
chapter 4. See Notice 2010–60 (2010–37
I.R.B. 329), Notice 2011–34 (2011–19
I.R.B. 765), and Notice 2011–53 (2011–
32 I.R.B. 124) (collectively, the FATCA
Notices). The FATCA Notices are
available at IRS.gov.
On February 15, 2012 (77 FR 9022),
the Treasury Department and the IRS
published a notice of proposed
rulemaking (the proposed regulations)
addressing chapter 4’s due diligence,
withholding, reporting, and associated
requirements. On October 24, 2012, the
Treasury Department and the IRS
released Announcement 2012–42,
which announced the intention to
amend certain provisions of the
proposed regulations in adopting the
final regulations.
The Treasury Department and the IRS
received numerous comments in
response to the proposed regulations,
and a public hearing on the proposed
regulations was held on May 15, 2012.
The comments received in writing and
at the public hearing were carefully
considered in developing these final
regulations.
II. Chapter 4 Policy in the Context of
the U.S. Federal Income Tax Laws
U.S. taxpayers’ investments have
become increasingly global in scope.
FFIs now provide a significant
proportion of the investment
opportunities for, and act as
intermediaries with respect to the
investments of, U.S. taxpayers. Like U.S.
financial institutions, FFIs are generally
in the best position to identify and
report with respect to their U.S.
customers. Absent such reporting by
FFIs, some U.S. taxpayers may attempt
to evade U.S. tax by hiding money in
offshore accounts. To prevent this abuse
of the U.S. voluntary tax compliance
system and address the use of offshore
accounts to facilitate tax evasion, it is
essential in today’s global investment
climate that reporting be available with
respect to both the onshore and offshore
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accounts of U.S. taxpayers. This
information reporting strengthens the
integrity of the U.S. voluntary tax
compliance system by placing U.S.
taxpayers that have access to
international investment opportunities
on an equal footing with U.S. taxpayers
that do not have such access or
otherwise choose to invest within the
United States.
To this end, chapter 4 extends the
scope of the U.S. information reporting
regime to include FFIs that maintain
U.S. accounts. Chapter 4 also imposes
increased disclosure obligations on
certain NFFEs that present a high risk of
U.S. tax avoidance. In addition, chapter
4 provides for withholding on FFIs and
NFFEs that do not comply with the
reporting and other requirements of
chapter 4. This withholding generally
may be credited against the U.S. income
tax liability of the beneficial owner of
the payment to which the withholding
is attributable, and generally may be
refunded to the extent the withholding
exceeds such liability. An FFI that does
not comply with the requirements of
section 1471(b), however, and that
beneficially owns the payment from
which tax is withheld under chapter 4,
may not receive a credit or refund of
such tax except to the extent required by
a treaty obligation of the United States.
III. Statutory Provisions
The following discussion briefly
explains the statutory provisions of
FATCA, which are implemented by
these regulations. Section 1471(a)
requires any withholding agent to
withhold 30 percent of any
withholdable payment to an FFI that
does not meet the requirements of
section 1471(b). A withholdable
payment is defined in section 1473(1) to
mean, subject to certain exceptions: (i)
Any payment of interest, dividends,
rents, salaries, wages, premiums,
annuities, compensations,
remunerations, emoluments, and other
fixed or determinable annual or
periodical gains, profits, and income
(FDAP income), if such payment is from
sources within the United States; and
(ii) any gross proceeds from the sale or
other disposition of any property of a
type which can produce interest or
dividends from sources within the
United States.
An FFI meets the requirements of
section 1471(b) if it either enters into an
agreement (an FFI agreement) with the
IRS under section 1471(b)(1) to perform
certain obligations or meets
requirements prescribed by the Treasury
Department and the IRS to be deemed
to comply with the requirements of
section 1471(b). An FFI is defined as
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any financial institution that is a foreign
entity, other than a financial institution
organized under the laws of a
possession of the United States
(generally referred to as a U.S. territory
in this preamble). For this purpose,
section 1471(d)(5) defines a financial
institution as, except to the extent
provided by the Secretary, any entity
that: (i) Accepts deposits in the ordinary
course of a banking or similar business;
(ii) as a substantial portion of its
business, holds financial assets for the
account of others; or (iii) is engaged (or
holding itself out as being engaged)
primarily in the business of investing,
reinvesting, or trading in securities,
partnership interests, commodities, or
any interest in such securities,
partnership interests, or commodities.
Section 1471(b)(1)(A) and (B) requires
an FFI that enters into an FFI agreement
(a participating FFI) to identify its U.S.
accounts and comply with verification
and due diligence procedures
prescribed by the Secretary. A U.S.
account is defined under section
1471(d)(1) as any financial account held
by one or more specified United States
persons, as defined in section 1473(3),
(specified U.S. persons) or United States
owned foreign entities (U.S. owned
foreign entities), subject to certain
exceptions. Section 1471(d)(2) defines a
financial account to mean, except as
otherwise provided by the Secretary,
any depository account, any custodial
account, and any equity or debt interest
in an FFI, other than interests that are
regularly traded on an established
securities market. A U.S. owned foreign
entity is defined in section 1471(d)(3) as
any foreign entity that has one or more
substantial U.S. owners (as defined in
section 1473(2)).
A participating FFI is required under
section 1471(b)(1)(C) and (E) to report
certain information on an annual basis
to the IRS with respect to each U.S.
account and to comply with requests for
additional information by the Secretary
with respect to any U.S. account. The
information that must be reported with
respect to each U.S. account includes:
(i) The name, address, and taxpayer
identifying number (TIN) of each
account holder who is a specified U.S.
person (or, in the case of an account
holder that is a U.S. owned foreign
entity, the name, address, and TIN of
each specified U.S. person that is a
substantial U.S. owner of such entity);
(ii) the account number; (iii) the account
balance or value; and (iv) except to the
extent provided by the Secretary, the
gross receipts and gross withdrawals or
payments from the account (determined
for such period and in such manner as
the Secretary may provide). In lieu of
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reporting account balance or value and
reporting gross receipts and gross
withdrawals or payments, a
participating FFI may, subject to
conditions provided by the Secretary,
elect under section 1471(c)(2) to report
the information required under sections
6041, 6042, 6045, and 6049 as if such
institution were a U.S. person and each
holder of such U.S. account that is a
specified U.S. person or U.S. owned
foreign entity were a natural person and
citizen of the United States. If foreign
law would prevent the FFI from
reporting the required information
absent a waiver from the account
holder, and the account holder fails to
provide a waiver within a reasonable
period of time, the FFI is required under
section 1471(b)(1)(F) to close the
account.
Section 1471(b)(1)(D)(i) requires a
participating FFI to withhold 30 percent
of any passthru payment to a
recalcitrant account holder or to an FFI
that does not meet the requirements of
section 1471(b) (nonparticipating FFI).
A passthru payment is defined in
section 1471(d)(7) as any withholdable
payment or other payment to the extent
attributable to a withholdable payment.
Section 1471(d)(6) defines a recalcitrant
account holder as any account holder
that fails to provide the information
required to determine whether the
account is a U.S. account, or the
information required to be reported by
the FFI, or that fails to provide a waiver
of a foreign law that would prevent
reporting. A participating FFI may,
subject to such requirements as the
Secretary may provide, elect under
section 1471(b)(3) not to withhold on
passthru payments, and instead be
subject to withholding on payments it
receives, to the extent those payments
are allocable to recalcitrant account
holders or nonparticipating FFIs.
Section 1471(b)(1)(D)(ii) requires a
participating FFI that does not make
such an election to withhold on
passthru payments it makes to any
participating FFI that makes such an
election.
Section 1471(e) provides that the
requirements of the FFI agreement shall
apply to the U.S. accounts of the
participating FFI and, except as
otherwise provided by the Secretary, to
the U.S. accounts of each other FFI that
is a member of the same expanded
affiliated group, as defined in section
1471(e)(2).
Section 1471(f) exempts from
withholding under section 1471(a)
certain payments beneficially owned by
certain persons, including any foreign
government, international organization,
foreign central bank of issue, or any
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other class of persons identified by the
Secretary as posing a low risk of tax
evasion. Section 1472(a) requires a
withholding agent to withhold 30
percent of any withholdable payment to
an NFFE if the payment is beneficially
owned by the NFFE or another NFFE,
unless the requirements of section
1472(b) are met with respect to the
beneficial owner of the payment.
Section 1472(d) defines an NFFE as any
foreign entity that is not a financial
institution as defined in section
1471(d)(5).
The requirements of section 1472(b)
are met with respect to the beneficial
owner of a payment if: (i) the beneficial
owner or payee provides the
withholding agent with either a
certification that such beneficial owner
does not have any substantial U.S.
owners, or the name, address, and TIN
of each substantial U.S. owner; (ii) the
withholding agent does not know or
have reason to know that any
information provided by the beneficial
owner or payee is incorrect; and (iii) the
withholding agent reports the
information provided to the Secretary.
Section 1472(c)(1) provides that
withholding under section 1472(a) does
not apply to payments beneficially
owned by certain classes of persons,
including any class of persons identified
by the Secretary. In addition, section
1472(c)(2) provides that withholding
under section 1472(a) does not apply to
any class of payment identified by the
Secretary for purposes of section 1472(c)
as posing a low risk of tax evasion.
Section 1474(a) provides that every
person required to withhold and deduct
any tax under chapter 4 is made liable
for such tax and is indemnified against
the claims and demands of any person
for the amount of any payments made
in accordance with the provisions of
chapter 4. In general, the beneficial
owner of a payment is entitled to a
refund for any overpayment of tax
actually due under other provisions of
the Code. However, with respect to any
tax properly deducted and withheld
under section 1471 from a payment
beneficially owned by an FFI, section
1474(b)(2) provides that the FFI is not
entitled to a credit or refund, except to
the extent required by a treaty obligation
of the United States (and, if a credit or
refund is required by a treaty obligation
of the United States, no interest shall be
allowed or paid with respect to such
credit or refund). In addition, section
1474(b)(3) provides that no credit or
refund shall be allowed or paid with
respect to any tax properly deducted
and withheld under chapter 4 unless the
beneficial owner of the payment
provides the Secretary with such
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information as the Secretary may
require to determine whether such
beneficial owner is a U.S. owned foreign
entity and the identity of any substantial
U.S. owners of such entity.
Section 1474(c) provides that
information provided under chapter 4 is
confidential under rules similar to
section 3406(f), except that the identity
of an FFI that meets the requirements of
section 1471(b) is not treated as return
information for purposes of section
6103.
Section 1474(d) provides that the
Secretary shall provide for the
coordination of chapter 4 with other
withholding provisions under the Code,
including providing for the proper
crediting of amounts deducted and
withheld under chapter 4 against
amounts required to be deducted and
withheld under other provisions.
Section 1474(f) provides that the
Secretary shall prescribe such
regulations or other guidance as may be
necessary or appropriate to carry out the
purposes of, and prevent the avoidance
of, chapter 4.
IV. Balanced and Integrated Approach
to Implementing Chapter 4
Chapter 4 grants the Secretary of the
Treasury broad regulatory authority to
prescribe rules and procedures relating
to the diligence, reporting, and
withholding obligations of the statute.
These final regulations exercise this
authority by providing specific
operational guidelines for implementing
FATCA in a manner consistent with its
principal policy objectives. Recognizing
that there are costs associated with the
implementation of any new withholding
and reporting regime, the Treasury
Department and the IRS solicited
comments and met extensively with
stakeholders to develop an
implementation approach that achieves
an appropriate balance between
fulfilling the important policy objectives
of chapter 4 and minimizing the
burdens imposed on stakeholders. This
engagement resulted in hundreds of
constructive comments from and
numerous productive meetings with
stakeholders. While the comments
covered a broad range of issues relating
to the implementation of FATCA, the
vast majority of commenters expressed
concerns regarding the costs and
burdens associated with implementing
FATCA and the legal impediments to
compliance in a number of jurisdictions.
Comments also expressed concerns
regarding the procedural and systems
aspects of registering and reporting.
The Treasury Department and the IRS
carefully considered these comments
and established three avenues for
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addressing the principal concerns
regarding burdens, legal impediments,
and technical implementation. The first
avenue was to adopt a risk-based
approach to implementing the statute
that effectively addresses policy
considerations, eliminates unnecessary
burdens, and, to the extent possible,
builds on existing practices and
obligations. The second avenue was to
collaborate with foreign governments to
develop an alternative
intergovernmental approach to
implementing chapter 4 that removes
legal impediments, allows for alignment
and coordination with local law
reporting practices, and achieves further
burden reductions. The third avenue
was to develop administrative
approaches to simplify the process for
registering and entering into an
agreement with the IRS in order to
minimize operational costs associated
with collecting and reporting FATCA
information.
A. Targeted Regulations
These final regulations address
potential administrative burdens
associated with FATCA compliance by
adopting a risk-based and targeted
approach to implement the statute with
respect to scope, diligence, and timing.
In particular, with respect to scope,
consistent with the objectives of the
statute, the regulations limit the
institutions, obligations, and accounts
subject to FATCA to more specifically
target concerns and address practical
considerations. For example, the final
regulations refine the scope of FATCA
in the following ways:
• Expansion of Grandfather Rule for
Certain Obligations. To promote the
orderly implementation of FATCA, the
final regulations exempt from chapter 4
withholding all obligations outstanding
on January 1, 2014, and any associated
collateral. In addition, because evolving
areas of the law may create chapter 4
withholding obligations in the future
and create uncertainty and risk in the
meantime, the final regulations address
obligations (and associated collateral)
that may give rise to withholdable
payments through future regulations
under section 871(m) (relating to
dividend equivalent payments) or to
foreign passthru payments under the
chapter 4 foreign passthru payment
rules. Such obligations are
grandfathered if the obligations are
outstanding at any point prior to six
months after the implementing
regulations are published.
• Scope of Covered Financial
Institutions. In response to comments,
the final regulations treat passive
entities that are not professionally
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managed as NFFEs rather than as FFIs.
The final regulations also provide
appropriate exemptions for financial
institutions and certain passive NFFEs
that are part of a nonfinancial group of
companies and that support the
operations of the group.
• Expansion of Deemed Compliant
and Other Exempt Categories. The final
regulations expand the categories of
FFIs that are deemed to comply with
FATCA without the need to enter into
an agreement with the IRS in order to
focus the application of FATCA on
higher-risk financial institutions that
provide services to the global
investment community. In addition, the
final regulations expand the scope of
retirement funds that are considered
exempt beneficial owners the income of
which is not subject to chapter 4
withholding.
With respect to diligence, the final
regulations reduce the administrative
burdens associated with identifying U.S.
accounts by calibrating due diligence
requirements based on the value and
risk profile of the account, and by
permitting FFIs in many cases to rely on
information they already collect. For
example, the final regulations reduce
the burdens associated with identifying
U.S. accounts in the following ways:
• Accounts exempt from review. The
final regulations exempt from review
entirely all preexisting accounts held by
individuals with a balance or value of
$50,000 or less. This threshold is raised
to $250,000 for preexisting accounts
held by entities and for preexisting
accounts that are cash value insurance
and annuity contracts. In addition, the
final regulations exempt insurance
contracts with a balance or value of
$50,000 or less from treatment as
financial accounts.
• Reduced diligence and
documentation rules for lower value
preexisting accounts. In the case of
preexisting accounts with a balance or
value of $1,000,000 or less, the final
regulations permit a participating FFI to
determine whether any of its accounts
held by individuals are U.S. accounts
based solely on a search of
electronically searchable account
information for certain U.S. indicia. In
addition, for such accounts held by
passive NFFEs, the final regulations
allow a withholding agent to rely on its
review conducted for anti-money
laundering due diligence purposes to
identify any substantial U.S. owners of
the payee in lieu of obtaining a
certification.
• Reliance on self-certification. In the
case of accounts held by entities, the
final regulations expand the ability of
FFIs to rely on a self-certification from
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an account holder as to its chapter 4
status.
Finally, with respect to timing, the
final regulations allow reasonable
timeframes to review existing accounts
and implement FATCA’s obligations in
stages to minimize burdens and costs
consistent with achieving the statute’s
compliance objectives. For example:
• Time allowed for review of preexisting accounts. The final regulations
treat all accounts maintained by an FFI
prior to January 1, 2014, as preexisting
accounts. In addition, the final
regulations allow participating FFIs and
withholding agents until December 31,
2015, to document account holders and
payees that are not prima facie FFIs.
• Phased implementation of
reporting. The final regulations modify
the due date for the first information
report by requiring participating FFIs to
file the first information reports with
respect to the 2013 and 2014 calendar
years not later than March 31, 2015.
• Phased implementation of
withholding on passthru payments and
gross proceeds. The final regulations
exempt from withholding foreign
passthru payments and gross proceeds
from sales or dispositions of property
occurring before January 1, 2017.
B. Intergovernmental Agreements
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1. In General
In many cases, foreign law would
prevent an FFI from reporting directly to
the IRS the information required by the
FATCA statutory provisions and these
regulations, thus potentially exposing
the FFI to withholding. Such an
outcome would be inconsistent with
FATCA’s objective to address offshore
tax evasion through increased
information reporting. To overcome
these legal impediments, the Treasury
Department has collaborated with
foreign governments to develop two
alternative model intergovernmental
agreements that facilitate the effective
and efficient implementation of FATCA
in a manner that removes domestic legal
impediments to compliance, fulfills
FATCA’s policy objectives, and further
reduces burdens on FFIs located in
partner jurisdictions.
The first model intergovernmental
agreement was published on July 26,
2012. A partner jurisdiction signing an
agreement with the United States based
on the first model (Model 1 IGA) agrees
to adopt rules to identify and report
information about U.S. accounts that
meet the standards set out in the Model
1 IGA. FFIs covered by a Model 1 IGA
that are not otherwise excepted or
exempt pursuant to the agreement must
identify U.S. accounts pursuant to due
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diligence rules adopted by the partner
jurisdiction and report specified
information about the U.S. accounts to
the partner jurisdiction. The partner
jurisdiction then exchanges this
information with the IRS on an
automatic basis. These standards ensure
that the IRS will receive the same
quality and quantity of information
about U.S. accounts from FFIs covered
by a Model 1 IGA as it receives from
FFIs applying these final regulations.
A second model intergovernmental
agreement was published on November
14, 2012. A partner jurisdiction signing
an agreement with the United States
based on the second model (Model 2
IGA) agrees to direct and enable all FFIs
that are located in the jurisdiction, and
that are not otherwise excepted or
exempt pursuant to the Model 2 IGA, to
register with the IRS and report
specified information about U.S.
accounts directly to the IRS in a manner
consistent with chapter 4 and these final
regulations, except as expressly
modified by the Model 2 IGA. In the
case of certain recalcitrant account
holders, the information reported to the
IRS by FFIs covered by a Model 2 IGA
is supplemented by government-togovernment exchange of information.
Both Model 1 IGAs and Model 2 IGAs
(together, IGAs) contemplate that the
partner jurisdiction will require all
financial institutions that are located in
the jurisdiction, and that are not
otherwise excepted or exempt pursuant
to the agreement, to identify and report
information about U.S. accounts. In
consideration of the full cooperation by
the partner jurisdiction, the model
agreements contemplate a number of
simplifications and burden reductions
associated with the application of
FATCA in the partner jurisdiction. The
Treasury Department and the IRS
believe that IGAs represent efficient and
effective ways of implementing the
requirements of chapter 4 and will
continue to conclude bilateral
agreements based on the two models
with interested jurisdictions. In
addition, the Treasury Department and
the IRS continue to receive comments
strongly supporting the approach to
FATCA implementation embodied in
the IGAs. The Treasury Department and
the IRS remain committed to working
cooperatively with foreign jurisdictions
on multilateral efforts to improve
transparency and information exchange
on a global basis.
2. Interaction of IGAs With the Final
Regulations
FFIs covered by a Model 1 IGA, and
that are in compliance with local laws
implemented to identify and report U.S.
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accounts in accordance with the terms
of the Model 1 IGA, will be treated as
satisfying the due diligence and
reporting requirements of chapter 4.
Accordingly, consistent with the terms
of the Model 1 IGA, these FFIs do not
need to apply the final regulations for
purposes of complying with and
avoiding withholding under FATCA. In
certain cases prescribed in the Model 1
IGA, the laws of the partner jurisdiction
may allow the resident FFI to elect to
apply provisions of these regulations
instead of the rules otherwise prescribed
in the Model 1 IGA.
FFIs covered by a Model 2 IGA with
the United States will be required to
implement FATCA in the manner
prescribed by these regulations except
to the extent expressly modified by the
Model 2 IGA. The final regulations
accommodate such variations.
C. Streamlined Registration and
Technical Implementation
FFIs registering with the IRS will be
able to do so through a secure online
web portal, the FATCA Registration
Portal (Portal), from anywhere in the
world. The Portal is designed to
accomplish an entirely paperless
registration process. Registering FFIs
will be able to use the Portal to register
their chapter 4 status (such as
participating FFI or reporting Model 1
FFI (both as defined in the final
regulations)), manage their registration
information, and, as appropriate, agree
to the terms of or make the
representations required for their status.
The Portal will also facilitate electronic
communication between the IRS and
FFIs and other registrants. Registered
FFIs designated as leads of an expanded
affiliated group will be able to use the
Portal to manage the registration status
of group members. The Portal will also
be used by registering FFIs that are
already Qualified Intermediaries (QIs) to
renew their QI status. An FFI’s
submission and maintenance of
registration information through the
Portal will maximize processing
efficiencies, minimize errors, and
ensure expedient issuance of a Global
Intermediary Identification Number
(‘‘GIIN’’). An FFI will use its GIIN to
establish its chapter 4 status for
withholding purposes and to identify
the institution for reporting purposes
under the final regulations. The IRS
currently contemplates that the GIIN
may also be used by reporting Model 1
FFIs to satisfy reporting requirements
under local law and is discussing this
possibility with its Model 1 IGA
partners. With regard to reporting, the
IRS is also discussing with partner
jurisdictions the possibility of adopting
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a single format for reporting FATCA
information, whether that information is
reported directly to the IRS or to the tax
administration in a Model 1 IGA
jurisdiction.
The IRS also anticipates that the
certifications of compliance required to
be made by responsible officers
pursuant to §§ 1.1471–4(c)(7) and
1.1471–4(f)(3) will be made
electronically through the Portal,
resulting in similar efficiencies.
Summary of Comments and
Explanation of Revisions
I. In General
The Treasury Department and the IRS
received a number of general comments
requesting improvements to the
readability of the proposed regulations.
In response, the Treasury Department
and the IRS made substantial changes in
the final regulations to simplify and
clarify the chapter 4 rules. In addition,
the Treasury Department and the IRS
received numerous specific comments
regarding the proposed regulations and
made numerous changes to the final
regulations in response to those
comments.
The following discussion addresses
the significant changes in the final
regulations from the proposed
regulations. To facilitate this discussion,
the defined terms from § 1.1471–1(b) are
used throughout.
II. Comments and Changes to § 1.1471–
1—Scope of Chapter 4 and Definitions
The chapter 4 definitions have been
revised to reflect the IGAs and other
changes adopted in the final regulations.
Revisions of the definitions are
discussed as relevant in the succeeding
sections of this preamble.
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III. Comments and Changes to § 1.1471–
2—Requirement To Deduct and
Withhold Tax on Withholdable
Payments to Certain FFIs
A. Grandfathered Obligations
Comments requested modifications to
the scope of grandfathered obligations to
facilitate market transition and allow
time for adapting master agreements and
collateral arrangements in light of the
IGAs, the future issuance of guidance
under section 871(m), and other systems
developments. In response, the final
regulations provide that grandfathered
obligations consist of: (1) Any obligation
outstanding on January 1, 2014; (2) any
obligation that produces withholdable
payments solely because the obligation
is treated as giving rise to a dividend
equivalent pursuant to section 871(m)
and the regulations thereunder and that
is executed on or before the date that is
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six months after the date on which
obligations of its type are first treated as
giving rise to dividend equivalents; and
(3) any agreement requiring a secured
party to make payments with respect to
collateral securing one or more
grandfathered obligations (even if the
collateral is not itself a grandfathered
obligation). If collateral (or a pool of
collateral) secures both grandfathered
obligations and obligations that are not
grandfathered, the collateral posted to
secure the grandfathered obligations
must be determined by allocating (pro
rata by value) the collateral (or, in the
case of a pool of collateral, each item
comprising the pool of collateral) to all
outstanding obligations secured by the
collateral (or pool of collateral).
In addition, the final regulations
provide that an obligation will not give
rise to a foreign passthru payment if it
is executed on or before the date that is
six months after the date on which final
regulations defining the term foreign
passthru payment are filed with the
Federal Register. Comments also
requested clarification of the
outstanding date of a debt instrument
that is reopened in a qualified reopening
under § 1.1275–2(k). For debt
obligations, the final regulations
determine the date the obligation is
outstanding based on the issue date of
the debt. Thus, whether debt issued in
a qualified reopening will be treated as
a grandfathered obligation depends on
the issue date of the original debt,
which is the issue date of the debt
issued in the qualified reopening.
The final regulations also provide that
the date a non-debt obligation is
outstanding is the date a legally binding
agreement is executed. Thus, a line of
credit or a revolving credit facility for a
fixed term may qualify as an obligation
provided that the agreement as of its
issue date fixes the material terms
(including a stated maturity date) under
which the credit will be provided.
In response to comments regarding
insurance contracts, the final
regulations provide that: (1) a life
insurance contract payable no later than
upon the death of the insured
individual(s) is an obligation that may
qualify as a grandfathered obligation;
and (2) premiums paid for an insurance
contract or annuity contract that is
treated as a grandfathered obligation are
treated as payments made under a
grandfathered obligation.
Finally, comments requested
provisions to simplify a withholding
agent’s determination of whether an
obligation is grandfathered.
Accordingly, the final regulations
provide that: (1) A withholding agent,
other than the issuer of the obligation
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(or an agent of the issuer) may, absent
actual knowledge, rely on a written
statement by the issuer of the obligation
to determine whether such obligation
meets the requirements for
grandfathered treatment; (2) a
withholding agent is required to treat a
modification as material only if the
withholding agent knows or has reason
to know that such modification was
material; and (3) a withholding agent,
other than the issuer of the obligation
(or an agent of the issuer), absent actual
knowledge, will have reason to know of
a material modification if it receives a
disclosure thereof from the issuer of the
obligation (or from such issuer’s agent).
B. Other Changes to the Withholding
Provisions
Comments requested that the
withholding provisions under chapter 4
conform with certain withholding
provisions of chapter 3. In addition,
comments requested that the election to
be withheld upon under section
1471(b)(3) and provided in the proposed
regulations be available on an accountby-account basis. In response to these
comments, the final regulations: (1)
Clarify the exception to withholding
when a withholding agent lacks control,
custody, or knowledge of a payment; (2)
treat a payment as a withholdable
payment in the absence of knowledge of
its source or character, or allow for up
to a one-year escrow of 30 percent of the
payment pending a determination of the
relevant facts; and (3) permit the
election to be withheld upon pursuant
to § 1.1471–2(a)(2)(iii) to be made on an
account-by-account basis, provided
other applicable requirements are
satisfied.
IV. Comments and Changes to § 1.1471–
3—Identification of Payee
A. Documentation Alternatives
1. In General
Comments requested that the final
regulations generally permit a
withholding agent to rely upon a
withholding certificate to establish the
chapter 4 status of a payee without
obtaining additional documentary
evidence, unless such documentary
evidence is required under chapter 3.
This comment was adopted. The final
regulations further expand the types of
documentary evidence upon which a
withholding agent may rely with respect
to offshore obligations, including
government Web sites and reports from
government agencies. For preexisting
obligations, the final regulations permit
a withholding agent to rely on
information previously recorded in the
withholding agent’s files, in addition to
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standardized industry codes, in
determining the chapter 4 status of the
payee. For these purposes, a
standardized industry code may be any
coding system employed by the
withholding agent.
2. Written Statements
Comments requested that the final
regulations permit reliance on written
statements without additional
documentation for offshore obligations
that do not generate payments of U.S.
source FDAP income (such as a
depository account maintained outside
of the United States by an FFI) and
enumerate the elements they must
contain. This comment was adopted. A
written statement may also be relied
upon with respect to an offshore
obligation that generates payments of
U.S. source FDAP income if it is
accompanied by documentary evidence
establishing the foreign status of the
person named on the written statement.
Comments noted that signed
documentation outside of the United
States generally does not require
signature under penalties of perjury,
and that such a requirement would
depart from current AML due diligence
procedures. The final regulations
remove the penalties of perjury
requirement for written statements used
as documentation for payments made
outside of the United States on offshore
obligations, other than for payments of
U.S. source FDAP income.
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3. Substitute and Non-IRS Forms
Comments requested the ability to use
substitute forms, including forms
prepared or filled out in a foreign
language. In response, the final
regulations provide that substitute forms
may be both prepared in and filled out
in a foreign language, provided the
withholding agent furnishes the IRS
with a translated version upon request.
Such substitute forms must contain the
same certifications as the official IRS
form to the extent relevant. For this
purpose, a substitute form for
individuals is acceptable, provided that
the form contains the required
information, including the individual’s
permanent residence address, all
relevant tax identification numbers,
and, if not signed under penalties of
perjury, the withholding agent has
obtained applicable documentary
evidence that supports the person’s
claim of foreign status. Qualifying nonIRS forms may be used within the
United States as well as for offshore
obligations, and also may be used for
purposes of chapter 3 to the extent
provided in § 1.1441–1(e)(4)(vi).
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4. Reliance on Pre-FATCA Form W–8
In response to comments that FFIs
would have difficulty obtaining new
documentation on all preexisting
account holders in a compressed time
frame, the final regulations provide that
a withholding agent may rely upon a
pre-FATCA Form W–8 in lieu of
obtaining an updated version of the
withholding certificate in certain
circumstances.
5. Curing Inconsequential Errors
Comments requested that a minor
error in a withholding certificate not
invalidate the certificate if the error can
be cured with supplemental information
already on file for the payee. In
response, the final regulations provide
that a withholding agent may treat a
withholding certificate as valid,
notwithstanding an inconsequential
error, if it otherwise has sufficient
documentation to cure the error that
does not contradict the information on
the withholding certificate. A failure to
make a required certification, or to
provide a country of residence (or
country under which treaty benefits are
sought), is not an inconsequential error.
B. Continuing Validity of
Documentation
Comments requested relief from the
general requirement to refresh
documentation every three years. In
response, the final regulations permit
documentation to remain valid
indefinitely, subject to a change in
circumstances, if the chapter 4 status
claimed is a specified low-risk category.
The Treasury Department and the IRS
are considering extending the final
regulations’ validity rule to chapter 3 in
appropriate circumstances (for example,
when the payee does not make a claim
that withholding under chapter 3 is
reduced pursuant to a treaty).
C. Owner-Documented FFIs
In response to comments requesting
reduced documentation requirements
for the owner-documented FFI
provisions, the final regulations make
several modifications that also take into
account the policy considerations
presented by owner-documented FFIs.
These modifications include: (1)
permitting transitional reliance, subject
to certain requirements, on
documentation collected for AML due
diligence purposes for payments made
prior to January 1, 2017, on preexisting
obligations; (2) allowing such entities to
issue debt interests to an expanded
group of holders, provided such debt
holders are reported in the same manner
as equity holders; (3) simplifying the
withholding statement provided for an
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owner-documented FFI; and (4)
providing for indefinite validity for
withholding certificates and
withholding statements submitted with
respect to obligations having an
aggregate value equal to or less than
$1,000,000.
D. ‘‘Eyeball Test’’ and Effectively
Connected Income Presumption
Comments requested that chapter 4
incorporate the so-called ‘‘eyeball test’’
under chapters 3 and 61 that treats
payments inside the United States to
certain entities that have
‘‘incorporated,’’ ‘‘corporation,’’ or an
indication of status as a financial
institution in their names as made to
U.S. exempt recipients. Moreover,
comments noted that withholding
agents often already obtain documentary
evidence for these entities to satisfy
AML due diligence requirements. In
response to these comments, the final
regulations permit a withholding agent
to rely upon documentary evidence
obtained with respect to the payee, in
lieu of a Form W–9, in order to establish
the entity’s status as a U.S. person and
rely on the ‘‘eyeball test’’ to determine
(to the extent applicable) the payee’s
status as other than a specified U.S.
person under chapter 4.
Comments also requested that the
final regulations incorporate the chapter
3 rules under which withholding agents
are permitted to presume that payments
made to U.S. branches of certain banks
and insurance companies are payments
of income that is effectively connected
with the conduct of a trade or business
within the United States. In response,
the regulations permit a withholding
agent to presume that a payment made
to a U.S. branch of certain banks and
insurance companies is a payment of
income that is effectively connected
with a trade or business within the
United States (and thus not a
withholdable payment) if the
withholding agent obtains a GIIN that
enables the withholding agent to
confirm that the FFI is a participating
FFI or registered deemed-compliant FFI,
as well as an EIN for the U.S. branch
that enables the withholding agent to
properly report the payment.
Conforming changes are anticipated to
be made to the presumption rule in
chapter 3 to provide consistency with
the rule set forth in these regulations.
E. Rules for Offshore Obligations of
Funds and New Accounts of Preexisting
Customers
Comments requested additional
clarity regarding when an interest in an
investment fund should be treated as an
offshore obligation. Comments also
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stated that, in general, an investment
fund’s office is not separate from that of
its manager or administrator, and shares
issued by investment funds are not
‘‘maintained and executed’’ at a
particular office. In response to these
comments, the definition of an offshore
obligation has been amended to clarify
that an offshore obligation also includes
an equity interest in a foreign entity if
the owner of the interest purchased the
interest outside the United States either
directly from the foreign entity or from
another entity located outside the
United States.
Comments also requested that a new
account of a preexisting customer be
treated as a preexisting obligation.
Comments stated that in such cases,
withholding agents and FFIs generally
do not get additional documentation
from the customer because they are not
required to do so for AML due diligence
purposes. In response to these
comments, the final regulations permit
a new account of a customer that has a
preexisting obligation to be treated as a
preexisting obligation, provided that the
withholding agent or FFI maintaining
the account also treats the new
obligation and the prior obligation as
one obligation for purposes of applying
AML due diligence, aggregating
balances, and applying the standards of
knowledge for purposes of chapter 4.
The final regulations also permit this
treatment to apply on a group basis for
expanded affiliated groups and
sponsored FFI groups.
F. Standards of Knowledge
Under the final regulations, the
standards of knowledge provisions have
been modified to allow withholding
agents to rely on a claim of status as a
participating or registered-deemed
compliant FFI based on checking the
payee’s GIIN against the published IRS
FFI list. Prior to January 1, 2015, a
withholding agent is not required to
confirm GIINs regarding an FFI’s claim
of status as a reporting Model 1 FFI.
However, an FFI will have reason to
know that such claim is unreliable if the
withholding agent does not have a
permanent residence address for the FFI
(or address of the relevant branch) in the
relevant country that has in effect a
Model 1 IGA.
The final regulations further provide:
(1) Limits, generally conformed with the
chapter 3 limits, on a withholding
agent’s reason to know regarding a
payee’s claim of status as a foreign
person; (2) limits on the review that
must be conducted with respect to
particular types of documentation, and
in particular on the scope of review
with respect to preexisting obligations;
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and (3) further guidance regarding when
a payee has made a reasonable
explanation regarding the presence of
U.S. indicia. The Treasury Department
and the IRS intend to issue guidance
under chapter 3 that is consistent with
the rules in these regulations regarding
such reasonable explanations.
G. Reliance on Presumptions in Lieu of
Documentation
Under the final regulations, a
withholding agent may choose to rely
on presumption rules in lieu of
accepting and reviewing documentation
of payees. This accommodates
withholding agents that are unsure
whether the documentation they have
obtained is reliable or that do not wish
to accept the responsibility associated
with the acceptance of the
documentation.
H. Consolidation and Sharing of
Documentation, and Third-Party
Reliance
Comments requested reduction of
duplicative documentation
requirements, facilitation of
documentation sharing, and more
detailed rules regarding reliance on
agents or third-party service providers.
In response, the final regulations adopt
the following provisions.
1. Multiple Accounts of the Same Payee
The final regulations provide rules
(consistent with chapter 3 in § 1.1441–
1(e)(4)(ix)(A)) for a withholding agent to
rely on documentation for multiple
accounts of the same payee if the
withholding agent aggregates the
balance or value of those accounts
(when relevant) and shares information
across those accounts for purposes of
determining when the withholding
agent has actual knowledge or reason to
know that the chapter 4 status claimed
is inaccurate.
2. Mergers or Bulk Acquisitions
The final regulations provide a
temporary six month period during
which withholding agents that acquire
accounts in a merger or bulk acquisition
for value may rely, in the absence of
contrary knowledge or a change in
circumstances, upon the chapter 4
statuses assigned by a predecessor that
is a U.S. withholding agent, a
participating FFI, or a reporting Model
1 FFI that has completed all due
diligence required under its agreement
or pursuant to the applicable Model 1
IGA, provided that the predecessor is
not a member of the withholding agent’s
expanded affiliated group prior to a
merger or bulk acquisition, or after a
bulk acquisition. At the end of the
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temporary period, the acquirer may
continue to so rely only if the
documentation it has, including the
acquired documentation, supports the
chapter 4 statuses claimed.
3. Common Agents
The final regulations provide rules
(consistent with § 1.1441–
1(e)(4)(ix)(A)(4) and (B)) with respect to
sharing and relying upon
documentation that has been provided
by a common agent for multiple parties,
including a fund advisor or principal
underwriter that collects documentation
for a family of mutual funds. This
reliance is made contingent upon the
agent also sharing any knowledge
regarding inaccuracy or unreliability of
the chapter 4 status claims across all the
withholding agents with which the
agent shares the documentation.
4. Third-Party Data Providers
The final regulations provide rules
permitting a withholding agent to rely
upon documentation collected with
respect to an entity by a third-party data
provider, subject to conditions
including: (1) The third-party data
provider is in the business of collecting
information regarding entities and
providing business reports or credit
reports to unrelated customers and must
have reviewed all information it has for
the entity and verified that such
additional information does not conflict
with the chapter 4 status claimed by the
entity; (2) the third-party data provider
collects documentation sufficient to
meet the applicable documentation
requirements; and (3) the third-party
data provider provides notice of changes
in circumstances. This provision
permits withholding agents to rely upon
documentation collected by a thirdparty data provider, but does not relieve
the withholding agent of the obligation
to determine whether that
documentation is reliable based on the
information contained in the
documentation and other information in
the withholding agent’s files.
5. Introducing Brokers
Comments requested that for purposes
of chapter 4 a withholding agent be
permitted to rely upon certifications
regarding a payee’s chapter 4 status
provided by an introducing broker that
is a QI or participating FFI (in addition
to introducing brokers who are U.S.
persons, as provided under the
proposed regulations). In response to
these comments, the final regulations
permit reliance upon a certification
provided by a participating FFI (which
includes a QI that is a financial
institution) if the participating FFI is
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acting as an agent of the payee with
respect to an obligation and receiving all
payments made by the withholding
agent with respect to that obligation on
behalf of the payee, provided that
certain requirements are met and the
withholding agent does not know or
have reason to know that the broker has
not obtained valid documentation as
represented or the information
contained in the certification is
otherwise inaccurate.
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6. Transfer Agents
Comments requested that a transfer
agent’s obligations as a withholding
agent be limited to the obligations of the
principal on behalf of which the transfer
agent acts in order to avoid duplicative
efforts or conflicts between the
standards applicable to the transfer
agent and the principal. In response, the
final regulations provide that merely
acting as an agent with respect to a
financial account belonging to the
principal will not cause the agent to also
have a financial account for that
customer unless the agent would be
treated as having the financial account
independent of its actions as an agent.
An agent that makes a payment on
behalf of a principal is a withholding
agent with respect to the payment and,
accordingly (as under chapter 3) has a
responsibility to determine the chapter
4 status of the payee and withhold, if
required. However, because the
obligation belongs to the principal, the
level of due diligence that must be
completed with respect to the obligation
is determined by the obligation’s status
with respect to the principal. In order to
minimize any duplicative
responsibilities, the final regulations
permit the agent to rely (absent contrary
knowledge or reason to know) upon
documentation collected by the
principal or a certification by the
principal that appropriate
documentation has been collected.
I. Electronic Transmission of
Documentation
Comments requested that a
withholding agent be permitted to rely
upon withholding certificates that are
signed with a handwritten signature,
scanned into an electronic device, and
then emailed to the withholding agent.
The final regulations adopt the rule of
the proposed regulations, which permits
the electronic transmission of a
withholding certificate that has been
signed with a handwritten signature and
then scanned and emailed to the
withholding agent if the requirements of
§ 1.1441–1(e)(4)(iv) are met. Further, the
Treasury Department and the IRS
continue to consider whether to retain
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the confirmation requirements in
chapters 3 and 4. In addition, in
response to comments, the final
regulations do not require that
documentary evidence that has been
transmitted electronically be a certified
or notarized copy.
J. Other Changes Made to Payee
Identification Rules
Consistent with a risk-based approach
to compliance under chapter 4, the final
regulations adopt in whole or part
several modifications requested by
comments, including modifications to:
(1) Permit documentary evidence that
does not contain an address, provided
that the documentary evidence contains
the person’s country of residence or
citizenship, and the withholding agent
has obtained a permanent residence
address for the person.
(2) Include a director, any foreign
equivalent of an officer in the United
States, and any other person granted
written authority as a person authorized
to sign a withholding certificate or
written statement.
(3) Permit, in lieu of retention of
copies of documentation, the retention
of notations regarding documentation
reviewed and (for obligations that are
not preexisting obligations) any U.S.
indicia identified, in the course of AML
due diligence.
(4) Treat registered deemed-compliant
FFIs as payees under the same
circumstances in which participating
FFIs are treated as payees.
(5) Treat all excepted NFFEs in the
same manner, and provide that any
excepted NFFE is the payee, unless it is
acting as an agent or intermediary (other
than a QI accepting primary
withholding responsibility).
(6) Permit the submission of a
withholding certificate within 30 days
of payment (rather than the 15 days
permitted in the proposed regulations)
without an affidavit of accuracy as of
the time of payment.
(7) Provide a definition for the term
standing instructions to pay amounts to
include current payment instructions
that will repeat without further
instructions being provided by the
account holder.
(8) Clarify that a withholding
statement submitted by a participating
FFI or registered deemed-compliant FFI
can include pooled information with
respect to each class of payees unless
payee-specific information is provided
for purposes of chapter 3, in which case
a chapter 4 status must be provided for
each payee that is identified on the
withholding statement.
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V. Comments and Changes to § 1.1471–
4—FFI Agreement
A. In General
1. FFI Agreement
The Treasury Department and the IRS
received comments requesting
additional guidance on the requirements
of the FFI agreement. In response to
these comments, the final regulations
set forth all of the substantive
requirements applicable to an FFI under
the FFI agreement. The final regulations
provide the requirements for verifying
compliance with the FFI agreement,
define an event of default and
procedures for remediating of an event
of default, allow participating FFIs to
file collective refund claims on behalf of
certain account holders and payees for
amounts overwithheld, and provide
procedural requirements if a
participating FFI is legally prohibited
from reporting or withholding as
required under the FFI agreement. In
addition, the final regulations do not
restrict a participating FFI’s ability to
terminate an FFI agreement. This
responds to comments concerning
future withholding requirements for
foreign passthru payments, and allows
an FFI the flexibility to reconsider its
status as further guidance is
promulgated.
The Treasury Department and the IRS
expect to publish a revenue procedure
setting out the terms of an FFI
agreement, consistent with these final
regulations, coordinating an FFI’s
obligations under the FFI agreement
with chapter 3 obligations and with the
provisions of any applicable IGA, and
including administrative provisions
such as those relating to termination,
renewal, and modification of the
agreement.
2. Effective Date of the FFI Agreement
Many comments were received
regarding the effective date provided in
the proposed regulations for
implementing the chapter 4 rules.
Comments requested a delay of the
effective date of the FFI agreement to
allow FFIs sufficient time to modify
systems and to implement the required
account opening procedures. In
response to comments, the final
regulations delay the effective date of
the FFI agreement until December 31,
2013, for all participating FFIs that
receive a GIIN prior to January 1, 2014.
This change aligns the effective date of,
and due diligence periods under, the
FFI agreement with the timelines
provided under the IGAs.
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3. U.S. Branches of Participating FFIs
Comments requested further
clarifications on the application of the
chapter 4 rules to U.S. branches of
participating FFIs. In response to these
comments, the final regulations provide
comprehensive rules for U.S. branches
of participating FFIs. A U.S. branch of
a participating FFI that is treated as a
U.S. person, as provided in § 1.1441–
1(b)(2)(iv), is subject to special
requirements to fulfill the withholding,
due diligence, and reporting
requirements of a U.S. financial
institution to the extent provided under
chapters 4 and 61 and section 3406(a).
Additionally, such a U.S. branch is
required to file a separate Form 1042 to
report amounts subject to reporting
under chapter 4 and any taxes withheld.
A U.S. branch of a participating FFI
that is not treated as a U.S. person is
required to fulfill the general
requirements set forth in § 1.1471–4 for
withholding, due diligence, and
reporting.
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B. Withholding by FFIs
The final regulations provide that an
FFI is not required to withhold on
foreign passthru payments until the
later of January 1, 2017, or six months
after the date of publication in the
Federal Register of final regulations
defining the term foreign passthru
payments.
Comments requested more
comprehensive rules concerning the
withholding requirements of a
participating FFI under the FFI
agreement. In response to these
comments, the final regulations provide
that a participating FFI may apply the
exceptions from withholding provided
in § 1.1471–2, including the exception
for grandfathered obligations and the
transitional withholding requirements
for payments made to prima facie FFIs.
In addition, the proposed regulations
did not provide detail on the
coordination of withholding under
sections 1471(a) and 1472 with
withholding under section 1471(b). The
final regulations provide that a
participating FFI that satisfies its
obligations under § 1.1471–4(b) to
withhold on withholdable payments
made to payees that are
nonparticipating FFIs and recalcitrant
account holders will be deemed to
satisfy its obligations under sections
1471(a) and 1472 with respect to such
payees and account holders.
C. Due Diligence
The final regulations adopt numerous
comments intended to assist
participating FFIs in complying with
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their obligations to perform due
diligence to identify and document
account holders.
1. General Requirements for Due
Diligence
In response to comments, the final
regulations modify the general
requirements for identifying and
documenting account holders in a
number of ways. For example, the final
regulations modify the record retention
requirements for offshore obligations to
allow an FFI to retain a notation in its
files regarding the documentary
evidence examined, rather than
retaining a copy of the documentary
evidence itself, unless the FFI is
required pursuant to its AML due
diligence to retain copies of
documentation reviewed. In such cases,
the final regulations no longer require a
notation of the name of the person who
reviewed the documentary evidence.
The final regulations also provide
special procedures to identify and
document accounts acquired in mergers
or bulk acquisitions for value from
another financial institution. For
accounts acquired from
nonparticipating FFIs or deemedcompliant FFIs that do not apply the
final regulations’ due diligence
procedures, the final regulations allow a
participating FFI to apply preexisting
account identification and
documentation procedures. For
accounts acquired from another
participating FFI, certain deemedcompliant FFIs, or U.S. financial
institutions, the final regulations allow
a participating FFI to rely on the chapter
4 determinations made by such
transferor financial institution, subject
to certain conditions. Additionally, the
final regulations in § 1.1471–4
incorporate by reference the revised
rules for documentation standards,
validity periods of documentation, and
reliance on valid documentation
collected by other withholding agents
provided in § 1.1471–3(c).
2. Account of a Preexisting Customer
and Sharing of Account Documentation
Comments requested that a new
account opened at an FFI by a customer
that has a preexisting account with the
FFI be treated as a preexisting account
rather than a new account. Comments
stated that in such cases, FFIs generally
do not obtain documentation from the
customer for AML due diligence
purposes. Recognizing the substantial
burden for the FFI to separately
document an existing customer, the
final regulations revise the definition of
a preexisting obligation to permit a new
account of a customer that has a
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preexisting account to be treated as a
preexisting account provided that the
FFI maintaining the account also treats
the new account and the preexisting
account as one account for purposes of
applying AML due diligence,
aggregating balances, and applying the
standards of knowledge for purposes of
chapter 4 to all such accounts. The final
regulations allow this treatment on a
group basis for expanded affiliated
groups and sponsored FFI groups that
share documentation within the group.
In addition, to address comments
concerning the burden of documenting
multiple accounts of a customer
generally (regardless of whether any
such accounts are preexisting accounts),
the final regulations allow a
participating FFI, participating FFI
group, or a sponsored FFI group to
apply the provisions for documentation
sharing systems described in § 1.1471–
3(c)(8).
3. Change in Circumstances
In response to comments that the
obligations of a participating FFI
following a change in circumstances
were unclear in the proposed
regulations, the final regulations
provide that an FFI must retain a record
of documentation to establish the
account holder’s chapter 4 status within
the earlier of 90 days from the date of
a change in circumstances or the date a
withholdable payment or foreign
passthru payment is made to the
account or, if unable to do so, must treat
such account as held by a recalcitrant
account holder or nonparticipating FFI
(as applicable).
4. Entity Accounts
Comments indicated that for certain
investment entities, direct investment
may be held in bearer form so that the
investment entity is unable to document
such account holders until the time of
payment. The final regulations allow a
participating FFI that is an investment
entity to document an account holder of
a preexisting account that is in bearer
form at the time of payment.
The final regulations clarify that in
addition to documenting the entity
account holder, a participating FFI is
also required to document the payee (if
other than the account holder) to the
extent necessary to determine whether
withholding applies. For example, if an
account is held by an NFFE that is a
flow-through entity (other than a WP,
WT, or excepted NFFE), the
participating FFI is also required to
identify and document the partners,
owners, or beneficiaries of such entity to
determine if withholding is required
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with respect to payments of U.S. source
FDAP income made to such account.
5. Individual Accounts
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a. New Accounts
Comments requested alternative
documentation options to address
difficulties in obtaining U.S. tax forms
from account holders. In response to
these comments, the final regulations
modify the identification and
documentation procedures of
participating FFIs with respect to
individual accounts that are new
accounts to permit certain alternative
forms of documentation. For example,
the final regulations permit a
participating FFI to rely on information
provided by a third-party credit agency
to establish an account holder’s foreign
status when certain conditions are met.
The final regulations adopt the
requirement in the proposed regulations
for a participating FFI to review all
information collected in connection
with the opening or maintenance of
each account, including documentation
collected as part of the participating
FFI’s account opening procedures and
documentation collected for other
regulatory purposes, to determine if an
account holder’s claim of foreign status
is unreliable or incorrect. The final
regulations clarify that a participating
FFI is required in such reviews to apply
the standards of knowledge provided in
§ 1.1471–3(e) for offshore obligations
held by individuals. If the participating
FFI is not able to establish an account
holder’s status as a foreign person, the
final regulations require the
participating FFI to retain a record of a
U.S. TIN and, if necessary, a valid and
effective waiver described in section
1471(b)(1)(F)(i) to establish an account
holder’s status as a U.S. person. The
final regulations allow a participating
FFI to retain a record of a U.S. TIN by
any means (that is, not exclusively by
retaining a record of a Form W–9).
The final regulations also provide
alternative identification and
documentation procedures for certain
cash value insurance or annuity
contracts. Comments noted that when a
group life insurance contract or group
annuity contract is issued to an
employer and individual employees are
the insured/beneficiaries, the insurance
company does not have a direct
relationship with the employee/
certificate holders at inception of the
contract. In response, the final
regulations do not require the insurance
company to document each employee
until the date on which an amount is
payable to an employee/certificate
holder or beneficiary if the participating
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FFI obtains a certification from an
employer that no employee/certificate
holder (account holder) is a U.S. person
and certain other conditions are
satisfied (for example, that the number
of employees covered under the contract
exceeds 25). Comments also requested
relief from the requirement to identify
and document beneficiaries of cash
value insurance contracts. In response,
the final regulations provide that a
participating FFI may presume that an
individual beneficiary (other than the
owner) receiving a death benefit with
respect to a life insurance contract that
is a cash value insurance contract is a
foreign person, and is therefore not
required to retain a record of
documentation from such person,
unless the participating FFI has actual
knowledge or reason to know that the
beneficiary is a U.S. person. A
participating FFI has reason to know
that a beneficiary of a cash value
insurance contract is a U.S. person if the
information collected by the
participating FFI and associated with
the beneficiary contains U.S. indicia.
b. Preexisting Accounts
Comments requested clarification
with regard to procedures for
identifying and documenting
preexisting accounts. In response to
these comments, the final regulations
provide a more detailed explanation of
the application of these rules. For
example, the final regulations expressly
provide that a participating FFI is not
required to retain a record of
documentation from the account holder
until there is a change in circumstances
if the identification and documentation
procedure specified for preexisting
accounts is applied and no U.S. indicia
are identified. In addition, the final
regulations expressly provide that for
preexisting accounts, a participating FFI
may apply the identification and
documentation procedure for either new
accounts or preexisting accounts.
The proposed regulations did not
coordinate the rules in § 1.1471–3(e)
(covering standards of knowledge) with
the documentation requirements under
§ 1.1471–4(c) to establish an account
holder’s foreign status when U.S.
indicia are associated with the account.
To provide such coordination, § 1.1471–
4(c) incorporates by reference the
standards of knowledge in § 1.1471–
3(e).
c. Presumption of Status for Individual
Accounts
Comments noted that the proposed
regulations were unclear concerning the
application of the presumption rules to
individual account holders of
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5883
participating FFIs. In response to these
comments, the final regulations clarify
that the presumption rules of § 1.1471–
3(f) do not apply to individual account
holders of a participating FFI. A
participating FFI must complete the
requisite identification and
documentation procedures with respect
to each account within the time period
provided by § 1.1471–5(g)(3) (start of
recalcitrant account holder status), or, if
unable to do so, must treat such account
as held by a recalcitrant account holder.
d. Preexisting Individual Accounts
Previously Documented
With respect to the exception to the
preexisting account identification
procedure (other than the relationship
manager inquiry) for an account
documented as held by foreign
individuals for purposes of chapter 61
or the QI, WP, or WT agreement, the
final regulations clarify that an
individual account holder’s foreign
status has been documented under
chapter 61 if the participating FFI has
retained a record of the documentation
required under chapter 61 to establish
the individual’s foreign status and the
account received a reportable payment
(as defined under section 3406(b)) in
any prior year. With respect to QIs,
WPs, and WTs, an account holder’s
foreign status has been documented if
the QI, WP, or WT has met the relevant
documentation requirements of its
agreement with respect to an account
holder that received a reportable
amount in any year in which the
agreement was in effect.
e. Certifications of Responsible Officer
The final regulations retain the
requirement in the proposed regulations
for a responsible officer to certify, to the
best of his/her knowledge after
conducting a reasonable inquiry, that
the participating FFI does not have any
formal or informal practices or
procedures in place to assist account
holders in avoiding chapter 4, such as
advising account holders to split up
their accounts to avoid reporting as
high-value accounts. Comments
requested additional examples of
policies that violate the certification.
The final regulations provide such
additional examples, including:
advising that account holders of U.S.
accounts close, transfer, or withdraw
from their account to avoid reporting;
intentional failures to disclose a known
U.S. account; or advising that an
account holder remove U.S. indicia
from its account information. In
response to comments, the final
regulations also provide that an email
requiring responses from relevant
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customer on-boarding and management
personnel as to whether they engaged in
any such practices is considered a
reasonable inquiry for purposes of the
certification.
Comments requested specific timing
for making the certifications regarding
completion of required due diligence.
The final regulations respond to these
comments and also simplify and
consolidate the certifications. The final
regulations provide that these
certifications may be made concurrently
and no later than 60 days following the
date that is two years after the effective
date of the FFI agreement. See section
V.F.3 of this preamble for a discussion
of a responsible officer’s periodic
certification requirements.
Comments also requested clarification
on a responsible officer’s
responsibilities if he/she could not
make the required certification. The
final regulations provide that a
responsible officer may make a qualified
certification stating why the general
certification cannot be made and that
corrective actions will be taken by the
responsible officer.
D. Account Reporting
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1. In General
As in the proposed regulations, the
final regulations indicate that the FFI
that maintains an account is generally
responsible for reporting the account in
accordance with the reporting rules
under § 1.1471–4(d). The final
regulations add in § 1.1471–5 a rule to
determine if an FFI is treated as
maintaining an account.
The final regulations describe the
reporting responsibilities of a
sponsoring entity that has agreed to
fulfill the reporting requirements of a
sponsored FFI and generally require the
sponsoring entity to report accounts of
the sponsored FFI in the manner the
sponsored entity would otherwise be
required to report if it were a
participating FFI.
2. Account Balance or Value
In response to comments generally
requesting that the final regulations
accommodate current business practices
of FFIs, the final regulations provide
that a participating FFI must report the
average balance or value of the account
to the extent that the FFI reports average
balances or values to the account holder
for a calendar year and otherwise to
report the balance or value of the
account as of the end of the calendar
year.
3. Payments
The final regulations clarify that any
distribution (including a distribution
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that would be considered a redemption)
made to an account holder with respect
to a cash value insurance contract or
annuity contract must be reported under
§ 1.1471–4(d)(4)(iv)(C) without regard to
the U.S. tax treatment.
4. Section 953(d) Insurance Companies
and Reporting in a Manner Similar to
Section 6047(d)
Comments requested that a foreign
insurance company that has made an
election under section 953(d) be
excluded from the definition of an FFI.
The final regulations do not adopt this
comment when the foreign insurance
company is not licensed to do business
in the United States. How a foreign
insurance company and its United
States shareholders are taxed is
immaterial to the need for reporting
with regard to insurance or annuity
contracts issued by the insurance
company to its customers. Therefore,
the final regulations provide that the
term U.S. person does not include an
insurance company that has made an
election under section 953(d) if the
company is not licensed to do business
in any State. However, a foreign
insurance company that has made an
election under section 953(d) and is
licensed to do business in the United
States would be considered, for
purposes of chapter 4, a U.S. person
and, therefore, would remain subject to
reporting with respect to its life
insurance and annuity contracts under
section 6047(d), not chapter 4.
Comments also requested that a
foreign insurance company be permitted
to satisfy its chapter 4 reporting
obligations by reporting under section
6047(d). Permitting a foreign insurance
company that is not licensed to do
business in the United States to report
only the information required under
section 6047(d) would provide
insufficient reporting for FATCA
purposes because section 6047(d)
reporting applies only to distributions
made under a contract issued by an
insurance company licensed to do
business under the laws of a State.
In response to the comments,
however, the final regulations permit an
insurance company participating FFI
that is not licensed to do business in the
United States to elect to report its
chapter 4 account information with
respect to its life insurance and annuity
contracts in a manner similar to section
6047(d) reporting. Under this election,
an insurance company participating FFI
reports the sum of: (1) a cash value or
annuity contract’s account balance or
value; and (2) any amount paid under
the contract as a ‘‘gross distribution’’ in
Box 1 of Form 1099–R. The
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participating FFI could then check box
2b to indicate the taxable amount is not
determined.
5. Special Reporting for Calendar Year
2013
The final regulations incorporate the
reporting requirements in
Announcement 2012–42, 2012–47 I.R.B.
561 with respect to calendar year 2013.
The final regulations provide that if an
FFI agreement has an effective date that
is on or before December 31, 2014, the
participating FFI is required to report
U.S. accounts that it maintained during
2013 that are outstanding on December
31, 2013. The final regulations adopt the
streamlined reporting rules provided in
the proposed regulations. The final
regulations also eliminate the proposed
regulations’ requirement for reporting
by September 30, 2014, and instead
permit participating FFIs to report for
both calendar years 2013 and 2014 on
or before March 31, 2015.
E. Expanded Affiliated Group
Requirements
The final regulations do not
incorporate comments suggesting the
sunset date for limited branches and
limited FFIs be extended beyond
December 31, 2015. The final
regulations also do not adopt
suggestions to relax the requirement that
all members of an expanded affiliated
group be participating FFIs, deemedcompliant FFIs, or limited FFIs. The
Treasury Department and the IRS
believe that IGAs are the appropriate
vehicle to address these concerns.
F. Verification
1. In General
The final regulations include the
verification and certification
requirements for participating FFIs.
These verification procedures rely on a
responsible officer (or designee) to
establish a compliance program that
includes policies, procedures, and
processes sufficient for the participating
FFI to satisfy the requirements of the
FFI agreement. The participating FFI
must subject its compliance program to
periodic review. The responsible officer
may be any officer of any participating
FFI or reporting Model 1 FFI in the
participating FFI’s expanded affiliated
group with sufficient authority to fulfill
the duties of a responsible officer
described in the final regulations. The
responsible officer may designate others
to implement and oversee the
compliance with the verification
requirements, but must make any
required certifications to the IRS (as
described below).
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2. Consolidated Compliance Program
In response to comments supporting
the approach set forth in Notice 2011–
34 for an optional consolidated
compliance program, the final
regulations provide for such a program.
Under the final regulations, a
participating FFI, reporting Model 1 FFI,
or U.S. financial institution (compliance
FI) may agree to establish and maintain
a consolidated compliance program and
perform a consolidated periodic review
on behalf of one or more FFIs in the
same expanded affiliated group that
elect this option (the consolidated
compliance group). The consolidated
compliance group is not required to
include every FFI in the expanded
affiliated group, and an expanded
affiliated group may have multiple
consolidated compliance groups
organized under different or the same
compliance FI. The final regulations
also require a sponsoring entity to act as
the compliance FI for all of the FFIs that
it sponsors (including any certified
deemed-compliant FFIs that it
sponsors).
It is anticipated that additional
guidance will be provided in either the
instructions to the registration system or
the FFI agreement for an electing FFI to
identify itself as part of a consolidated
compliance group and procedures for
the responsible officer of the
compliance FI to make the required
certifications on behalf of the
consolidated compliance group.
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3. Certification of Compliance
The final regulations require the
responsible officer, on behalf of the
participating FFI, to periodically certify
to the IRS that the FFI is in compliance
with the requirements of the FFI
agreement. Such certification is required
once every three years. In advance of
such certification, a participating FFI is
required to review its compliance
program and its compliance with the
requirements of the FFI agreement. In
consideration of the results of this
review, the responsible officer is
required to certify to the IRS that it
maintains effective internal controls and
that there were no material failures
during the certification period, or any
material failures that did occur were
corrected. A material failure is a failure
of the participating FFI to fulfill the
requirements of the FFI agreement if the
failure was the result of a deliberate
action by the participating FFI to avoid
the requirements of the FFI agreement
or was an error attributable to a failure
to implement sufficient internal
controls. The final regulations provide
that a material failure that occurs in
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limited circumstances will not result in
an event of default. If a material failure
occurring during the certification period
has not been corrected, or if an event of
default has occurred, the final
regulations provide that a responsible
officer may instead make a qualified
certification.
4. IRS Review of Compliance
Comments requested guidance on the
standards the IRS would apply when
requesting additional information from
a participating FFI to determine its
compliance with its FFI agreement. The
final regulations provide for general
inquiries under which the IRS contacts
the participating FFI to request
additional information regarding the
information reported on the returns
filed by the participating FFI, and for
inquiries when the IRS determines in its
discretion that there may have been
substantial non-compliance with an FFI
agreement. The IRS expects that
inquiries regarding substantial noncompliance will not be made on a
routine basis. If a determination that
there may have been substantial noncompliance is made, the IRS may
inquire as to the FFI’s compliance with
certain requirements of the FFI
agreement and may request information
necessary to verify the participating
FFI’s compliance with the FFI
agreement, such as a description of the
participating FFI’s procedures for
conducting its periodic review. The IRS
may also request the performance of
specified review procedures (including
an external audit). If the IRS determines,
based upon its review, that the FFI has
not substantially complied with the
requirements of an FFI agreement, it
will deliver a notice of event of default.
G. Event of Default
The final regulations define an event
of default of the FFI agreement and
describe procedures for a participating
FFI to remediate an event of default.
Comments expressed concern that any
failure to comply with an FFI agreement
would result in termination of that
agreement. In response to these
comments, the final regulations clarify
that an event of default does not result
in automatic termination of the FFI
agreement. The final regulations provide
that if the IRS becomes aware of an
event of default, it will deliver a notice
of default to the participating FFI and
allow the participating FFI to develop a
plan to remediate the event of default.
If the participating FFI fails to respond
to the notice of default or comply with
an agreed-upon remediation plan, the
IRS may terminate the FFI’s
participating FFI status within a
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reasonable period of time, subject to an
FFI’s request for reconsideration of
termination by written request to the
LB&I Director for Foreign Payments
Practice.
H. Collective Refunds
The final regulations provide that a
participating FFI (or a reporting Model
1 FFI) may file a collective refund claim
on behalf of its account holders and
payees that were overwithheld upon
under chapter 4, subject to certain
conditions and procedural
requirements.
I. Legal Prohibitions on Reporting U.S.
Accounts and Withholding
In response to comments requesting
clarification on whether an FFI can
enter into an FFI agreement if foreign
law imposes prohibitions on the FFI’s
ability to report or withhold, the final
regulations clarify that an FFI may enter
into an FFI agreement if it can meet the
requirements of § 1.1471–4(i). The final
regulations require, however, that if
foreign law prohibits a participating FFI
from fulfilling its withholding
obligations with respect to an account,
the participating FFI must close the
account within a reasonable time or, if
local law prohibits closing the account,
the participating FFI must block or
transfer the account. Similarly, if a
participating FFI is prohibited by
foreign law, absent a waiver, from
reporting information on an account
that it must treat as a U.S. account, the
final regulations provide that the
participating FFI must request a waiver
of foreign law from such account holder
and if such waiver is not obtained
within a reasonable period of time, the
participating FFI must close or transfer
such account.
VI. Comments and Changes to § 1.1471–
5—Definitions Applicable to Section
1471
A. U.S. Account
Comments requested additional
exceptions from the definition of U.S.
account for low-value accounts other
than preexisting accounts and the
depository account exception provided
by section 1471(d)(1)(B). In response to
these comments, the Treasury
Department and the IRS have provided
a $50,000 exception for cash value
insurance contracts by amending the
definition of financial account,
discussed below.
B. Account Holder
Comments requested clarification of
whether an entity that is disregarded as
an entity separate from its owner under
§ 301.7701–2(c)(2)(i) (disregarded entity)
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is treated as an account holder. In
response to these comments, because
the definition of person excludes a
disregarded entity, the final regulations
clarify that an account held by a
disregarded entity shall be treated as
held by the person owning such entity.
Comments expressed concern
regarding the identification of the
account holder of insurance and annuity
contracts. The final regulations provide
that an insurance or annuity contract
that is a financial account is treated as
held by each person that can access the
contract value (for example, through a
loan, withdrawal, or surrender) or
change a beneficiary under the contract.
If no person can access the contract
value or change a beneficiary under the
contract, then the contract is treated as
held by both the person(s) named in the
contract as the owner(s) of the contract
and each beneficiary under the contract.
When the obligation to pay any benefit
under the contract becomes fixed, the
person entitled to such benefit is treated
as a holder of the contract.
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C. Financial Accounts
1. Depository Accounts
In response to comments, the final
regulations limit the scope of the term
depository account in a number of ways.
For example, the final regulations
exclude certain escrow accounts
established for commercial transactions
from treatment as financial accounts.
The final regulations also exclude
negotiable debt instruments that are
traded on a regulated market or overthe-counter market and distributed
through financial institutions. In
response to comments, the final
regulations also clarify the meaning of
‘‘any other similar instrument’’ in the
definition of a depository account. The
final regulations limit the scope of a
depository account to an account for the
placing of money (as opposed to the
holding of property) in the custody of an
entity engaged in a banking or similar
business. The final regulations also
clarify that a credit balance with respect
to a credit card account issued by a
credit card company is a depository
account.
Comments requested guidance
regarding the specific circumstances in
which an amount held by an insurance
company would be treated as a
depository account. The final
regulations provide that a depository
account includes an amount that an
insurance company holds under a
guaranteed investment contract or under
a similar agreement to pay or credit
interest thereon. The final regulations
also provide that a depository account
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does not include an advance premium
or premium deposit received by an
insurance company, provided the
prepayment or deposit relates to an
insurance contract for which the
premium is payable annually and the
amount of the prepayment or deposit
does not exceed the annual premium for
the contract. Such amounts are also
excluded from cash value for purposes
of determining whether a contract is a
cash value insurance contract.
2. Equity and Debt Interests
With regard to equity or debt interests
in investment entities, the final
regulations revise the financial account
definition to correspond to the changes
discussed below to the definition of FFI
for investment entities. Accordingly, the
final regulations generally remove from
the financial account definition debt or
equity interests in investment entities
that are described solely in § 1.1471–
5(e)(4)(i)(A), which are generally
investment advisors or asset managers.
This treatment parallels the treatment of
equity and debt interests in entities that
act solely as depository institutions or
custodial institutions.
Comments requested that bank
holding companies should be treated
like depository institutions for purposes
of the financial account exclusion for
non-regularly traded debt and equity
interests to cover cases in which the
holding company raises funds for its
subsidiaries. Comments noted that these
interests are often held through
custodial institutions that are in a better
position to document the holders and
report and withhold on such
instruments. The final regulations
respond to these comments by generally
removing from the definition of
financial account debt or equity
interests in holding companies and
treasury centers of expanded affiliate
groups whose aggregate income is
derived primarily from active NFFEs,
depository institutions, custodial
institutions, and insurance companies.
Nevertheless, the final regulations
limit the exception from financial
account for a debt or equity interest in
a holding company or a treasury center
so that the exception does not apply in
cases in which the debt or equity
interest tracks the performance of one or
more investment entities described in
paragraph § 1.1471–5(e)(4)(i)(B) or (C)
(generally traders and investment
vehicles) or one or more passive NFFEs
that are members of entity’s expanded
affiliated group rather than of the group
as a whole. The final regulations also
provide anti-abuse rules if the value of
the interest is determined, directly or
indirectly, primarily by reference to
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assets that give rise (or could give rise)
to withholdable payments, or the
interest is issued with a principal
purpose of avoiding the reporting or
withholding requirements of chapter 4.
The proposed regulations provided
that an equity or debt interest in certain
types of financial institutions would be
treated as a financial account only if the
value of the interest is determined,
directly or indirectly, primarily by
reference to assets that give rise (or
could give rise) to withholdable
payments. Comments requested
additional guidance regarding when an
equity or debt interest would be
considered to be determined, directly or
indirectly, primarily by reference to
assets that give rise (or could give rise)
to withholdable payments. The final
regulations provide that the value of an
interest is determined, directly or
indirectly, primarily by reference to
assets that give rise (or could give rise)
to withholdable payments if the amount
payable upon redemption of the interest
is either secured or determined
primarily by reference to assets that give
rise to withholdable payments. The
value of a debt interest is determined,
directly or indirectly, primarily by
reference to assets that give rise (or
could give rise) to withholdable
payments if the debt is convertible into
stock of a U.S. person, amounts payable
as interest or upon redemption of the
debt are determined primarily by
reference to profits or assets of a U.S
person, or the debt is secured by assets
of a U.S. person.
A number of comments were received
regarding the exception from financial
account status for debt and equity that
is regularly traded on an established
securities market. The final regulations
respond to comments by adopting the
definitions provided in the final
regulations under section 1472,
including the revisions made to those
regulations that provide a special rule
for the initial year of public offering.
The final regulations also clarify that an
interest is not regularly traded if the
holder of the interest (other than a
financial institution acting as an
intermediary) is registered on the books
of the investment entity. This rule does
not apply to the extent a holder’s
interest is registered prior to January 1,
2014, on the books of the investment
entity. The proposed regulations
excluded debt or equity interests in an
investment entity that are regularly
traded because such interests are
typically held through other financial
institutions, so that reporting by the
issuing entity is not necessary to fulfill
the purposes of chapter 4. Where that is
not the case, the final regulations clarify
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that such interests are treated as
financial accounts. See § 1.1471–
3(c)(9)(iii), however, for when the entity
may rely upon a certification from
broker acting as an agent of a payee
(including receiving of payments on
behalf of the payee from the entity).
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3. Accounts Held by Estates
With regard to accounts held by
estates, in response to comments, the
final regulations conformed the chapter
4 rules with the reporting rules under
section 6038D by excepting accounts
held by estates from the definition of
financial account.
4. Insurance Definitions and Contracts
Comments requested that the
definitions of ‘‘annuity contract,’’ ‘‘life
insurance contract,’’ and ‘‘insurance
company’’ in the proposed regulation be
modified to eliminate the need for
foreign companies to become proficient
in the specialized definitions of these
terms under U.S. tax rules defining
these products and to accommodate
local law definitions and practices. In
response to comments, the final
regulations replace the references to
U.S. tax law rules when defining these
terms with plain language definitions
and incorporate, where appropriate,
references to local law definitions and
practices.
Comments also requested that the
final regulations clarify when an
insurance company is a financial
institution or a NFFE, because an
insurance company’s reserve activities
could cause an insurance company that
is not a specified insurance company to
qualify as a depository institution,
custodial institution, or investment
entity. In response to these comments,
the final regulations clarify that: (1) an
insurance company that is not a
specified insurance company must
independently determine whether it is a
depository institution, custodial
institution, or investment entity; (2) an
insurance company’s reserve activities
with respect to its insurance contracts
and annuity contracts are not taken into
consideration in determining whether
the company is a depository institution,
custodial institution, or investment
entity; and (3) an insurance company
that is not a financial institution is a
NFFE.
The final regulations also respond to
comments by expanding the exclusion
from financial account status for certain
term life insurance contracts. Because
mortality risk under an insurance
contract increases as the insured ages,
the final regulations permit increasing
periodic premium payments. To prevent
front loading premiums, however, the
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final regulations require that the
premiums be payable at least annually
during the period the contract is in
existence or until the insured attains age
90, and that the premiums do not
decrease over time.
In addition, the Treasury Department
and the IRS did not accept comments
requesting that return of premium be
permitted to the extent that it did not
exceed the aggregate premiums paid for
the contract, without regard to
mortality, morbidity, and expense
charges. The Treasury Department and
the IRS believe such instruments
implicate the policy objectives of
chapter 4. Accordingly, under the final
regulations, if a policyholder at the
beginning of January purchases a term
life insurance contract with a $100,000
annual premium, terminates the
contract on April 1st, and upon
termination receives $75,000 as a return
of the premium paid ($100,000 less
$25,000 mortality, morbidity, and
expense charges for the period the
contract was in force), then the contract
qualifies for the term contract exclusion
from a cash value insurance contract. If,
however, upon termination, the
policyholder would receive an amount
exceeding $75,000, the contract would
not qualify for exclusion from financial
account status as a term life insurance
contract.
Comments requested an exemption
from financial account status for
immediate pension or disability
annuities that relate to exempt
retirement or pension accounts. The
final regulations respond to this
comment by providing that a financial
account does not include a noninvestment linked, non-transferable,
immediate annuity purchased by the
accountholder in connection with an
exempt retirement or pension account.
In response to comments requesting
an expansion of the contracts that are
exempt from financial account status,
the final regulations made a number of
revisions to the rules associated with
cash value insurance contracts. The
final regulations provide that an
insurance contract is excluded from the
definition of a financial account unless
it has a cash value that exceeds $50,000
at any time during the calendar year,
unless the participating FFI elects to
report all contracts with a cash value. In
addition, the final regulations exclude
indemnity reinsurance contracts
between two insurance companies from
the definition of a cash value insurance
contract and expand the exclusions
from cash value to include a refund of
premium upon the termination of a
contract.
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5. Exception for Certain Savings
Accounts
Numerous comments were received
requesting that the proposed
regulation’s exceptions from financial
account status for certain savings
accounts be expanded to accommodate
savings vehicles commonly used in a
number of jurisdictions. In response to
these comments, substantial revisions
were made to the exceptions in order to
accommodate more savings vehicles
without significantly increasing the
ability for U.S. persons to use such
vehicles to avoid chapter 4 reporting.
For retirement and pension accounts,
the excepted category is revised to
eliminate the requirements that all
contributions to the account be
government, employer, or employee
contributions and that the contributions
be limited to earned income. In
addition, the limitation on contributions
is liberalized to allow plans that either
have an annual contribution limit of
$50,000 or less or a maximum lifetime
contribution limit of $1,000,000 or less.
The final regulations also add the
condition that the relevant tax
authorities require information
reporting with respect to the account.
For non-retirement savings accounts,
the final regulations eliminate the
requirement that contributions be
limited by reference to earned income
and instead require that the account be
tax favored. The final regulations
expand the definition of ‘‘tax favored’’
provided in the proposed regulations for
purposes of these rules.
6. Account Balance or Value
The proposed regulations did not
provide express guidance on the manner
in which debt interests should be
valued. The final regulations revise the
definition of account balance or value
with respect to a debt interest to mean
the principal amount of such debt.
Comments noted that certain
insurance companies value insurance
and annuity contracts on the contract’s
anniversary date under normal business
practices. In response to these
comments, the final regulations allow
the annual reporting of account balance
or value of an insurance or annuity
contract to be based upon either the
account value at calendar year end or
the account value at each contract
anniversary date. Also, the final
regulations provide that in the case of
an annuity contract for which no value
is reported to the account holder, the
annuity is valued using the discount
interest rate and mortality tables that are
either (1) prescribed under section 7520
and the regulations thereunder, or (2)
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used by the FFI to determine the
amounts payable under the contract.
7. Maintaining a Financial Account
The Treasury Department and the IRS
received comments that the proposed
regulations could be read to provide that
a single account could be maintained by
multiple entities (such as both a
collective investment vehicle and its
transfer agent), thereby creating
multiple documentation, reporting, or
withholding obligations for each entity.
In response to these comments, the final
regulations identify the entity that will
be treated as maintaining a financial
account in order to avoid requiring
multiple entities to document,
withhold, and report with respect to a
financial account.
D. Foreign Financial Institution
In response to comments requesting
conformity between IGA definitions and
the chapter 4 definitions, the final
regulations amend the definition of FFI
to provide that IGAs determine whether
a resident entity described in the
applicable IGA is an FFI. A
corresponding change was made to the
definition of NFFE. The statutory and
regulatory definitions apply for entities
that are not resident in IGA
jurisdictions.
E. Financial Institution
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1. Depository Institution
With regard to the definition of a
depository institution, the Treasury
Department and the IRS received a
number of comments regarding whether
merely accepting deposits was or should
be sufficient to create depository
institution status. In response to these
comments, the final regulations clarify
that accepting deposits is necessary but
not sufficient to create depository entity
status. Therefore, an entity that accepts
deposits must also engage in one or
more of the enumerated banking or
financing activities (adapted from
section 864’s and section 954(f)’s active
banking, financing, and similar business
rules). The final regulations also provide
that, to be treated as a depository
institution, an entity needs to engage on
a regular basis in one or more such
activities. In addition, the final
regulations clarify that an entity that
completes money transfers by
instructing agents to transmit funds is
not in a banking or similar business
because it does not accept deposits or
other similar temporary investments of
funds. The final regulations also clarify
that an entity that solely accepts
deposits from persons as collateral or
security pursuant to a lease, loan, or
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similar financing arrangement is not a
depository institution. This exception is
intended to exclude from FFI status
entities such as finance companies that
do not fund their operations through
deposits and entities acting as networks
for credit card banks that hold cash
collateral from such banks.
2. Custodial Institution
With regard to the definition of a
custodial institution, the proposed
regulations define custodial institutions
by reference to whether over 20 percent
of an entity’s income is ‘‘attributable to
the holding of financial assets.’’ In
response to comments, the final
regulations clarify the specific types of
income that will be treated as
attributable to holding financial assets.
In addition, in response to comments
that new institutions (starts-ups) cannot
qualify as custodial institutions, the
final regulations provide a special rule
for start-up entities that bases custodial
institution status on the expectations
and purposes of the entity.
3. Investment Entity
Comments requested that the
definition of ‘‘financial institution’’ be
clarified and more narrowly defined to
exclude passive, non-commercial
investment vehicles, including trusts.
The IGAs adopt this approach by
requiring an investment entity to
undertake activity on behalf of
customers. The IGAs also expand the
definition of an investment entity to
include an entity that provides certain
financial services to customers, such as
individual or collective portfolio
management or otherwise investing,
administering, or managing funds or
money on behalf of other persons,
regardless of whether the entity holds
financial assets.
Taking into consideration comments
that the provisions of the final
regulations should conform as closely as
possible to the provisions of the IGAs,
the final regulations generally
incorporate the definition of investment
entity contained in the IGAs by
providing that an investment entity
includes any entity that primarily
conducts as a business on behalf of
customers: (1) trading in an enumerated
list of financial instruments; (2)
individual or collective portfolio
management; or (3) otherwise investing,
administering, or managing funds,
money, or certain financial assets on
behalf of other persons. In addition, the
final regulations limit the scope of the
proposed regulations’ definition of
investment entity by treating an entity
(other than an entity that primarily
conducts as a business on behalf of
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customers one of the activities
enumerated in the preceding sentence)
the gross income of which is primarily
attributable to investing, reinvesting, or
trading as an investment entity only if
the entity is managed by a depository
institution, a custodial institution,
another investment entity, or an
insurance company that qualifies as a
financial institution. Accordingly,
passive entities that are not
professionally managed are generally
treated as passive NFFEs rather than as
FFIs. However, entities that function or
hold themselves out as mutual funds,
hedge funds, or any similar investment
vehicle established with an investment
strategy of investing, reinvesting, or
trading in financial assets are
investment entities.
Consistent with the approach of the
proposed regulations, the final
regulations provide that an entity
primarily conducts an activity as a
business if gross income attributable to
such activity equals or exceeds 50
percent of the entity’s gross income.
4. Insurance Companies and Holding
Companies
With regard to insurance companies
and holding companies of insurance
companies, the final regulations provide
that a holding company that is a
member of an expanded affiliated group
that includes an insurance company
will be treated as an FFI if it issues or
is obligated to make payments with
respect to a cash value insurance
contract or annuity contract, regardless
of whether it would otherwise be treated
as an FFI.
5. Certain Holding Companies and
Treasury Centers
Comments noted that under many
circumstances a company within an
affiliated group of companies that serves
as a holding company or provides
treasury services for or on behalf of
group members should not be
considered a financial institution under
chapter 4. In response to these
comments, the final regulations limit
the circumstances under which a
holding company or treasury center is
treated as a financial institution. Under
the final regulations, such entities are
FFIs in two situations. First, subject to
limited exceptions for nonfinancial
groups, discussed below, such entities
are FFIs if they are part of an expanded
affiliated group that includes a
depository institution, custodial
institution, insurance company, or
investment entity described in
paragraph (e)(4)(i)(B) and (C) (not
exclusively a financial service provider).
Second, they are FFIs regardless of
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whether they are a member of a
nonfinancial group if they are formed in
connection with or availed of by a
collective investment vehicle, mutual
fund, exchange traded fund, private
equity fund, hedge fund, venture capital
fund, leveraged buyout fund, or any
similar investment vehicle established
with an investment strategy of investing,
reinvesting, or trading in financial
assets. These rules help to ensure that
holding companies and treasury centers
cannot be used by financial groups with
nonparticipating FFIs or limited FFIs to
shelter payments from chapter 4
withholding.
6. Exceptions to FFI Status
The Treasury Department and the IRS
received a number of comments
requesting more comprehensive
exceptions to FFI status for holding
companies and similar entities.
Comments noted instances in which
holding companies and other financial
entities were part of a nonfinancial
group, the activities of these entities
were in furtherance of the nonfinancial
business of the group, and the entities
provided no meaningful investment
opportunities to third-parties. In
response to these comments, the final
regulations provide more
comprehensive exceptions to FFI status
for certain nonfinancial group entities as
described below. These entities are also
excepted NFFEs for purposes of section
1472.
In particular, the final regulations
provide an exception to FFI status (and
passive NFFE status for section 1472
purposes) for holding companies,
treasury centers, and captive finance
companies that are part of a
nonfinancial group. In response to
comments, excepted holding companies
may be part of nonfinancial group
structures that include tiers of holding
companies. Nonfinancial groups are
permitted to include FFI members to a
limited extent when all such members
are participating FFIs or deemedcompliant FFIs. In response to
comments, the final regulations also
provide that an excepted entity can
provide a mixture of holding company,
treasury center, and captive finance
company functions so long as
substantially all of its activities are such
activities. The final regulations also
provide that this excepted status does
not apply to entities formed in
connection with or availed of by private
equity funds and similar arrangements.
The final regulations also create a new
exception to FFI status for excepted
inter-affiliate FFIs. Comments noted that
financial groups may include dormant
entities, entities that were formed for a
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specific deal and were not subsequently
liquidated, or entities formed for
regulatory purposes whose activities are
entirely within the financial group. In
response to these comments, the final
regulations provide that an entity that is
a member of a PFFI group is not an FFI
if it: (1) does not maintain financial
accounts (other than accounts
maintained for members of its expanded
affiliated group); (2) does not hold an
account with or receive payments from
any withholding agent other than a
member of its expanded affiliated group;
(3) does not make withholdable
payments to any person other than to
members of its expanded affiliated
group that are not limited FFIs or
limited branches; and (4) has not agreed
to report under § 1.1471–4(d)(1)(ii) or
otherwise act as an agent for chapter 4
purposes on behalf of any financial
institution, including a member of its
expanded affiliated group.
In response to comments, the final
regulations also provide an exception
for an entity that is changing its line or
business, provided that the entity
previously qualified as an active NFFE.
With regard to entities described in
section 501(c), the final regulations
exclude insurance companies described
in section 501(c)(15) from the section
501(c) exception from FFI status.
Section 501(c)(15) insurance companies
are for-profit insurance companies that
qualify for the exemption from U.S. tax
because they are small companies, but
are not in any way restricted from
maintaining financial accounts for
specified U.S. persons. Therefore, these
entities are not low-risk, so as to warrant
an exemption from FFI status.
F. Deemed-Compliant FFIs
1. In General
The final regulations generally retain
the same deemed-compliant categories
that were included in the proposed
regulations but have made several
modifications and clarifications in
response to comments received. In
addition, the final regulations introduce
new categories of deemed-compliant
FFIs for certain credit card issuers, as
described in § 1.1471–5(f)(1)(i)(E),
sponsored FFIs, as described in
§ 1.1471–5(f)(2)(iii), and limited-life
debt investment entities, as described in
§ 1.1471–5(f)(2)(iv). In response to
comments, the deemed compliant
category for retirement funds has been
combined with the exempt beneficial
owner category for a retirement fund in
§ 1.1471–6(f). Because a non-profit
organization may be either an FFI or an
NFFE, the category for non-profit
organizations that are exempt from
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withholding under chapter 4 has been
moved from the deemed-compliant FFI
section to § 1.1471–5(e)(5), which
describes entities that are excepted from
treatment as financial institutions and
are treated instead as excepted NFFEs.
The proposed regulations indicated that
the Treasury Department and the IRS
were considering whether an additional
deemed-compliant category should be
created for insurance companies. In
response to comments, the final
regulations instead permit insurance
companies to qualify as local FFIs and
FFIs with only low-value accounts.
The Treasury Department and the IRS
decline to adopt other recommendations
to add to the categories of deemedcompliant FFIs to address jurisdictionspecific entities and arrangements and,
instead, retain the proposed regulations’
approach of using generally applicable
attributes to define different categories
of deemed compliant FFIs.
Nevertheless, in the context of IGAs
relating to the implementation of
chapter 4, the Treasury Department will
continue to identify entities that qualify
as deemed-compliant FFIs on a
jurisdiction-specific basis, and the final
regulations treat those entities as
deemed-compliant FFIs. In addition, the
Treasury Department and the IRS have
undertaken in other parts of these
regulations to limit the number of
entities that are subject to the chapter 4
rules. For example, as discussed herein,
the category of exempt beneficial
owners has been refined and expanded
in response to comments and certain
entities have been removed from the
definition of FFI, either because they
have neither customers nor assets
relevant to the application of chapter 4
or because chapter 4’s purposes are
adequately served by treating such
entities as NFFEs.
2. Registered Deemed-Compliant FFIs
a. Local FFIs
Comments requested that the final
regulations expand the types of entities
that qualify as local FFIs to include
insurance companies, credit unions, and
investment entities. The final
regulations adopt these comments. The
final regulations do not adopt comments
that requested specific standards for an
FFI to apply when determining whether
it is regulated as a financial institution
under the laws of its country of
organization or incorporation. This
requirement is intended merely to
ensure that the government of
incorporation or organization exercises
some form of financial regulation over
the FFI and, accordingly, is intended to
be applied broadly.
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The final regulations have amended
the requirement that a local FFI not
have a fixed place of business outside
its country of incorporation or
organization to permit an FFI to have a
location in another jurisdiction,
provided that location is not publicly
advertised and performs solely
administrative support functions (that
is, back office functions). The Treasury
Department and the IRS otherwise
intend for the local FFI category to be
available only to FFIs whose activities
are limited to a single country.
Accordingly, the Treasury Department
and the IRS declined to adopt other
comments suggesting that the presence
and activities of the local FFI and its
expanded affiliated group should not be
limited to one country.
Comments pointed out that an FFI
that services only the local population
may advertise U.S. dollar denominated
accounts for legitimate business reasons.
In response to such comments, the final
regulations eliminate the proposed
regulations’ prohibition against
advertising U.S. dollar denominated
deposit accounts or investments,
provided that the FFI does not solicit
customers or account holders outside its
country of incorporation or
organization. For this purpose, an FFI
will not be considered to have solicited
customers or account holders outside its
country of incorporation or organization
merely because it operates a Web site,
provided that the Web site does not
specifically indicate that the FFI
maintains accounts for, or provides
services to, nonresidents and does not
otherwise target or solicit U.S.
customers or account holders.
Comments requested clarification as to
whether an FFI would be considered to
have solicited customers outside its
country of incorporation or organization
(the FFI’s country) if it advertises
through print, radio, or television that is
distributed in multiple countries in
addition to the FFI’s country. The
Treasury Department and the IRS have
modified the regulations to indicate that
an FFI whose print, radio, or television
advertising is distributed outside the
FFI’s country is not considered to have
solicited customers or account holder
outside the FFI’s country, provided the
FFI’s advertising is distributed or aired
primarily within the FFI’s country and
the FFI does not advertise services or
accounts for nonresidents and does not
otherwise target or solicit U.S.
customers or account holders.
In response to comments stating that
many countries do not impose
information reporting requirements on
their financial institutions, the final
regulations provide that an FFI may still
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qualify as a local FFI notwithstanding
that its accounts are not subject to
information reporting or withholding
requirements if the AML due diligence
requirements of the FFI’s country
require the FFI to identify whether its
account holders are residents of the
FFI’s country.
Comments noted that many FFIs
would fail to meet the 98 percent
resident account holder threshold
provided in § 1.1471–5(f)(1)(i)(A)(5),
and requested that the Treasury
Department and the IRS reduce the
threshold. The local FFI exception is not
intended to apply to FFIs that serve
significant numbers of nonresident
account holders. The 98 percent
threshold is intended to provide limited
flexibility in cases in which a financial
institution otherwise qualifies as a local
FFI but has a few nonresident account
holders, for example because a prior
resident has moved or taken a job in
another country. Accordingly, the
Treasury Department and the IRS have
declined to reduce the 98 percent
threshold necessary to qualify for the
local FFI exception.
The final regulations have amended
the resident test in § 1.1471–
5(f)(1)(i)(A)(5) to require the resident
threshold be applied based on account
value instead of the number of accounts.
In addition, to accommodate territories
and administrative regions that
primarily service their mainland
populations, the resident threshold has
been modified to permit the FFI to
apply the test based on residents or
citizens rather than solely based on
residents, as provided in the proposed
regulations.
Comments have also addressed the
provision in the proposed regulations
that required each member of the FFI’s
expanded affiliated group to qualify as
a local FFI in order for any member of
the group to qualify as a local FFI, and
have noted that this requirement did not
permit the group to have members that
were NFFEs or other types of FFIs. The
final regulations continue to provide
that in order for an FFI to qualify as a
local FFI, any FFI member of the
expanded affiliated group should also
be a local FFI in the same country, but
provide an exception for members of the
expanded affiliated group that are
NFFEs or retirements funds described
under § 1.1471–6(f).
The final regulations also add as a
condition of local FFI status a
requirement that the FFI not have
policies or practices that discriminate
against opening or maintaining accounts
for U.S. individuals that are resident in
the local FFI’s country.
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The Treasury Department and the IRS
declined to adopt a number of other
comments requesting changes to the
local FFI registered deemed compliant
criteria. The Treasury Department and
the IRS believe that the final regulations
strike the appropriate balance between
ensuring that only entities that are lowrisk or otherwise not necessary to carry
out the purposes of chapter 4 are given
deemed-compliant status and providing
rules that have application across a
number of jurisdictions and legal and
regulatory systems.
b. Nonreporting Members of PFFI
Groups
The final regulations retain the same
requirements for a nonreporting member
of a PFFI group that were provided in
the proposed regulations except that the
final regulations, in response to
comments, conform this deemedcompliant category with other categories
by allowing a nonreporting member of
a PFFI group to close a U.S. account or
an account of a nonparticipating FFI.
c. Qualified Collective Investment
Vehicles
The final regulations retain the
deemed-compliant category for qualified
collective investment vehicles. The
primary purpose of this deemedcompliant category is to provide relief
for investment entities that are owned
solely through participating FFIs or
directly by large institutional investors,
payments to which would not be subject
to withholding or reporting under
chapter 4. For this reason, the Treasury
Department and the IRS have generally
declined to adopt comments that
request an expansion of the types of
investors permitted in a qualified
collective investment vehicle except
that the final regulations permit
investors that are retirement plans and
nonprofit organizations. An investment
entity that has other types of investors
may be able to qualify as a deemedcompliant FFI if it meets the
requirements under § 1.1471–
5(f)(1)(i)(D) to be a restricted fund.
Comments suggested that an
investment entity that is not regulated
as an investment fund by its country of
incorporation or organization should be
considered regulated as an investment
fund if it is regulated by the country in
which it operates or if its fund manager
is regulated with respect to the
investment entity. The final regulations
adopt this suggestion and expand the
cases in which an investment entity will
be considered to be regulated to include
cases in which the investment entity is
regulated in all of the countries in
which it is registered and all countries
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in which it operates, or the investment
entity’s manager is regulated with
respect to the investment entity in all
countries in which the investment
entity is registered and all countries in
which the investment entity operates.
Comments requested that a collective
investment vehicle be eligible for
deemed-compliant status
notwithstanding that the vehicle
previously issued bearer shares which
remain outstanding if the vehicle
discontinues issuing such shares. In
response to these comments, the final
regulations permit a qualified collective
investment vehicle to have outstanding
bearer obligations that were issued prior
to January 1, 2013, if the qualified
collective investment vehicle identifies
the status of the holder prior to
payment, no shares are issued in bearer
form, including reissuances of
surrendered shares, after December 31,
2012, and certain other conditions are
met.
d. Restricted Funds
As with qualified collective
investment funds, comments suggested
that a fund may not always be regulated
by its country of incorporation or
organization but should be considered
regulated if it is regulated by the
country in which it operates or if its
fund manager is regulated with respect
to the fund. The final regulations adopt
this suggestion and expand the methods
under which a fund will be considered
to be regulated to include cases in
which the fund is regulated in all of the
countries in which it is registered and
all countries in which it operates, or the
fund’s manager is regulated with respect
to the investment entity in all countries
in which the investment entity is
registered and all countries in which the
investment entity operates.
Several comments indicated
confusion regarding the requirement
that all interests in the fund must be
sold through identified distributors or
redeemed directly by the fund. The final
regulations clarify that interests in the
fund may be issued by the fund directly
if the investor can only dispose of those
interests by having them redeemed or
transferred by the fund, and not by
selling them on a secondary market.
Further, the regulations clarify that
interests in the restricted fund can only
be issued directly by the fund or by
designated distributors described in
§ 1.1471–5(f)(1)(i)(D)(3). Finally, the
regulations clarify that interests in an
investment fund that are issued through
a transfer agent or a distributor that does
not hold the interests as a nominee of
the account holder are considered
issued directly by the fund.
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Because the restricted fund category
was created to provide relief for foreign
funds that only target foreign investors,
the Treasury Department and the IRS
declined to adopt comments requesting
that the restricted fund category be
expanded to permit U.S. distributors.
However, in response to requests that
the restricted fund distributor
provisions include foreign branches of
U.S. financial institutions in the list of
acceptable distributors described in
§ 1.1471–5(f)(1)(i)(D)(3), the final
regulations modify the definition of a
participating FFI to include a qualified
intermediary (‘‘QI’’) branch of a U.S.
financial institution. In addition, since a
foreign branch of a U.S. financial
institution that is a reporting Model 1
FFI is a registered deemed-compliant
FFI, such foreign branch will also satisfy
the distributor requirements of
§ 1.1471–5(f)(1)(i)(D)(3).
In response to comments that the
renegotiation of distribution agreements
will take a substantial amount of time
and requests that a restricted fund be
provided an additional year in order to
renegotiate its distribution agreements
to include the prohibitions required
under § 1.1471–5(f)(1)(i)(D), the
Treasury Department and the IRS are
providing investment funds until the
later of June 30, 2014, or six months
after the date the investment fund
registers with the IRS as a registered
deemed-compliant FFI to renegotiate its
debt and equity interest distribution
agreements to comply with § 1.1471–
5(f)(1)(i)(D)(4) and (5). The Treasury
Department and the IRS are also
modifying the sales restrictions of
§ 1.1471–5(f)(1)(i)(D)(4) to restrict sales
only to specified U.S. persons, rather
than all U.S. persons as was provided in
the proposed regulations.
The Treasury Department and the IRS
did not adopt comments requesting that
the prohibition on sales to U.S. persons
be limited only to sales to U.S. residents
because such change would be
inconsistent with the policy objectives
of chapter 4. The Treasury Department
and the IRS also declined to remove the
requirement that a restricted fund
acquire or redeem all debt and equity
interests that were issued through a
distributor that ceases to be a qualifying
distributor within six months of the
distributor’s change in status, but have
modified the requirement to permit
such interests to be transferred to
another distributor described in
§ 1.1471–5(f)(1)(i)(D)(3).
Comments also requested that a
restricted fund be permitted to have
preexisting direct accounts that were
issued in bearer form before January 1,
2013, if the fund performs the required
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account identification procedures when
the bearer certificate is presented for
payment. In response, the final
regulations permit a restricted fund to
have outstanding bearer obligations that
were issued prior to January 1, 2013, if
the restricted fund identifies the status
of the holder prior to payment, no
shares are issued in bearer form,
including reissuances of surrendered
shares, after December 31, 2012, and
certain other conditions are met.
e. Qualified Credit Card Issuers
The Treasury Department and the IRS
have received comments requesting a
deemed-compliant category for credit
card issuers that accept deposits
associated with the credit card. In
response to these comments, the
Treasury Department and the IRS are
adding a new category of registered
deemed-compliant FFIs to the final
regulations for credit card issuers that
agree to prevent a customer from having
a deposit with the credit card issuer in
excess of $50,000.
f. Registered Deemed-Compliant
Procedural Requirements
Comments requested that the
qualified collective investment vehicle
rules provide a cure period in the case
of noncompliance that occurs following
the FFI’s registration with the IRS
(including a change of status by the
FFI’s interest holders that results in
disqualification as a qualified collective
investment vehicle). The final
regulations provide a registered
deemed-compliant FFI with six months
from the time it becomes ineligible for
the registered deemed-compliant status
to cure the default or notify the IRS of
its change in status.
g. Sponsored FFIs
Comments noted that in many cases it
may be preferable for a trustee or fund
manager to perform the due diligence
and reporting for all of the FFIs which
it manages on a consolidated basis.
Comments also noted that a number of
U.S. financial institutions have systems
in place to perform all due diligence,
withholding, and reporting obligations
of its controlled foreign corporation
subsidiaries for U.S. tax purposes. In
response to these comments, the final
regulations create a registered deemed
compliant FFI category for sponsored
FFIs for which a sponsoring entity
agrees to perform all due diligence,
withholding, reporting, and other
requirements the sponsored FFI would
have been required to perform if it were
a participating FFI, and complies with
certain other requirements.
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3. Certified Deemed-Compliant FFIs
a. Nonregistering Local Banks
In response to comments requesting a
simplification of the definition of a bank
for purposes of the nonregistering local
bank category, the final regulations do
not include a cross reference to section
581 and have clarified that, in addition
to banks, certain credit unions or similar
organizations may also qualify as
nonregistering local banks. The final
regulations amend the requirements
applicable to a nonregistering local bank
to conform with the changes made to
the local FFI registered deemedcompliant category described above.
Because the nonregistering local bank
category was intended to apply only to
very small FFIs, the Treasury
Department and the IRS declined to
adopt comments requesting that the
threshold for total assets of the FFI be
raised above $175 million for the FFI
and $500 million for the FFI’s expanded
affiliated group.
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b. Sponsored, Closely Held Investment
Vehicles
The final regulations also create a
certified deemed-compliant category for
sponsored, closely held investment
vehicles, which are sponsored by a
sponsoring FFI in the same manner as
the registered deemed-compliant
category.
c. Limited Life Debt Investment Entities
The Treasury Department and the IRS
received comments stating that certain
investment vehicles will be unable to
comply with the registration and due
diligence requirements in the
regulations, thus necessitating a
deemed-compliant category for such
entities. In particular, comments have
noted that vehicles that have a fixed
lifespan and that were created for the
purpose in investing in a limited type of
debt obligation with the intent to hold
such obligations until maturity or until
the liquidation of the vehicle will often
provide the trustee of the vehicle with
limited authority to act in manner not
specifically provided for under the
agreement. In most cases, the trustee
would not be permitted to register the
vehicle as a participating FFI or comply
with the due diligence requirements of
a participating FFI unless the trust
indenture requires the trustee to do so,
the trustee is required to do so under a
provision of law, or all of the investors
in the vehicle agree to amend the trust
agreement to provide the trustee with
the power to act in such a manner. In
order to provide time to address these
limitations, the final regulations permit
these entities to qualify as deemed-
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compliant FFIs for a limited period of
time. After December 31, 2016, the
deemed-compliant status of these
entities terminates, and each such entity
will be required to comply with the
terms of any applicable IGA or
otherwise register as a participating FFI.
4. Owner-Documented FFIs
Comments stated that the $50,000
debt limit on owner-documented FFIs
was too restrictive for common business
practices of many small FFIs and
requested that such entities be allowed
to have unlimited debt interests
provided the FFI identify and pass up
to the withholding agent the chapter 4
status of all debt holders. In response to
these comments, the final regulations no
longer prohibit owner-documented FFIs
from issuing debt interests that
constitute financial accounts in excess
of $50,000 to persons other than
nonparticipating FFIs, provided that the
owner-documented FFI reports all
individuals and specified U.S. persons
that directly or indirectly hold such
interests (other than persons that hold
such interests through a participating
FFI, registered deemed-compliant FFI,
certified deemed-compliant FFI, U.S.
person, exempt beneficial owner, or
excepted NFFE) to the designated
withholding agent.
5. Restricted Distributors
Comments requested that § 1.1471–
5(f)(4) be amended to permit a
participating FFI to treat a distributor as
a restricted distributor. The Treasury
Department and the IRS agree that
permitting a participating FFI that holds
an interest in a restricted fund as a
nominee to use a restricted distributor
to distribute that interest fulfills the
same purpose as permitting the
restricted fund to use a restricted
distributor. For this reason, the final
regulations have been amended to
permit a participating FFI to use a
restricted distributor to distribute
interests in a restricted fund that the
participating FFI holds as a nominee.
G. Recalcitrant Account Holders
The final regulations expand the
definition of recalcitrant account holder
to include an account holder that is
documented as an NFFE (other than a
WP or WT) but that fails to provide the
information required under § 1.1471–
3(d) regarding its owners.
The final regulations also revise the
start of recalcitrant account holder
status to coordinate with a participating
FFI’s withholding requirements. The
final regulations require a participating
FFI or deemed-compliant FFI to treat an
account other than preexisting account
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or an account (including preexisting
account) that undergoes a change in
circumstances as held by a recalcitrant
account holder beginning on the earlier
of the date a withholdable payment or
foreign passthru payment is made to the
account or the date that is 90 days after
account opening or the change in
circumstances.
The proposed regulations did not
coordinate recalcitrant account holder
status under chapter 4 with the chapter
61 backup withholding procedures for
cases in which a participating FFI
receives a notice from the IRS regarding
a name and TIN mismatch for an
account holder. The final regulations
clarify that an account for which the
participating FFI or deemed-compliant
FFI receives a notice from the IRS
indicating that the name and TIN
combination provided for the account
holder is incorrect will be treated as a
recalcitrant account holder following
the date of such notice if the account
holder does not provide a correct name
and TIN combination within the time
prescribed in § 31.3406(d)–5(a). The IRS
intends to provide a process similar to
the ‘‘B Notice’’ process of chapter 61 to
notify an FFI of a name/TIN mismatch
for an account holder of a U.S. account
that was reported under § 1.1471–4(d).
Under § 31.3406(d)–5(a), a payor that
receives a ‘‘B Notice’’ for a payee is
required to start backup withholding
and reporting reportable payments made
to such payee on or before the 30th
business day after the receipt of the ‘‘B
Notice.’’ Similarly, a participating FFI or
deemed-compliant FFI is required to
treat an account holder for which it
receives a notice indicating a name/TIN
mismatch as a recalcitrant account
holder (and withhold and report to the
extent required) on or before the 30th
business day after the FFI receives such
notice.
H. Expanded Affiliated Group
Proposed § 1.1471–5(i) defined an
expanded affiliated group for purposes
of chapter 4. The final regulations make
two material changes to the proposed
regulations.
First, some comments requested an
exclusion from membership in an
expanded affiliated group for entities
formed through seed capital
investments by another group member.
These comments described a seed
capital investment as an initial capital
contribution made to an investment
entity by an entity related to the
manager of the investment entity for
purposes of establishing a performance
record before selling interests in the
entity to unrelated investors or for
purposes otherwise deemed appropriate
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by the manager. In support of this
exclusion, comments noted the burden
of monitoring ownership changes in the
investment entity for determining when
to exclude the entity as a member of
such a group, including the potential
updating required for purposes of the
group’s FFI application with the IRS. In
response to these comments, the final
regulations modify the definition of
expanded affiliated group to exclude
from the group an investment entity
owned by an FFI group member when
the member’s ownership exists solely to
provide a seed capital investment in an
entity. The final regulations describe the
circumstances in which an investment
qualifies for this treatment (including by
defining seed capital) and prescribe a
three-year period in which the
investment entity is excluded from the
group.
Second, the final regulations
incorporate an anti-abuse rule that
disregards a change in ownership,
voting rights, or the form of an entity
with respect to an expanded affiliated
group if the change is pursuant to a plan
a principal purpose of which is to avoid
withholding or reporting obligations
under chapter 4.
VII. Comments and Changes to Section
1.1471–6—Payments Beneficially
Owned by Exempt Beneficial Owners
Proposed § 1.1471–6 defined classes
of entities that qualify as exempt
beneficial owners for purposes of
chapter 4. The final regulations expand
the circumstances in which certain
classes of entities qualify as exempt
beneficial owners and modify when an
entity qualifies as an exempt beneficial
owner under § 1.1471–6(g) (describing
certain entities owned by only exempt
beneficial owners). The final regulations
also clarify that, except as provided in
§ 1.1471–6(f) (regarding retirement
funds), an entity cannot qualify as an
exempt beneficial owner unless it is the
beneficial owner of the payment.
To coordinate the final regulations’
identification of specific entities as
exempt beneficial owners with the
IGAs, the definition of an exempt
beneficial owner is expanded to include
any entity identified as an exempt
beneficial owner pursuant to an IGA.
This change is incorporated into the
definition of an exempt beneficial
owner in § 1.1471–1(b)(38).
Comments noted that limiting the
definition of international organization
to include only international
organizations in which the United
States participates as a member was
unnecessary. In response to these
comments, this definition has been
expanded to allow an entity to qualify
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as an international organization if the
entity: (1) is a supranational
organization or intergovernmental
organization recognized as an
international organization under certain
provisions of foreign law or that has in
effect a headquarters agreement with a
foreign government; and (2) prevents
private inurement under the principles
of § 1.1471–6(b)(3)(ii).
In response to comments, the final
regulations broaden the classes of
pension funds qualifying as exempt
beneficial owners under § 1.1471–6(f) by
including several new categories of
pension funds, each of which applies
without regard to whether the pension
fund is the beneficial owner of income.
Comments requested removal of the
beneficial owner requirement because,
depending on the jurisdiction, a fund
may or may not be treated as the
beneficial owner of income it receives
under local law. Other comments were
received regarding the interaction of the
exemption for retirement plans in
proposed § 1.1471–6(f) with those
retirement plans afforded deemed
compliant status in proposed § 1.1471–
5(f)(2)(ii) (which did not require the
plan to be the beneficial owner and
which included certain plans with
fewer than twenty participants). In
response to these comments, § 1.1471–
5(f)(2)(ii) was removed and the types of
retirement plans that may qualify as
exempt beneficial owners under
§ 1.1471–6(f) regardless of whether they
are beneficial owners was expanded, as
described below.
In response to comments, the final
regulations treat a fund entitled to
benefits under an income tax treaty and
operated principally to administer or
provide pension or retirement benefits
as an exempt beneficial owner
regardless of whether the fund is
generally exempt from taxation in the
country in which it is organized.
Regarding the general requirements
for retirement funds included in
proposed § 1.1471–6(f), comments noted
that many plans would fail to qualify
under the rule requiring that all
contributions to the plan, except for
rollover contributions from other
retirement funds, come from employer
or employee contributions. Comments
suggested alternative requirements to
prevent funds from being abused for
chapter 4 purposes, including annual
information reporting, strict limitations
on withdrawals or distributions from
the fund, or penalties for early
distributions. Additionally, comments
noted that certain types of mandatory
government plans may also fail the
requirement in proposed § 1.1471–6(f)
that contributions be solely from
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employer or employee contributions.
Comments also requested that funds
that provide for disability or death
benefits should not disqualify a
retirement fund from being an exempt
beneficial owner that would otherwise
qualify under § 1.1471–6(f).
In response to these comments, the
final regulations: (1) provide rules
allowing for alternative sources of
contributions apart from those from
employers and employees; (2) provide
anti-abuse provisions based on
alternatives suggested in comments; and
(3) allow, in appropriate circumstances,
plans to provide disability or death
benefits. In response to comments, the
final regulations also broaden the treatyqualified retirement fund category and
add a new category for funds formed
pursuant to pension plans that would
meet the requirements of section 401(a),
other than the requirement that the plan
be funded by a trust created or
organized in the United States.
Comments also questioned whether
the proposed regulations intended to
exclude certain pension funds
established by exempt beneficial
owners, noting that the regulations
under section 892 specifically include
an exemption for certain pension funds
established by foreign governments. The
Treasury Department and the IRS
generally intend for these types of
pension funds to qualify as exempt
beneficial owners. To eliminate the
possibility that such plans might not so
qualify in appropriate cases, the final
regulations provide that pension funds
meeting certain requirements (relating
to retirement, disability, or death
benefits) will qualify as exempt
beneficial owners when established by
another exempt beneficial owner for its
employees, employees’ beneficiaries, or
other persons providing services to such
funds.
With respect to the allowance in
proposed § 1.1471–6(g) providing
exempt beneficial owner status to
certain entities wholly owned by
exempt beneficial owners, comments
noted that this provision did not
contemplate structures in which entities
are owned directly by other entities that
would qualify as exempt beneficial
owners under § 1.1471–6(g). The final
regulations are amended to clarify that
exempt beneficial owner status under
§ 1.1471–6(g) applies in such cases. The
final regulations also clarify that
receiving loans from depository
institutions or issuing debt to other
exempt beneficial owners will not
prevent an entity from qualifying as an
exempt beneficial owner under
§ 1.1471–6(g).
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The final regulations provide in
§ 1.1471–6(h) an exception to exempt
beneficial owner status for foreign
governments, international
organizations, foreign central banks of
issue, and the governments of U.S.
territories that engage in certain
commercial activities, replacing the
prohibition in the proposed regulations
on commercial activities that had
applied only to foreign governments.
Some comments noted that an entity
would fail to qualify as an exempt
beneficial owner under the commercial
activities exception in the proposed
regulations even when the entity
accepts deposits or maintains financial
accounts only for exempt beneficial
owners (such as the members in an
entity such as a development bank
organized by certain foreign
governments). The final regulations
respond to these comments by
providing a limitation on the
commercial activities exception for
activities for or on behalf of other
exempt beneficial owners.
VIII. Section 1.1472–1—Withholding on
NFFEs
The regulations under section 1472
provide rules applicable to withholding
agents for withholding on certain NFFEs
and reporting with respect to the
substantial U.S. owners of certain
NFFEs.
In response to comments requesting a
transition period to accommodate the
creation of associated systems, the final
regulations provide that withholding
agents are required to withhold under
section 1472 only with respect to
withholdable payments made after
December 31, 2013. In addition,
§ 1.1472–1(b)(2) provides that
withholding agents are not required to
withhold under section 1472 on
payments made before January 1, 2015,
with respect to a preexisting obligation
to a payee that is not a prima facie FFI
and for which a withholding agent does
not have documentation indicating the
payee’s status as a passive NFFE with
one or more substantial U.S. owners.
The final regulations also clarify the
interaction of section 1472 withholding
with a participating FFI’s withholding
obligations under section 1471(b) and
the associated regulations. Under the
final regulations, a participating FFI that
complies with its withholding
obligations under § 1.1471–4(b) will be
deemed to satisfy its obligations under
section 1472 with respect to
withholdable payments made to NFFEs
that are account holders. Section 1472
will continue to apply to a participating
FFI that acts as a withholding agent on
a withholdable payment made to an
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NFFE that is not an account holder (for
example, a payment with respect to a
contract that does not constitute a
financial account). These withholding
obligations will be limited, however, by
§ 1.1473–1(a)(4)(vi), which provides a
temporary exception from the definition
of withholdable payment for certain
payments of U.S. source FDAP income
made prior to January 1, 2017, with
respect to offshore obligations.
In response to comments, § 1.1472–
1(c)(1)(i)(B) clarifies the application of
the publicly traded rules for excepted
NFFE status in the year of an initial
public offering.
With regard to the exception from
withholding for payments to active
NFFEs, the Treasury Department and
the IRS received comments requesting
that passive income be defined by
reference to section 954(c). This
comment was not adopted. The
Treasury Department and the IRS
believe that providing a specific list of
items constituting passive income will
provide more certainty for withholding
agents and NFFEs. The final regulations
do, however, clarify the scope of passive
income, including the rules regarding
commodities. In addition, in response to
comments, the final regulations expand
the exceptions to passive income in a
number of respects. First, the final
regulations in § 1.1472–1(c)(1)(iv)(B)
provide that passive income will not
include dividends, interest, rents, and
royalties received or accrued from a
related person to the extent that they are
properly allocable to income of the
payor that is not passive income.
Second, the final regulations provide an
exception from passive income for
certain income earned by dealers acting
in the ordinary course of their trade or
business.
In addition, the final regulations
provide expanded categories of
excepted NFFEs to address the
treatment of holding companies and
similar entities that are part of and that
support a group conducting an active
trade or business. The final regulations
also clarify that an entity will not be an
active NFFE unless less than 50 percent
of its gross income is from passive
income and less than 50 percent of its
assets are passive assets (that is, assets
that produce or are held for the
production of passive income), on a
weighted average basis.
Also, the requirements for reporting
on substantial U.S. owners were moved
to § 1.1474–1(i)(2) in the final
regulations to include these
requirements with the other reporting
requirements applicable to withholding
agents.
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IX. Changes and Comments to § 1.1473–
1—Section 1473 Definitions
A. Withholdable Payment
1. In General
Comments noted that U.S. mutual
funds that invest in foreign securities
will pay dividends that are
withholdable payments and,
correspondingly, that gross proceeds
from the sale of interests in such U.S.
funds would be withholdable payments.
Those comments requested that the
definition of withholdable payment be
amended such that U.S. fund dividends
would be characterized based on the
assets held by the fund and would be
subject to withholding only to the extent
provided under the foreign passthru
payment rules otherwise applicable to
participating FFIs to avoid creating a
competitive imbalance.
The final regulations provide
temporary relief to U.S. stock and debt
issuers, including U.S. funds, by
delaying withholding on gross proceeds
until 2017. Treasury and the IRS do not
believe, however, that eliminating
chapter 4 withholding on payments of
dividends that constitute U.S. source
FDAP income under chapter 3 advances
the purposes of chapter 4. It is expected,
however, that these issues will be
alleviated in practice through the
conclusion of IGAs.
Comments also requested that the
rules defining withholdable payment
exclude payments that are reported by
the withholding agent on Form 5471 or
5472 in order to alleviate duplicative
reporting. The final regulations do not
adopt this comment because the chapter
4 withholding rules serve different
purposes than the reporting regimes
under sections 6038 and 6038A which
underlie Forms 5471 and 5472.
2. Gross Proceeds
Comments noted that clearing
organizations pay or credit a member’s
account with the net amount of sales or
dispositions that occurred throughout a
given period. The final regulations
allow clearing organizations to
determine gross proceeds based on the
net amount paid or credited to a
member’s account under the settlement
procedures of such organization.
In response to comments, the final
regulations clarify that any contract that
results in the payment of a dividend
equivalent (as defined in section 871(m)
and regulations thereunder) is treated as
property of a type that can produce U.S.
source FDAP income, including if such
dividend equivalent is part of a
termination payment.
The final regulations also modify the
definition of gross proceeds to exclude
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proceeds from transactions not subject
to recognition under section 1058.
3. Exceptions to Withholdable Payment
a. Withholding on Offshore Payments of
U.S. Source FDAP Income
To coordinate the final regulations’
withholding requirements with those of
the Model 1 IGAs, the final regulations
delay withholding on certain offshore
payments of U.S. source FDAP income
until January 1, 2017. Specifically, the
final regulations temporarily exclude
from the definition of withholdable
payment a payment of U.S. source
FDAP income made with regard to an
offshore obligation prior to January 1,
2017, by a person that is not acting as
an intermediary with regard to the
payment. For purposes of this
exception, the final regulations
expressly include a qualified securities
lender as an intermediary. The final
regulations also limit the application of
this rule for certain flow-through
entities.
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b. Excluded Nonfinancial Payments
Comments requested clarification and
expansion of the proposed regulations’
ordinary course of business exception to
withholdable payments. In particular,
comments requested that the definition
of ordinary course of business payments
be modified by striking the word
‘‘nonfinancial’’ because it creates
uncertainty as to whether services
provided to a financial institution that
are accounts payable type expenses are
ordinary course of business payments.
Comments also noted that the ordinary
course of business exception imposed
significant administrative burdens given
the volume of cross-border payments
that had to be identified and classified.
In response to these comments, the final
regulations replace the ordinary course
of business exception with a more
comprehensive exception for excluded
nonfinancial payments. The revised
exception provides greater certainty by
explicitly describing payments that are
excluded from withholdable payments
and by providing a list of payments that
are withholdable payments.
The proposed regulations also
provided that the exclusion for ordinary
course of business payments included
payments for the sale of goods.
Commentators pointed out that such an
exception implied that the sale of goods
could give rise to U.S. source FDAP
income. The final regulations remove
the reference to ‘‘goods’’ in the
nonfinancial payments exclusion and
define a payment of U.S. source FDAP
income to expressly incorporate the
exclusion under § 1.1441–2(b)(2)(i)
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(stating that certain gains from the sale
of property do not constitute FDAP
income).
4. Excise Tax under Section 4371
Under the proposed regulations,
withholdable payments include
insurance and reinsurance premiums
that are U.S. source FDAP income.
Comments requested that the final
regulations exclude insurance and
reinsurance premiums from the
definition of withholdable payment to
the extent the premiums are subject to
the excise tax under section 4371. Such
premiums are exempt under chapter 3,
however, because the excise tax under
section 4371 is an adequate substitute
for tax on the business income of a
foreign issuer. In contrast, withholding
under chapter 4 is intended as an
incentive to FFIs to become
participating FFIs, rather than as a
proxy for the tax on the income of the
issuer. As a result, the policy reasons for
the exclusion of such insurance and
reinsurance premiums for purposes of
chapter 3 withholding are not relevant
for chapter 4 withholding. The final
regulations therefore do not adopt this
comment.
B. Substantial U.S. Owner
The final regulations include rules for
determining whether a specified U.S.
person is a substantial U.S. owner that
remain substantially unchanged from
the proposed regulations subject to the
following modifications. The proposed
regulations required that the
determination of whether a person is a
substantial U.S. owner be made by
calculating such person’s direct and
indirect interest in the entity. The
attribution rules under the proposed
regulations required that a specified U.S
person’s indirect interest in an entity be
determined by looking through interests
held by entities that are U.S. persons.
The final regulations do not require an
entity to look through interests held by
a U.S. person that is not a specified U.S.
person when determining whether the
entity has a substantial U.S. owner. The
final regulations add a provision that
requires an entity making a
determination as to whether a specified
U.S. person is a substantial U.S. owner
to aggregate the interests owned by
persons related to the specified U.S.
person, applying certain provisions of
the regulations under section 267 to
determine whether such persons are
related.
In response to comments regarding
the difficulty of determining whether a
specified U.S. person owns a sufficient
interest in an entity to be a substantial
U.S. owner, the final regulations
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5895
provide a safe harbor that permits an
entity, or a withholding agent with
respect to the entity, to treat a specified
U.S. person as a substantial U.S. owner
in lieu of making the calculations
necessary to determine whether such
person holds a sufficient interest to be
a substantial U.S. owner.
Comments requested that the 10
percent ownership threshold for
determining a substantial U.S. owner be
changed to 25 percent to align with
AML due diligence requirements. These
comments were not adopted.
Jurisdictions have varying approaches to
enforcing AML due diligence
requirements, and thus, reliance on
AML due diligence to determine
substantial U.S. owners is more
appropriate in the context of the IGAs.
C. Specified U.S. Person
The final regulations add section
457(g) plans and exempt trusts under
section 403(b) to the classes of U.S.
persons that are not specified U.S.
persons.
X. Comments and Changes to § 1.1474–
1—Liability for Withheld Tax and
Withholding Agent Reporting
A. Use of Agents
The proposed regulations described
the circumstances under which a
withholding agent could appoint agents
to fulfill its obligations under chapter 4
and the withholding agent’s liability.
Comments requested removal of the
proposed regulations’ restrictions on the
use of sub-agents. The final regulations
remove these restrictions and clarify
that a withholding agent remains liable
for the acts of both its agents and its
agents’ sub-agents. The final regulations
also clarify that any agent or sub-agent
that acts as a reporting agent for filing
Form 1042 or making deposits and
payments reportable on the form on
behalf of a withholding agent must file
a Form 8655, ‘‘Reporting Agent
Authorization,’’ with the IRS.
B. Information Reporting
The proposed regulations set forth the
information reporting requirements of a
withholding agent paying a chapter 4
reportable amount and the transitional
reporting requirements of a participating
FFI or registered deemed-compliant FFI
making a payment of a foreign
reportable amount to a nonparticipating
FFI. The proposed regulations also
required financial institutions to file
such returns electronically on magnetic
media without regard to the general
annual 250 return threshold applicable
to withholding agents other than
financial institutions.
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The final regulations modify and
clarify certain provisions of the
proposed regulations with respect to
these reporting requirements. The final
regulations modify which persons are
recipients for purposes of reporting
chapter 4 reportable amounts and
describe categories of recipients with
respect to payments of U.S. source
FDAP income. Due to the suspension of
withholding on gross proceeds and
foreign passthru payments until 2017,
the definition of a recipient of a
payment other than of U.S. source FDAP
income is reserved. Information
reporting is required with respect to a
payment of gross proceeds only if the
payment is an amount subject to
withholding. In response to comments
requesting clarification of the meaning
of the term ‘‘subject to withholding,’’
the final regulations in § 1.1471–
1(b)(118) define an amount subject to
withholding as an amount withheld
upon or required to be withheld upon
under chapter 4. The final regulations
also clarify that a chapter 4 reportable
amount excludes an amount paid to a
payee that the withholding agent treats
as a U.S. person, but add a provision
that an amount paid by a withholding
agent to a participating FFI or registered
deemed-compliant FFI is reportable to
the extent allocable to U.S. persons
identified in a pool of payees reported
by the FFI (as described in paragraph
(d)(4)). The final regulations also
generally describe how a withholding
agent reports with respect to payments
made to a participating FFI or registered
deemed-compliant FFI that acts as an
intermediary or flow-through entity
when the FFI provides pooled
information to the withholding agent
regarding its account holders and
payees subject to withholding under
chapter 4. In the case of payments that
are not subject to withholding under
chapter 4, the final regulations require
reporting to the extent that reporting is
required under § 1.1461–1.
Comments sought clarification on the
reporting obligations of a participating
FFI or registered deemed-compliant FFI
that acts as an intermediary or is a flowthrough entity. The final regulations
provide that if a payment of U.S. source
FDAP income is made by a U.S.
withholding agent to a participating FFI
or registered deemed-compliant FFI that
is an NQI, NWP, or NWT that provides
sufficient information to the
withholding agent to withhold and
report the payment, the FFI is not also
required to report the payment. The
final regulations clarify, however, that a
participating FFI or registered deemed
compliant FFI is required to complete
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Forms 1042–S by allocating the income
and withholding paid to its recalcitrant
account holder pools as described in
§ 1.1471–4(d)(6) (requiring a
participating FFI to report the number of
accounts and account balance
information), and that such reporting is
required regardless of whether the FFI
made a payment of a chapter 4
reportable amount to each such account
holder.
Comments were also received
regarding transitional reporting by
participating FFIs and deemedcompliant FFIs for foreign reportable
amounts paid to nonparticipating FFIs.
Suggestions included permitting
aggregate, in lieu of specific, payee
reporting; modifying the definition of
foreign reportable amount; and
eliminating the transitional reporting
altogether. Because the transitional
reporting provides relevant information
concerning the extent of compliance by
FFIs with the requirements of chapter 4
in the absence of withholding with
respect to foreign passthru payments,
however, these comments are not
adopted in the final regulations. The
final regulations otherwise clarify that
reporting during the transitional period
is required for aggregate payments paid
by a participating FFI rather than to a
participating FFI.
XII. Comments and Changes to
§ 1.1474–6—Coordination of Chapter 4
With Other Withholding Provisions
XI. Comments and Changes to
§§ 1.1474–2 through –5—Refunds,
Credits, and Reimbursement
Procedural Matters
Proposed §§ 1.1471–2 through –5
provide rules relating to the refund or
credit of taxes withheld under chapter
4 and reimbursement procedures for
withholding agents in cases of
overwithholding. Comments requested
the establishment of efficient
procedures for beneficial owners to
obtain refunds of tax withheld under
chapter 4. In response to these
comments, the final regulations provide
the alternative allowance for
participating FFIs and reporting Model
1 FFIs to obtain refunds on behalf of
their account holders under the
collective refund procedures of
§ 1.1471–4(h). To facilitate the provision
of refunds in other appropriate cases,
the final regulations include in
§ 1.1474–1(d) the allowance for a
withholding agent to issue a specific
Form 1042–S to an account holder
subjected to withholding under chapter
4 (in lieu of the pooled reporting
otherwise permitted) for purposes of
substantiating withholding of amounts
under chapter 4.
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Proposed § 1.1474–6 provided rules
for coordinating withholding under
chapter 4 with other withholding
provisions under the Code. The final
regulations adopt the provisions of this
section without substantial change, but
add paragraph (b)(3) to permit a
withholding agent to offset its obligation
to withhold under chapter 4 with
respect to payments of dividend
equivalents under section 871(m) in a
security lending or substantially similar
transaction to the extent that another
withholding agent has withheld under
chapter 3 or 4 with respect to the same
underlying security in such a
transaction. This offset is permitted only
when there is sufficient evidence that
tax was actually withheld as determined
under the provisions of chapter 3.
XIII. Comments and Changes to
§ 301.1474–1—Required Use of
Magnetic Media for Financial
Institutions Filing Form 1042–S or
Form 8966
Proposed § 301.1474–1 requires that a
financial institution file Forms 1042–S
on magnetic media. The final
regulations add a requirement that a
financial institution also file Form 8966,
‘‘FATCA Report,’’ on magnetic media.
I. The FATCA Registration Portal
The FATCA Registration Portal
(Portal) will be the primary means for
financial institutions to interact with the
IRS to complete and maintain their
chapter 4 registrations, agreements, and
certifications. The Portal will be
accessible to financial institutions
beginning no later than July 15, 2013. At
that time, financial institutions will be
able to register and, as appropriate,
agree to comply with their obligations as
participating FFIs or as sponsoring
entities (as described in section 3
below), or to register and agree to act as
limited FFIs or registered deemedcompliant FFIs (including reporting
Model 1 FFIs, which are treated as
registered deemed-compliant FFIs under
the final regulations). The IRS will
permit registration of FFIs that are
reporting Model 1 FFIs or described as
a Reporting Financial Institution under
a Model 2 IGA so long as the associated
jurisdiction is identified on a list
published by the IRS of countries
treated as having in effect an IGA, as
appropriate, even if any necessary
ratification of such IGA in the
jurisdiction has not yet been completed.
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Once a financial institution has
registered, the IRS will approve its
registration. The IRS intends, upon such
approval, to issue a GIIN to each
participating FFI and registered
deemed-compliant FFI. These GIINs
will be assigned beginning no later than
October 15, 2013, and should be used as
the institution’s identifying number for
satisfying its reporting requirements and
identifying its status to withholding
agents. The IRS will electronically post
the first list (IRS FFI List) of
participating FFIs and registered
deemed-compliant FFIs (including
reporting Model 1 FFIs) on December 2,
2013. The IRS intends to update the IRS
FFI List on a monthly basis. The last
date by which a financial institution can
register with the IRS to ensure its
inclusion on the December 2013 IRS FFI
List is October 25, 2013.
A. The FFI Agreement
A financial institution registering
through the Portal will agree to comply
with the FATCA requirements
pertaining to its particular situation.
These requirements will vary depending
on the financial institution’s status in
the jurisdictions in which it operates.
For example, an FFI may be a resident
of a jurisdiction for which it reports as
a reporting Model 1 FFI and have other
branches in jurisdictions covered by
applicable Model 2 IGAs and branches
in jurisdictions not covered by an IGA.
In such case, the FFI will be able to
register once and may enter into an FFI
agreement on behalf of its branches that
are not covered under an applicable
Model 1 IGA. Accordingly, the FFI
agreement will not relate to its
operations as a reporting Model 1 FFI
because those operations will be subject
to the rules set out under the law of the
applicable jurisdiction, but the FFI
agreement will incorporate the
requirements applicable to its
operations in jurisdictions other than
those covered under an applicable
Model 1 IGA.
Before the Portal opens for
registration, the Treasury Department
and the IRS will publish a revenue
procedure (FATCA Rev. Proc.)
containing all the terms and conditions
applicable to FFIs for chapter 4
purposes and for FFIs also assuming
chapter 3 responsibilities (that is, as QIs,
WPs, and WTs). The terms and
conditions set forth in the FATCA Rev.
Proc. applicable to FFIs for chapter 4
purposes will be fully consistent with
the rules set forth in these final
regulations. The terms and conditions
set forth in the FATCA Rev. Proc.
applicable to FFIs that are assuming or
continuing chapter 3 responsibilities are
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discussed in more detail in I.C and D of
this section.
QI status (including its chapter 4
requirements) through the Portal.
B. Sponsored FFIs
As discussed in section VI.F above,
the final regulations include three
deemed-compliant categories for
sponsored FFIs, under which a
sponsoring entity agrees to register with
the IRS and undertake all of the chapter
4 obligations of a participating FFI on
behalf of one or more sponsored FFIs.
Beginning no later than July 15, 2013,
financial institutions will be able to
register as sponsoring entities but will
not at that time be required to provide
information regarding their sponsored
FFIs. It is anticipated that sponsoring
entities will be able to provide
sponsored FFI information and obtain
GIINs for each sponsored FFI beginning
no later than October 15, 2013.
If a sponsoring entity must also
become a participating FFI or registered
deemed-compliant FFI with respect to
accounts that it maintains or register as
a reporting Model 1 FFI, the sponsoring
entity will be required to do so
separately from its registration as a
sponsoring entity. Such an FFI will
obtain a separate GIIN to be used with
respect to its own chapter 4 or FATCA
Partner reporting requirements and to
establish its own chapter 4 status to
withholding agents.
D. Withholding Foreign Partnerships
and Withholding Foreign Trusts
C. Qualified Intermediaries
Beginning January 1, 2014, QIs will be
required to assume chapter 4
responsibilities with respect to their
accounts as a condition for maintaining
QI status or for obtaining QI status. For
this purpose, existing QI agreements
will be modified to take into account the
applicable chapter 4 requirements. The
modified provisions of the QI agreement
will be set forth in the FATCA Rev.
Proc. that the IRS will publish before
the Portal opens for registration.
Existing QIs will be required to renew
their QI agreements by registering on the
Portal and agreeing to comply with the
modified QI agreement described in the
FATCA Rev. Proc. Such a renewing QI
will be issued a GIIN that it will use for
FATCA reporting purposes and
establishing its FATCA status with
withholding agents. The IRS currently
contemplates that the GIIN will also be
used by QIs, in lieu of the current QI
EIN, for purposes of QI reporting and
`
establishing QI status vis-a-vis
withholding agents.
FFIs that wish to apply for QI status
for the first time must do so under the
existing paper-based QI application
process. Once approved as a QI through
this process, the FFI must also register
or update its information regarding its
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The existing agreements governing
WPs and WTs will also be modified to
incorporate the applicable chapter 4
requirements of these entities (for
financial accounts other than equity
interests) with respect to their partners,
owners and beneficiaries. The FATCA
Rev. Proc. will describe these
modifications.
Existing WPs and WTs that are FFIs
will be required to renew their
agreements by registering on the Portal
and agreeing to comply with the
modified agreement described in the
FATCA Rev. Proc. Such a renewing WP
or WT will be issued a GIIN that it will
use for FATCA reporting purposes and
establishing its FATCA status with
withholding agents. The IRS currently
contemplates that the GIIN will also be
used by WPs and WTs, in lieu of the
current WP EIN or WT EIN, for purposes
of chapter 3 reporting and establishing
`
its status vis-a-vis withholding agents.
FFIs that wish to apply for WP or WT
status for the first time must do so under
the existing paper-based application
process. Once approved as a WP or WT
through this process, the FFI must also
register or update its information
regarding its WP or WT status through
the Portal. A foreign entity other than an
FFI will be required to apply as a WP
or WT or renew its status as such for
assuming its chapter 4 requirements
under the existing paper-based
application process.
E. Foreign Branches of U.S. Financial
Institutions
U.S. financial institutions will register
their foreign branch operations through
the Portal in certain circumstances. A
U.S. financial institution with a foreign
branch that is a reporting Model 1 FFI
must register on behalf of the branch
and obtain a GIIN to comply with its
FATCA Partner reporting obligations
with respect to such branch. A U.S.
financial institution with a foreign
branch that is a QI and seeks to
maintain QI status will register through
the Portal to renew its QI status for the
branch regardless of whether the branch
is a reporting Model 1 FFI. A U.S.
financial institution with non-QI branch
operations in a Model 2 jurisdiction or
in a non-IGA jurisdiction is not required
to register with the IRS. The Treasury
Department and the IRS are considering
ways to eliminate duplicative reporting
or effect, as appropriate, uniform
reporting under chapters 4 and 61.
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II. Future Guidance and Request for
Comments
A. Qualified Intermediaries
The Treasury Department and the IRS
are considering revising the
requirements of the QI agreement for
external audit procedures to verify a
QI’s compliance with its QI agreement.
Comments are requested regarding the
merits of requiring QIs to provide, in
lieu of external audit reports, periodic
certifications of compliance similar to
that required of participating FFIs under
the final regulations. Comments are also
requested as to the cases in which
internal audits and reviews by thirdparties should be required or permitted
in lieu of external audits, including the
extent to which such reviews should
include evaluations of a QI’s internal
controls in lieu (in whole or in part) of
the account review procedures
prescribed in Revenue Procedure 2002–
55.
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B. Private Arrangement Intermediaries
The Treasury Department and the IRS
anticipate issuing guidance to allow
participating FFIs and registereddeemed compliant FFIs currently acting
as private arrangement intermediaries
(PAIs) to continue to act as PAIs for
FATCA purposes under requirements
similar to those specified in the current
model QI agreement. Further, the QI
agreement will be modified in the
FATCA Rev. Proc. to incorporate the
requirement that a QI may only contract
with a PAI that is a participating FFI or
registered-deemed compliant FFI (in
addition to the chapter 3 requirements
for PAIs). As under the existing
procedures applicable to PAIs, PAIs will
not be required to separately register
with the IRS to obtain PAI status (other
than registering for chapter 4 purposes).
QIs that contract with PAIs for purposes
of their QI agreement will be required to
identify these PAIs as part of the Portal
registration process described above. As
part of the revised requirements for
PAIs, the Treasury Department and the
IRS anticipate amending the external
audit requirements of PAIs to provide
requirements comparable to those
required of QIs.
C. Coordination With Chapters 3 and 61
The Treasury Department and the IRS
intend: (1) to issue guidance
coordinating chapters 3 and 61 with
chapter 4, in order to reduce or
eliminate duplicative reporting as
between chapter 4 (and reporting
pursuant to a Model 1 IGA) and
chapters 3 and 61; and (2) to conform,
as appropriate, the withholding, payee
identification, and other due diligence
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rules of chapters 3 and 61 with rules
under chapter 4. Comments are
requested regarding how such
coordination should be undertaken and
whether other chapter 4 rules should be
coordinated with other Code provisions.
D. Forms
A number of new and revised IRS
forms must be issued due to the new
certification, reporting, and withholding
requirements of chapter 4.
For purposes of obtaining
certifications of account holder status
for chapter 3 purposes, withholding
agents have relied on IRS forms in the
‘‘W–8’’ series. The forms in the W–8
series will be modified for chapter 4
purposes. It should be noted, however,
that the regulations provide that a
financial institution, depending on the
circumstances, may also rely on
substitute forms, written certifications,
and other documentation.
The IRS has already released draft
versions of a revised Form W–8IMY,
‘‘Certificate of Foreign Intermediary,
Foreign Flow-Through Entity, or Certain
U.S. Branches for United States Tax
Withholding,’’ a revised Form W–8ECI
‘‘Certificate of Foreign Person’s Claim
That Income Is Effectively Connected
With the Conduct of a Trade or Business
in the United States,’’ and a revised
Form W–8EXP ‘‘Certificate of Foreign
Government or Other Foreign
Organization for United States Tax
Withholding.’’ The IRS intends to
release shortly a new Form W–8BEN–E,
‘‘Certificate of Status for Beneficial
Owner for United States Tax
Withholding (Entities),’’ to be used only
by beneficial owners that are entities
and, shortly thereafter, a draft version of
a revised Form W–8BEN, ‘‘Certificate of
Foreign Status of Beneficial Owner for
United States Tax Withholding,’’ to be
used only by beneficial owners that are
individuals.
The IRS also intends to release shortly
a new Form 8966, ‘‘FATCA Report,’’
that will be used by FFIs (including QIs,
WPs, WTs) and withholding agents (in
limited circumstances) to comply with
their chapter 4 reporting obligations.
This new Form 8966 will set forth all
the information that must be reported
with respect to financial accounts in
accordance with these regulations.
Finally, the IRS intends to issue shortly
a revised Form 1042, ‘‘Annual
Withholding Tax Return for U.S. Source
Income of Foreign Persons,’’ and Form
1042–S, ‘‘Foreign Person’s U.S. Source
Income Subject to Withholding.’’
Revised Forms 1042 and 1042–S will set
forth all the information that must be
reported by withholding agents to meet
their obligations under both § 1.1474–
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1(c) and (d) (chapter 4) and § 1.1461–1
(chapter 3). The IRS intends to publish
later in 2013 or in early 2014 final
versions of Form 8966 and Form 1042–
S, together with the XML-based schemas
to be used by withholding agents for the
electronic filing of these forms.
Effect on Other Documents
The following publications are
obsolete as of January 28, 2013.
Notice 2010–60, 2010–37 I.R.B. 329
Notice 2011–34, 2011–19 I.R.B. 765
Notice 2011–53, 2011–32 I.R.B. 124
Announcement 2012–42, 2012–47 I.R.B.
561
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13653. Therefore, a regulatory
assessment is not required. It also has
been determined that sections 553(b)
and (d) of the Administrative Procedure
Act (5 U.S.C. chapter 6) do not apply to
these regulations.
The collection of information in these
final regulations is contained in a
number of provisions including
§§ 1.1471–2, 1.1471–3, 1.1471–4,
1.1472–1, and 1.1474–1. The IRS
intends that these information
collection requirements will be satisfied
by persons complying with revised
chapter 3 reporting forms, new reporting
forms based on these final regulations,
the terms, conditions, and requirements
of an FFI agreement, a QI agreement, a
WP agreement, or a WT agreement that
satisfies the requirements of an
applicable revenue procedure to be
issued by the IRS, or the alternative
certification and documentation
requirements set out in these final
regulations. As a result, for purposes of
the Paperwork Reduction Act (44 U.S.C.
3507), the reporting burden associated
with the collection of information in
these final regulations will be reflected
in the respective OMB Form 83–1,
Paperwork Reduction Act Submission,
associated with new or revised IRS
forms, the revenue procedure relating to
the FFI, QI, WP, and WT agreements,
and the alternative certification and
documentation requirements of these
final regulations.
It is hereby certified that the
collection of information in these final
regulations will not have a significant
economic impact on a substantial
number of small entities within the
meaning of section 601(6) of the
Regulatory Flexibility Act (5 U.S.C.
chapter 6). Although the Treasury
Department and the IRS anticipate that
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a substantial number of domestic small
entities will be affected by the collection
of information in these final regulations,
the Treasury Department and the IRS
believe that the economic impact to
these entities resulting from the
information collection requirements
will not be significant.
The domestic small business entities
that are subject to chapter 4 and these
regulations are those domestic business
entities that are payors of U.S. source
FDAP income that are presently subject
to the information collection and
reporting rules under chapter 3. These
domestic small business entities are
required to be familiar with chapter 3’s
information collection and reporting
rules and forms in order to determine a
payee’s U.S. withholding status and,
based on that status, withhold and remit
the proper amount of tax on payments
of U.S. source FDAP income. Small
domestic business entities that are
payors of U.S. source FDAP income
have developed and implemented
internal reporting and information
collection systems under which the
business entity satisfies its chapter 3
payee identification, withholding, and
tax remittance requirements.
The IRS intends to revise the present
chapter 3 reporting forms, with the
revised forms being used by a payor of
U.S. source FDAP income to satisfy the
payor’s obligations under chapters 3 and
4. As a result, these final regulations’
information collection requirements
build on reporting and information
collection systems familiar to and
currently used by payors of U.S. source
FDAP income that are domestic small
business entities, thereby reducing the
burden imposed on these entities. In
addition, the final regulations’
alternative certification and
documentation provisions reduce the
information otherwise required to be
collected by withholding agents and
submitted by payees, thereby further
limiting the burden imposed by the final
regulations on domestic small business
entities. Therefore, a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act is not
required.
Section 202 of the Unfunded
Mandates Reform Act of 1995, Public
Law 104–4, requires that an agency
prepare a costs and benefits analysis
and a budgetary impact statement before
promulgating a rule that may result in
the expenditure by State, local, and
tribal governments, in the aggregate, or
by the private sector, of $100 million or
more in any one year. If a budgetary
impact statement is required, section
205 of the Unfunded Mandates Reform
Act requires an agency to identify and
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consider a reasonable number of
regulatory alternatives before
promulgating a rule. The Treasury
Department and the IRS have
determined that there is no federal
mandate imposed by this rulemaking
that may result in the expenditure by
State, local, and tribal governments, in
the aggregate, or by the private sector, of
$100 million or more in any one year.
Pursuant to section 7805(f), the notice
of proposed rulemaking preceding these
final regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small businesses. No
comments were received from the Small
Business Administration.
Section 1.1473–1 is also issued under 26
U.S.C. 1473
Section 1.1474–1 is also issued under 26
U.S.C. 1474
Section 1.1474–2 is also issued under 26
U.S.C. 1474
Section 1.1474–3 is also issued under 26
U.S.C. 1474
Section 1.1474–4 is also issued under 26
U.S.C. 1474
Section 1.1474–5 is also issued under 26
U.S.C. 1474
Section 1.1474–6 is also issued under 26
U.S.C. 1474
Section 1.1474–7 is also issued under 26
U.S.C. 1474 * * *
Drafting Information
The principal authors of §§ 1.1471–1
through 1.1474–7 are John Sweeney,
Danielle Nishida, Tara Ferris, Quyen
Huynh, Josephine Firehock, and Susan
Massey, all of the Office of Associate
Chief Counsel (International). The
principal author of § 301.1474–1 is
Michael E. Hara, Office of Associate
Chief Counsel (Procedure and
Administration). However, other
personnel from the IRS and the Treasury
Department participated in the
development of these regulations.
■
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.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read as follows:
■
Authority: 26 U.S.C. 7805 * * *
Section 1.1471–1 is also issued under 26
U.S.C. 1471
Section 1.1471–2 is also issued under 26
U.S.C. 1471
Section 1.1471–3 is also issued under 26
U.S.C. 1471
Section 1.1471–4 is also issued under 26
U.S.C. 1471
Section 1.1471–5 is also issued under 26
U.S.C. 1471
Section 1.1471–6 is also issued under 26
U.S.C. 1471
Section 1.1472–1 is also issued under 26
U.S.C. 1472
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Par. 2. The undesignated center
heading and subheading immediately
following § 1.1464–1 are removed.
■
Par. 3. Section 1.1471–1 and the
editorial note that follows are removed.
Par. 4. A new undesignated center
heading and § 1.1471–0 are added
immediately following § 1.1464–1 to
read as follows:
■
Information Reporting by Foreign
Financial Institutions
§ 1.1471–0 Outline of regulation provisions
for sections 1471 through 1474.
This section lists the table of contents
for §§ 1.1471–1 through 1.1474–7 and
§ 301.1474–1 of this chapter.
§ 1.1471–1 Scope of chapter 4 and
definitions.
(a) Scope of chapter 4 of the Internal
Revenue Code.
(b) Definitions.
(1) Account.
(2) Account holder.
(3) Active NFFE.
(4) AML due diligence.
(5) Annuity contract.
(6) Assumes primary withholding
responsibility.
(7) Beneficial owner.
(8) Blocked account.
(9) Broker.
(10) Cash value.
(11) Cash value insurance contract.
(12) Certified deemed-compliant FFI.
(13) Change in circumstances.
(14) Chapter 3.
(15) Chapter 4.
(16) Chapter 4 reportable amount.
(17) Chapter 4 status.
(18) Clearing organization.
(19) Complex trust.
(20) Consolidated obligations.
(21) Custodial account.
(22) Custodial institution.
(23) Customer master file.
(24) Deemed-compliant FFI.
(25) Deferred annuity contract.
(26) Depository account.
(27) Depository institution.
(28) Documentary evidence.
(29) Documentation.
(30) Dormant account.
(31) Effective date of the FFI agreement.
(32) EIN.
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(33) Election to be withheld upon.
(34) Electronically searchable information.
(35) Entity.
(36) Entity account.
(37) Excepted NFFE.
(38) Exempt beneficial owner.
(39) Expanded affiliated group.
(40) FATF.
(41) FATF-compliant jurisdiction.
(42) FFI.
(43) FFI agreement.
(44) Financial account.
(45) Financial institution.
(46) Flow-through entity.
(47) Flow-through withholding certificate.
(48) Foreign entity.
(49) Foreign passthru payment.
(50) Foreign payee.
(51) Foreign person.
(52) GIIN.
(53) Grandfathered obligation.
(54) Grantor trust.
(55) Gross proceeds.
(56) Group annuity contract.
(57) Group insurance contract.
(58) Immediate annuity.
(59) Individual account.
(60) Insurance company.
(61) Insurance contract.
(62) Intermediary.
(63) Intermediary withholding certificate.
(64) Investment entity.
(65) Investment-linked annuity contract.
(66) Investment-linked insurance contract.
(67) IRS FFI list.
(68) Life annuity contract.
(69) Life insurance contract.
(70) Limited branch.
(71) Limited FFI.
(72) Model 1 IGA.
(73) Model 2 IGA.
(74) NFFE.
(75) Nonparticipating FFI.
(76) Nonreporting IGA FFI.
(77) Non-U.S. account.
(78) NQI.
(79) NWP.
(80) NWT.
(81) Offshore account.
(82) Offshore obligation.
(83) Owner.
(84) Owner-documented FFI.
(85) Participating FFI.
(86) Participating FFI group.
(87) Partnership.
(88) Passive NFFE.
(89) Passthru payment.
(90) Payee.
(91) Payment with respect to an offshore
obligation.
(92) Payor.
(93) Permanent residence address.
(94) Person.
(95) Preexisting account.
(96) Preexisting entity account.
(97) Preexisting individual account.
(98) Preexisting obligation.
(99) Pre-FATCA Form W–8.
(100) Prima facie FFI.
(101) QI.
(102) QI agreement.
(103) QI branch of a U.S. financial
institution.
(104) Recalcitrant account holder.
(105) Registered deemed-compliant FFI.
(106) Relationship manager.
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(107) Reporting Model 1 FFI.
(108) Responsible officer.
(109) Restricted distributor.
(110) Simple trust.
(111) Specified insurance company.
(112) Specified U.S. person.
(113) Sponsored FFI.
(114) Sponsored FFI group.
(115) Sponsoring entity.
(116) Standardized industry code.
(117) Standing instructions to pay
amounts.
(118) Subject to withholding.
(119) Substantial U.S. owner.
(120) Territory entity.
(121) Territory financial institution.
(122) Territory financial institution treated
as a U.S. person.
(123) Territory NFFE.
(124) TIN.
(125) U.S. account.
(126) U.S. branch treated as a U.S. person.
(127) U.S. financial institution.
(128) U.S. indicia.
(129) U.S. owned foreign entity.
(130) U.S. payee.
(131) U.S. payor.
(132) U.S. person.
(133) U.S. source FDAP income.
(134) U.S. territory.
(135) U.S. withholding agent.
(136) Withholdable payment.
(137) Withholding.
(138) Withholding agent.
(139) Withholding certificate.
(140) WP.
(141) Written statement.
(142) WT.
(c) Effective/applicability date.
§ 1.1471–2 Requirement to deduct and
withhold tax on withholdable payments
to certain FFIs.
(a) Requirement to withhold on payments
to FFIs.
(1) General rule of withholding.
(2) Special withholding rules.
(i) Requirement to withhold on payments
of U.S. source FDAP income to participating
FFIs that are NQIs, NWPs, or NWTs.
(ii) Residual withholding responsibility of
intermediaries and flow-through entities.
(iii) Requirement to withhold if a
participating FFI or registered deemedcompliant FFI makes an election to be
withheld upon.
(A) Election to be withheld upon for U.S.
source FDAP income.
(B) Election to be withheld upon for gross
proceeds.
(iv) Withholding obligation of a territory
financial institution.
(v) Withholding obligation of a foreign
branch of a U.S. financial institution.
(vi) Payments of gross proceeds.
(3) Coordination of withholding under
sections 1471(a) and (b).
(4) Payments for which no withholding is
required.
(i) Exception to withholding if the
withholding agent lacks control, custody, or
knowledge.
(A) In general.
(B) Example.
(ii) Exception to withholding for certain
payments made prior to January 1, 2016
(transitional).
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(A) In general.
(B) Prima facie FFIs.
(iii) Payments to a participating FFI.
(iv) Payments to a deemed-compliant FFI.
(v) Payments to an exempt beneficial
owner.
(vi) Payments to a territory financial
institution.
(vii) Payments to an account held with a
clearing organization with FATCA-compliant
membership.
(viii) Payments to certain excepted
accounts.
(5) Withholding requirements if source or
character of payments is unknown.
(i) General rule.
(ii) Optional escrow procedure.
(b) Grandfathered obligations.
(1) Grandfathered treatment of outstanding
obligations.
(2) Definitions.
(i) Grandfathered obligation.
(ii) Obligation.
(iii) Date outstanding.
(iv) Material modification.
(3) Application to flow-through entities.
(i) Partnerships.
(ii) Simple trusts.
(iii) Grantor trusts.
(4) Determination by withholding agent of
grandfathered treatment.
(i) In general.
(ii) Determination of material modification.
(iii) Record retention.
(c) Effective/applicability date.
§ 1.1471–3 Identification of payee.
(a) Payee defined.
(1) In general.
(2) Payee with respect to a financial
account.
(3) Exceptions.
(i) Certain foreign agents or intermediaries.
(ii) Foreign flow-through entity.
(iii) U.S. intermediary or agent of a foreign
person.
(iv) Territory financial institution.
(v) Disregarded entity or branch.
(vi) U.S. branch of certain foreign banks or
foreign insurance companies.
(vii) Foreign branch of a U.S. person.
(b) Determination of payee’s status.
(1) Determining whether a payment is
received by an intermediary.
(2) Determination of entity type.
(3) Determination of whether the payment
is made to a QI, WP, or WT.
(4) Determination of whether the payee is
receiving effectively connected income.
(c) Rules for reliably associating a payment
with a withholding certificate or other
appropriate documentation.
(1) In general.
(2) Reliably associating a payment with
documentation if a payment is made through
an intermediary or flow-through entity that is
not the payee.
(i) In general.
(ii) Exception to entity account
documentation rules for an offshore account
of an intermediary or flow-through entity.
(3) Requirements for validity of certificates.
(i) Form W–9.
(ii) Beneficial owner withholding
certificate (Form W–8BEN).
(iii) Withholding certificate of an
intermediary, flow-through entity, or U.S.
branch (Form W–8IMY).
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(A) In general.
(B) Withholding statement.
(1) In general.
(2) Special requirements for an FFI
withholding statement.
(3) Special requirements for a chapter 4
withholding statement.
(4) Special requirements for an exempt
beneficial owner withholding statement.
(C) Failure to provide allocation
information.
(D) Special rules applicable to a
withholding certificate of a QI that assumes
primary withholding responsibility under
chapter 3.
(E) Special rules applicable to a
withholding certificate of a QI that does not
assume primary withholding responsibility
under chapter 3.
(F) Special rules applicable to a
withholding certificate of a territory financial
institution that agrees to be treated as a U.S.
person.
(G) Special rules applicable to a
withholding certificate of a territory financial
institution that does not agree to be treated
as a U.S. person.
(H) Special rules applicable to a
withholding certificate of a U.S. branch
treated as a U.S. person.
(iv) Certificate for exempt status (Form W–
8EXP).
(v) Certificate for effectively connected
income (Form W–8ECI).
(4) Requirements for written statements.
(5) Requirements for documentary
evidence.
(i) Foreign status.
(A) Certificate of residence.
(B) Individual government identification.
(C) QI documentation.
(D) Entity government documentation.
(E) Third-party credit report.
(ii) Chapter 4 status.
(A) General documentary evidence.
(B) Preexisting account documentary
evidence.
(C) Payee-specific documentary evidence.
(6) Applicable rules for withholding
certificates, written statements, and
documentary evidence.
(i) Who may sign the withholding
certificate or written statement.
(ii) Period of validity.
(A) General rule.
(B) Indefinite validity.
(C) Indefinite validity in the case of certain
offshore obligations.
(D) Exception for certificate for effectively
connected income.
(E) Change in circumstances.
(1) Defined.
(2) Obligation to notify withholding agent
of a change in circumstances.
(3) Withholding agent’s obligation with
respect to a change in circumstances.
(iii) Record retention.
(A) In general.
(B) Exception for documentary evidence
received with respect to offshore obligations.
(iv) Electronic transmission of withholding
certificate, written statement, and
documentary evidence.
(v) Acceptable substitute withholding
certificate.
(A) In general.
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(B) Non-IRS form for individuals.
(vi) Electronic confirmation of TIN on
withholding certificate.
(vii) Reliance on a prior version of a
withholding certificate.
(7) Curing documentation errors.
(i) Curing inconsequential errors on a
withholding certificate.
(ii) Documentation received after the time
of payment.
(8) Documentation furnished on accountby-account basis unless exception provided
for sharing documentation within expanded
affiliated group.
(i) Single branch systems.
(ii) Universal account systems.
(iii) Shared account systems.
(iv) Document sharing gross proceeds.
(9) Reliance on documentation collected by
or certifications provided by other persons.
(i) Shared documentation system
maintained by an agent.
(ii) Third-party data providers.
(iii) Reliance on certification provided by
introducing brokers.
(iv) Reliance on documentation and
certifications provided between principals
and agents.
(A) In general.
(B) Reliance upon certification of the
principal.
(C) Document sharing.
(D) Examples.
(v) Reliance upon documentation for
accounts acquired in merger or bulk
acquisition for value.
(d) Documentation requirements to
establish payee’s chapter 4 status.
(1) Reliance on pre-FATCA Form W–8.
(2) Identification of U.S. persons.
(i) In general.
(ii) Reliance on documentary evidence.
(iii) Preexisting obligations.
(3) Identification of individuals that are
foreign persons.
(i) In general.
(ii) Exception for offshore obligations.
(4) Identification of participating FFIs and
registered deemed-complaint FFIs.
(i) In general.
(ii) Exception for payments made prior to
January 1, 2017, with respect to preexisting
obligations (transitional).
(iii) Exception for offshore obligations.
(iv) Exceptions for payments to reporting
Model 1 FFIs.
(v) Reason to know.
(5) Identification of certified deemedcompliant FFIs.
(i) In general.
(ii) Sponsored, closely-held investment
vehicles.
(A) In general.
(B) Offshore obligations.
(6) Identification of owner-documented
FFIs.
(i) In general.
(ii) Auditor’s letter substitute.
(iii) Documentation for owners of payee.
(iv) Content of FFI owner reporting
statement.
(v) Exception for preexisting obligations
(transitional).
(vi) Exception for offshore obligations.
(vii) Exception for certain obligations of
$1,000,000 or less.
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(7) Nonreporting IGA FFIs.
(i) In general.
(ii) Exception for offshore obligations.
(8) Identification of nonparticipating FFIs.
(i) In general.
(ii) Special documentation rules for
payments made to an exempt beneficial
owner through a nonparticipating FFI.
(9) Identification of exempt beneficial
owners.
(i) Identification of foreign governments,
governments of U.S. territories, international
organizations, and foreign central banks of
issue.
(A) In general.
(B) Exception for offshore obligations.
(C) Exception for preexisting offshore
obligations.
(ii) Identification of retirement funds.
(A) In general.
(B) Exception for offshore obligations.
(C) Exception for preexisting offshore
obligations.
(iii) Identification of entities wholly owned
by exempt beneficial owners.
(10) Identification of territory financial
institutions.
(i) Identification of territory financial
institutions that are beneficial owners.
(A) In general.
(B) Exception for preexisting offshore
obligations.
(ii) Identification of territory financial
institutions acting as intermediaries or that
are flow-through entities.
(iii) Reason to know.
(11) Identification of excepted NFFEs.
(i) Identification of excepted nonfinancial
group entities.
(A) In general.
(B) Exception for offshore obligations.
(ii) Identification of excepted nonfinancial
start-up companies.
(A) In general.
(B) Exception for offshore obligations.
(C) Exception for preexisting offshore
obligations.
(iii) Identification of excepted nonfinancial
entities in liquidation or bankruptcy.
(A) In general.
(B) Exception for offshore obligations.
(C) Exception for preexisting offshore
obligations.
(iv) Identification of section 501(c)
organizations.
(A) In general.
(B) Reason to know.
(v) Identification of non-profit
organizations.
(A) In general.
(B) Exception for offshore obligations.
(C) Exception for preexisting offshore
obligations.
(D) Reason to know.
(vi) Identification of NFFEs that are
publicly traded corporations.
(A) Exception for offshore obligations.
(B) Exception for preexisting offshore
obligations.
(vii) Identification of NFFE affiliates.
(A) Exception for offshore obligations.
(B) Exception for preexisting offshore
obligations.
(viii) Identification of excepted territory
NFFEs.
(A) Exception for payments made prior to
January 1, 2017, with respect to preexisting
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obligations of $1,000,000 or less
(transitional).
(B) Exception for offshore obligations.
(C) Exception for preexisting offshore
obligations of $1,000,000 or less.
(ix) Identification of active NFFEs.
(A) Exception for offshore obligations.
(B) Exception for preexisting offshore
obligations.
(C) Limit on reason to know.
(12) Identification of passive NFFEs.
(i) Exception for offshore obligations.
(ii) Special rule for preexisting offshore
obligations.
(iii) Required owner certification for
passive NFFEs.
(A) In general.
(B) Exception for preexisting obligations of
$1,000,000 or less (transitional).
(e) Standards of knowledge.
(1) In general.
(2) Notification by the IRS.
(3) Participating FFIs and registered
deemed-compliant FFIs.
(i) In general.
(ii) Special rules for reporting Model 1
FFIs.
(4) Reason to know.
(i) Information conflicting with person’s
claim of chapter 4 status.
(ii) Specific standards of knowledge
applicable to withholding certificates.
(A) In general.
(B) Classification of U.S. status, U.S.
address, or U.S. telephone number.
(1) Presumption of individual’s foreign
status.
(2) Presumption of entity’s foreign status.
(C) U.S. place of birth.
(1) Accounts opened on or after January 1,
2014.
(2) Preexisting obligations.
(D) Standing instructions with respect to
offshore obligations.
(iii) Specific standard of knowledge
applicable to written statements.
(iv) Specific standard of knowledge
applicable to documentary evidence.
(A) In general.
(B) Classification of U.S. status, U.S.
address, or U.S. telephone number.
(1) Presumption of individual’s foreign
status.
(2) Presumption of entity’s foreign status.
(C) U.S. place of birth.
(1) Accounts opened on or after January 1,
2014.
(2) Preexisting obligations.
(D) Standing instructions.
(E) Standards of knowledge applicable to
certain types of documentary evidence.
(1) Financial statement.
(2) Organizational documents.
(v) Specific standards of knowledge
applicable when only documentary evidence
is a code or classification described in
paragraph (c)(5)(ii)(B) of this section.
(A) U.S. indicia for entities.
(B) Documentation required to cure U.S.
indicia.
(vi) Specific standards of knowledge
applicable to documentation received from
intermediaries and flow-through entities.
(A) In general.
(B) Limits on reason to know with respect
to documentation received from participating
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FFIs and registered deemed-compliant FFIs
that are intermediaries or flow-through
entities.
(vii) Limits on reason to know.
(A) Scope of review for preexisting
obligations of entities.
(B) Reason to know there is a U.S.
telephone number associated with a
preexisting obligation.
(C) Reason to know there are U.S. indicia
associated with preexisting offshore
obligations.
(D) Limits on reason to know for multiple
obligations belonging to a single account
holder.
(viii) Reasonable explanation supporting
claim of foreign status.
(5) Conduit financing arrangements.
(6) Additional guidance.
(f) Presumptions regarding chapter 4 status
of the person receiving the payment in the
absence of documentation.
(1) In general.
(2) Presumptions of classification as an
individual or entity.
(i) In general.
(ii) Documentary evidence furnished for
offshore obligation.
(3) Presumptions of U.S. or foreign status.
(i) Payments to entities with indicia of
foreign status.
(ii) Payments to certain exempt recipients.
(iii) Payments with respect to offshore
obligations.
(4) Presumption of chapter 4 status for a
foreign entity.
(5) Presumption of status as an
intermediary.
(6) Presumption of effectively connected
income for payments to certain U.S.
branches.
(7) Joint payees.
(i) In general.
(ii) Exception for offshore obligations.
(8) Rebuttal of presumptions.
(9) Effect of reliance on presumptions and
of actual knowledge or reason to know
otherwise.
(i) In general.
(ii) Actual knowledge or reason to know
that amount of withholding is greater than is
required under the presumptions or that
reporting of the payment is required.
(g) Effective/applicability date.
§ 1.1471–4 FFI agreement.
(a) In general.
(1) Withholding.
(2) Identification and documentation of
account holders.
(3) Reporting.
(4) Expanded affiliated group.
(5) Verification.
(6) Event of default.
(7) Refunds.
(b) Withholding requirements.
(1) In general.
(2) Withholding determination.
(3) Satisfaction of withholding
requirements.
(4) Foreign passthru payments.
(5) Withholding on limited FFIs and
limited branches.
(i) Limited FFIs.
(ii) Limited branches.
(6) Special rule for dormant accounts.
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(7) Withholding requirements for U.S.
branches of participating FFIs that are treated
as U.S. persons.
(c) Due diligence for the identification and
documentation of account holders and
payees.
(1) Scope of paragraph.
(2) General rules for the identification and
documentation of account holders and
payees.
(i) Overview.
(ii) Standards of knowledge.
(A) In general.
(B) Limits on reason to know with respect
to certain accounts acquired in merger of
bulk acquisition.
(1) In general.
(2) Participating FFIs and certain deemedcompliant FFIs that apply the due diligence
rules, and U.S. financial institutions.
(iii) Change in circumstances.
(A) Obligation to identify a change in
circumstances.
(B) Definition of change in circumstances.
(C) Requirements following a change in
circumstances.
(iv) Record retention.
(v) Special rule for U.S. branches of
participating FFIs that are treated as U.S.
persons.
(3) Identification and documentation
procedure for entity accounts and payees.
(i) In general.
(ii) Timeframe for applying identification
and documentation procedure for entity
accounts and payees.
(iii) Documentation exception for certain
preexisting entity accounts.
(A) Accounts to which this exception
applies.
(B) Aggregation of entity accounts.
(C) Election to forgo exception.
(4) Identification and documentation
procedure for individual accounts other than
preexisting accounts.
(i) In general.
(ii) Reliance on third-party for
identification of individual accounts other
than preexisting accounts.
(iii) Alternative identification and
documentation procedure for certain cash
value insurance or annuity contracts.
(A) Group cash value insurance contracts
or group annuity contracts.
(B) Accounts held by beneficiaries of a
cash value insurance contract that is a life
insurance contract.
(5) Identification and documentation
procedure for preexisting individual
accounts.
(i) In general.
(ii) Special rule for preexisting individual
accounts previously documented as U.S.
accounts for purposes of chapter 3 or 61.
(iii) Exceptions for certain low value
preexisting individual accounts.
(A) Accounts to which an exception
applies.
(B) Aggregation of accounts.
(C) Election to forgo exception.
(iv) Specific identification and
documentation procedures for preexisting
individual accounts.
(A) In general.
(B) U.S. indicia and relevant
documentation rules.
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(1) U.S. indicia.
(2) Documentation to be retained upon
identifying U.S. indicia.
(i) Designation of account holder as a U.S.
citizen or resident.
(ii) Unambiguous indication of a U.S. place
of birth.
(iii) U.S. address or U.S. mailing address.
(iv) Only U.S. telephone numbers.
(v) U.S. telephone numbers and non-U.S.
telephone numbers.
(vi) Standing instructions to pay amounts.
(vii) Power of attorney or signatory
authority granted to a person with a U.S.
address or ‘‘in-care-of’’ address or ‘‘hold
mail’’ address.
(C) Electronic search for identifying U.S.
indicia.
(D) Enhanced review for identifying U.S.
indicia in the case of certain high-value
accounts.
(1) In general.
(2) Relationship manager inquiry.
(3) Additional review of non-electronic
records.
(4) Limitations on the enhanced review in
the case of comprehensive electronically
searchable information.
(E) Exception for preexisting individual
accounts that a participating FFI has
documented as held by foreign individuals
for purposes of meeting its obligations under
chapter 61 or its QI, WP, or WT agreement.
(6) Examples.
(7) Certifications of responsible officer.
(d) Account reporting.
(1) Scope of paragraph.
(2) Reporting requirements in general.
(i) Accounts subject to reporting.
(ii) Financial institution required to report
an account.
(A) In general.
(B) Special reporting of account holders of
territory financial institutions.
(C) Special reporting of account holders of
a sponsored FFI.
(D) Special reporting of account holders
that are owner-documented FFIs.
(E) Branch reporting of accounts.
(iii) Special U.S. account reporting rules
for U.S. payors.
(A) Special reporting rule for U.S. payors
other than U.S. branches.
(B) Special reporting rules for U.S.
branches treated as U.S. persons.
(3) Reporting of accounts under section
1471(c)(1).
(i) In general.
(ii) Accounts held by specified U.S.
persons.
(iii) Accounts held by U.S. owned foreign
entities.
(iv) Special reporting of accounts held by
owner-documented FFIs.
(v) Branch reporting.
(vi) Form for reporting accounts under
section 1471(c)(1).
(vii) Time and manner of filing.
(viii) Extensions in filing.
(4) Descriptions applicable to reporting
requirements of § 1.1471–4(d)(3).
(i) Address.
(ii) Account number.
(iii) Account balance or value.
(A) In general.
(B) Currency translation of account balance
or value.
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(iv) Payments made with respect to an
account.
(A) Depository accounts.
(B) Custodial accounts.
(C) Other accounts.
(D) Transfers and closing of deposit,
custodial, insurance, and annuity financial
accounts.
(E) Amount and character of payments
subject to reporting.
(F) Currency translation.
(v) Record retention requirements.
(5) Election to perform chapter 61
reporting.
(i) In general.
(A) Election under section 1471(c)(2).
(B) Election to report in a manner similar
to section 6047(d).
(ii) Additional information to be reported.
(iii) Special reporting of accounts held by
owner-documented FFIs.
(iv) Branch reporting.
(v) Time and manner of making the
election.
(vi) Revocation of election.
(vii) Filing of information under election.
(6) Reporting on recalcitrant account
holders.
(i) In general.
(ii) Definition of dormant account.
(iii) End of dormancy.
(iv) Forms.
(v) Time and manner of filing.
(vi) Record retention requirements.
(7) Special reporting rules with respect to
the 2013 through 2015 calendar years.
(i) In general.
(ii) Participating FFIs that report under
§ 1.1471–4(d)(3).
(A) Reporting with respect to the 2013 and
2014 calendar years.
(B) Reporting with respect to the 2015
calendar year.
(iii) Participating FFIs that report under
§ 1.1471–4(d)(5).
(iv) Forms for reporting.
(A) In general.
(B) Special determination date and timing
for reporting with respect to the 2013
calendar year.
(8) Reporting requirements of QIs, WPs and
WTs.
(9) Examples.
(e) Expanded affiliated group requirements.
(1) In general.
(2) Limited branches.
(i) In general.
(ii) Branch defined.
(iii) Limited branch defined.
(iv) Conditions for limited branch status.
(v) Term of limited branch status
(transitional).
(3) Limited FFI.
(i) In general.
(ii) Limited FFI defined.
(iii) Conditions for limited FFI status.
(iv) Period for limited FFI status
(transitional).
(4) Special rule for QIs.
(f) Verification.
(1) In general.
(2) Compliance program.
(i) In general.
(ii) Consolidated compliance program.
(A) In general.
(B) Requirements of compliance FI.
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5903
(3) Certification of compliance.
(i) In general.
(ii) Certification of effective internal
controls.
(iii) Qualified certification.
(iv) Material failures defined.
(4) IRS review of compliance.
(i) General inquiries.
(ii) Inquiries regarding substantial noncompliance.
(g) Event of default.
(1) Defined.
(2) Notice of event of default.
(3) Remediation of event of default.
(h) Collective credit or refund procedures
for overpayments.
(1) In general.
(2) Persons for which a collective refund is
not permitted.
(3) Payments for which a collective refund
is permitted.
(4) Procedural and other requirements for
collective refund.
(i) Legal prohibitions on reporting U.S.
accounts and withholding.
(1) In general.
(2) Requesting wavier or closure of a U.S.
account.
(i) In general.
(ii) Valid and effective waiver for a U.S.
account.
(iii) Closure or transfer of U.S. account.
(3) Legal prohibitions preventing
withholding.
(i) In general.
(ii) Block or transfer accounts or
obligations.
(j) Effective/applicability date.
§ 1.1471–5 Definitions applicable to section
1471.
(a) U.S. accounts.
(1) In general.
(2) Definition of U.S. account.
(3) Account holder.
(i) In general.
(ii) Grantor trust.
(iii) Financial accounts held by agents that
are not financial institutions.
(iv) Jointly held accounts.
(v) Account holder for insurance and
annuity contracts.
(vi) Examples.
(4) Exceptions to U.S. account status.
(i) Exception for certain individual
accounts of participating FFIs.
(ii) Election to forgo exception.
(iii) Example.
(b) Financial accounts.
(1) In general.
(i) Depository account.
(ii) Custodial account.
(iii) Equity or debt interest.
(A) Equity or debt interest in an investment
entity.
(B) Certain equity or debt interests in a
holding company or treasury center.
(C) Equity or debt interests in other
financial institutions.
(iv) Insurance and annuity contracts.
(2) Exceptions.
(i) Certain savings accounts.
(A) Retirement and pension accounts.
(B) Non-retirement savings accounts.
(C) Rollovers.
(D) Coordination with section 6038D.
(E) Account that is tax-flavored.
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(ii) Certain term life insurance contracts.
(iii) Account held by an estate.
(iv) Certain escrow accounts.
(v) Certain annuity contracts.
(vi) Account or product excluded under an
intergovernmental agreement.
(3) Definitions.
(i) Depository account.
(A) In general.
(B) Exceptions.
(ii) Custodial account.
(iii) Equity interest in certain entities.
(A) Partnership.
(B) Trust.
(iv) Regularly traded on an established
securities market.
(v) Value of interest determined, directly or
indirectly, primarily by reference to assets
the give rise (or could give rise) to
withholdable payments.
(A) Equity interest.
(B) Debt interest.
(vi) Redemption or retirement amount or
return earned on the interest determined,
directly or indirectly, primarily by reference
to one or more investment entities or passive
NFFEs.
(A) Equity interest.
(B) Debt interest.
(vii) Cash value insurance contracts.
(A) In general.
(B) Cash value.
(C) Amounts excluded from cash value.
(D) Policyholder dividend.
(4) Account balance or value.
(i) In general.
(ii) Special rule for immediate annuity.
(A) Immediate annuities without minimum
benefit guarantees.
(B) Immediate annuities with a minimum
benefit guarantee.
(C) Net present value of amounts payable
in future periods.
(iii) Account aggregation requirements.
(A) In general.
(B) Aggregation rule for relationship
managers.
(C) Examples.
(iv) Current translation of balance or value.
(5) Account maintained by financial
institution.
(c) U.S. owned foreign entity.
(d) Definition of FFI.
(e) Definition of financial institution.
(1) In general.
(2) Banking or similar business.
(i) In general.
(ii) Exception for certain lessors and
lenders.
(iii) Application of section 581.
(iv) Effect of local regulation.
(3) Holding financial assets for others as a
substantial portion of its business.
(i) Substantial portion.
(A) In general.
(B) Special rule for start-up entities.
(ii) Income attributable to holding financial
assets and related financial services.
(iii) Effect of local regulation.
(4) Investment entity.
(i) In general.
(ii) Financial assets.
(iii) Primarily conducts as a business.
(A) In general.
(B) Special rule start-up entities.
(iv) Primarily attributable to investing,
reinvesting, or trading in financial assets.
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(A) In general.
(B) Special rule for start-up entities.
(v) Examples.
(5) Exclusions.
(i) Excepted nonfinancial group entities.
(A) In general.
(B) Nonfinancial group.
(C) Holding company.
(D) Treasury center.
(E) Captive finance company.
(ii) Excepted nonfinancial start-up
companies or companies entering a new line
of business.
(A) In general.
(B) Exception for investment funds.
(iii) Excepted nonfinancial entities in
liquidation or bankruptcy.
(iv) Excepted inter-affiliate FFI.
(v) Section 501(c) entities.
(vi) Non-profit organizations.
(6) Reserving activities of an insurance
company.
(f) Deemed-compliant FFIs.
(1) Registered deemed-compliant FFIs.
(i) Registered deemed-compliant FFI
categories.
(A) Local FFIs.
(B) Nonreporting members of participating
FFI groups.
(C) Qualified collective investment
vehicles.
(D) Restricted funds.
(E) Qualified credit card issuers.
(F) Sponsored investment entities and
controlled foreign corporations.
(ii) Procedural requirements for registered
deemed-compliant FFIs.
(iii) Deemed-compliant FFI that is merged
or acquired.
(2) Certified deemed-compliant FFIs.
(i) Nonregistering local bank.
(ii) FFIs with only low-value accounts.
(iii) Sponsored, closely-held investment
vehicles.
(iv) Limited life debt investment entities
(transitional).
(3) Owner-documented FFIs.
(i) In general.
(ii) Requirements of owner-documented
FFI status.
(4) Definition of restricted distributor.
(g) Recalcitrant account holders.
(1) Scope.
(2) Recalcitrant account holder.
(3) Start of recalcitrant account holder
status.
(i) Preexisting accounts identified under
the procedures described in § 1.1471–4(c) for
identifying U.S. accounts.
(A) In general.
(B) Accounts other than high-value
accounts.
(C) High-value accounts.
(D) Preexisting accounts that become highvalue accounts.
(ii) Accounts that are not preexisting
accounts and accounts requiring name/TIN
correction.
(iii) Accounts with changes in
circumstances.
(4) End of recalcitrant account holder
status.
(h) Passthru payment.
(1) Defined.
(2) Foreign passthru payment.
(i) Expanded affiliated group.
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(1) Scope of paragraph.
(2) Expanded affiliated group defined.
(i) In general.
(ii) Partnerships and entities other than
corporations.
(3) Exception for FFIs holding certain
capital investments.
(4) Seed capital.
(5) Anti-abuse rule.
(j) Effective/applicability date.
§ 1.1471–6 Payments beneficially owned by
exempt beneficial owners.
(a) In general.
(b) Any foreign government, any political
subdivision of a foreign government, or any
wholly owned agency or instrumentality of
any one or more of the foregoing.
(1) Integral part.
(2) Controlled entity.
(3) Inurement to the benefit of private
persons.
(c) Any international organization or any
wholly owned agency or instrumentality
thereof.
(d) Foreign central bank of issue.
(1) In general.
(2) Separate instrumentality.
(3) Bank for International Settlements.
(4) Income on certain collateral.
(e) Governments of U.S. territories.
(f) Certain retirement funds.
(1) Treaty-qualified retirement fund.
(2) Broad participation retirement fund.
(3) Narrow participating retirement funds.
(4) Fund formed pursuant to a plan similar
to a section 401(a) plan.
(5) Investment vehicles exclusively for
retirement funds.
(6) Pension fund of an exempt beneficial
owner.
(7) Example.
(g) Entities wholly owned by exempt
beneficial owners.
(h) Exception for commercial activities.
(1) General rule.
(2) Limitation.
(i) Effective/applicability date.
§ 1.1472–1 Withholding on NFFEs.
(a) In general.
(b) Withholdable payments made to an
NFFE.
(1) In general.
(2) Transitional relief.
(c) Exceptions.
(1) Beneficial owner that is an excepted
NFFE.
(i) Publicly traded corporation.
(A) Regularly traded.
(B) Special rules regarding the regularly
traded requirement.
(1) Year of initial public offering.
(2) Classes of stock treated as meeting the
regularly traded requirement.
(3) Anti-abuse rule.
(C) Established securities market.
(1) In general.
(2) Foreign exchange with multiple tiers.
(3) Computation of dollar value of stock
traded.
(ii) Certain affiliated entities related to a
publicly traded corporation.
(iii) Certain territory entities.
(iv) Active NFFEs.
(A) Passive income.
(B) Exceptions from passive income
treatment.
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(C) Methods of measuring assets.
(v) Excepted nonfinancial entities.
(2) Payments made to a WP, WT, or an
exempt beneficial owner.
(d) Rules for determining payee and
beneficial owner.
(1) In general.
(2) Payments made to an NFFE that is a WP
or WT.
(3) Payments made to a partner or
beneficiary of an NFFE that is an NWP or
NWT.
(4) Payments made to a beneficial owner
that is an NFFE.
(5) Absence of valid documentation.
(e) Information reporting requirements.
(1) Reporting on withholdable payments.
(2) Reporting on substantial U.S. owners.
(f) Effective/applicability date.
§ 1.1473–1 Section 1473 definitions.
(a) Definition of withholdable payment.
(1) In general.
(2) U.S. source FDAP income defined.
(i) In general.
(A) FDAP income defined.
(B) U.S. source.
(C) Exceptions to withholding on U.S.
source FDAP income not applicable under
chapter 4.
(ii) Special rule for certain interest.
(iii) Original issue discount.
(iv) REMIC residual interests.
(v) Withholding liability of payee that is
satisfied by withholding agent.
(vi) Special rule for sales of interest bearing
debt obligations.
(vii) Payment of U.S. source FDAP income.
(A) Amount of payment of U.S. source
FDAP income.
(B) When payment of U.S. source FDAP
income is made.
(3) Gross proceeds defined.
(i) Sale or other disposition.
(A) In general.
(B) Special rule for sales effected by
brokers.
(C) Special rule for gross proceeds from
sales settles by a clearing organization.
(ii) Property of a type that can produce
interest or dividend payments that would be
U.S. source FDAP income.
(A) In general.
(B) Contracts producing dividend
equivalent payments.
(C) Regulated investment company
distributions.
(iii) Payment of gross proceeds.
(A) When gross proceeds are paid.
(B) Amount of gross proceeds.
(4) Payments not treated as withholdable
payments.
(i) Certain short-term obligations.
(ii) Effectively connected income.
(iii) Excluded nonfinancial payments.
(iv) Gross proceeds from sales of excluded
property.
(v) Fractional shares.
(vi) Offshore payments of U.S. source
FDAP income prior to 2017 (transitional).
(5) Special payment rules for flow-through
entities, complex trusts, and estates.
(i) In general.
(ii) Partnerships.
(iii) Simple trusts.
(iv) Complex trusts and estates.
(v) Grantor trusts.
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(vi) Special rule for an NWP or NWT.
(vii) Special rule for determining when
gross proceeds are treated as paid to a
partner, owner, or beneficiary of a flowthrough entity.
(6) Reporting of withholdable payments.
(7) Example.
(b) Substantial U.S. owner.
(1) Definition.
(2) Indirect ownership of foreign entities.
(i) Indirect ownership of stock.
(ii) Indirect ownership in a foreign
partnership or ownership of a beneficial
interest in a foreign trust.
(iii) Ownership and holdings through
options.
(iv) Determination of proportionate
interest.
(v) Interests owned or held by a related
person.
(3) Beneficial interest in a foreign trust.
(i) In general.
(ii) Determining the 10 percent threshold
in the case of a beneficial interest in a foreign
trust.
(iii) Valuation rules for beneficial interests
in foreign trusts.
(4) Exceptions.
(i) De minimis amount or value exception.
(ii) Trusts wholly owned by certain U.S.
persons.
(5) Special rule for certain financial
institutions.
(6) Determination dates for substantial U.S.
owners.
(7) Examples.
(c) Specified U.S. person.
(d) Withholding agent.
(1) In general.
(2) Participating FFIs and registered
deemed-compliant FFIs as withholding
agents.
(3) Grantor trusts as withholding agents.
(4) Deposit and return requirements.
(5) Multiple withholding agents.
(6) Exception for certain individuals.
(e) Foreign entity.
(f) Effective/applicability date.
§ 1.1474–1 Liability for withheld tax and
withholding agent reporting.
(a) Payment and returns of tax withheld.
(1) In general.
(2) Withholding agent liability.
(3) Use of agents.
(i) In general.
(ii) Authorized agent.
(iii) Liability of withholding agent acting
through an agent.
(4) Liability for failure to obtain
documentation timely or to act in accordance
with applicable presumptions.
(i) In general.
(ii) Withholding satisfied by another
withholding agent.
(b) Payment of withheld tax.
(1) In general.
(2) Special rule for foreign passthru
payments and payments of gross proceeds
that include an undetermined amount of
income subject to tax.
(c) Income tax return.
(1) In general.
(2) Participating FFIs, registered deemedcompliant FFIs, and U.S. branches treated as
U.S. persons.
(3) Amended returns.
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(d) Information returns for payment
reporting.
(1) Filing requirement.
(i) In general.
(ii) Recipient.
(A) Defined.
(B) Persons that are not recipients.
(2) Amounts subject to reporting.
(i) In general.
(ii) Exception to reporting.
(iii) Coordination with chapter 3.
(3) Required information.
(4) Method of reporting.
(i) Payments by U.S. withholding agent to
recipients.
(A) Payments to certain entities that are
beneficial owners.
(B) Payments to participating FFIs,
deemed-compliant FFIs, and certain QIs.
(C) Amounts paid to a U.S. branch of a
participating FFI or registered deemedcompliant FFI.
(D) Amounts paid to territory financial
institutions that are flow-through entities or
acting as intermediaries.
(E) Amounts paid to NFFEs.
(ii) Payments made by withholding agents
to certain entities that are not recipients.
(A) Entities that provide information for a
withholding agent to perform specific payee
reporting.
(B) Nonparticipating FFI that is a flowthrough entity or intermediary.
(C) Disregarded entities.
(iii) Reporting by participating FFIs and
deemed-compliant FFIs (including QIs, WPs,
and WTs).
(A) In general.
(B) Special reporting requirements of
participating FFIs, deemed-compliant FFIs,
and FFIs that make an election under section
1471(b)(3).
(C) Reporting by participating FFIs and
registered deemed-compliant FFIs (including
QIs, WPs, and WTs) for certain payments
made to nonparticipating FFIs (transitional).
(D) Reporting by U.S. branches of a
participating FFI or registered deemedcompliant FFI that is treated as a U.S. person.
(iv) Reporting by territory financial
institutions.
(v) Nonparticipating FFIs.
(vi) Other withholding agents.
(e) Magnetic media reporting.
(f) Indemnification of withholding agent.
(g) Extensions of time to file Forms 1042
and 1042–S.
(h) Penalties.
(i) Additional reporting requirements with
respect to U.S. owned foreign entities and
owner-documented FFIs.
(1) Reporting by certain withholding agents
with respect to owner-documented FFIs.
(2) Reporting by certain withholding agents
with respect to U.S. owned foreign entities
that are NFFEs.
(3) Cross reference to reporting by
participating FFIs.
(j) Effective/applicability date.
§ 1.1474–2 Adjustments for
overwithholding or underwithholding of
tax.
(a) Adjustments of overwithheld tax.
(1) In general.
(2) Overwithholding.
(3) Reimbursement of tax.
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(i) General rule.
(ii) Record maintenance.
(4) Set-offs.
(5) Examples.
(b) Withholding of additional tax when
underwithholding occurs.
(c) Effective/applicability date.
§ 1.1474–3 Withheld tax as credit to
beneficial owner of income.
(a) Creditable tax.
(b) Amounts paid to persons that are not
the beneficial owners.
(c) Effective/applicability date.
§ 1.1474–4 Tax paid only once.
(a) Tax paid.
(b) Effective/applicability date.
§ 1.1474–5 Refunds or credits.
(a) Refund and credit.
(1) In general.
(2) Limitation to refund and credit for a
nonparticipating FFI.
(3) Requirement to provide additional
documentation for certain beneficial owners.
(i) In general.
(ii) Claim of reduced withholding under an
income tax treaty.
(iii) Additional documentation to be
furnished to the IRS for certain NFFEs.
(b) Tax repaid to payee.
(c) Effective/applicability date.
§ 1.1474–6 Coordination of chapter 4 with
other withholding provisions.
(a) In general.
(b) Coordination of withholding for
amounts subject to withholding under
sections 1441, 1442, and 1443.
(1) In general.
(2) When withholding is applied.
(3) Special rule for certain substitute
dividend payments.
(c) Coordination with amounts subject to
withholding under section 1445.
(1) In general.
(2) Determining amount of distribution
from certain domestic corporations subject to
section 1445 or chapter 4 withholding.
(i) Distribution from qualified investment
entity.
(ii) Distribution from a United States real
property holding corporation.
(d) Coordination with section 1446.
(1) In general.
(2) Determining the amount of distribution
subject to section 1446.
(e) Example.
(f) Effective/applicability date.
§ 1.1474–7 Confidentiality of information.
(a) Confidentiality of information.
(b) Exception for disclosure of participating
FFIs.
(c) Effective/applicability date.
§ 301.1474–1 Required use of magnetic
media for financial institutions filing
Form 1042–S or Form 8966.
(a) Financial institutions filing certain
information returns.
(b) Waiver.
(c) Failure to file.
(d) Meaning of terms.
(1) Magnetic media.
(2) Financial institution.
(e) Effective/applicability date.
Par. 5. Section 1.1471–1 is added to
read as follows:
■
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§ 1.1471–1 Scope of chapter 4 and
definitions.
(a) Scope of chapter 4 of the Internal
Revenue Code. Sections 1.1471–1
through 1.1474–7 provide rules for
withholding when a withholding agent
makes a payment to an FFI or NFFE and
prescribe the requirements for and
definitions relevant to FFIs and NFFEs
to which withholding will not apply.
Section 1.1471–1 provides definitions
for terms used in chapter 4 of the
Internal Revenue Code (Code) and the
regulations thereunder. Section 1.1471–
2 provides rules for withholding under
section 1471(a) on payments to FFIs,
including the exception from
withholding for payments made with
respect to certain grandfathered
obligations. Section 1.1471–3 provides
rules for determining the payee of a
payment and the documentation
requirements to establish a payee’s
chapter 4 status. Section 1.1471–4
describes the requirements of an FFI
agreement under section 1471(b) and
the application of sections 1471(b) and
(c) to an expanded affiliated group of
FFIs. Section 1.1471–5 defines terms
relevant to section 1471 and the FFI
agreement and defines categories of FFIs
that will be deemed to have met the
requirements of section 1471(b)
pursuant to section 1471(b)(2). Section
1.1471–6 defines classes of beneficial
owners of payments that are exempt
from withholding under chapter 4.
Section 1.1472–1 provides rules for
withholding when a withholding agent
makes a payment to an NFFE, and
defines categories of NFFEs that are not
subject to withholding. Section 1.1473–
1 provides definitions of the statutory
terms in section 1473. Section 1.1474–
1 provides rules relating to a
withholding agent’s liability for
withheld tax, filing of income tax and
information returns, and depositing of
tax withheld. Section 1.1474–2 provides
rules relating to adjustments for
overwithholding and underwithholding
of tax. Section 1.1474–3 provides the
circumstances in which a credit is
allowed to a beneficial owner for a
withheld tax. Section 1.1474–4 provides
that a chapter 4 withholding obligation
need only be collected once. Section
1.1474–5 contains rules relating to
credits and refunds of tax withheld.
Section 1.1474–6 provides rules
coordinating withholding under
sections 1471 and 1472 with
withholding provisions under other
sections of the Code. Section 1.1474–7
provides the confidentiality requirement
for information obtained to comply with
the requirements of chapter 4. Any
reference in the provisions of sections
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1471 through 1474 to an amount that is
stated in U.S. dollars includes the
foreign currency equivalent of that
amount. Except as otherwise provided,
the provisions of sections 1471 through
1474 and the regulations thereunder
apply only for purposes of chapter 4.
See § 301.1474–1 of this chapter for the
requirements for reporting on magnetic
media that apply to financial
institutions making payments or
otherwise reporting accounts pursuant
to chapter 4.
(b) Definitions. Except as otherwise
provided in this paragraph (b) or under
the terms of an applicable Model 2 IGA,
the following definitions apply for
purposes of sections 1471 through 1474
and the regulations under those
sections.
(1) Account. The term account means
a financial account as defined in
§ 1.1471–5(b).
(2) Account holder. The term account
holder means the person who holds an
account, as determined under § 1.1471–
5(a)(3).
(3) Active NFFE. The term active
NFFE has the meaning set forth in
§ 1.1472–1(c)(1)(iv).
(4) AML due diligence. The term AML
due diligence means the customer due
diligence procedures of a financial
institution pursuant to the anti-money
laundering or similar requirements to
which the financial institution, or
branch thereof, is subject. This includes
identifying the customer (including the
owners of the customer), understanding
the nature and purpose of the account,
and ongoing monitoring.
(5) Annuity contract. The term
annuity contract means a contract under
which the issuer agrees to make
payments for a period of time
determined in whole or in part by
reference to the life expectancy of one
or more individuals. The term also
includes a contract that is considered to
be an annuity contract in accordance
with the law, regulation, or practice of
the jurisdiction in which the contract
was issued, and under which the issuer
agrees to make payments for a term of
years. For purposes of the preceding
sentence, it is immaterial whether a
contract satisfies any of the substantive
U.S. tax rules (for example, sections
72(s), 72(u), 817(h), and the investor
control prohibition) applicable to the
taxation of a contract holder or issuer.
(6) Assumes primary withholding
responsibility. The term assumes
primary withholding responsibility
means that a QI, territory financial
institution, or U.S. branch of a
participating FFI or registered deemedcompliant FFI that assumes
responsibility for withholding on a
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payment for purposes of chapters 3 and
4 as if it were a U.S. person. A QI may
only assume primary withholding
responsibility if it does not make an
election to be withheld upon with
respect to the payment.
(7) Beneficial owner. Except as
provided in § 1.1472–1(d), § 1.1471–
6(d)(4), and § 1.1471–6(f), the term
beneficial owner has the meaning set
forth in § 1.1441–1(c)(6).
(8) Blocked account. The term
blocked account has the meaning set
forth in § 1.1471–4(e)(2)(iii)(B).
(9) Broker. The term broker means any
person, U.S. or foreign, that, in the
ordinary course of a trade or business
during the calendar year, stands ready
to effect sales to be made by others.
Examples of a broker include an obligor
that regularly issues and retires its own
debt obligations, a corporation that
regularly redeems its own stock, and a
clearing organization that effects sales of
securities for its members. A broker
does not include an international
organization described in § 1.1471–6(c)
that redeems or retires an obligation of
which it is the issuer, a stock transfer
agent that records transfers of stock for
a corporation if the nature of the
activities of the agent is such that the
agent ordinarily would not know the
gross proceeds from sales, an escrow
agent that effects no sales other than
transactions incidental to the purpose of
the escrow (such as sales to collect on
collateral), or a corporation that issues
and retires long-term debt on an
irregular basis.
(10) Cash value. The term cash value
has the meaning set forth in § 1.1471–
5(b)(3)(vii)(B).
(11) Cash value insurance contract.
The term cash value insurance contract
has the meaning set forth in § 1.1471–
5(b)(3)(vii).
(12) Certified deemed-compliant FFI.
The term certified deemed-compliant
FFI means an FFI described in § 1.1471–
5(f)(2).
(13) Change in circumstances. The
term change in circumstances has the
meaning set forth in § 1.1471–
3(c)(6)(ii)(E) for withholding agents and,
in the case of a participating FFI, has the
meaning set forth in § 1.1471–
4(c)(2)(iii).
(14) Chapter 3. For purposes of
chapter 4, the term chapter 3 means
sections 1441 through 1464 and the
regulations thereunder, but does not
include sections 1445 and 1446 and the
regulations thereunder, unless the
context indicates otherwise.
(15) Chapter 4. The term chapter 4
means sections 1471 through 1474 and
the regulations thereunder.
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(16) Chapter 4 reportable amount.
The term chapter 4 reportable amount
has the meaning set forth in § 1.1474–
1(d)(2)(i).
(17) Chapter 4 status. The term
chapter 4 status means a person’s status
as a U.S. person, a specified U.S.
person, an individual that is a foreign
person, a participating FFI, a deemedcompliant FFI, a restricted distributor,
an exempt beneficial owner, a
nonparticipating FFI, a territory
financial institution, an excepted NFFE,
or a passive NFFE.
(18) Clearing organization. The term
clearing organization means an entity
that is in the business of holding
securities for its member organizations
or clearing trades of securities and
transferring, or instructing the transfer
of, securities by credit or debit to the
account of a member without the
necessity of physical delivery of the
securities.
(19) Complex trust. A complex trust is
a trust that is not a simple trust or a
grantor trust.
(20) Consolidated obligations. The
term consolidated obligations means
multiple obligations that a withholding
agent (including a withholding agent
that is an FFI) has chosen to treat as a
single obligation in order to treat the
obligations as preexisting obligations
pursuant to paragraph (b)(98)(ii) of this
section or in order to share
documentation between the obligations
pursuant to § 1.1471–3(c)(8). A
withholding agent that has opted to treat
multiple obligations as consolidated
obligations pursuant to the previous
sentence must also treat the obligations
as a single obligation for purposes of
satisfying the standards of knowledge
requirements set forth in §§ 1.1471–3(e)
and 1.1471–4(c)(2)(ii), and for purposes
of determining the balance or value of
any of the obligations when applying
any of the account thresholds applicable
to due diligence or reporting as set forth
in §§ 1.1471–3(c)(6)(ii), 1.1471–3(d),
1.1471–4(c), 1.1471–5(a)(4), and 1.1471–
5(b)(3)(vii). For example, with respect to
consolidated obligations, if a
withholding agent has reason to know
that the chapter 4 status assigned to the
account holder or payee of one of the
consolidated obligations is inaccurate,
then it has reason to know that the
chapter 4 status assigned for all other
consolidated obligations of the account
holder or payee is inaccurate. Similarly,
to the extent that an account balance or
value is relevant for purposes of
applying any account threshold to one
or more of the consolidated obligations,
the withholding agent must aggregate
the balance or value of all such
consolidated obligations.
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(21) Custodial account. The term
custodial account has the meaning set
forth in § 1.1471–5(b)(3)(ii).
(22) Custodial institution. The term
custodial institution has the meaning set
forth in § 1.1471–5(e)(1)(ii).
(23) Customer master file. A customer
master file includes the primary files of
a participating FFI or deemed-compliant
FFI for maintaining account holder
information, such as information used
for contacting account holders and for
satisfying AML due diligence.
(24) Deemed-compliant FFI. The term
deemed-compliant FFI means an FFI
that is treated, pursuant to section
1471(b)(2) and § 1.1471–5(f), as meeting
the requirements of section 1471(b). The
term deemed-compliant FFI also
includes a QI branch of a U.S. financial
institution that is a reporting Model 1
FFI.
(25) Deferred annuity contract. The
term deferred annuity contract means
an annuity contract other than an
immediate annuity contract.
(26) Depository account. The term
depository account has the meaning set
forth in § 1.1471–5(b)(3)(i).
(27) Depository institution. The term
depository institution has the meaning
set forth in § 1.1471–5(e)(1)(i).
(28) Documentary evidence. The term
documentary evidence means
documents, other than a withholding
certificate or written statement, that a
withholding agent is permitted to rely
upon to determine the chapter 4 status
of a person in accordance with
§ 1.1471–3(c)(5).
(29) Documentation. The term
documentation means withholding
certificates, written statements,
documentary evidence, and other
documents that may be relevant in
determining a person’s chapter 4 status,
including any document containing a
determination of the account holder’s
citizenship or residency for tax or AML
due diligence purposes or an account
holder’s claim of citizenship or
residency for tax or AML due diligence
purposes.
(30) Dormant account. The term
dormant account has the meaning set
forth in § 1.1471–4(d)(6)(ii).
(31) Effective date of the FFI
agreement. The term effective date of
the FFI agreement means the date on
which the IRS issues a GIIN to the
participating FFI. For participating FFIs
that receive a GIIN prior to December
31, 2013, the effective date of the FFI
agreement is December 31, 2013.
(32) EIN. The term EIN means an
employer identification number (also
known as a federal tax identification
number) described in § 301.6109–
1(a)(1)(i) of this chapter.
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(33) Election to be withheld upon. The
term election to be withheld upon has
the meaning set forth in § 1.1471–
2(a)(2)(iii).
(34) Electronically searchable
information. The term electronically
searchable information means
information that an FFI maintains in its
tax reporting files, customer master
files, or similar files, and that is stored
in the form of an electronic database
against which standard queries in
programming languages, such as
Structured Query Language, may be
used. Information, data, or files are not
electronically searchable merely
because they are stored in an image
retrieval system (such as portable
document format (.pdf) or scanned
documents).
(35) Entity. The term entity means any
person other than an individual.
(36) Entity account. The term entity
account means an account held by one
or more entities.
(37) Excepted NFFE. The term
excepted NFFE means an NFFE that is
described in § 1.1472–1(c)(1).
(38) Exempt beneficial owner. The
term exempt beneficial owner means
any person described in § 1.1471–6(b)
through (g) or that is otherwise treated
as an exempt beneficial owner pursuant
to a Model 1 IGA or Model 2 IGA.
(39) Expanded affiliated group. The
term expanded affiliated group has the
meaning set forth in § 1.1471–5(i)(2).
(40) FATF. The term FATF means the
Financial Action Task Force, an intergovernmental body that develops and
promotes international policies to
combat money laundering and terrorist
financing.
(41) FATF-compliant jurisdiction. The
term FATF-compliant jurisdiction
means a jurisdiction that—
(i) Is not subject to a FATF call on its
members and other jurisdictions to
apply counter-measures to protect the
international financial system from the
on-going and substantial money
laundering and terrorist financing risks
emanating from the jurisdiction;
(ii) Is not a jurisdiction with strategic
AML/CFT (anti-money laundering and
combating the financing of terrorism)
deficiencies that has not made sufficient
progress in addressing the deficiencies
or has not committed to an action plan
developed with the FATF to address the
deficiencies; and
(iii) Is not a jurisdiction with strategic
AML/CFT deficiencies that the FATF
has identified as not making sufficient
progress on its action plan agreed upon
with the FATF.
(42) FFI. The term FFI or foreign
financial institution has the meaning set
forth in § 1.1471–5(d).
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(43) FFI agreement. The term FFI
agreement means an agreement that is
described in § 1.1471–4(a). An FFI
agreement includes a QI agreement, a
withholding partnership agreement, and
a withholding trust agreement that is
entered into by an FFI (other than an
FFI that is a registered deemedcompliant FFI, including a reporting
Model 1 FFI) and that has an effective
date or renewal date on or after
December 31, 2013. The term FFI
agreement also includes a QI agreement
that is entered into by a foreign branch
of a U.S. financial institution (other than
a branch that is a reporting Model 1 FFI)
and that has an effective date or renewal
date on or after December 31, 2013.
(44) Financial account. The term
financial account has the meaning set
forth in § 1.1471–5(b).
(45) Financial institution. The term
financial institution has the meaning set
forth in § 1.1471–5(e).
(46) Flow-through entity. The term
flow-through entity means a partnership,
simple trust, or grantor trust, as
determined under U.S. tax principles.
(47) Flow-through withholding
certificate. The term flow-through
withholding certificate means a Form
W–8IMY submitted by a foreign
partnership, foreign simple trust, or
foreign grantor trust.
(48) Foreign entity. The term foreign
entity has the meaning set forth in
§ 1.1473–1(e).
(49) Foreign passthru payment. The
term foreign passthru payment has the
meaning set forth in § 1.1471–5(h)(2).
(50) Foreign payee. The term foreign
payee means any payee other than a
U.S. payee.
(51) Foreign person. The term foreign
person means any person other than a
U.S. person and includes a QI branch of
a U.S. financial institution.
(52) GIIN. The term GIIN or Global
Intermediary Identification Number
means the identification number that is
assigned to a participating FFI or
registered deemed-compliant FFI. The
term GIIN or Global Intermediary
Identification Number also includes the
identification number assigned to a
reporting Model 1 FFI for purposes of
identifying such entity to withholding
agents. All GIINs will appear on the IRS
FFI list.
(53) Grandfathered obligation. The
term grandfathered obligation has the
meaning set forth in § 1.1471–2(b).
(54) Grantor trust. A grantor trust is
a trust with respect to which one or
more persons are treated as owners of
all or a portion of the trust under
sections 671 through 679. If only a
portion of the trust is treated as owned
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by a person, that portion is a grantor
trust with respect to that person.
(55) Gross proceeds. The term gross
proceeds has the meaning set forth in
§ 1.1473–1(a)(3).
(56) Group annuity contract. The term
group annuity contract means an
annuity contract under which the
obligees are individuals who are
affiliated through an employer, trade
association, labor union, or other
association or group.
(57) Group insurance contract. The
term group insurance contract means an
insurance contract that—
(i) Provides coverage on individuals
who are affiliated through an employer,
trade association, labor union, or other
association or group; and
(ii) Charges a premium for each
member of the group (or member of a
class within the group) that is
determined without regard to the
individual health characteristics other
than age, gender, and smoking habits of
the member (or class of members) of the
group.
(58) Immediate annuity. The term
immediate annuity means an annuity
contract that—
(i) Is purchased with a single
premium or annuity consideration; and
(ii) No later than one year from the
purchase date of the contract
commences to pay annually or more
frequently substantially equal periodic
payments.
(59) Individual account. The term
individual account means an account
held by one or more individuals.
(60) Insurance company. The term
insurance company means an entity or
arrangement—
(i) That is regulated as an insurance
business under the laws, regulations, or
practices of any jurisdiction in which
the company does business;
(ii) The gross income of which (for
example, gross premiums and gross
investment income) arising from
insurance, reinsurance, and annuity
contracts for the immediately preceding
calendar year exceeds 50 percent of total
gross income for such year; or
(iii) The aggregate value of the assets
of which associated with insurance,
reinsurance, and annuity contracts at
any time during the immediately
preceding calendar year exceeds 50
percent of total assets at any time during
such year.
(61) Insurance contract. The term
insurance contract means a contract
(other than an annuity contract) under
which the issuer in exchange for
consideration agrees to pay an amount
upon the occurrence of a specified
contingency involving mortality,
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morbidity, accident, liability, or
property risk.
(62) Intermediary. The term
intermediary has the meaning set forth
in § 1.1441–1(c)(13).
(63) Intermediary withholding
certificate. The term intermediary
withholding certificate means a Form
W–8IMY submitted by an intermediary.
(64) Investment entity. The term
investment entity has the meaning set
forth in § 1.1471–5(e)(1)(iii).
(65) Investment-linked annuity
contract. The term investment-linked
annuity contract means an annuity
contract under which benefits or
premiums are adjusted to reflect the
investment return or market value of
assets associated with the contract.
(66) Investment-linked insurance
contract. The term investment-linked
insurance contract means an insurance
contract under which benefits,
premiums, or the period of coverage are
adjusted to reflect the investment return
or market value of assets associated with
the contract.
(67) IRS FFI list. The term IRS FFI list
means the list published by the IRS that
contains the names and GIINs for all
participating FFIs, registered deemedcompliant FFIs, and reporting Model 1
FFIs.
(68) Life annuity contract. The term
life annuity contract means an annuity
contract that provides for payments over
the life or lives of one or more
individuals.
(69) Life insurance contract. The term
life insurance contract means an
insurance contract under which the
issuer, in exchange for consideration,
agrees to pay an amount upon the death
of one or more individuals. That a
contract provides one or more payments
(for example, for endowment benefits or
disability benefits) in addition to a
death benefit will not cause the contract
to be other than a life insurance
contract. For purposes of the preceding
sentence, it is immaterial whether a
contract satisfies any of the substantive
U.S. tax rules (for example, sections
101(f), 817(h), 7702, or investor control
prohibition) applicable to the taxation of
the contract holder or issuer.
(70) Limited branch. The term limited
branch has the meaning set forth in
§ 1.1471–4(e)(2)(iii).
(71) Limited FFI. The term limited FFI
has the meaning set forth in § 1.1471–
4(e)(3)(ii).
(72) Model 1 IGA. The term Model 1
IGA means an agreement or arrangement
between the United States or the
Treasury Department and a foreign
government or one or more agencies
thereof to implement FATCA through
reporting by financial institutions to
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such foreign government or agency
thereof, followed by automatic exchange
of the reported information with the
IRS. The IRS will publish a list
identifying all countries that are treated
as having in effect a Model 1 IGA.
(73) Model 2 IGA. The term Model 2
IGA means an agreement or arrangement
between the United States or the
Treasury Department and a foreign
government or one or more agencies
thereof to facilitate the implementation
of FATCA through reporting by
financial institutions directly to the IRS
in accordance with the requirements of
an FFI agreement, supplemented by the
exchange of information between such
foreign government or agency thereof
and the IRS. The IRS will publish a list
identifying all countries that are treated
as having in effect a Model 2 IGA.
(74) NFFE. The term NFFE or nonfinancial foreign entity means a foreign
entity that is not a financial institution
(including a territory NFFE). The term
also means a foreign entity treated as an
NFFE pursuant to a Model 1 IGA or
Model 2 IGA.
(75) Nonparticipating FFI. The term
nonparticipating FFI means an FFI other
than a participating FFI, a deemedcompliant FFI, or an exempt beneficial
owner.
(76) Nonreporting IGA FFI. The term
nonreporting IGA FFI means an FFI that
is identified as a nonreporting financial
institution pursuant to a Model 1 IGA or
Model 2 IGA that is not a registered
deemed-compliant FFI.
(77) Non-U.S. account. The term nonU.S. account means an account that is
not a U.S. account and that does not
have an account holder that is a
nonparticipating FFI or recalcitrant
account holder.
(78) NQI. The term NQI or
nonqualified intermediary has the
meaning set forth in § 1.1441–1(c)(14).
(79) NWP. The term NWP or
nonwithholding foreign partnership
means a foreign partnership that is not
a withholding foreign partnership.
(80) NWT. The term NWT or
nonwithholding foreign trust means a
foreign trust as defined in section
7701(a)(31)(B) that is a simple trust or
grantor trust and is not a withholding
foreign trust.
(81) Offshore account. The term
offshore account means an account that
is an offshore obligation, all payments to
which are made outside of the United
States, within the meaning of § 1.6049–
5(e).
(82) Offshore obligation. The term
offshore obligation means any account,
instrument, or contract that is
maintained and executed at an office or
branch of the withholding agent at any
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5909
location outside of the United States or
in any location in a U.S. territory. The
term also includes any equity interest in
a foreign entity that is purchased by the
owner of such interest outside of the
United States either directly from the
entity or from another person that is
located outside of the United States.
(83) Owner. The term owner means a
person described in § 1.1473–1(b)(1),
without regard to whether such person
is a U.S. person and without regard to
whether such person owns a ten percent
interest in the entity. The term also
includes a person that owns a
discretionary interest in a trust and
receives a distribution during the
calendar year.
(84) Owner-documented FFI. The term
owner-documented FFI means an FFI
described in § 1.1471–5(f)(3).
(85) Participating FFI. The term
participating FFI means an FFI that has
agreed to comply with the requirements
of an FFI agreement, including an FFI
described in a Model 2 IGA that has
agreed to comply with the requirements
of an FFI agreement. The term
participating FFI also includes a QI
branch of a U.S. financial institution,
unless such branch is a reporting Model
1 FFI.
(86) Participating FFI group. The term
participating FFI group means an
expanded affiliated group that includes
one or more participating FFIs and
meets the requirements of § 1.1471–
4(e)(1). The term participating FFI group
also means an expanded affiliated group
in which one or more members of the
group is a reporting Model 1 FFI and
each member of the group that is an FFI
is a registered deemed-compliant FFI,
nonreporting IGA FFI, limited FFI, or
retirement fund described in § 1.1471–
6(f).
(87) Partnership. The term
partnership has the meaning set forth in
§ 301.7701–2(c)(1) of this chapter.
(88) Passive NFFE. The term passive
NFFE means an NFFE other than an
excepted NFFE.
(89) Passthru payment. The term
passthru payment has the meaning set
forth in § 1.1471–5(h).
(90) Payee. The term payee has the
meaning set forth in § 1.1471–3(a).
(91) Payment with respect to an
offshore obligation. The term payment
with respect to an offshore obligation
means a payment made outside of the
United States, within the meaning of
§ 1.6049–5(e), with respect to an
offshore obligation.
(92) Payor. The term payor has the
meaning set forth in §§ 31.3406(a)–2 of
this chapter and 1.6049–(a)(2) and
generally includes a withholding agent.
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(93) Permanent residence address.
The term permanent residence address
is the address in the country of which
the person claims to be a resident for
purposes of that country’s income tax.
The address of a financial institution
with which the person maintains an
account, a post office box, or an address
used solely for mailing purposes is not
a permanent residence address unless
such address is the only permanent
address used by the person and appears
as the person’s registered address in the
person’s organizational documents.
Further, an address that is provided
subject to instructions to hold all mail
to that address is not a permanent
residence address. If the person is an
individual who does not have a tax
residence in any country, the permanent
address is the place at which the person
normally resides. If the person is an
entity and does not have a tax residence
in any country, then the permanent
residence address is the place at which
the person maintains its principal office.
(94) Person. The term person has the
meaning set forth in section 7701(a)(1)
and the regulations thereunder, and also
includes an entity or arrangement that is
an insurance company. The term person
does not include a wholly owned entity
that is disregarded for federal tax
purposes as an entity separate from its
owner. Notwithstanding the previous
sentence, the term person includes, with
respect to a withholdable payment, a QI
branch of a U.S. financial institution.
(95) Preexisting account. The term
preexisting account means a financial
account that is a preexisting obligation.
(96) Preexisting entity account. The
term preexisting entity account means a
preexisting account held by one or more
entities.
(97) Preexisting individual account.
The term preexisting individual account
means a preexisting account held by one
or more individuals.
(98) Preexisting obligation—(i) The
term preexisting obligation means any
account, instrument, contract, debt, or
equity interest maintained, executed, or
issued by the withholding agent that is
outstanding on December 31, 2013.
With respect to a withholding agent that
is a participating FFI, the term
preexisting obligation means any
account, instrument, or contract
(including any debt or equity interest)
maintained, executed, or issued by the
FFI that is outstanding on the effective
date of the FFI agreement. With respect
to a withholding agent that is a
registered deemed-compliant FFI, a
preexisting obligation means any
account, instrument, or contract
(including any debt or equity interest)
that is maintained, executed, or issued
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by the FFI prior to the later of the date
that the FFI registers as a deemedcompliant FFI pursuant to § 1.1471–
5(f)(1) and receives a GIIN or the date
the FFI is required to implement its
account opening procedures under
§ 1.1471–5(f).
(ii) The term preexisting obligation
also includes any obligation (referring to
an account, instrument, contract, debt,
or equity interest) of an account holder
or payee, regardless of the date such
obligation was entered into, if—
(A) The account holder or payee also
holds with the withholding agent (or a
member of the withholding agent’s
expanded affiliated group or sponsored
FFI group) an account, instrument,
contract, or equity interest that is a
preexisting obligation under paragraph
(b)(98)(i) of this section;
(B) The withholding agent (and, as
applicable, the member of the
withholding agent’s expanded affiliated
group or sponsored FFI group) treats
both of the aforementioned obligations,
and any other obligations of the payee
or account holder that are treated as
preexisting obligations under this
paragraph (b)(98)(ii), as consolidated
obligations; and
(C) With respect to an obligation that
is subject to AML due diligence, the
withholding agent is permitted to satisfy
such AML due diligence for the
obligation by relying upon the AML due
diligence performed for the preexisting
obligation described in paragraph
(b)(96)(i) of this section.
(99) Pre-FATCA Form W–8. The term
pre-FATCA Form W–8 means a version
of a Form W–8 (or a substitute form)
that was issued prior to 2013 and that
does not contain chapter 4 statuses but
otherwise meets the requirements of
§ 1.1441–1(e)(1)(ii) applicable to such
certificate and has not expired.
(100) Prima facie FFI. The term prima
facie FFI means an entity described in
§ 1.1471–2(a)(4)(ii)(B).
(101) QI. The term QI or qualified
intermediary has the meaning set forth
in § 1.1441–1(e)(5)(ii).
(102) QI agreement. The term QI
agreement means the agreement
described in § 1.1441–1(e)(5)(iii).
(103) QI branch of a U.S. financial
institution. The term QI branch of a U.S.
financial institution means a foreign
branch of a U.S. financial institution for
which a QI agreement is in effect.
(104) Recalcitrant account holder.
The term recalcitrant account holder
has the meaning set forth in § 1.1471–
5(g).
(105) Registered deemed-compliant
FFI. The term registered deemedcompliant FFI means an FFI described
in § 1.1471–5(f)(1). The term registered
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deemed-compliant FFI also includes a
QI branch of a U.S. financial institution
that is a reporting Model 1 FFI.
(106) Relationship manager. A
relationship manager is an officer or
other employee of an FFI who is
assigned responsibility for specific
account holders on an on-going basis
(including as an officer or employee that
is a member of an FFI’s private banking
department), advises account holders
regarding their banking, investment,
trust, fiduciary, estate planning, or
philanthropic needs, and recommends,
makes referrals to, or arranges for the
provision of financial products,
services, or other assistance by internal
or external providers to meet those
needs. Notwithstanding the previous
sentence, a person is only a relationship
manager with respect to an account that
has a balance or value of more than
$1,000,000, taking into account the
aggregation rules described in § 1.1471–
5(b)(4)(iii)(A) and (B).
(107) Reporting Model 1 FFI. The term
reporting Model 1 FFI means an FFI
with respect to which a foreign
government or agency thereof agrees to
obtain and exchange information
pursuant to a Model 1 IGA, other than
an FFI that is treated as a
nonparticipating FFI under the Model 1
IGA.
(108) Responsible officer. The term
responsible officer means, with respect
to a participating FFI, an officer of any
participating FFI or reporting Model 1
FFI in the participating FFI’s expanded
affiliated group with sufficient authority
to fulfill the duties of a responsible
officer described in § 1.1471–4, which
include the requirement to periodically
certify to the IRS regarding the FFI’s
compliance with its FFI agreement. The
term responsible officer means, in the
case of a registered deemed-compliant
FFI, an officer of any deemed-compliant
FFI or participating FFI in the deemedcompliant FFI’s expanded affiliated
group with sufficient authority to ensure
that the FFI meets the applicable
requirements of § 1.1471–5(f). If a
participating FFI elects to be part of a
consolidated compliance program, the
term responsible officer means an officer
of the compliance FI (as described in
§ 1.1471–4(f)) with sufficient authority
to fulfill the duties of a responsible
officer described in § 1.1471–4(f)(2) and
(3) on behalf of each FFI in the
compliance group.
(109) Restricted distributor. The term
restricted distributor means an entity
described in § 1.1471–5(f)(4).
(110) Simple trust. The term simple
trust means a trust that meets the
requirements of section 651(a)(1) and
(2).
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(111) Specified insurance company.
The term specified insurance company
has the meaning set forth in § 1.1471–
5(e)(1)(iv).
(112) Specified U.S. person. The term
specified U.S. person or specified
United States person has the meaning
set forth in § 1.1473–1(c).
(113) Sponsored FFI. The term
sponsored FFI means any entity
described in § 1.1471–5(f)(1)(i)(F)
(sponsored investment entities and
sponsored controlled foreign
corporations) or § 1.1471–5(f)(2)(iii)
(sponsored, closely held investment
vehicles).
(114) Sponsored FFI group. The term
sponsored FFI group means a group of
sponsored FFIs that share the same
sponsoring entity.
(115) Sponsoring entity. The term
sponsoring entity means an entity that
registers with the IRS and agrees to
perform the due diligence, withholding,
and reporting obligations of one or more
FFIs pursuant to § 1.1471–5(f)(1)(i)(F) or
(2)(iii).
(116) Standardized industry code.
The term standardized industry code
means a code that is part of a coding
system used by the withholding agent or
FFI to classify account holders by
business type for purposes other than
U.S. tax purposes and that was
implemented by the withholding agent
by the later of January 1, 2012, or six
months after the date the withholding
agent was formed or organized.
(117) Standing instructions to pay
amounts. The term standing
instructions to pay amounts means
current payment instructions provided
by the account holder, or an agent of the
account holder, that will repeat without
further instructions being provided by
the account holder. Therefore, for
example, a payment instruction to make
an isolated payment is not a standing
instruction to pay amounts, even if the
instructions are given one year in
advance. However, an instruction to
make payments indefinitely is a
standing instruction to pay amounts for
the period during which such
instructions are in effect, even if such
instructions are amended after a single
payment.
(118) Subject to withholding. The
term subject to withholding, with
respect to an amount, means an amount
for which withholding is required under
chapter 4 or an amount for which
chapter 4 withholding was otherwise
applied.
(119) Substantial U.S. owner. The
term substantial U.S. owner or
substantial United States owner has the
meaning set forth in § 1.1473–1(b).
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(120) Territory entity. The term
territory entity means any entity that is
incorporated or organized under the
laws of any U.S. territory.
(121) Territory financial institution.
The term territory financial institution
means a financial institution that is
incorporated or organized under the
laws of any U.S. territory, not including
a territory entity that is an investment
entity but that is not a depository
institution, custodial institution, or
specified insurance company.
(122) Territory financial institution
treated as a U.S. person. The term
territory financial institution treated as
a U.S. person means a territory financial
institution that is treated as a U.S.
person under § 1.1471–3(a)(3)(iv).
(123) Territory NFFE. The term
territory NFFE means a territory entity
that is not a financial institution,
including a territory entity that is an
investment entity but is not a depository
institution, custodial institution, or
specified insurance company.
(124) TIN. The term TIN means the
tax identifying number assigned to a
person under section 6109.
(125) U.S. account. The term U.S.
account or United States account has
the meaning set forth in § 1.1471–5(a).
(126) U.S. branch treated as a U.S.
person. The term U.S. branch treated as
a U.S. person means a U.S. branch of a
participating FFI or registered deemedcompliant FFI that is treated as a U.S.
person under § 1.1441–1(b)(2)(iv)(A).
(127) U.S. financial institution. The
term U.S. financial institution means a
financial institution that is a U.S.
person, including a U.S. branch treated
as a U.S. person.
(128) U.S. indicia. The term U.S.
indicia has the meaning set forth in
§ 1.1471–4(c)(5)(iv)(B) when applied to
an individual and as set forth in
§ 1.1471–3(e)(4)(v)(A) when applied to
an entity.
(129) U.S. owned foreign entity. The
term U.S. owned foreign entity or United
States owned foreign entity has the
meaning set forth in § 1.1471–5(c).
(130) U.S. payee. The term U.S. payee
means any payee that is a U.S. person.
(131) U.S. payor. The term U.S. payor
means a U.S. payor or U.S. middleman
as defined in § 1.6049–5(c)(5).
(132) U.S. person. The term U.S.
person or United States person means a
person described in section 7701(a)(30),
the United States government (including
an agency or instrumentality thereof), a
State (including an agency or
instrumentality thereof), or the District
of Columbia (including an agency or
instrumentality thereof). For purposes of
the preceding sentence, the
determination of whether an insurance
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5911
company is a U.S. person is made
without regard to an election by a
company not licensed to do business in
any State to be subject to U.S. income
tax as if it were a domestic insurance
company. Thus, a foreign insurance
company not licensed to do business in
any State that elects pursuant to section
953(d) to be subject to U.S. income tax
as if it were a U.S. insurance company
is not a U.S. person.
(133) U.S. source FDAP income. The
term U.S. source FDAP income has the
meaning set forth in § 1.1473–1(a)(2).
(134) U.S. territory. The term U.S.
territory or possession of the United
States means American Samoa, Guam,
the Northern Mariana Islands, Puerto
Rico, or the U.S. Virgin Islands.
(135) U.S. withholding agent. The
term U.S. withholding agent means a
withholding agent that is either a U.S.
person or a U.S. branch of a foreign
person.
(136) Withholdable payment. The
term withholdable payment has the
meaning set forth in § 1.1473–1(a).
(137) Withholding. The term
withholding means the deduction and
remittance of tax at the applicable rate
from a payment.
(138) Withholding agent. The term
withholding agent has the meaning set
forth in § 1.1473–1(d).
(139) Withholding certificate. The
term withholding certificate means a
Form W–8, Form W–9, or any other
certificate that under the Code or
regulations certifies or establishes the
chapter 4 status of a payee or beneficial
owner.
(140) WP. The term WP or
withholding foreign partnership means a
foreign partnership that has executed
the agreement described in § 1.1441–
5(c)(2)(ii).
(141) Written statement. The term
written statement has the meaning set
forth in § 1.1471–3(c)(4).
(142) WT. The term WT or
withholding foreign trust means a
foreign grantor trust or foreign simple
trust that has executed the agreement
described in § 1.1441–5(e)(5)(v).
(c) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 6. Section 1.1471–2 is added to
read as follows:
§ 1.1471–2 Requirement to deduct and
withhold tax on withholdable payments to
certain FFIs.
(a) Requirement to withhold on
payments to FFIs—(1) General rule of
withholding. Under section 1471(a),
notwithstanding any exemption from
withholding under any other provision
of the Code or regulations, a
withholding agent must withhold 30
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percent of any withholdable payment
made after December 31, 2013, to a
payee that is an FFI unless either the
withholding agent can reliably associate
the payment with documentation upon
which it is permitted to rely to treat the
payment as exempt from withholding
under paragraph (a)(4) of this section, or
the payment is made under a
grandfathered obligation that is
described in paragraph (b) of this
section or constitutes gross proceeds
from the disposition of such an
obligation. A withholding agent that is
making a payment must determine who
the payee is under § 1.1471–3(a) with
respect to that payment and the chapter
4 status of such payee. See § 1.1471–3
for requirements for determining the
chapter 4 status of a payee, including
additional documentation requirements
where a payment is made to an
intermediary or flow-through entity that
is not the payee. Withholding under this
section applies without regard to
whether the payee receives a
withholdable payment as a beneficial
owner or as an intermediary. See
paragraph (a)(2)(iv) of this section for a
description of the withholding
requirements imposed on territory
financial institutions as withholding
agents under chapter 4. In the case of a
withholdable payment to an NFFE, a
withholding agent is required to
determine whether withholding applies
under section 1472 and § 1.1472–1.
Except as otherwise provided in the
regulations under chapter 4, a
withholding obligation arises on the
date a payment is made, as determined
under § 1.1473–1(a).
(2) Special withholding rules—(i)
Requirement to withhold on payments
of U.S. source FDAP income to
participating FFIs that are NQIs, NWPs,
or NWTs. A withholding agent that,
after December 31, 2013, makes a
payment of U.S. source FDAP income to
a participating FFI or reporting Model 1
FFI that is an NQI receiving the
payment as an intermediary, NWP, or
NWT must withhold 30 percent of the
payment unless the withholding is
reduced under this paragraph (a)(2)(i). A
withholding agent is not required to
withhold on a payment, or portion of a
payment, that it can reliably associate,
in the manner described in § 1.1471–
3(c)(2), with a valid intermediary or
flow-through withholding certificate
that meets the requirements of § 1.1471–
3(d)(4) and an FFI withholding
statement that meets the requirements of
§ 1.1471–3(c)(3)(iii)(B)(1) and (2) and
that allocates the payment or portion of
the payment to payees for which no
withholding is required under chapter
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4. Further, a withholding agent is not
required to withhold on a payment that
it can reliably associate with
documentation indicating that the payee
is a U.S. branch of a participating FFI
that is treated as a U.S. person under
§ 1.1441–1(b)(2)(iv)(A).
(ii) Residual withholding
responsibility of intermediaries and
flow-through entities. An intermediary
or flow-through entity that receives a
withholdable payment after December
31, 2013, is required to withhold on
such payment to the extent required
under chapter 4. Notwithstanding the
previous sentence, an intermediary or
flow-through entity is not required to
withhold if another withholding agent
has withheld the full amount required.
Further, an NQI, NWP, or NWT is not
required to withhold with respect to a
withholdable payment under chapter 4
if it has provided a valid intermediary
withholding certificate or flow-through
withholding certificate and all of the
information required by § 1.1471–
3(c)(3)(iii), and it does not know, and
has no reason to know, that another
withholding agent failed to withhold the
correct amount. A QI’s, WP’s, or WT’s
obligation to withhold and report is
determined in accordance with its QI
withholding agreement, WP agreement,
or WT agreement.
(iii) Requirement to withhold if a
participating FFI or registered deemedcompliant FFI makes an election to be
withheld upon. A person that otherwise
would be a payee with respect to a
payment but that makes an election to
be withheld upon does not agree to
accept primary withholding
responsibility for the payment under
chapter 3 or 4. Accordingly, such person
cannot be treated as the payee and the
withholding agent must determine
whether it must withhold based on the
chapter 4 status of the payee on whose
behalf the person is receiving the
payment. The election to be withheld
upon is only available to the extent
provided in paragraph (a)(2)(iii)(A) and
(B) of this section. The election is not
available to an entity that is required to
accept primary withholding
responsibility for the payment, such as
a WP or WT receiving a payment of U.S.
source FDAP income, or an entity that
already must be withheld upon because
it may not accept primary withholding
responsibility for the payment and, as
such, already must pass up
documentation with respect to the
payee to the withholding agent, such as
a participating FFI that is an NQI
receiving a payment of U.S. source
FDAP income.
(A) Election to be withheld upon for
U.S. source FDAP income. A
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withholding agent is required to
withhold with respect to a payment, or
portion of a payment, that is U.S. source
FDAP income subject to withholding
that is made after December 31, 2013, to
a QI that has elected in accordance with
this paragraph to be withheld upon. In
such case, the withholding agent must
withhold 30 percent of the portion of
the payment that is allocable, pursuant
to a withholding statement described in
§ 1.1471–3(c)(3)(iii)(B) provided by the
QI, to recalcitrant account holders and
nonparticipating FFIs. If no such
allocation information is provided, the
withholding agent must apply the
presumption rules of § 1.1471–3(f) to
determine the chapter 4 status of the
payee. A QI that is an FFI and that
makes the election to be withheld upon
with respect to a payment of U.S. source
FDAP income may not assume primary
withholding responsibility under
chapter 3 for that payment. Conversely,
a QI that is an FFI and that does not
make the election to be withheld upon
with respect to a payment of U.S. source
FDAP income is required to assume
primary withholding responsibility
under chapter 3 for that payment. The
election to be withheld upon is only
available with respect to a payment of
U.S. source FDAP income if—
(1) The withholding agent is a
participating FFI, reporting Model 1 FFI,
QI, or a U.S. withholding agent;
(2) The person who receives the
payment is a participating FFI or
registered deemed-compliant FFI that
acts as a QI with respect to the payment
and that is not a QI branch of a U.S.
financial institution;
(3) The person who receives the
payment provides the withholding
agent, at or before the time of the
payment, with a valid intermediary
withholding certificate with respect to
the payment that notifies the
withholding agent that it has elected to
be withheld upon, certifies that it is not
assuming primary withholding
responsibility under chapter 3, and
designates whether such election is
made for all accounts held with the
withholding agent or for the specific
accounts identified on the withholding
certificate; and
(4) The intermediary withholding
certificate is accompanied by a
withholding statement described in
§ 1.1471–3(c)(3)(iii)(B).
(B) Election to be withheld upon for
gross proceeds. [Reserved].
(iv) Withholding obligation of a
territory financial institution. A territory
financial institution is a withholding
agent with respect to a withholdable
payment if it is a withholding agent
under § 1.1473–1(d) with respect to
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such payment. A territory financial
institution that is a flow-through entity
or that acts as an intermediary with
respect to a withholdable payment has
an obligation to withhold if it agrees to
be treated as a U.S. person with respect
to the payment for purposes of both
chapter 4 and § 1.1441–1(b)(2)(iv)(A). A
territory financial institution that is a
flow-through entity or that acts as an
intermediary with respect to a
withholdable payment is not required to
withhold under paragraph (a)(1) of this
section, however, if it has provided the
withholding agent that is a U.S.
withholding agent, participating FFI,
reporting Model 1 FFI, or QI with all of
the documentation described in
§ 1.1471–3(c)(3)(iii) (in which it has not
agreed to be treated as a U.S. person
with respect to the payment), and it
does not know, or have reason to know,
that another withholding agent failed to
withhold the correct amount or failed to
report the payment correctly under
§ 1.1474–1(d).
(v) Withholding obligation of a foreign
branch of a U.S. financial institution.
Generally, a foreign branch of a U.S.
financial institution is a withholding
agent and is not an FFI. However, a QI
branch of a U.S. financial institution is
both a withholding agent and either a
participating FFI or a registered
deemed-compliant FFI. Accordingly, a
QI branch of a U.S. financial institution
must withhold in accordance with this
section in addition to meeting its
obligations under either § 1.1471–4(b)
and its FFI agreement or § 1.1471–5(f).
Similarly, a foreign branch of a U.S.
financial institution that is also a
reporting Model 1 FFI is both a
withholding agent and a registered
deemed-compliant FFI. Accordingly, a
foreign branch of a U.S. financial
institution that is a reporting Model 1
FFI must withhold in accordance with
this section. A foreign branch of a U.S.
financial institution that is not a QI is
not permitted to make an election to be
withheld upon.
(vi) Payments of gross proceeds.
[Reserved].
(3) Coordination of withholding under
sections 1471(a) and (b). The following
entities are deemed to satisfy their
withholding obligations under section
1471(a) and this section: participating
FFIs that comply with the withholding
requirements of § 1.1471–4(b); exempt
beneficial owners; section 501(c)
entities described in § 1.1471–5(e)(5)(v);
and nonprofit organizations described
in § 1.1471–5(e)(5)(vi). See § 1.1471–5(f)
for when a deemed-compliant FFI is
deemed to satisfy its withholding
obligations under section 1471(a) and
this section.
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(4) Payments for which no
withholding is required. A withholding
agent that has determined, in
accordance with the documentation
requirements and other rules provided
in § 1.1471–3, that the payee of a
withholdable payment is a foreign entity
must determine whether the payment is
exempt from withholding. Paragraphs
(a)(4)(i) through (viii) of this section
describe the circumstances in which a
withholdable payment is not subject to
withholding under section 1471(a) and
this section.
(i) Exception to withholding if the
withholding agent lacks control,
custody, or knowledge—(A) In general.
A withholding agent that is not related
to the payee or beneficial owner has an
obligation to withhold under section
1471 only to the extent that, at any time
between the date that the obligation to
withhold would arise (but for the
provisions of this paragraph (a)(4)(i))
and the due date for filing the return on
Form 1042 (including extensions) for
the year in which the payment occurs,
it has control over or custody of money
or property owned by the payee or
beneficial owner from which to
withhold an amount and has knowledge
of the facts that give rise to the payment.
The exemption from the obligation to
withhold under this paragraph (a)(4)(i)
does not apply, however, to payments
with respect to stock or other securities
or if the lack of control or custody of
money or property from which to
withhold is part of a pre-arranged plan
known to the withholding agent to
avoid withholding under section 1471
or 1472. A withholding agent does not
lack control over money or property for
purposes of this paragraph (a)(4)(i) if the
withholding agent directs another party
to make the payment. Thus, for
example, a principal does not cease to
have control over a payment when it
contracts with a paying agent to make
the payments to its account holders in
lieu of paying the account holders
directly. Further, a withholding agent
does not lack knowledge of the facts that
give rise to a payment merely because
the withholding agent does not know
the character or source of the payment
for U.S. tax purposes. See paragraph
(a)(5) of this section for rules addressing
a withholding agent’s obligations when
the withholding agent has knowledge of
the facts that give rise to the payment,
but the character or source of the
payment is not known. For purposes of
this paragraph (a)(4)(i), a withholding
agent is related to the payee or
beneficial owner if it is related within
the meaning of section 482. Any
exemption from withholding pursuant
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5913
to this paragraph (a)(4)(i) applies
without a requirement that
documentation be furnished to the
withholding agent. The special rules set
forth in § 1.1441–2(d)(2) through (4),
regarding the obligation of a
withholding agent with respect to
cancellation of debt, the satisfaction of
a tax liability following
underwithholding by a withholding
agent, and amounts described in
§ 1.860G–3(b)(1) (regarding certain
partnership allocations of REMIC net
income with respect to a REMIC
residual interest) also apply for
purposes of chapter 4.
(B) Example. A, an individual, owns stock
in DC, a domestic corporation, through a
custodian, Bank 1, that is a participating FFI.
A also has a money market account at Bank
2, which is also a participating FFI. DC pays
a dividend of $1,000 that is deposited in A’s
custodial account at Bank 1. A then directs
Bank 1 to transfer $1,000 to A’s money
market account at Bank 2. With respect to the
payment of the dividend into A’s custodial
account with Bank 1, both DC and Bank 1 are
withholding agents making a withholdable
payment for which they have custody,
control, and knowledge. See § 1.1473–
1(a)(2)(vii)(B) and (d). Therefore, both DC and
Bank 1 have an obligation to withhold on the
payment unless they can reliably associate
the payment with documentation sufficient
to treat the respective payees as not subject
to withholding under chapter 4. With respect
to the wire transfer of $1,000 from A’s
account at Bank 1 to A’s account at Bank 2,
neither Bank 1 nor Bank 2 is required to
withhold with respect to the transfer because
neither bank has knowledge of the facts that
gave rise to the payment. Even though Bank
1 is a custodian with respect to A’s interest
in DC and has knowledge regarding the
$1,000 dividend paid to A, once Bank 1
credits the $1,000 dividend to A’s account,
the $1,000 becomes A’s property. When A
transfers the $1,000 to its account at Bank 2,
this constitutes a separate payment about
which Bank 1 has no knowledge regarding
the type of payment made. Further, Bank 2
only has knowledge that it receives $1,000 to
be credited to A’s account but has no
knowledge regarding the type of payment
made. Accordingly, Bank 1 and Bank 2 have
no withholding obligation with respect to the
transfer from A’s custodial account at Bank
1 to A’s money market account at Bank 2.
(ii) Exception to withholding for
certain payments made prior to January
1, 2016 (transitional)—(A) In general.
For any withholdable payment made
prior to January 1, 2016, with respect to
a preexisting obligation for which a
withholding agent does not have
documentation indicating the payee’s
status as a nonparticipating FFI, the
withholding agent is not required to
withhold under this section and section
1471(a) unless the payee is a prima facie
FFI.
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(B) Prima facie FFIs. If the payee is a
prima facie FFI, the withholding agent
must treat the payee as a
nonparticipating FFI beginning on July
1, 2014, until the date the withholding
agent obtains documentation sufficient
to establish a different chapter 4 status
of the payee. A prima facie FFI means
any payee if—
(1) The withholding agent has
available as part of its electronically
searchable information a designation for
the payee as a QI or NQI; or
(2) For an account maintained in the
United States, the payee is presumed to
be a foreign entity under § 1.1471–3(f) or
is documented as a foreign entity for
purposes of chapter 3 or 61, and the
withholding agent has recorded as part
of its electronically searchable
information one of the following North
American Industry Classification
System or Standard Industrial
Classification codes indicating that the
payee is a financial institution:
(i) Commercial Banking (NAICS
522110).
(ii) Savings Institutions (NAICS
522120).
(iii) Credit Unions (NAICS 522130).
(iv) Other Depositary Credit
Intermediation (NAICS 522190).
(v) Investment Banking and Securities
Dealing (NAICS 523110).
(vi) Securities Brokerage (NAICS
523120).
(vii) Commodity Contracts Dealing
(NAICS 523130).
(viii) Commodity Contracts Brokerage
(NAICS 523140).
(ix) Miscellaneous Financial
Investment Activities (NAICS 523999).
(x) Open-End Investment Funds
(NAICS 525910).
(xi) Commercial Banks, NEC (SIC
6029).
(xii) Branches and Agencies of
Foreign Banks (branches) (SIC 6081).
(xiii) Foreign Trade and International
Banking Institutions (SIC 6082).
(xiv) Asset-Backed Securities (SIC
6189).
(xv) Security & Commodity Brokers,
Dealers, Exchanges & Services (SIC
6200).
(xvi) Security Brokers, Dealers &
Flotation Companies (SIC 6211).
(xvii) Commodity Contracts Brokers &
Dealers (SIC 6221).
(xviii) Unit Investment Trusts, FaceAmount Certificate Offices, and ClosedEnd Management Investment Offices
(SIC 6726).
(iii) Payments to a participating FFI.
Except to the extent provided in
paragraph (a)(2)(i) of this section, a
withholding agent is not required to
withhold under section 1471(a) and this
section on a withholdable payment
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made to a payee that the withholding
agent can treat as a participating FFI in
accordance with § 1.1471–3(d)(3). For
this purpose, a limited branch of a
participating FFI is treated as a
nonparticipating FFI.
(iv) Payments to a deemed-compliant
FFI. Except to the extent provided in
paragraph (a)(2)(i) or (iii) of this section,
a withholding agent is not required to
withhold under section 1471(a) and this
section on a withholdable payment
made to a payee that the withholding
agent can treat as a deemed-compliant
FFI in accordance with § 1.1471–3(d)(4)
through (7). For this purpose, a limited
branch of a deemed-compliant FFI is
treated as a nonparticipating FFI.
(v) Payments to an exempt beneficial
owner. A withholding agent is not
required to withhold under section
1471(a) and this section on a
withholdable payment to the extent that
the withholding agent can reliably
associate the payment with
documentation to determine the portion
of the payment that is allocable to an
exempt beneficial owner in accordance
with § 1.1471–3(d)(8). For example, a
withholding agent is not required to
withhold under this section on a
withholdable payment made to a payee
that is an exempt beneficial owner with
respect to the payment, to a
nonparticipating FFI to the extent that
the nonparticipating FFI receives the
payment as an intermediary on behalf of
one or more of its account holders that
are exempt beneficial owners, or to a
flow-through entity to the extent that
the flow-through entity receives the
payment with respect to one or more of
its partners, beneficiaries, or owners (as
applicable) that are exempt beneficial
owners. See § 1.1471–3(d)(8)(ii) for
special rules for a withholding agent to
determine the portion of a withholdable
payment that is beneficially owned by
an exempt beneficial owner in the case
of a payment made to a nonparticipating
FFI.
(vi) Payments to a territory financial
institution. A withholding agent is not
required to withhold under section
1471(a) and this section on a
withholdable payment made to a payee
that the withholding agent can treat as
a territory financial institution that
beneficially owns the payment in
accordance with § 1.1471–3(d)(10)(i). A
withholding agent also is not required to
withhold under this section on a
withholdable payment that the
withholding agent can treat, in
accordance with § 1.1471–3(d)(10)(ii), as
made to a territory financial institution
that is a flow-through entity or that acts
as an intermediary with respect to the
payment and that has agreed to be
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treated as a U.S. person for purposes of
chapters 3 and 4 with respect to the
payment. A territory financial
institution’s agreement to be treated as
a U.S. person for purposes of this
section must be evidenced by a
withholding certificate described in
§ 1.1471–3(c)(3)(iii)(F) furnished by the
territory financial institution to the
withholding agent.
(vii) Payments to an account held
with a clearing organization with
FATCA-compliant membership.
[Reserved].
(viii) Payments to certain excepted
accounts. A withholding agent is not
required to withhold under section
1471(a) and this section on a
withholdable payment made to an
account described in § 1.1471–5(b)(2).
(5) Withholding requirements if
source or character of payment is
unknown—(i) General rule. If a
withholding agent has knowledge of the
facts that give rise to a payment but is
unable to determine at the time of
payment the character of the payment
sufficiently to determine whether it is a
withholdable payment, such payment
must be treated as a withholdable
payment. If a withholding agent has
knowledge of the facts that give rise to
a payment but is unable to determine at
the time of payment the source of the
payment, such payment must be treated
as U.S. source income. For example, if
a withholding agent does not know at
the time of payment the amount of the
payment that is a withholdable
payment, because that calculation
depends on facts that are not known at
the time of payment (for example,
because the withholding agent does not
know whether services were performed
in the United States or whether the
payment constitutes income to the
recipient) the withholding agent must
withhold an amount necessary to ensure
that the amount withheld is not less
than 30 percent of the amount that
could be a withholdable payment,
subject to the limitation that the
withheld amount must not exceed 30
percent of the amount paid.
Notwithstanding this paragraph (a)(5), a
withholding agent may presume a
payment to be effectively connected
with the conduct of a trade or business
in the United States, and thus, not a
withholdable payment, if it can do so
under § 1.1471–3(f)(6) (regarding
payments to certain U.S. branches).
(ii) Optional escrow procedure. With
respect to a payment described in
paragraph (a)(5) of this section, the
withholding agent may elect to retain 30
percent of the payment to hold in
escrow until the earlier of the date that
the amount of the withholdable
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payment can be determined or one year
from the date the amount is placed in
escrow, at which time either the
withholding becomes due under this
section or, to the extent that it is
determined that the payment is of a type
for which no withholding is required,
the escrowed amount must be paid to
the payee.
(b) Grandfathered obligations—(1)
Grandfathered treatment of outstanding
obligations. Notwithstanding § 1.1473–
1(a), a withholdable payment does not
include any payment made under a
grandfathered obligation described in
paragraph (b)(2)(i)(A) of this section, or
any gross proceeds from the disposition
of such an obligation. Notwithstanding
§ 1.1471–5(h), a foreign passthru
payment does not include any payment
made under a grandfathered obligation
described in paragraph (b)(2)(i)(A) or (B)
of this section, or any gross proceeds
from the disposition of such an
obligation. A premium paid with regard
to an insurance contract or annuity
contract that is a grandfathered
obligation is treated as a payment made
under a grandfathered obligation.
(2) Definitions. The following
definitions apply solely for purposes of
this paragraph (b).
(i) Grandfathered obligation—(A) The
term grandfathered obligation means—
(1) Any obligation outstanding on
January 1, 2014;
(2) Any obligation that gives rise to a
withholdable payment solely because
the obligation is treated as giving rise to
a dividend equivalent pursuant to
section 871(m) and the regulations
thereunder, provided that the obligation
is executed on or before the date that is
six months after the date on which
obligations of its type are first treated as
giving rise to dividend equivalents; and
(3) Any agreement requiring a secured
party to make a payment with respect
to, or to repay, collateral posted to
secure a grandfathered obligation. If
collateral (or a pool of collateral) secures
both grandfathered obligations and
obligations that are not grandfathered,
the collateral posted to secure the
grandfathered obligations must be
determined by allocating (pro rata by
value) the collateral (or each item
comprising the pool of collateral) to all
outstanding obligations secured by the
collateral (or pool of collateral).
(B) Solely for purposes of a foreign
passthru payment, the term
grandfathered obligation also includes
any obligation that is executed on or
before the date that is six months after
the date on which final regulations
defining the term foreign passthru
payment are filed with the Federal
Register.
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(ii) Obligation—(A) Except as
otherwise provided in paragraph
(b)(2)(ii)(B) of this section, the term
obligation means any legally binding
agreement or instrument. An obligation
for purposes of this paragraph (b)(2)(i)
includes, for example—
(1) A debt instrument (for example, a
bond, guaranteed investment certificate,
or term deposit);
(2) An agreement to extend credit for
a fixed term (for example, a line of
credit or a revolving credit facility),
provided that the agreement as of its
issue date fixes the material terms
(including a stated maturity date) under
which the credit will be provided;
(3) A derivatives transaction entered
into between counterparties under an
ISDA Master Agreement that is
evidenced by a confirmation;
(4) A life insurance contract under
which the entire contract value is
payable no later than upon the death of
the individual(s) insured under the
contract; and
(5) An immediate annuity contract
payable for a period certain or for the
life of the annuitant.
(B) An obligation for purposes of this
paragraph (b)(2)(ii) does not include any
legal agreement or instrument that—
(1) Is treated as equity for U.S. tax
purposes;
(2) Lacks a stated expiration or term
(for example, a savings deposit or
demand deposit, a deferred annuity
contract, or a life insurance contract or
annuity contract that permits a
substitution of a new individual as the
insured or as the annuitant under the
contract);
(3) Is a brokerage agreement, custodial
agreement, investment linked insurance
contract, investment linked annuity
contract, or similar agreement to hold
financial assets for the account of others
and to make and receive payments of
income and other amounts with respect
to such assets; or
(4) Is a master agreement that merely
sets forth standard terms and conditions
that are intended to apply to a series of
transactions between parties but that
does not set forth all of the specific
terms necessary to conclude a particular
transaction.
(iii) Date outstanding. Except as
provided in the following sentence, an
obligation that constitutes indebtedness
for U.S. tax purposes is outstanding on
the date provided in paragraph (b)(2)(i)
if it has an issue date before such date.
In all other cases, including an
agreement described in paragraph
(b)(2)(ii)(A)(2) of this section, an
obligation is outstanding on the date
provided in paragraph (b)(2)(i) if a
legally binding agreement establishing
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5915
the obligation was executed between the
parties to the agreement before such
date. Any material modification of an
outstanding obligation will result in the
obligation being treated as newly issued
or executed as of the effective date of
such modification.
(iv) Material modification. In the case
of an obligation that constitutes
indebtedness for U.S. tax purposes, a
material modification is any significant
modification of the debt instrument as
defined in § 1.1001–3(e). In all other
cases, whether a modification of an
obligation is material is determined
based on the facts and circumstances.
(3) Application to flow-through
entities—(i) Partnerships. A payment
made under a grandfathered obligation
includes a payment made to a
partnership with respect to such
obligation and a payment made with
respect to a partnership’s disposition of
such obligation. A payment made under
a grandfathered obligation also includes
the income from such obligation that is
includible in the gross income of a
partner with respect to a capital or
profits interest in the partnership and
the gross proceeds allocated to a partner
from the disposition of such obligation
as determined under § 1.1473–
1(a)(5)(vii).
(ii) Simple trusts. A payment made
under a grandfathered obligation
includes a payment made to a simple
trust with respect to such obligation,
including a payment made with respect
to a simple trust’s disposition of such
obligation. A payment made under a
grandfathered obligation also includes
income from such obligation that is
includible in the income of a beneficiary
and further includes a beneficiary’s
share of the gross proceeds from a
disposition of such obligation as
determined under § 1.1473–1(a)(5)(vii).
(iii) Grantor trusts. A payment made
under a grandfathered obligation
includes a payment made to a grantor
trust with respect to such obligation,
including a payment made with respect
to the trust’s disposition of such
obligation. A payment made under a
grandfathered obligation also includes
income from such obligation that is
includible in the gross income of a
person that is treated as an owner of the
trust and the gross proceeds from the
disposition of such obligation to the
extent such owner is treated as owning
the portion of the trust that consists of
the obligation.
(4) Determination by withholding
agent of grandfathered treatment—(i) In
general. A withholding agent other than
the issuer of the obligation (or agent of
the issuer) may, absent actual
knowledge, rely on a written statement
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by the issuer of the obligation to
determine if such obligation meets the
requirements for grandfathered
treatment provided under this
paragraph (b).
(ii) Determination of material
modification. For purposes of paragraph
(b)(2)(iv) of this section (defining
material modification), a withholding
agent is required to treat a modification
of an obligation as material only if the
withholding agent knows or has reason
to know that a material modification has
occurred with respect to the obligation.
A withholding agent, other than the
issuer of the obligation (or agent of the
issuer), has reason to know that a
material modification has occurred with
respect to an obligation if the
withholding agent receives a disclosure
from the issuer of the obligation stating
that there has been a material
modification to such obligation.
(iii) Record retention. A withholding
agent that relies on a document
provided by the issuer of an obligation
as described in paragraph (b)(4)(i) or (ii)
of this section must retain such
document in its records for the
applicable period of limitations on
assessment and collection with respect
to amounts paid under the obligation or
from disposition of the obligation.
(c) Effective/applicability date. This
section generally applies on January 28,
2013. For other dates of applicability,
see §§ 1.1471–2(a)(1); 1.1471–2(a)(2)(i),
(ii), (iii)(A); 1.1471–2(a)(4)(ii).
■ Par. 7. Section 1.1471–3 is added to
read as follows:
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§ 1.1471–3
Identification of payee.
(a) Payee defined—(1) In general.
Except as otherwise provided in this
paragraph (a), for purposes of chapter 4
a payee is the person to whom a
payment is made, regardless of whether
such person is the beneficial owner of
the amount.
(2) Payee with respect to a financial
account. For purposes of payments
made to a financial account and except
as otherwise provided in paragraph
(a)(3) of this section, the payee is the
holder of the financial account.
(3) Exceptions—(i) Certain foreign
agents or intermediaries—(A) Except as
otherwise provided in paragraphs
(a)(3)(iv) and (vi) of this section
(applicable to territory financial
institutions and certain U.S. branches),
a foreign person that is acting as an
agent or intermediary with respect to a
payment in accordance with paragraph
(b)(1) of this section is not the payee if
such foreign person is—
(1) An NFFE, unless the NFFE is a QI
that has assumed primary withholding
responsibility; or
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(2) In the case of a payment of U.S.
source FDAP income, a participating
FFI, deemed-compliant FFI, or restricted
distributor, unless the participating FFI,
deemed-compliant FFI, or restricted
distributor is a QI that has assumed
primary withholding responsibility.
(B) In the case of an agent or
intermediary described in paragraph
(a)(3)(i)(A) of this section, the payee is
the person or persons for whom the
agent or intermediary collects the
payment. Thus, for example, the payee
of a payment of U.S. source FDAP
income that the withholding agent can
reliably associate with a withholding
certificate from a QI that does not
assume primary withholding
responsibility with respect to the
payment under chapter 3, or a payment
to a participating FFI that is an NQI, is
the person or persons for whom the QI
or NQI acts.
(ii) Foreign flow-through entity—(A) A
foreign entity that is a flow-through
entity is a payee with respect to a
payment only if the flow-through entity
is—
(1) An FFI that is not a participating
FFI or deemed-compliant FFI, or
restricted distributor receiving a
payment of U.S. source FDAP income;
(2) An excepted NFFE that is not
acting as an agent or intermediary with
respect to the payment;
(3) A WP or WT that is not acting as
an agent or intermediary with respect to
the payment; or
(4) Receiving income that is (or is
deemed to be) effectively connected
with the conduct of a trade or business
in the United States, or receiving a
payment of gross proceeds from the sale
of property that can produce income
that is effectively connected with the
conduct of a trade or business in the
United States and that is excluded from
the definition of a withholdable
payment under § 1.1473–1(a)(4).
(B) A withholding agent that makes a
withholdable payment to a flow-through
entity that is not described in
paragraphs (a)(3)(ii)(A)(1) through (3) of
this section will be required to treat the
partner, beneficiary, or owner (as
applicable) as the payee (looking
through partners, beneficiaries, and
owners that are themselves flowthrough entities that are not described
in paragraphs (a)(3)(ii)(A)(1) through
(3)).
(iii) U.S. intermediary or agent of a
foreign person. A withholding agent that
makes a withholdable payment to a U.S.
person and has actual knowledge that
the person receiving the payment is
acting as an intermediary or agent of a
foreign person with respect to the
payment must treat such foreign person,
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and not the intermediary or agent, as the
payee of such payment.
Notwithstanding the previous sentence,
a withholding agent that makes a
withholdable payment to a U.S.
financial institution that is acting as an
intermediary or agent with respect to
the payment on behalf of one or more
foreign persons may treat the U.S.
financial institution as the payee if the
withholding agent does not have reason
to know that the U.S. financial
institution will not comply with its
obligations to withhold under sections
1471 and 1472.
(iv) Territory financial institution. A
withholding agent that makes a
withholdable payment to a territory
financial institution that is a flowthrough entity or is acting as an
intermediary or agent with respect to
the payment may treat the territory
financial institution as the payee only if
the territory financial institution has
agreed (as evidenced by a withholding
certificate described in paragraphs
(c)(3)(iii)(A) and (F) of this section) to be
treated as a U.S. person with respect to
the payment for purposes of both
chapters 3 and 4. In all other cases, the
withholding agent must treat as the
payee the partner, beneficiary, or owner
(as applicable) of the territory financial
institution that is a flow-through entity
(looking through partners, beneficiaries,
and owners that are themselves flowthrough entities that are not described
in paragraphs (a)(3)(ii)(A)(1) through (3))
or the person on whose behalf the
territory financial institution is acting.
(v) Disregarded entity or branch.
Except as otherwise provided in
paragraph (a)(3)(v) through (vii) of this
section, a withholding agent that makes
a withholdable payment to an entity
that is disregarded for U.S. federal tax
purposes under § 301.7701–2(c)(2)(i) of
this chapter as an entity separate from
its single owner must treat the single
owner as the payee. Notwithstanding
the previous sentence, a withholding
agent that makes a payment to a limited
branch will be required to treat the
payment as being made to a
nonparticipating FFI.
(vi) U.S. branch of certain foreign
banks or foreign insurance companies.
A withholdable payment to a U.S.
branch of either a participating FFI or
registered deemed-compliant FFI is a
payment to a U.S. person if the U.S.
branch is treated as a U.S. person for
purposes of § 1.1441–1(b)(2)(iv). In such
case the U.S. branch is treated as the
payee. A U.S. branch, however, that is
treated as a U.S. person under § 1.1441–
1(b)(2)(iv) is not treated as a U.S. person
for purposes of the withholding
certificate it may provide to a
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withholding agent for purposes of
chapter 4. Accordingly, a U.S. branch of
either a participating FFI or registered
deemed-compliant FFI must furnish a
withholding certificate on a Form W–8
to certify its chapter 4 status (and not a
Form W–9). See also paragraph (f)(6) for
the rules under which a withholding
agent can presume a payment
constitutes income that is effectively
connected with a U.S. trade or business.
A U.S. branch of either a participating
FFI or registered deemed-compliant FFI
that is treated as a U.S. person for
purposes of chapter 3 may not make an
election to be withheld upon, as
described in section 1471(b)(3) and
§ 1.1471–2(a)(2)(iii), for purposes of
chapter 4. See § 1.1471–4(c)(2)(v) for the
rule requiring a U.S. branch to apply the
due diligence rules applicable to a U.S.
withholding agent in lieu of those
otherwise applicable to a participating
FFI. See § 1.1471–4(d) for rules for when
a U.S. branch of a participating FFI is
required to report as a U.S. person.
(vii) Foreign branch of a U.S. person.
A payment to a foreign branch of a U.S.
person is generally a payment to a U.S.
payee. However, a payment to a foreign
branch of a U.S. financial institution
will be treated as a payment to an FFI
if the foreign branch is a QI that is acting
as an intermediary with respect to the
payment. Therefore, a foreign branch
that is a QI will provide the withholding
agent with an intermediary withholding
certificate and the withholding agent
will report the payment as having been
made to the foreign branch on a Form
1042–S.
(b) Determination of payee’s status.
Except as otherwise provided in this
section, a withholding agent must base
its determination of the chapter 4 status
of a payee on documentation that the
withholding agent can reliably associate
with such payment. If a withholding
agent makes a payment to a person that
is not the payee, the withholding agent
will be required to determine the
chapter 4 status of each intermediary or
flow-through entity in the payment
chain until the withholding agent is able
to identify the payee. Paragraph (c) of
this section provides rules for when a
withholding agent can reliably associate
a payment with appropriate
documentation. Paragraph (d) of this
section provides documentation
requirements applicable to each class of
payees, including exceptions for
payments made with respect to offshore
obligations or preexisting obligations.
Paragraph (e) provides standards for
determining when a withholding agent
will be considered to have reason to
know that a claim of exemption from
withholding is unreliable or incorrect.
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Paragraph (f) of this section provides
presumptions that apply for purposes of
determining a payee’s chapter 4 status
in the absence of documentation or if
the documentation provided is
unreliable or incorrect.
(1) Determining whether a payment is
received by an intermediary. A
withholding agent must treat the person
who receives a payment as an
intermediary if it can reliably associate
the payment with a valid intermediary
withholding certificate on which the
person who receives the payment claims
to be a QI or NQI. A U.S. person’s
foreign branch that is acting in its
capacity as a QI is treated as a foreign
intermediary. A withholding agent that
makes a payment with respect to an
offshore obligation must also treat the
person who receives the payment as an
intermediary if the person has provided
written notification, whether or not
such notification is signed, that it
accepts the payment on behalf of
another person or persons. A
withholding agent may rely on the type
of certificate furnished as determinative
of whether the person who receives the
payment is an intermediary, unless the
withholding agent knows or has reason
to know that the certificate is incorrect.
For example, a withholding agent that
receives a beneficial owner withholding
certificate from an FFI may treat the FFI
as the beneficial owner unless it has
information in its records that would
indicate otherwise or the certificate
contains information that is not
consistent with beneficial owner status
(for example, sub-account numbers that
do not correspond to accounts
maintained by the withholding agent for
such person or names of one or more
persons other than the person
submitting the withholding certificate).
If the FFI receives a payment in part as
a beneficial owner and in part as an
intermediary, the withholding agent
may request that the FFI furnish two
certificates, that is, a beneficial owner
certificate for the amounts it receives as
a beneficial owner, and an intermediary
withholding certificate for the amounts
it receives as an intermediary. A
withholding agent that cannot reliably
associate a payment with
documentation sufficient to treat the
person who receives the payment as an
intermediary or as other than an
intermediary pursuant to this paragraph
(b)(1) must follow the presumption rules
set forth in paragraph (f)(5) of this
section to determine whether it must
treat the person who receives the
payment as an intermediary. A
determination that a payment is made to
an intermediary under this paragraph
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5917
(b)(1) is not a determination that the
payment can be reliably associated with
documentation. See paragraph (c)(2) of
this section for rules on reliably
associating a payment with
documentation if such payment is made
through an intermediary.
(2) Determination of entity type. A
person’s entity classification for
purposes of chapter 4 is the person’s
entity classification for U.S. federal
income tax purposes. Thus, for example,
an entity that is disregarded as a legal
entity in its country of organization or
an arrangement that does not have a
legal personality and is not a juridical
person in the country in which it was
organized will be treated as an entity for
purposes of chapter 4 if it is an entity
for U.S. federal income tax purposes. A
withholding agent may rely upon a
person’s entity classification contained
in a valid Form W–8 or W–9 if the
withholding agent has no reason to
know that the entity classification is
incorrect. A withholding agent that
makes a payment with respect to an
offshore obligation may also rely upon
a written notification provided by the
person who receives the payment,
regardless of whether such notification
is signed, that indicates the person’s
entity classification (other than as a QI,
WP, or WT) unless the withholding
agent has reason to know that the entity
classification indicated by the person
who receives the payment is incorrect.
A withholding agent may not rely on a
person’s claim of classification other
than as a corporation if the person’s
name indicates that the person is a per
se corporation described in § 301.7701–
2(b)(8) of this chapter unless the
certificate or written statement contains
a statement that the person is a
grandfathered per se corporation
described in § 301.7701–2(b)(8) and that
its grandfathered status has not been
terminated.
(3) Determination of whether the
payment is made to a QI, WP, or WT.
A withholding agent may treat the
person who receives a payment as a QI,
WP, or WT if the withholding agent can
reliably associate the payment with a
valid Form W–8IMY, as described in
paragraph (c)(3)(iii) of this section, that
indicates that the person who receives
the payment is a QI, WP, or WT, and the
form contains the person’s GIIN, in the
case of a QI or a WP or WT that is an
FFI, or the person’s QI–EIN, WP–EIN, or
WT–EIN in the case of a QI, WP, or WT
that is not an FFI.
(4) Determination of whether the
payee is receiving effectively connected
income. A withholding agent may treat
a payment as being made to a payee that
is receiving income that is effectively
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connected with a trade or business in
the United States, or gross proceeds
from the sale of property that can
produce income that is effectively
connected with the conduct of a trade
or business in the United States, if it can
reliably associate the payment with a
valid Form W–8ECI described in
paragraph (c)(3)(v) of this section or if
it can do so under the presumption rule
in paragraph (f)(6) of this section.
(c) Rules for reliably associating a
payment with a withholding certificate
or other appropriate documentation—
(1) In general. A withholding agent can
reliably associate a withholdable
payment with valid documentation if,
prior to the payment, it has obtained
(either directly or through an agent)
valid documentation appropriate to the
payee’s chapter 4 status as described in
paragraph (d) of this section, it can
reliably determine how much of the
payment relates to the valid
documentation, and it does not know or
have reason to know that any of the
information, certifications, or statements
in, or associated with, the
documentation are unreliable or
incorrect. Thus, a withholding agent
cannot reliably associate a withholdable
payment with valid documentation
provided by a payee to the extent such
documentation appears unreliable or
incorrect with respect to the claims
made, or to the extent that information
required to allocate all or a portion of
the payment to each payee is unreliable
or incorrect. A withholding agent may
rely on information and certifications
contained in withholding certificates or
other documentation without having to
inquire into the truthfulness of the
information or certifications, unless it
knows or has reason to know that the
information or certifications are untrue.
A withholding agent may rely upon the
same documentation for purposes of
both chapters 3 and 4 provided the
documentation is sufficient to meet the
requirements of each chapter.
Alternatively, a withholding agent may
elect to rely upon the presumption rules
of paragraph (f) of this section in lieu of
obtaining documentation from the
payee.
(2) Reliably associating a payment
with documentation if a payment is
made through an intermediary or flowthrough entity that is not the payee—(i)
In general. A withholding agent that
makes a payment to a foreign
intermediary or foreign flow-through
entity that is not the payee under
paragraph (a) of this section can reliably
associate the payment with valid
documentation if, in addition to the
documentation described in paragraph
(d) of this section that is relevant to each
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payee, the withholding agent also has
obtained a valid Form W–8IMY,
described in paragraph (c)(3)(iii) of this
section, from the intermediary or flowthrough entity (and, with respect to a
payment made through a chain of
intermediaries or flow-through entities,
has received a valid Form W–8IMY from
each intermediary or flow-through
entity in that chain). An intermediary or
flow-through entity that is a
participating FFI or registered deemedcompliant FFI receiving a payment of
U.S. source FDAP income may, in lieu
of providing the withholding agent with
documentation for each payee, provide
pooled allocation information to the
extent and in the manner permitted by
paragraph (c)(3)(iii)(B)(2) of this section.
(ii) Exception to entity account
documentation rules for an offshore
account of an intermediary or flowthrough entity. In the case of an offshore
account held by an intermediary or
flow-through entity not receiving a
payment of U.S. source FDAP income,
an FFI may, in lieu of obtaining a
withholding certificate, reliably
associate such account with valid
documentation if the FFI has obtained a
written statement certifying as to the
account holder’s chapter 4 status and
stating that the account holder is a flowthrough entity or is acting as an
intermediary with respect to the
payment. In such case, the intermediary
or flow-through entity will also be
required to provide the withholding
statement that generally accompanies
the Form W–8IMY, designating the
payees and the appropriate amount that
should be allocated to each payee, and
valid documentation for each payee. If
no such withholding statement or
underlying documentation is provided,
the payment will be treated as made to
a nonparticipating FFI.
(3) Requirements for validity of
certificates—(i) Form W–9. A valid Form
W–9, or a substitute form, must meet the
requirements prescribed in § 31.3406(h)3 of this chapter, including the
requirement that the form contain the
payee’s name and TIN, and be signed
and dated under penalties of perjury by
the payee or a person authorized to sign
for the payee pursuant to sections 6061
through 6063 and the regulations
thereunder. A foreign person, including
a U.S. branch of a foreign person that is
treated as a U.S. person under § 1.1441–
1(b)(2)(iv), or a foreign branch of a U.S.
financial institution that is a QI, may
not provide a Form W–9.
(ii) Beneficial owner withholding
certificate (Form W–8BEN). A beneficial
owner withholding certificate includes a
Form W–8BEN (or a substitute form)
and such other form as the IRS may
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prescribe. A beneficial owner
withholding certificate is valid only if
its validity period has not expired, it is
signed under penalties of perjury by a
person with authority to sign for the
person whose name is on the form, and
it contains—
(A) The person’s name, permanent
residence address, and TIN (if required);
(B) A certification that the person is
not a U.S. citizen (if the person is an
individual) or a certification of the
country under the laws of which the
person is created, incorporated, or
governed (for a person other than an
individual);
(C) The entity classification of the
person;
(D) The chapter 4 status of the person;
and
(E) Such other information required
under paragraph (d) of this section
applicable to the chapter 4 status
selected or otherwise required by the
regulations under section 1471 or 1472,
or by the form or its accompanying
instructions in addition to, or in lieu of,
the information described in this
paragraph (c)(3)(ii).
(iii) Withholding certificate of an
intermediary, flow-through entity, or
U.S. branch (Form W–8IMY)—(A) In
general. A withholding certificate of an
intermediary, flow-through entity, or
U.S. branch is valid for purposes of
chapter 4 only if it is furnished on a
Form W–8IMY, an acceptable substitute
form, or such other form as the IRS may
prescribe, it is signed under penalties of
perjury by a person with authority to
sign for the person named on the form,
its validity period has not expired, and
it contains the following information,
statements, and certifications—
(1) The name and permanent
residence address of the person.
(2) The country under the laws of
which the person is created,
incorporated, or governed.
(3) The person’s entity classification
for U.S. tax purposes.
(4) The person’s chapter 4 status.
(5) A GIIN, in the case of a
participating FFI or a registered
deemed-compliant FFI (including a U.S.
branch of such an entity), or an EIN in
the case of a QI, WP, or WT that is not
an FFI.
(6) In the case of an intermediary
certificate, a certification that, with
respect to accounts listed on the
withholding statement, the intermediary
is not acting for its own account.
(7) With respect to a withholding
certificate of a QI, a certification that it
is acting as a QI with respect to the
accounts listed on the withholding
statement.
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(8) In the case of a participating FFI
or registered deemed-compliant FFI
(including a U.S. branch of either such
entities that is not treated as a U.S.
person) that is an NQI, NWP, NWT, or
a QI that makes an election to be
withheld upon, an FFI withholding
statement that meets the requirements of
paragraphs (c)(3)(iii)(B)(1) and (2) of this
section.
(9) In the case of a territory financial
institution that does not agree to be
treated as a U.S. person or a U.S. branch
that is not a U.S. branch of a
participating FFI, registered deemedcompliant FFI, or nonparticipating FFI,
a chapter 4 withholding statement that
meets the requirements of paragraphs
(c)(3)(iii)(B)(1) and (3) of this section.
(10) In the case of an NFFE or
certified deemed-compliant FFI that is
an NQI, NWP, or NWT and is not the
payee, a chapter 4 withholding
statement that meets the requirements of
paragraphs (c)(3)(iii)(B)(1) and (3) of this
section.
(11) In the case of a nonparticipating
FFI receiving a payment on behalf of
one or more exempt beneficial owners,
an exempt beneficial owner withholding
statement that meets the requirements of
paragraphs (c)(3)(iii)(B)(1) and (4) of this
section.
(12) Any other information,
certifications, or statements as may be
required by the form or its
accompanying instructions in addition
to, or in lieu of, the information and
certifications described in this
paragraph.
(B) Withholding statement—(1) In
general. A withholding statement forms
an integral part of the withholding
certificate and the penalties of perjury
statement provided on the withholding
certificate applies to the withholding
statement as well. The withholding
statement may be provided in any
manner, and in any form, to which the
person submitting the form and the
withholding agent mutually agree,
including electronically. If the
withholding statement is provided
electronically, there must be sufficient
safeguards to ensure that the
information received by the withholding
agent is the information sent by the
person submitting the withholding
certificate and the electronic system
must document all occasions of user
access that result in the submission or
modification of withholding statement
information. In addition, the electronic
system must be capable of providing a
hard copy of all withholding statements
provided electronically. The
withholding statement must be updated
as often as necessary for the
withholding agent to meet its reporting
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and withholding obligations under
chapter 4. A withholding agent will be
liable for tax, interest, and penalties
under § 1.1474–1(a) to the extent it does
not follow the presumption rules of
paragraph (f) of this section for any
payment, or portion thereof, for which
a withholding statement is required and
the withholding agent does not have a
valid withholding statement prior to
making a payment. A withholding agent
that is making a payment for which a
withholding statement is also required
for purposes of chapter 3, may only rely
upon the withholding statement if, in
addition to providing the information
required by paragraph (c)(3)(iii)(B) of
this section, the withholding statement
also includes all of the information
required for purposes of chapter 3 and
specifies the chapter 4 status of each
payee or pool of payees identified on
the withholding statement for purposes
of chapter 3.
(2) Special requirements for an FFI
withholding statement. An FFI
withholding statement must include
either pooled information that indicates
the portion of the payment attributable
to U.S. persons, recalcitrant account
holders, nonparticipating FFIs, and any
other class of payees that is not subject
to withholding under chapter 4; or,
when payee specific information is
provided for purposes of chapter 3, an
allocation of the payment to each payee
with the payee’s chapter 4 status.
Regardless of whether the FFI
withholding statement provides
information on a pooled basis or on a
payee specific basis, the withholding
statement must identify each
intermediary or flow-through entity that
receives the payment on behalf of a
payee with such entity’s chapter 4 status
and GIIN, when applicable. An FFI
withholding statement must also
include any other information that the
withholding agent reasonably requests
in order to fulfill its obligations under
chapter 4.
(3) Special requirements for a chapter
4 withholding statement. A chapter 4
withholding statement must contain the
name, address, TIN (if any), entity type,
and chapter 4 status of each payee, the
amount allocated to each payee, a valid
withholding certificate or other
appropriate documentation sufficient to
establish the chapter 4 status of each
payee, and each intermediary or flowthrough that receives the payment on
behalf of the payee, in accordance with
paragraph (d) of this section, and any
other information the withholding agent
reasonably requests in order to fulfill its
obligations under chapter 4.
Notwithstanding the prior sentence, a
chapter 4 withholding statement is
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5919
permitted to provide pooled allocation
information with respect to payees that
are treated as nonparticipating FFIs.
(4) Special requirements for an
exempt beneficial owner withholding
statement. An exempt beneficial owner
withholding statement must include the
name, address, TIN (if any), entity type,
and chapter 4 status of each exempt
beneficial owner on behalf of which the
nonparticipating FFI is receiving the
payment, the amount of the payment
allocable to each exempt beneficial
owner, a valid withholding certificate or
other documentation sufficient to
establish the chapter 4 status of each
exempt beneficial owner in accordance
with paragraph (d) of this section, and
any other information the withholding
agent reasonably requests in order to
fulfill its obligations under chapter 4.
The withholding statement must
allocate the remainder of the payment
that is not allocated to an exempt
beneficial owner to the nonparticipating
FFI receiving the payment.
(C) Failure to provide allocation
information. A withholding certificate
that fails to provide allocation
information or any of the required
documentation for one or more of the
payees will not be treated as invalid
with respect to the persons for whom
valid documentation and allocation
information is properly provided. The
portion of the payment that is not
reliably associated with underlying
documentation or that is not properly
allocated will be treated in accordance
with the presumption rules set forth in
paragraph (f) of this section. For
example, assume a withholding
certificate that is provided by a
participating FFI that is an NQI includes
an FFI withholding statement that
indicates that 50 percent of the payment
is allocable to payees that are exempt for
purposes of chapter 4 but does not
allocate the remaining 50 percent of the
payment for purposes of chapter 4. In
such case, the withholding agent may
treat 50 percent of the payment as
exempt from chapter 4 and the
remaining 50 percent that was not
allocated will be treated, under the
presumption rules set forth in paragraph
(f) of this section, as made to a pool of
payees that are nonparticipating FFIs.
(D) Special rules applicable to a
withholding certificate of a QI that
assumes primary withholding
responsibility under chapter 3. A QI that
assumes primary withholding
responsibility under chapter 3 for a
payment may not make an election to be
withheld upon, as described in
§ 1.1471–2(a)(2)(iii), with respect to that
payment. Thus, if a QI assumes primary
withholding responsibility under
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chapter 3 with respect to a payment of
U.S. source FDAP income, in addition
to the other requirements described in
paragraph (c)(3)(iii)(A) of this section, a
withholding agent can reliably associate
the payment with a valid withholding
certificate only when the QI has also
indicated on the intermediary
withholding certificate that it will
assume primary withholding
responsibility for that payment for
purposes of chapter 4.
(E) Special rules applicable to a
withholding certificate of a QI that does
not assume primary withholding
responsibility under chapter 3. A QI that
does not assume primary withholding
responsibility under chapter 3 with
respect to a payment of U.S. source
FDAP income will be required to make
the election to be withheld upon with
respect to that payment. Thus, if a QI
does not assume primary withholding
responsibility under chapter 3, a
withholding agent can reliably associate
a payment of U.S. source FDAP income
with a valid withholding certificate only
when, in addition to the other
information required by paragraph
(c)(3)(iii)(A) of this section, the
withholding certificate indicates that
the QI does not assume primary
withholding responsibility for that
payment for purposes of chapter 4.
(F) Special rules applicable to a
withholding certificate of a territory
financial institution that agrees to be
treated as a U.S. person. A withholding
agent may reliably associate a payment
with an intermediary withholding
certificate or flow-through withholding
certificate of a territory financial
institution that agrees to be treated as a
U.S. person if, in addition to the other
information required by paragraph
(c)(3)(iii)(A) of this section, the
certificate contains an EIN of the
territory financial institution and a
certification that the territory financial
institution agrees to be treated as a U.S.
person and accepts primary withholding
responsibility with respect to the
payment for purposes of both chapters
3 and 4.
(G) Special rules applicable to a
withholding certificate of a territory
financial institution that does not agree
to be treated as a U.S. person. A
withholding agent may reliably
associate a payment with an
intermediary withholding certificate or
a flow-through withholding certificate
of a territory financial institution that
does not agree to be treated as a U.S.
person if, in addition to the information
required by paragraph (c)(3)(iii)(A) of
this section, the certificate indicates that
the institution has not agreed to be
treated as a U.S. person for purposes of
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chapter 4 and the institution provides a
withholding statement described in
paragraphs (c)(3)(iii)(B)(1) and (3) of this
section.
(H) Special rules applicable to a
withholding certificate of a U.S. branch
treated as a U.S. person. A withholding
agent may reliably associate a payment
with a withholding certificate of a U.S.
branch that is treated as a U.S. person
for purposes of § 1.1441–1(b)(2)(iv) if, in
addition to the other information
required by paragraph (c)(2)(iii)(A) of
this section; the certificate contains the
EIN of the U.S. branch; the GIIN of the
U.S. branch; and a certification that the
U.S. branch is described in paragraph
§ 1.1441–1(b)(2)(iv) and, accordingly, is
required to accept primary withholding
responsibility with respect to the
payment for purposes of both chapters
3 and 4.
(iv) Certificate for exempt status
(Form W–8EXP). A Form W–8EXP is
valid only if it contains the name,
address, and chapter 4 status of the
payee, the relevant certifications or
documentation, and any other
requirements indicated in the
instructions to the form, and is signed
under penalties of perjury by a person
with authority to sign for the payee.
(v) Certificate for effectively
connected income (Form W–8ECI). A
Form W–8ECI is valid only if, in
addition to meeting the requirements in
the instructions to the form, it contains
the name, address, and TIN of the payee
(other than a GIIN), represents that the
amounts for which the certificate is
furnished are effectively connected with
the conduct of a trade or business in the
United States and are includable in the
payee’s gross income for the taxable
year (or are gross proceeds from the sale
of property that can produce income
that is effectively connected with the
conduct of a trade or business in the
United States), and is signed under
penalties of perjury by a person with
authority to sign for the payee.
(4) Requirements for written
statements. A written statement is a
statement by the payee, or other person
receiving the payment, that provides the
person’s chapter 4 status and any other
information reasonably requested by the
withholding agent to fulfill its
obligations under chapter 4 with respect
to the payment, such as whether the
person is receiving the payment as a
beneficial owner, intermediary, or flowthrough entity. A written statement is
valid only if it is provided by a person
with respect to an offshore obligation,
contains the name of the person, the
person’s address, the certifications
relevant to the person’s chapter 4 status
(as contained on a withholding
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certificate), any additional information
required with respect to the chapter 4
status claimed as provided under
paragraph (d) of this section (for
example, a GIIN), and a signed and
dated certification that the information
provided on the form is accurate and
will be updated by the individual
within 30 days of a change in
circumstances that causes the form to
become incorrect. A written statement
may be submitted in any form that is
acceptable to the withholding agent,
including a statement made as part of
the account opening documentation. A
written statement may be used in lieu of
a withholding certificate only to the
extent provided under § 1.1471–3(d), as
applicable to the chapter 4 status
claimed.
(5) Requirements for documentary
evidence. Documentary evidence with
respect to a payee is only reliable if it
contains sufficient information to
support the payee’s claim of chapter 4
status.
(i) Foreign status. Acceptable
documentary evidence supporting a
claim of foreign status includes the
following types of documentation if the
documentation contains a permanent
residence address for the person named
on the documentation (or indicates the
country in which a person that is an
individual is a resident or citizen or the
country in which a person that is an
entity has a permanent residence or is
incorporated or organized, if the
withholding agent has otherwise
obtained a current permanent residence
address for the person)—
(A) Certificate of residence. A
certificate of residence issued by an
appropriate tax official of the country in
which the payee claims to be a resident
that indicates that the payee has filed its
most recent income tax return as a
resident of that country;
(B) Individual government
identification. With respect to an
individual, any valid identification
issued by an authorized government
body (for example, a government or
agency thereof, or a municipality), that
is typically used for identification
purposes;
(C) QI documentation. With respect to
an account maintained in a jurisdiction
with anti-money laundering rules that
have been approved by the IRS in
connection with a QI agreement (as
referenced in § 1.1441–1(e)(5)(iii)), any
of the documents other than a Form W–
8 or W–9 referenced in the jurisdiction’s
attachment to the QI agreement for
identifying individuals or entities;
(D) Entity government documentation.
With respect to an entity, any official
documentation issued by an authorized
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government body (for example, a
government or agency thereof, or a
municipality); and
(E) Third-party credit report. For a
payment made with respect to an
offshore obligation to an individual, a
third-party credit report that is obtained
pursuant to the conditions described in
§ 1.1471–4(c)(4)(ii).
(ii) Chapter 4 status. Acceptable
documentary evidence supporting an
entity’s claim of chapter 4 status
includes—
(A) General documentary evidence.
With respect to an entity other than a
participating FFI or registered deemedcompliant FFI, any organizational
document (such as articles of
incorporation or a trust agreement),
financial statement, third-party credit
report, letter from a government agency,
or statement from a government Web
site, agency, or registrar (such as an SEC
report) to the extent permitted in
paragraphs (d) and (e) of this section;
(B) Preexisting account documentary
evidence. With respect to a preexisting
obligation of an entity, any standardized
industry code or any classification in
the withholding agent’s records with
respect to the payee that was
determined based on documentation
supplied by the payee (or other person
receiving the payment) and that was
recorded by the withholding agent by
the later of January 1, 2012, or six
months after the date the withholding
agent was formed or organized, to the
extent permitted by paragraph (d) of this
section and provided there is no U.S.
indicia associated with the payee for
which appropriate curing
documentation has not been obtained as
set forth in paragraph (e) of this section;
and
(C) Payee-specific documentary
evidence. A letter from an auditor or
attorney with a location in the United
States that is not related to the
withholding agent or payee and is
subject to the authority of a regulatory
body that governs the auditor’s or
attorney’s review of the chapter 4 status
of the payee, any bankruptcy filing,
corporate resolution, copy of a stock
market index or other document to the
extent permitted in the specific payee
documentation requirements in
paragraph (d) and (e) of this section.
(6) Applicable rules for withholding
certificates, written statements, and
documentary evidence. The provisions
in this paragraph (c)(6) describe
standards generally applicable to
withholding certificates (Forms W–8 or
substitute forms), written statements,
and documentary evidence furnished to
establish the payee’s chapter 4 status.
These provisions do not apply to Forms
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W–9 (or their substitutes). For
corresponding provisions regarding the
Form W–9 (or a substitute Form W–9),
see section 3406 and the regulations
thereunder.
(i) Who may sign the withholding
certificate or written statement. A
withholding certificate (including an
acceptable substitute) or written
statement may be signed by any person
authorized to sign a declaration under
penalties of perjury on behalf of the
person whose name is on the certificate
or written statement, as provided in
sections 6061 through 6063 and the
regulations thereunder. A person
authorized to sign a withholding
certificate or written statement includes
an officer or director of a corporation, a
partner of a partnership, a trustee of a
trust, an executor of an estate, any
foreign equivalent of the former titles,
and any other person that has been
provided written authorization by the
individual or entity named on the
certificate or written statement to sign
documentation on such person’s behalf.
(ii) Period of validity—(A) General
rule. Except as provided otherwise in
paragraphs (c)(6)(ii)(B) and (C), a
withholding certificate or written
statement will remain valid until the
last day of the third calendar year
following the year in which the
withholding certificate or written
statement is signed. Documentary
evidence is generally valid until the last
day of the third calendar year following
the year in which the documentary
evidence is provided to the withholding
agent. Nevertheless, documentary
evidence that contains an expiration
date may be treated as valid until that
expiration date if doing so would
provide a longer period of validity than
the three-year period. Notwithstanding
the validity periods permitted by
paragraphs (c)(6)(ii)(A) through (D) of
this section, a withholding certificate,
written statement, and documentary
evidence will cease to be valid if the
withholding agent has knowledge of a
change in circumstances that makes the
information on the documentation
incorrect. Therefore, a withholding
agent is required to institute procedures
to ensure that any change to the
customer master files that constitutes a
change in circumstances described in
paragraph (c)(6)(ii)(E) of this section is
identified by the withholding agent. In
addition, a withholding agent is
required to notify any person providing
documentation of the person’s
obligation to notify the withholding
agent of a change in circumstances.
(B) Indefinite validity.
Notwithstanding paragraph (c)(6)(ii)(A)
of this section, the following certificates
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5921
(or parts of certificates), written
statements, or documentary evidence
shall remain valid until the withholding
agent has knowledge of a change in
circumstances that makes the
information on the documentation
incorrect—
(1) A withholding certificate or
written statement provided by a
participating FFI or registered deemedcompliant FFI that has furnished a valid
GIIN that has been verified by the
withholding agent in the manner set
forth in paragraph (e)(3) of this section;
(2) A beneficial owner withholding
certificate that is provided by an
individual claiming foreign status if the
withholding certificate is furnished with
documentary evidence supporting the
individual’s claim of foreign status and
the withholding agent does not have a
current U.S. residence or U.S. mailing
address for the payee and does not have
one or more current U.S. telephone
numbers that are the only telephone
numbers the withholding agent has for
the payee;
(3) A beneficial owner withholding
certificate that is provided by an entity
described in paragraph (c)(6)(ii)(C)(2) of
this section if the withholding
certificate is furnished with
documentary evidence establishing the
entity’s foreign status;
(4) A withholding certificate of an
intermediary, flow-through entity, or
U.S. branch (not including the
withholding certificates, written
statements, or documentary evidence of
the payees, or withholding statements
associated with the withholding
certificate);
(5) A withholding certificate, written
statement, or documentary evidence
furnished by a foreign government,
government of a U.S. territory, foreign
central bank (including the Bank for
International Settlements), international
organization, or entity that is wholly
owned by any such entities; and
(6) Documentary evidence that is not
generally renewed or amended (such as
a certificate of incorporation).
(C) Indefinite validity in the case of
certain offshore obligations.
Notwithstanding paragraph (c)(6)(ii)(A)
of this section, the following certificates,
written statements, and documentary
evidence that are provided with respect
to offshore obligations shall remain
valid until a change in circumstances
occurs that makes the information on
the documentation incorrect—
(1) A withholding certificate or
documentary evidence provided by an
individual claiming foreign status if the
withholding agent does not have a
current U.S. residence or U.S. mailing
address for the payee, does not have one
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or more current U.S. telephone numbers
that are the only telephone numbers the
withholding agent has for the payee,
and has not been provided standing
instructions to make a payment in the
United States for the obligation;
(2) A withholding certificate, written
statement, or documentary evidence
provided by one of the following
entities if such entity is the payee—
(i) A retirement fund described in
§ 1.1471–6(f) or an entity that is wholly
owned by such a retirement fund;
(ii) An excepted nonfinancial group
entity described in § 1.1471–5(e)(5)(i);
(iii) A section 501(c) entity described
in § 1.1471–5(e)(v);
(iv) A non-profit organization
described in § 1.1471–5(e)(5)(vi);
(v) A nonreporting IGA FFI;
(vi) A territory financial institution
that agrees to be treated as a U.S. person
for chapter 4 purposes;
(vii) An NFFE whose stock is regularly
traded as described in § 1.1472–
1(c)(1)(i);
(viii) An NFFE affiliate described in
§ 1.1472–1(c)(1)(ii);
(ix) An active NFFE that the
withholding agent has determined,
through its AML due diligence, is
engaged in a business other than that of
a financial institution, and ongoing
monitoring of the account for purposes
of AML due diligence does not indicate
that the determination is incorrect; and
(x) A sponsored FFI described in
§ 1.1471–5(f)(2)(iii);
(3) A withholding certificate of an
owner-documented FFI, but not
including the withholding statements,
documentary evidence, and withholding
certificates of its owners (unless such
documentation is permitted indefinite
validity under another provision);
(4) A withholding statement
associated with a withholding certificate
of an owner-documented FFI provided
the account balance of all accounts held
by such owner-documented FFI with
the withholding agent does not exceed
$1,000,000 on the later of December 31,
2013, or the last day of the calendar year
in which the account was opened, and
the last day of each subsequent calendar
year preceding the payment, applying
the aggregation principles of § 1.1471–
5(b)(4)(iii), and the owner-documented
FFI does not have any contingent
beneficiaries or designated classes with
unidentified beneficiaries; and
(5) A withholding certificate of a
passive NFFE or excepted territory
NFFE, provided the account balance of
all accounts held by such entity with
the withholding agent does not exceed
$1,000,000 on the later of December 31,
2013, or the last of the calendar year in
which the account was opened, and the
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last day of each subsequent calendar
year preceding the payment, applying
the aggregation principles of § 1.1471–
5(b)(4)(iii), and the withholding agent
does not know or have reason to know
that the entity has any contingent
beneficiaries or designated classes with
unidentified beneficiaries.
(D) Exception for certificate for
effectively connected income.
Notwithstanding paragraphs (c)(6)(ii)(B)
to (C) of this section, the period of
validity of a withholding certificate
furnished to a withholding agent to
claim a reduced rate of withholding for
income that is effectively connected
with the conduct of a trade or business
within the United States shall be limited
to the three-year period described in
paragraph (c)(6)(ii)(A) of this section.
(E) Change in circumstances—(1)
Defined. For purposes of this chapter, a
person is considered to have a change
in circumstances only if such change
would affect the chapter 4 status of the
person. A change in circumstances
includes any change that results in the
addition of information described in
paragraph (e)(4) relevant to a person’s
claim of foreign status (that is, U.S.
indicia that is not otherwise cured by
documentation on file and that is
relevant to the chapter 4 status claimed)
or otherwise conflicts with such
person’s claim of chapter 4 status.
Unless stated otherwise, a change of
address or telephone number is a
change in circumstances for purposes of
this paragraph (c)(6)(ii)(E) only if it
changes to an address or telephone
number in the United States. A change
in circumstances affecting the
withholding information provided to
the withholding agent, including
allocation information or withholding
pools contained in a withholding
statement or owner reporting statement,
will terminate the validity of the
withholding certificate with respect to
the information that is no longer
reliable, until the information is
updated.
(2) Obligation to notify withholding
agent of a change in circumstances. If a
change in circumstances makes any
information on a certificate or other
documentation incorrect, then the
person whose name is on the certificate
or other documentation must inform the
withholding agent within 30 days of the
change and furnish a new certificate, a
new written statement, or new
documentary evidence. If an
intermediary or a flow-through entity
becomes aware that a certificate or other
appropriate documentation it has
furnished to the person from whom it
collects a payment is no longer valid
because of a change in the
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circumstances of the person who issued
the certificate or furnished the other
appropriate documentation, then the
intermediary or flow-through entity
must notify the person from whom it
collects the payment of the change in
circumstances within 30 days of the
date that it knows or has reason to know
of the change in circumstances. It must
also obtain a new withholding
certificate or new appropriate
documentation to replace the existing
certificate or documentation the validity
of which has expired due to the change
in circumstances.
(3) Withholding agent’s obligation
with respect to a change in
circumstances. A certificate or other
documentation becomes invalid on the
date that the withholding agent holding
the certificate or documentation knows
or has reason to know that
circumstances affecting the correctness
of the certificate or documentation have
changed. However, a withholding agent
may choose to treat a person as having
the same chapter 4 status that it had
prior to the change in circumstances
until the earlier of 90 days from the date
that the certificate or documentation
became unreliable due to the change in
circumstances or the date that a new
certificate or new documentation is
obtained. A withholding agent may rely
on a certificate without having to
inquire into possible changes of
circumstances that may affect the
validity of the statement, unless it
knows or has reason to know that
circumstances have changed. A
withholding agent may require a new
certificate or additional documentation
at any time prior to a payment,
regardless of whether the withholding
agent knows or has reason to know that
any information stated on the certificate
or documentation has changed.
(iii) Record Retention—(A) In general.
A withholding agent must retain each
withholding certificate, written
statement, or copy of documentary
evidence for as long as it may be
relevant to the determination of the
withholding agent’s tax liability under
section 1474(a) and § 1.1474–1. A
withholding agent may retain an
original, certified copy, or photocopy
(including a microfiche, electronic scan,
or similar means of electronic storage) of
the withholding certificate, written
statement, or documentary evidence.
With respect to documentary evidence,
the withholding agent must also note in
its records the date on which the
document was received and reviewed.
Any documentation that is stored
electronically must be made available in
hard copy form to the IRS upon request
during an examination.
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(B) Exception for documentary
evidence received with respect to
offshore obligations. A withholding
agent that is making a payment with
respect to an offshore obligation and is
not required to retain copies of
documentation reviewed pursuant to its
AML due diligence, may, in lieu of
retaining the documents as set forth in
paragraph (c)(6)(iii)(A), retain a notation
of the type of documentation reviewed,
the date the documentation was
reviewed, the document’s identification
number (if any) (for example, a passport
number), and whether such
documentation contained any U.S.
indicia. The previous sentence applies
with respect to an offshore obligation
that is also a preexisting obligation,
except, in such case, the requirement to
record whether the documentation
contained U.S. indicia does not apply.
See also § 1.1471–4(c)(2)(iv) for the
record retention requirements of a
participating FFI.
(iv) Electronic transmission of
withholding certificate, written
statement, and documentary evidence.
A withholding agent may accept a
withholding certificate (including an
acceptable substitute form), a written
statement, or other such form as the IRS
may prescribe, electronically in
accordance with the requirements set
forth in § 1.1441–1(e)(4)(iv). See
§ 1.1441–1(e)(4)(iv) for procedures for
the electronic transmission of a
withholding certificate that has been
completed and signed with a
handwritten signature, scanned into an
electronic system, and sent to the
withholding agent via email. A
withholding certificate (including a
substitute form), written statement, or
other such form prescribed by the IRS
may be accepted by facsimile if the
withholding agent confirms that the
individual or entity furnishing the form
is the individual or entity named on the
form and the faxed form contains a
signature of the person whose name is
on the form (or such person’s authorized
representative) made under penalties of
perjury in the manner described in
§ 1.1441–1(e)(4)(iv)(B)(3)(i). A
withholding agent may also accept a
copy of documentary evidence
electronically, including by facsimile or
by email, if the withholding agent
confirms that the person furnishing the
documentary evidence is the person
named on the documentary evidence (or
such person’s authorized representative)
and the copy does not appear to have
been altered from its original form.
(v) Acceptable substitute withholding
certificate—(A) In general. A
withholding agent may substitute its
own form for an official Form W–8 (or
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such other official form as the IRS may
prescribe). A substitute form will be
acceptable if it contains provisions that
are substantially similar to those of the
official form, it contains the same
certifications relevant to the
transactions as are contained on the
official form and these certifications are
clearly set forth, and the substitute form
includes a signature-under-penalties-ofperjury statement identical to the one on
the official form. The substitute form is
acceptable even if it does not contain all
of the provisions contained on the
official form, so long as it contains those
provisions that are relevant to the
transaction for which it is furnished. A
withholding agent may choose to
provide a substitute form that does not
include all of the exemptions from
withholding provided on the official
version but the substitute form must
include any chapter 4 status for which
withholding may apply, such as the
categories for a nonparticipating FFI or
passive NFFE. A withholding agent that
uses a substitute form must furnish
instructions relevant to the substitute
form only to the extent and in the
manner specified in the instructions to
the official form. A withholding agent
may use a substitute form that is written
in a language other than English and
may accept a form that is filled out in
a language other than English, but the
withholding agent must make available
an English translation of the form and
its contents to the IRS upon request. A
withholding agent may refuse to accept
a certificate from a person (including
the official Form W–8) if the certificate
provided is not an acceptable substitute
form provided by the withholding agent,
but only if the withholding agent
furnishes the person with an acceptable
substitute form within five business
days of receipt of an unacceptable form
from the person. In that case, the
substitute form is acceptable only if it
contains a notice that the withholding
agent has refused to accept the form
submitted by the person and that the
person must submit the acceptable form
provided by the withholding agent in
order for the person to be treated as
having furnished the required
withholding certificate.
(B) Non-IRS form for individuals. A
withholding agent may also substitute
its own form for an official Form W–
8BEN (for individuals), regardless of
whether the substitute form is titled a
Form W–8. However, in addition to the
name and address of the individual that
is the payee or beneficial owner, the
form must provide all countries in
which the individual is resident for tax
purposes, city and country of birth, a tax
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5923
identification number, if any, for each
country of residence, and must contain
a signed and dated certification made
under penalties of perjury that the
information provided on the form is
accurate and will be updated by the
individual within 30 days of a change
in circumstances that causes the form to
become incorrect. Notwithstanding the
previous sentence, the signed
certification provided on a form need
not be signed under penalties of perjury
if the form is accompanied by
documentary evidence that supports the
individual’s claim of foreign status.
Such documentary evidence may be the
same documentary evidence that is used
to support foreign status in the case of
a payee whose account has U.S. indicia
as described in paragraph (e) of this
section or § 1.1471–4(c)(4)(i)(A). The
form may also request other information
required for purposes of tax or AML due
diligence in the United States or in
other countries.
(vi) Electronic confirmation of TIN on
withholding certificate. The
Commissioner may prescribe
procedures in a revenue procedure or
other appropriate guidance to require a
withholding agent to confirm
electronically with the IRS information
concerning any TIN stated on a
withholding certificate.
(vii) Reliance on a prior version of a
withholding certificate. Upon the
issuance by the IRS of an updated
version of a withholding certificate, a
withholding agent may continue to
accept the prior version of the
withholding certificate for six months
after the revision date shown on the
updated withholding certificate, unless
the IRS has issued guidance that
indicates otherwise, and may continue
to rely upon a previously signed prior
version of the withholding certificate
until its period of validity expires.
(7) Curing documentation errors. The
provisions in this paragraph (c)(7)
describe standards generally applicable
to withholding certificates (Forms W–8
or substitute forms), written statements,
and documentary evidence furnished to
establish the payee’s chapter 4 status.
These provisions do not apply to Forms
W–9 (or their substitutes). For
corresponding provisions regarding the
Form W–9 (or a substitute Form W–9),
see section 3406 and the regulations
thereunder.
(i) Curing inconsequential errors on a
withholding certificate. A withholding
agent may treat a withholding certificate
as valid, notwithstanding that the
withholding certificate contains an
inconsequential error, if the
withholding agent has sufficient
documentation on file to supplement
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the information missing from the
withholding certificate due to the error.
In such case, the documentation relied
upon to cure the inconsequential error
must be conclusive. For example, a
withholding certificate in which the
individual submitting the form
abbreviated the country of residence
may be treated as valid, notwithstanding
the abbreviation, if the withholding
agent has government issued
identification for the person from a
country that reasonably matches the
abbreviation. On the other hand, an
abbreviation for the country of residence
that does not reasonably match the
country of residence shown on the
person’s passport is not an
inconsequential error. A failure to select
an entity type on a withholding
certificate is not an inconsequential
error, even if the withholding agent has
an organization document for the entity
that provides sufficient information to
determine the person’s entity type, if the
person was eligible to make an election
under § 301.7701–3(c)(1)(i) of this
chapter (that is, a check-the-box
election). A failure to check a box to
make a required certification on the
withholding certificate or to provide a
country of residence or a country under
which treaty benefits are sought is not
an inconsequential error. In addition,
information on a withholding certificate
that contradicts other information
contained on the withholding certificate
or in the customer master file is not an
inconsequential error.
(ii) Documentation received after the
time of payment. Proof that withholding
was not required under the provisions
of chapter 4 and the regulations
thereunder also may be established after
the date of payment by the withholding
agent on the basis of a valid withholding
certificate and/or other appropriate
documentation that was furnished after
the date of payment but that was
effective as of the date of payment. A
withholding certificate furnished after
the date of payment will be considered
effective as of the date of the payment
if the certificate contains a signed
affidavit (either at the bottom of the
form or on an attached page) that states
that the information and representations
contained on the certificate were
accurate as of the time of the payment.
A certificate obtained within 30 days
after the date of the payment will not be
considered to be unreliable solely
because it does not contain an affidavit.
However, in the case of a withholding
certificate of an individual received
more than a year after the date of
payment, the withholding agent will be
required to obtain, in addition to the
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withholding certificate and affidavit,
documentary evidence described in
paragraph (c)(5)(i) of this section that
supports the individual’s claim of
foreign status. In the case of a
withholding certificate of an entity
received more than a year after the date
of payment, the withholding agent will
be required to obtain, in addition to the
withholding certificate and affidavit,
documentary evidence specified in
paragraph (c)(5)(ii) of this section that
supports the chapter 4 status claimed. If
documentation other than a withholding
certificate is submitted from a payee
more than a year after the date of
payment, the withholding agent will be
required to also obtain from the payee
a withholding certificate and affidavit
supporting the chapter 4 status claimed
as of the date of the payment.
(8) Documentation furnished on
account-by-account basis unless
exception provided for sharing
documentation within expanded
affiliated group. Except as otherwise
provided in this paragraph (c)(8), a
withholding agent that is a financial
institution with which a customer may
open an account must obtain
withholding certificates, written
statements, Forms W–9, or documentary
evidence on an account-by-account
basis. Notwithstanding the previous
sentence, a withholding agent may rely
upon the withholding certificate,
written statement, or documentary
evidence furnished by a customer under
any one or more of the circumstances
described in this paragraph (c)(8).
(i) Single branch systems. A
withholding agent may rely on
documentation furnished by a customer
for another account if both accounts are
held at the same branch location and
both accounts are treated as
consolidated obligations.
(ii) Universal account systems. A
withholding agent may rely on
documentation furnished by a customer
for an account held at another branch
location of the same withholding agent
or at a branch location of a member of
the expanded affiliated group of the
withholding agent if the withholding
agent treats all accounts that share
documentation as consolidated
obligations and the withholding agent
and the other branch location or
expanded affiliated group member are
part of a universal account system that
uses a customer identifier that can be
used to retrieve systematically all other
accounts of the customer. A
withholding agent that opts to rely upon
the chapter 4 status designated for the
payee in the universal account system
without obtaining and reviewing copies
of the documentation supporting the
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status must be able to produce all
documentation (or a notation of the
documentary evidence reviewed if the
withholding agent is not required to
retain copies of the documentary
evidence) relevant to the chapter 4
status claimed upon request by the IRS
and will be liable for any
underwithholding that results from any
failure to assign the correct status based
upon the available information.
(iii) Shared account systems. A
withholding agent may rely on
documentation furnished by a customer
for an account held at another branch
location of the same withholding agent
or at a branch location of a member of
the expanded affiliated group of the
withholding agent if the withholding
agent treats all accounts that share
documentation as consolidated accounts
and the withholding agent and the other
branch location or expanded affiliated
group member share an information
system, electronic or otherwise, that is
described in this paragraph (c)(8)(iii).
The system must allow the withholding
agent to easily access data regarding the
nature of the documentation, the
information contained in the
documentation (including a copy of the
documentation itself), and the validity
status of the documentation. The
information system must also allow the
withholding agent to easily transmit
data into the system regarding any facts
of which it becomes aware that may
affect the reliability of the
documentation. The withholding agent
must be able to establish, to the extent
applicable, how and when it has
transmitted data regarding any facts of
which it became aware that may affect
the reliability of the documentation and
must be able to establish that any data
it has transmitted to the information
system has been processed and
appropriate due diligence has been
exercised regarding the validity of the
documentation. A withholding agent
that opts to rely upon the chapter 4
status designated for the payee in the
shared account system without
obtaining and reviewing copies of the
documentation supporting the status
must be able to produce all
documentation (or a notation of the
documentary evidence reviewed if the
withholding agent is not required to
retain copies of the documentary
evidence) relevant to the chapter 4
status claimed upon request by the IRS
and will be liable for any
underwithholding that results from any
failure to assign the correct status based
upon the available information.
(iv) Document sharing for gross
proceeds. [Reserved].
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(9) Reliance on documentation
collected by or certifications provided
by other persons—(i) Shared
documentation system maintained by
an agent. A withholding agent may rely
on documentation collected by an agent
(including a fund advisor for mutual
funds, hedge funds, or a private equity
group) of the withholding agent. The
agent may retain the documentation as
part of an information system
maintained for a single withholding
agent or multiple withholding agents
provided that under the system, any
withholding agent on behalf of which
the agent retains documentation may
easily access data regarding the nature
of the documentation, the information
contained in the documentation
(including a copy of the documentation
itself) and its validity, and must allow
such withholding agent to easily
transmit data, either directly into an
electronic system or by providing such
information to the agent, regarding any
facts of which it becomes aware that
may affect the reliability of the
documentation. The withholding agent
must be able to establish, to the extent
applicable, how and when it has
transmitted data regarding any facts of
which it became aware that may affect
the reliability of the documentation and
must be able to establish that any data
it has transmitted has been processed
and appropriate due diligence has been
exercised regarding the validity of the
documentation. The agent must have a
system in effect to ensure that any
information it receives regarding facts
that affect the reliability of the
documentation or the chapter 4 status
assigned to the customer are provided to
all withholding agents for which the
agent retains the documentation and
any chapter 4 status assigned by the
agent is amended to incorporate such
information. A withholding agent that
opts to rely upon the chapter 4 status
assigned by the agent without obtaining
and reviewing copies of the
documentation supporting the status
must be able to produce all
documentation relevant to the chapter 4
status claimed upon request by the IRS
and will be liable for any
underwithholding that results from a
failure of the agent to assign the correct
status based upon the available
information. See § 1.1474–1(a) for a
withholding agent’s liability when it
relies upon an agent for chapter 4
purposes. This paragraph (c)(9)(i) does
not apply to a withholding certificate
provided by a QI, a withholding
certificate provided by a territory
financial institution that elects to be
treated as a U.S. person, or any
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withholding statement, unless the
person submitting the form specifically
identifies the withholding agents for
which the certificates and/or statements
are provided.
(ii) Third-party data providers. A
withholding agent may rely upon
documentation collected by a thirdparty data provider with respect to an
entity, subject to the conditions
described in this paragraph (c)(9)(ii).
(A) The third-party data provider
must have collected documentation that
is sufficient to determine the chapter 4
status of the entity under paragraph (d)
of this section.
(B) The third-party data provider must
be in the business of providing credit
reports or business reports to unrelated
customers and must have reviewed all
information it has for the entity and
verified that such additional
information does not conflict with the
chapter 4 status claimed by the entity.
(C) The third-party data provider must
notify the entity submitting the
documentation that such entity must
notify the third-party data provider in
the event of a change in circumstances
within 30 days of the change in
circumstances, and the third-party data
provider must be obligated under its
contract with the withholding agent to
notify the withholding agent if a change
in circumstances occurs.
(D) The withholding agent may not
rely upon a chapter 4 status provided by
a third-party data provider if the
withholding agent knows or has reason
to know that the chapter 4 status is
unreliable or incorrect based on
information in the withholding agent’s
account records, or if the documentation
or information provided by the thirdparty data provider does not support the
chapter 4 status claimed.
(E) The withholding agent must be
able to submit copies of the
documentation received from the thirdparty data provider upon request to the
IRS and will remain liable for any
underwithholding that occurs as a result
of its reliance on information provided
by the third-party data provider if the
documentation is invalid or unreliable.
(F) This paragraph (c)(9)(ii) does not
apply to a withholding statement or a
withholding certificate that contains an
election to accept withholding or
reporting responsibility (such as one
made by a QI, territory financial
institution, or U.S. branch) provided by
a third-party data provider.
(iii) Reliance on certification provided
by introducing brokers—(A) A
withholding agent may rely on a
certification of a broker indicating the
broker’s determination of a payee’s
chapter 4 status and indicating that the
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5925
broker holds valid documentation
sufficient to determine the payee’s
chapter 4 status under paragraph (d) of
this section with respect to any readily
tradable instrument as defined in
§ 31.3406(h)–1(d) of this chapter if the
conditions in paragraph (c)(9)(iii)(B) of
this section are satisfied and the broker
is either—
(1) A U.S. person (including a U.S.
branch that is treated as a U.S. person)
that is acting as the agent of the payee;
or
(2) A participating FFI or a reporting
Model 1 FFI that is acting as the agent
of the payee with respect to an
obligation and receiving all payments
from the withholding agent with respect
to such obligation as an intermediary on
behalf of the payee.
(B) The certification from the broker
must be in writing or in electronic form
and contain all of the information
required of a chapter 4 withholding
statement described in paragraph
(c)(3)(iii)(B)(3). Notwithstanding this
paragraph (c)(9)(iii), a withholding agent
may not rely upon a certification
provided by a broker if it knows or has
reason to know that the broker has not
obtained valid documentation as
represented or the information
contained in the certification is
otherwise inaccurate. A broker that
chooses to provide a certification under
this paragraph (c)(9)(iii) will be
responsible for applying the rules set
forth in the regulations under section
1471 and 1472 to the withholding
certificates, written statements, or
documentary evidence obtained from
the payee and shall be liable for any
underwithholding that occurs as a result
of the broker’s failure to reasonably
apply such rules.
(iv) Reliance on documentation and
certifications provided between
principals and agents—(A) In general.
Subject to the conditions under
§ 1.1474–1(a)(3), a withholding agent is
permitted to use an agent to fulfill its
chapter 4 obligations and such agent’s
actions are imputed to the principal.
However, an agent that makes a
payment pursuant to an agency
arrangement (paying agent) is also a
withholding agent with respect to the
payment unless an exception under
§ 1.1473–(d) applies. Therefore, the
paying agent will have its own
obligation to determine the chapter 4
status of the payee and withhold upon
the payment if required. Although a
paying agent is generally a withholding
agent for purposes of chapter 4, the
financial accounts to which it makes
payments are not necessarily financial
accounts of the paying agent. See the
rules under § 1.1471–5(b)(5) to
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determine when a financial institution
maintains a financial account. In
addition, the status of a payment as
made with respect to an offshore
obligation or as a preexisting obligation
will be determined based on such
obligation’s status in relation to the
principal. Further, the due diligence
required with respect to the payment
will be determined by the status of the
principal and not the paying agent.
Consequently, a payment that is made,
for example, by a paying agent that is a
foreign entity on behalf of a principal
that is a U.S. withholding agent will be
subject to the due diligence applicable
to the principal. See § 1.1474–1(a)(3) for
rules regarding the reporting obligations
of a principal and agent in the case of
a payment made by an agent of behalf
of a principal.
(B) Reliance upon certification of the
principal. An agent that makes a
payment on behalf of a principal that it
may treat, pursuant to paragraph (d) of
this section, as a U.S. withholding
agent, participating FFI, or reporting
Model 1 FFI may rely upon a
certification provided by the principal
indicating that the principal has
obtained valid documentation sufficient
to determine the chapter 4 status of the
payee and may rely upon the principal’s
determination as to the payee’s chapter
4 status. In such a case, the agent will
be permitted to rely upon the
certification provided by the principal
when determining whether it is required
to withhold on the payment and will
not be liable for any underwithholding
that occurs as a result of the principal’s
failure to properly determine the
chapter 4 status of the payee unless the
agent knows or has reason to know the
certification provided by the principal is
inaccurate.
(C) Document sharing. In lieu of
obtaining a certification from the
principal as described in paragraph
(c)(9)(iv)(B) of this section, or when
reliance upon such certification is not
permitted, an agent that makes a
payment on behalf of a principal may
rely upon copies of documentation
provided to the principal with respect to
the payment. However, in such case,
both the principal and the agent are
obligated to determine the chapter 4
status of the payee based upon the
documentation and ensure that
adequate withholding occurs with
respect to the payment. While a
principal is imputed the knowledge of
the agent with respect to the payment,
the agent is not imputed the knowledge
of the principal.
(D) Examples—(1) Example 1. Paying agent
that does not collect documentation. A fund,
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P, that is a participating FFI contracts with
a U.S. person, A, to make payments to its
account holders with respect to their equity
interests in P. P contracts with another agent,
B, to obtain documentation sufficient to
determine the chapter 4 status of such
account holders. Based on the documentation
it collects, B determines that none of P’s
account holders are subject to withholding. P
provides a certification to A indicating that
it has obtained documentation sufficient to
determine the chapter 4 status of P’s account
holders and that each payee is not subject to
withholding under chapter 4. As the actions
of B, as P’s agent, are attributed to P, P may
provide a certification to A indicating that it
has determined the chapter 4 status of its
payees, even if it is B, and not P, who made
the determinations. However, P will be liable
for any underwithholding that results from a
failure by B to reasonably apply the rules
under chapter 4. A is permitted to rely upon
the certification provided by P and,
accordingly, is not required to withhold on
the payments made to P’s account holders
and would not be liable for any
underwithholding that results if the
determinations made by B are incorrect
unless A had reason to know that chapter 4
status claimed was inaccurate.
(ii) Example 2. Paying agent that collects
documentation. A fund, P, that is a
participating FFI contracts with a U.S.
person, A, to make a payment to its account
holders on its behalf. P also contracts with
A to obtain documentation sufficient to
determine the chapter 4 status of P’s account
holders. Based on the documentation it
collects, A determines that none of P’s
account holders are subject to withholding.
As the actions of A, as P’s agent, are imputed
to P, P will be liable for any
underwithholding that results from a failure
by A to reasonably apply the rules under
chapter 4. P is also required to retain the
documentation upon which A relied in
determining the chapter 4 status of its
account holders. Because A performed the
due diligence on behalf of P, A will have
reason to know if any of the chapter 4
determinations made based on the
documentation received were made
incorrectly, and, as a withholding agent with
respect to the payment, is liable, in addition
to P, for any underwithholding that results
from an incorrect determination that
withholding was not required. This result
applies regardless of whether A retains
copies of the documentation obtained with
respect to P’s account holders or receives a
certification from P indicating that P has
obtained documentation sufficient to
determine the chapter 4 status of its account
holders and that each payee is not subject to
withholding under chapter 4.
(v) Reliance upon documentation for
accounts acquired in merger or bulk
acquisition for value. A withholding
agent that acquires an account from a
predecessor or transferor in a merger or
bulk acquisition of accounts for value is
permitted to rely upon valid
documentation (or copies of valid
documentation) collected by the
predecessor or transferor. In addition, a
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withholding agent that acquires an
account in a merger or bulk acquisition
of accounts for value, other than a
related party transaction, from a U.S.
withholding agent, participating FFI
that has completed all due diligence
required under its agreement with
respect to the accounts transferred, or a
reporting Model 1 FFI that has
completed all due diligence required
pursuant to the applicable Model 1 IGA,
may also rely upon the predecessor’s or
transferor’s determination of the chapter
4 status of an account holder for a
transition period of the lesser of six
months from the date of the merger or
until the acquirer knows that the claim
of status is inaccurate or a change in
circumstances occurs. At the end of the
transition period, the acquirer will be
permitted to rely upon the predecessor’s
determination as to the chapter 4 status
of the account holder only if the
documentation that the acquirer has for
the account holder, including
documentation obtained from the
predecessor or transferor, supports the
chapter 4 status claimed. An acquirer
that discovers at the end of the
transition period that the chapter 4
status assigned by the predecessor or
transferor to the account holder was
incorrect and, as a result, has not
withheld as it would have been required
to but for its reliance upon the
predecessor’s determination, will be
required to withhold on future
payments, if any, made to the account
holder the amount of tax that should
have been withheld during the
transition period but for the erroneous
classification as to the account holder’s
status. For purposes of this paragraph
(c)(9)(v), a related party transaction is a
merger or sale of accounts in which the
acquirer is in the same expanded
affiliated group as the predecessor or
transferor either prior to or after the
merger or acquisition or the predecessor
or transferor (or shareholders of the
predecessor or transferor) obtain a
controlling interest in the acquirer or in
a newly formed entity created for
purposes of the merger or acquisition.
See § 1.1471–4(c)(2)(ii)(B) for an
additional allowance for a participating
FFI to rely upon the determination
made by another participating FFI as to
the chapter 4 status of an account
obtained as part of a merger or bulk
acquisition for value.
(d) Documentation requirements to
establish payee’s chapter 4 status.
Unless the withholding agent knows or
has reason to know otherwise, a
withholding agent may rely on the
provisions of this paragraph (d) to
determine the chapter 4 status of a
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payee (or other person that receives a
payment). Except as otherwise provided
in this paragraph (d), a withholding
agent is required to obtain a valid
withholding certificate or a Form W–9
from a payee in order to treat the payee
as having a particular chapter 4 status.
Paragraphs (d)(1) through (12) of this
section indicate when it is appropriate
for a withholding agent to rely upon a
written statement, documentary
evidence, or other information in lieu of
a Form W–8 or W–9. Paragraphs (d)(1)
through (12) of this section also
prescribe additional documentation
requirements that must be met in certain
cases in order to treat a payee as having
a specific chapter 4 status and specific
standards of knowledge that apply to a
particular payee, in addition to the
general standards of knowledge set forth
in paragraph (e) of this section. This
paragraph (d) also provides the
circumstances in which special
documentation rules are permitted with
respect to preexisting obligations. A
withholding agent may not rely on
documentation described in this
paragraph (d) if the documentation is
not valid or cannot reliably be
associated with the payment pursuant to
the requirements of paragraph (c) of this
section, or the withholding agent knows
or has reason to know that such
documentation is incorrect or unreliable
as described in paragraphs (d) and (e) of
this section. If the chapter 4 status of a
payee cannot be determined under this
paragraph (d) based on documentation
received, a withholding agent must
apply the presumption rules in
paragraph (f) to determine the chapter 4
status of the payee.
(1) Reliance on pre-FATCA Form W–
8. To establish a payee’s status as a
foreign individual, foreign government,
or international organization, a
withholding agent may rely upon a preFATCA Form W–8 in lieu of obtaining
an updated version of the withholding
certificate. To establish the chapter 4
status of a payee that is not a foreign
individual, foreign government, or
international organization, a
withholding agent may, for payments
made prior to January 1, 2017, rely upon
a pre-FATCA Form W–8 in lieu of
obtaining an updated version of the
withholding certificate if the
withholding agent has one or more
forms of documentary evidence
described in paragraphs (c)(5)(ii), as
necessary, to establish the chapter 4
status of the payee and the withholding
agent has obtained any additional
documentation or information required
for the particular chapter 4 status (such
as withholding statements, certifications
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as to owners, or required documentation
for underlying owners), as set forth
under the specific payee rules in
paragraphs (d)(2) through (12) of this
section. See paragraph (d)(4)(ii) and (iv)
of this section for specific requirements
when relying upon a pre-FATCA Form
W–8 for a participating FFI or registered
deemed-compliant FFI. This paragraph
(d)(1) does not apply to nonregistering
local banks, FFIs with only low-value
accounts, sponsored FFIs, ownerdocumented FFIs, territory financial
institutions that are not the beneficial
owners of the payment, or foreign
central banks (other than a foreign
central bank specifically identified as an
exempt beneficial owner under a Model
1 IGA or Model 2 IGA).
(2) Identification of U.S. persons—(i)
In general. A withholding agent must
treat a payee as a U.S. person if it has
a valid Form W–9 associated with the
payee or if it must presume the payee
is a U.S. person under the presumption
rules set forth in paragraph (f) of this
section. Consistent with the
presumption rules in paragraph (f)(3) of
this section, a withholding agent must
treat a payee that has provided a valid
Form W–9 as a specified U.S. person
unless the Form W–9 indicates that the
payee is other than a specified U.S.
person. Notwithstanding the foregoing,
a withholding agent receiving a Form
W–9 indicating that the payee is other
than a specified U.S. person must treat
the payee as a specified U.S. person if
the withholding agent knows or has
reason to know that the payee’s claim
that it is other than a specified U.S.
person is incorrect. For example, a
withholding agent that receives a Form
W–9 from a payee that is an individual
would be required to treat the payee as
a specified U.S. person regardless of
whether the Form W–9 indicates that
the payee is not a specified U.S. person,
because an individual that is a U.S.
person is not excepted from the
definition of a specified U.S. person
(ii) Reliance on documentary
evidence. A withholding agent may also
treat the payee as a U.S. person that is
other than a specified U.S. person if the
withholding agent has documentary
evidence described in paragraphs
(c)(5)(i)(C) and (D) of this section or
general documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) that both establishes that
the payee is a U.S. person and
establishes (either through the
documentation or the application of the
presumption rules in § 1.6049–4(c)(ii) or
paragraph (f)(3) of this section) that the
payee is an exempt recipient. For
purposes of the previous sentence, an
exempt recipient means with respect to
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5927
a withholding agent other than a
participating FFI or registered deemedcompliant FFI, an exempt recipient
under § 1.6049–4(c)(ii) or, with respect
to a withholding agent that is a
participating FFI or registered deemedcompliant FFI, a U.S. person other than
a specified U.S. person as described
under § 1.1473–1(c).
(iii) Preexisting obligations. As an
alternative to applying the rules in
paragraphs (d)(2)(i) and (ii) of this
section, a withholding agent that makes
a payment with respect to a preexisting
obligation may treat a payee as a U.S.
person if it has a notation in its files that
it has previously reviewed a Form W–
9 that established that the payee is a
U.S. person and has retained the payee’s
TIN. A withholding agent, other than a
participating FFI or registered deemedcompliant FFI, may also treat a payee as
a U.S. person if it has previously
reviewed a Form W–9 or documentary
evidence that established that the payee
is a U.S. person and established
(through the documentation or the
application of the presumption rules in
§ 1.6049–4(c)(ii)) that the payee is an
exempt recipient for purposes of chapter
61.
(3) Identification of individuals that
are foreign persons—(i) In general. A
withholding agent may treat a payee as
an individual that is a foreign person if
the withholding agent has a withholding
certificate identifying the payee as such
a person.
(ii) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat the payee as an
individual that is a foreign person if it
obtains documentary evidence
supporting the payee’s claim of status as
a foreign individual (as described in
paragraph (c)(5)(i)) or if the payee is
presumed to be an individual that is a
foreign person under the presumption
rules set forth in paragraph (f) of this
section.
(4) Identification of participating FFIs
and registered deemed-compliant FFIs—
(i) In general. Except as otherwise
provided in paragraph (d)(4)(ii) through
(iv) of this section, a withholding agent
may treat a payee as a participating FFI
or registered deemed-compliant FFI
only if the withholding agent has a
withholding certificate identifying the
payee as a participating FFI or registered
deemed-compliant FFI and the
withholding certificate contains a GIIN
for the payee that is verified against the
published IRS FFI list in the manner
described in paragraph (e)(3) of this
section (indicating when a withholding
agent may rely upon a GIIN). For
payments made prior to January 1, 2016,
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a participating FFI that is a sponsored
FFI may provide the GIIN of its
sponsoring entity on the withholding
certificate if the sponsored FFI has not
obtained a GIIN.
(ii) Exception for payments made
prior to January 1, 2017, with respect to
preexisting obligations (transitional).
For payments made prior to January 1,
2017, with respect to a preexisting
obligation, a withholding agent may
treat a payee as a participating FFI or
registered deemed-compliant FFI if the
payee has provided the withholding
agent (either orally or in writing) its
GIIN and indicated whether it is a
participating FFI or a registered
deemed-compliant FFI, and the
withholding agent has verified the GIIN
in the manner described in paragraph
(e)(3) of this section.
(iii) Exception for offshore
obligations. A withholding agent that
makes a payment, other than a payment
of U.S. source FDAP income, with
respect to an offshore obligation may
treat the payee as a participating FFI or
registered deemed-compliant FFI if the
payee provides the withholding agent
with its GIIN and states whether the
payee is a participating FFI or a
registered deemed-compliant FFI, and
the withholding agent verifies the GIIN
in the manner described in paragraph
(e)(3) of this section. A withholding
agent that makes a payment of U.S.
source FDAP income with respect to an
offshore obligation may treat the payee
as a participating FFI or registered
deemed-compliant FFI if—
(A) The payee provides the
withholding agent with—
(1) A written statement that contains
the payee’s GIIN and states that the
payee is the beneficial owner of the
payment and a participating FFI or a
registered deemed-compliant FFI, as
appropriate; and
(2) Documentary evidence supporting
the payee’s claim of foreign status; and
(B) The withholding agent verifies the
GIIN in the manner described in
paragraph (e)(3) of this section.
(iv) Exceptions for payments to
reporting Model 1 FFIs.—(A) For
payments made prior to January 1, 2015,
a withholding agent may treat the payee
as a reporting Model 1 FFI if it receives
a withholding certificate from the payee
indicating that the payee is a reporting
Model 1 FFI and the country in which
the payee is a reporting Model 1 FFI,
regardless of whether the certificate
contains a GIIN for the payee.
(B) For payments made prior to
January 1, 2015, with respect to a
preexisting obligation, a withholding
agent may treat a payee as a reporting
Model 1 FFI if it obtains a pre-FATCA
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Form W–8 from the payee, and the
payee indicates (either orally or in
writing) that it is a reporting Model 1
FFI and the country in which it is a
reporting Model 1 FFI, regardless of
whether the certificate contains a GIIN
for the payee.
(C) For payments made prior to
January 1, 2015, with respect to an
offshore obligation, a withholding agent
may treat the payee as a reporting Model
1 FFI if the payee informs the
withholding agent that the payee is a
reporting Model 1 FFI and provides the
country in which the payee is a
reporting Model 1 FFI. In the case of a
payment of U.S. source FDAP income,
such payee must also provide a written
statement that it is the beneficial owner
and documentary evidence supporting
the payee’s claim of foreign status (as
described in paragraph (c)(5)(i) of this
section).
(D) For payments made on or after
January 1, 2015, that do not constitute
U.S. source FDAP income, the
withholding agent may continue to treat
a payee as a reporting Model 1 FFI if the
payee provides the withholding agent
with its GIIN, either orally in writing,
and the withholding agent verifies the
GIIN in the manner described in
paragraph (e)(3) of this section.
(v) Reason to know. Except as
otherwise provided in this paragraph
(d)(4), a withholding certificate or
written statement that identifies the
payee as a participating FFI or registered
deemed-compliant FFI but does not
provide the payee’s GIIN or provides a
GIIN that does not appear on the current
published IRS FFI list within 90
calendar days after the date that the
claim is made, will be treated as invalid
for purposes of chapter 4, and the payee
will be treated as an undocumented
payee beginning on the date that the
form was submitted until valid
documentation or a correct GIIN is
provided. A withholding agent that
discovers that the payee’s GIIN does not
appear on the published IRS FFI list
within 90 calendar days after the date
the claim is made and, as a result, has
not withheld as it would have been
required to but for its reliance upon the
payee’s claim of status as a participating
FFI or registered deemed-compliant FFI,
will be required to withhold on future
payments, if any, made to the payee of
the amount of tax that should have been
withheld during the 90 day period but
for the erroneous classification as to the
payee’s status. The withholding
required pursuant the prior sentence is
in addition to any withholding required
under § 1.1471–2(a) on those payments.
A withholding agent that has withheld
as required in the previous two
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sentences may apply reimbursement or
set-off procedures, as described in
§ 1.1474–2(a), if it is later determined
that the payee appeared on the IRS FFI
list as a participating FFI or registered
deemed-compliant FFI at the time of
payment.
(5) Identification of certified deemedcompliant FFIs—(i) In general. Except as
otherwise provided in this paragraph
(d)(5), a withholding agent may treat a
payee as a category of certified deemedcompliant FFI, other than a sponsored
FFI, if the withholding agent has a
withholding certificate that identifies
the payee as a certified deemedcompliant FFI, and the withholding
certificate contains a certification by the
payee that it meets the requirements to
qualify as the type of certified deemedcompliant FFI identified on the
withholding certificate.
(ii) Sponsored, closely held
investment vehicles—(A) In general. A
withholding agent may treat a payee as
a sponsored, closely held investment
vehicle described in § 1.1471–5(f)(2)(iii)
if the withholding agent can reliably
associate the payment with a
withholding certificate that identifies
the payee as a sponsored FFI and
includes the sponsor’s GIIN, which the
withholding agent has verified against
the published IRS FFI list in the manner
described in paragraph (e)(3) of this
section. In addition to the standards of
knowledge rules indicated in paragraph
(e) of this section, a withholding agent
will have reason to know that the payee
is not a sponsored, closely held
investment vehicle described in
§ 1.1471–5(f)(2)(iii) if its AML due
diligence indicates that the payee has in
excess of 20 individual investors that
own direct and/or indirect interests in
the payee.
(B) Offshore obligations. A
withholding agent that makes a payment
with respect to an offshore obligation
may treat a payee as a sponsored,
closely held investment vehicle if it
obtains a written statement that
indicates that the payee is a sponsored
FFI, and provides the GIIN of the
sponsor, which the withholding agent
has verified in the manner described in
paragraph (e)(3) of this section. In the
case of a payment of U.S. source FDAP
income, the written statement must also
indicate that the payee is the beneficial
owner and must be supplemented with
documentary evidence supporting the
payee’s claim of foreign status (as
described in paragraph (c)(5)(i) of this
section).
(6) Identification of ownerdocumented FFIs—(i) In general. A
withholding agent may treat a payee as
an owner-documented FFI if all the
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following requirements of paragraphs
(d)(6)(i)(A) through (F) of this section
are met. A withholding agent may not
rely upon a withholding certificate to
treat a payee as an owner-documented
FFI, either in whole or in part, if the
withholding certificate does not contain
all of the information and associated
documentation required by paragraphs
(d)(6)(i)(A), (C), and (D) of this section.
(A) The withholding agent has a
withholding certificate that identifies
the payee as an owner-documented FFI
that is not acting as an intermediary;
(B) The withholding agent is a U.S.
financial institution, participating FFI,
or reporting Model 1 FFI that agrees
pursuant to § 1.1471–5(f)(3) to act as a
designated withholding agent with
respect to the payee;
(C) The payee submits to the
withholding agent an FFI owner
reporting statement that meets the
requirements of paragraph (d)(6)(iv) of
this section;
(D) The payee submits to the
withholding agent valid documentation
meeting the requirements of paragraph
(d)(6)(iii) of this section with respect to
each person identified on the FFI owner
reporting statement;
(E) The withholding agent does not
know or have reason to know that the
payee (or any other FFI that is an owner
of the payee and that the designated
withholding agent is treating as an
owner-documented FFI) maintains any
financial account for a nonparticipating
FFI; and
(F) The withholding agent does not
know or have reason to know that the
payee is in an expanded affiliated group
with any other FFI other than an FFI
that is also treated as an ownerdocumented FFI by the withholding
agent or that the FFI has any U.S.
specified persons that own an equity
interest in the FFI or a debt interest
(other than a debt interest that is not a
financial account or that has a balance
or value not exceeding $50,000) in the
FFI other than those identified on the
FFI owner reporting statement described
in paragraph (d)(6)(iv) of this section.
(ii) Auditor’s letter substitute. A payee
may, in lieu of providing an FFI owner
reporting statement and documentation
for each owner of the FFI as described
in paragraphs (d)(6)(i)(C) and (D) of this
section, provide a letter from an auditor
or an attorney that is licensed in the
United States or whose firm has a
location in the United States, signed no
more than four years prior to the date
of the payment, that certifies that the
firm or representative has reviewed the
payee’s documentation with respect to
all of its owners and debt holders
described in paragraph (d)(6)(iv) of this
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section in accordance with § 1.1471–4(c)
and that the payee meets the
requirements of § 1.1471–5(f)(3). The
payee must also provide an FFI owner
reporting statement and a Form W–9,
with any applicable waiver, for each
specified U.S. person that owns a direct
or indirect interest in the payee or that
holds debt interests described in
paragraph (d)(6)(iv) of this section. A
withholding agent may rely upon the
letter described in this paragraph
(d)(6)(ii) if it does not know or have
reason to know that any of the
information contained in the letter in
unreliable or incorrect.
(iii) Documentation for owners and
debt holders of payee. Acceptable
documentation for an individual
owning an equity in the payee or debt
holders described in paragraph (d)(6)(iv)
of this section means a valid
withholding certificate, valid Form W–
9 (including any necessary waiver), or
documentary evidence establishing the
foreign status of the individual as set
forth in paragraph (d)(3) of this section.
Acceptable documentation for a
specified U.S. person means a valid
Form W–9 (including any necessary
waiver). Acceptable documentation for
all other persons owning an equity or
debt interest in the payee means
documentation described in this
paragraph (d), applicable to the chapter
4 status claimed by the person. The
rules for reliably associating a payment
with a withholding certificate or
documentary evidence set forth in
paragraph (c) of this section, the rules
for payee documentation provided in
this paragraph (d), and the standards of
knowledge set forth in paragraph (e) of
this section will apply to documentation
submitted by the owners and debt
holders by substituting the phrase
‘‘owner of the payee’’ or ‘‘debt holder’’
for ‘‘payee.’’
(iv) Content of FFI owner reporting
statement. The FFI owner reporting
statement provided by an ownerdocumented FFI must contain the
information required by this paragraph
(d)(6)(iv) and is subject to the general
rules applicable to all withholding
statements described in paragraph
(c)(3)(iii)(B)(1) of this section. An FFI
that is a partnership, simple trust, or
grantor trust may substitute an NWP
withholding statement described in
§ 1.1441–5(c)(3)(iv) or a foreign simple
trust or foreign grantor trust
withholding statement described in
§ 1.1441–5(e)(5)(iv) for the FFI owner
reporting statement, provided that the
NWP withholding certificate or foreign
simple trust or foreign grantor trust
withholding certificate contains all of
the information required in this
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5929
paragraph (d)(6)(iv). The owner
reporting statement will expire on the
last day of the third calendar year
following the year in which the
statement was provided to the
withholding agent unless an exception
in paragraph (c)(6)(ii) of this section (for
example, accounts with a balance or
value of $1,000,000 or less) or this
paragraph (d)(6) applies. The ownerdocumented FFI will also be required to
provide the withholding agent with an
updated owner reporting statement if
there is a change in circumstances as
required under paragraph (c)(6)(ii)(E) of
this section.
(A) The FFI owner reporting
statement must provide the following
information:
(1) The name, address, TIN (if any),
and chapter 4 status of every individual
and specified U.S. person that owns a
direct or indirect equity interest in the
payee (looking through all entities other
than specified U.S. persons).
(2) The name, address, TIN (if any),
and chapter 4 status of every individual
and specified U.S. person that owns a
debt interest in the payee (including any
indirect debt interest, which includes
debt interests in any entity that directly
or indirectly owns the payee or any
direct or indirect equity interest in a
debt holder of the payee), in either such
case if the debt interest constitutes a
financial account in excess of $50,000
(disregarding all such debt interests
owned by participating FFIs, registered
deemed-compliant FFIs, certified
deemed-compliant FFIs, excepted
NFFEs, exempt beneficial owners, or
U.S. persons other than specified U.S.
persons).
(3) Any other information the
withholding agent reasonably requests
in order to fulfill its obligations under
chapter 4.
(B) The information on the FFI owner
reporting statement may contain names
of equity and debt holders that are
prepopulated by the withholding agent
based on prior information provided to
the withholding agent by the payee if
the prepopulated form instructs the
payee to amend the statement if the
contents are inaccurate, incomplete, or
have changed, and the payee confirms
in writing that the FFI owner reporting
statement submitted to the withholding
agent is accurate and complete.
(C) The FFI owner reporting statement
may be submitted in any form that
meets the requirements of this
paragraph, including a form used for
purposes of AML due diligence.
(v) Exception for preexisting
obligations (transitional). A withholding
agent may treat a payment made prior
to January 1, 2017, with respect to a
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preexisting obligation as made to an
owner-documented FFI if the
withholding agent has collected, for
purposes of satisfying its AML due
diligence, documentation with respect
to each individual and specified U.S.
person that owns a direct or indirect
interest in the payee, other than an
interest as a creditor, within four years
of the date of payment, that
documentation is sufficient to satisfy
the AML due diligence requirements of
the jurisdiction in which the
withholding agent maintains the
account, the withholding agent has
sufficient information to report all
specified U.S. persons that own an
interest in the payee, and the
withholding agent does not know, or
have reason to know, that any
nonparticipating FFI owns an equity
interest in the FFI or that any
nonparticipating FFI or specified U.S.
person owns a debt interest in the FFI
constituting a financial account in
excess of $50,000.
(vi) Exception for offshore obligations.
A withholding agent that is making a
payment, other than a payment of U.S.
source FDAP income, with respect to an
offshore obligation may, in lieu of
obtaining a withholding certificate as
otherwise required under paragraph
(d)(6)(i)(A) of this section, rely upon a
written statement that indicates the
payee meets the requirements to qualify
as an owner-documented FFI under
§ 1.1471–5(f)(3) and is not acting as an
intermediary, if the withholding agent
provides a written notice to the payee
indicating that the payee is required to
update the written statement and all
associated documentation (such as the
FFI owner reporting statement and
underlying documentation) within 30
days of a change in circumstances.
(vii) Exception for certain offshore
obligations of $1,000,000 or less—(A) A
withholding agent may treat the
payment as being made to an ownerdocumented FFI if—
(1) The payment is made with respect
to an offshore obligation that has a
balance or value not exceeding
$1,000,000 on the later of December 31,
2013, or the last day of the calendar year
in which the account was opened, and
the last calendar day of each subsequent
year preceding the payment, applying
the aggregation principles of § 1.1471–
5(b)(4);
(2) The withholding agent has
collected documentation or a
certification as to the payee’s owners
(either for purposes of complying with
its AML due diligence or for purposes
of satisfying the requirements of this
paragraph (d)(6)(vii)) sufficient to
identify every individual and specified
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U.S. person that owns any direct or
indirect interest in the payee (other than
an interest as a creditor) and determine
the chapter 4 status of such person;
(3) The documentation described in
paragraph (d)(6)(vii)(A)(2) of this section
is sufficient to satisfy the AML due
diligence requirements of the
jurisdiction in which the withholding
agent maintains the account (and such
jurisdiction is a FATF-compliant
jurisdiction);
(4) The withholding agent has
sufficient information to report all
specified U.S. persons that own an
interest in the payee in accordance with
§ 1.1474–1(d); and
(5) The withholding agent does not
know, or have reason to know, that the
payee has any contingent beneficiaries
or designated classes with unidentified
beneficiaries or owners, that any
nonparticipating FFI owns a direct or
indirect equity interest in the payee, or
that any specified U.S. persons or
nonparticipating FFIs own a debt
interest constituting a financial account
in excess of $50,000 in the payee (other
than specified U.S. persons that the
withholding agent has sufficient
information to report).
(B) For example, a withholding agent
that is required to obtain a certification
from the payee identifying all persons
owning an interest in the payee as part
of its AML due diligence will not be
required to obtain an FFI owner
reporting statement, provided the other
conditions of this paragraph (d)(6)(vii)
are met. On the other hand, a
withholding agent that has only
obtained documentation for persons
owning a certain threshold percentage
of the payee will be required to obtain
additional documentation to satisfy the
requirements of this paragraph
(d)(6)(vii). A withholding agent that
treats a payee as an owner-documented
FFI pursuant to this paragraph (d)(6)(vii)
will not be required to obtain new
documentation, including the FFI owner
reporting statement, until there is a
change in circumstances or until the
account balance or value exceeds
$1,000,000 on the last day of the
calendar year.
(7) Nonreporting IGA FFIs—(i) In
general. A withholding agent may treat
a payee as a nonreporting IGA FFI if it
has a withholding certificate identifying
the payee, or the relevant branch of the
payee, as a nonreporting IGA FFI.
(ii) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat a payee as a
nonreporting IGA FFI if it can reliably
associate the payment with a written
statement identifying the payee (or the
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relevant branch of the payee) as a
nonreporting IGA FFI and, with respect
to a payment of U.S. source FDAP
income, the written statement indicates
that the payee is the beneficial owner of
the income and is accompanied by
documentary evidence supporting a
claim of foreign status (as described in
paragraph (c)(5)(i) of this section). A
withholding agent that makes a payment
with respect to an offshore obligation
may also treat a payee as a nonreporting
IGA FFI if the withholding agent has a
permanent residence address for the
payee, or an address of the relevant
branch of the payee, and has obtained
a notification, either orally or in writing,
indicating that the payee is not acting as
an intermediary and general
documentary evidence (as described in
paragraph (c)(5)(ii)(A) of this section)
that provides the withholding agent
with sufficient information to
reasonably determine that the payee is
an entity listed as a nonreporting IGA
FFI pursuant to a Model 1 or Model 2
IGA.
(8) Identification of nonparticipating
FFIs—(i) In general. A withholding
agent is required to treat a payee as a
nonparticipating FFI if the withholding
agent can reliably associate the payment
with a withholding certificate
identifying the payee as a
nonparticipating FFI, the withholding
agent knows or has reason to know that
the payee is a nonparticipating FFI, or
the withholding agent is required to
treat the payee as a nonparticipating FFI
under the presumption rules described
in paragraph (f) of this section.
(ii) Special documentation rules for
payments made to an exempt beneficial
owner through a nonparticipating FFI. A
withholding agent may treat a payment
made to a nonparticipating FFI as
beneficially owned by an exempt
beneficial owner if the withholding
agent can reliably associate the payment
with—
(A) A withholding certificate that
identifies the payee as a
nonparticipating FFI that is either acting
as an intermediary or is a flow-through
entity; and
(B) An exempt beneficial owner
withholding statement that meets the
requirements of paragraphs
(c)(3)(iii)(B)(1) and (4) of this section
and contains the associated
documentation necessary to establish
the chapter 4 status of the exempt
beneficial owner in accordance with
paragraph (d)(9) of this section as if the
exempt beneficial owner were the
payee.
(9) Identification of exempt beneficial
owners—(i) Identification of foreign
governments, governments of U.S.
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territories, international organizations,
and foreign central banks of issue—(A)
In general. A withholding agent may
treat a payee as a foreign government,
government of a U.S. territory,
international organization, or foreign
bank of central issue if it has a
withholding certificate that identifies
the payee as such an entity, indicates
that the payee is the beneficial owner of
the payment, and for a government or
foreign central bank, indicates that the
payee is not engaged in commercial
activities with respect to the payments
or accounts identified on the form. A
withholding agent may treat a payee as
an international organization without
requiring a withholding certificate if the
name of the payee is one that is
designated as an international
organization by executive order
(pursuant to 22 U.S.C. 288 through 288f)
and other facts surrounding the
transaction reasonably indicate that the
international organization is not
receiving the payment as an
intermediary on behalf of another
person. A withholding agent may treat
a payee as an exempt beneficial owner
pursuant to a Model 1 IGA or Model 2
IGA if it has a withholding certificate
that identifies the payee as such an
entity and indicates that the payee is the
beneficial owner of the payment.
(B) Exception for offshore obligations.
A withholding agent that makes a
payment, other than a payment of U.S.
source FDAP income, with respect to an
offshore obligation may treat a payee as
a foreign government, government of a
U.S. territory, international
organization, or foreign central bank of
issue if the payee provides a written
statement that it is such an entity and
the written statement indicates that the
payee receives the payment as a
beneficial owner (within the meaning
provided in § 1.1471–6). A written
statement provided by a foreign central
bank of issue must also state that the
foreign central bank of issue does not
receive the payment in connection with
a commercial activity as provided in
§ 1.1471–6(h).
(C) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment, other than a payment
of U.S. source FDAP income, with
respect to an offshore obligation that is
also a preexisting obligation may treat
the payee as a foreign government,
government of a U.S. territory,
international organization, or foreign
central bank of issue if—
(1) The payee is generally known to
the withholding agent to be, the payee’s
name and the facts surrounding the
payment reasonably indicate, or the
withholding agent has preexisting
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account documentary evidence (as
described in paragraph (c)(5)(ii)(B) of
this section) that reasonably indicates
that the payee is a foreign government
or government of a U.S territory, a
political subdivision of a foreign
government or government of a U.S.
territory, any wholly owned agency or
instrumentality of any one or more of
the foregoing, an international
organization, a foreign central bank of
issue, or the Bank for International
Settlements; and
(2) The withholding agent does not
know that the payee is not the beneficial
owner, within the meaning of § 1.1471–
6(b) through (e) (disregarding any
presumption that a financial institution
is assumed to be an intermediary absent
documentation indicating otherwise) or
a foreign central bank of issue receiving
the payment in connection with a
commercial activity.
(ii) Identification of retirement
funds—(A) In general. A withholding
agent may treat a payee as a retirement
fund described in § 1.1471–6(f) if it has
a withholding certificate in which the
payee certifies that it is a retirement
fund meeting the requirements of
§ 1.1471–6(f).
(B) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat the payment as
being made to a retirement fund
described in § 1.1471–6(f) if it obtains a
written statement in which the payee
certifies that it is a retirement fund
under the laws of its local jurisdiction
meeting the requirements of § 1.1471–
6(f) and, with respect to a payment of
U.S. source FDAP income, documentary
evidence supporting a claim of foreign
status (as described in paragraph
(c)(5)(i) of this section). A withholding
agent that makes a payment with respect
to an offshore obligation may also treat
the payment as made to a retirement
fund if it obtains general documentary
evidence (as described in paragraph
(c)(5)(ii)(A) of this section) that provides
the withholding agent with sufficient
information to establish that the payee
is a retirement fund meeting the
requirements of § 1.1471–6(f).
(C) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation, may treat the
payee as a retirement fund described in
§ 1.1471–6(f) if the withholding agent
has general documentary evidence or
preexisting account documentary
evidence (as described in paragraphs
(c)(5)(ii)(A) or (B)) that establishes that
the payee is a foreign entity that
qualifies as a retirement fund in the
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5931
country in which the payee is
organized.
(iii) Identification of entities wholly
owned by exempt beneficial owners. A
withholding agent may treat a payee as
an entity described in § 1.1471–6(g)
(referring to certain entities wholly
owned by exempt beneficial owners) if
the withholding agent has—
(A) A withholding certificate or, for a
payment made with respect to an
offshore obligation, a written statement
that identifies the payee as an
investment entity that is the beneficial
owner of the payment;
(B) An owner reporting statement that
contains the name, address, TIN (if any),
chapter 4 status (identifying the type of
exempt beneficial owner), and a
description of the type of
documentation (Form W–8 or other
documentary evidence) provided to the
withholding agent for every person that
owns a direct equity interest, or a debt
interest constituting a financial account,
in the payee, and that is subject to the
general rules applicable to all
withholding statements described in
paragraph (c)(3)(iii)(B)(1) of this section;
and
(C) Documentation for every person
identified on the owner reporting
statement establishing, pursuant to the
documentation requirements described
in this paragraph (d)(9), that such
person is an exempt beneficial owner
(without regard to whether the person is
a beneficial owner of the payment).
(10) Identification of territory
financial institutions—(i) Identification
of territory financial institutions that are
beneficial owners—(A) In general. A
withholding agent may treat a payee as
a territory financial institution if the
withholding agent has a withholding
certificate identifying the payee as a
territory financial institution that
beneficially owns the payment. See
paragraph (d)(11)(viii) of this section for
rules for documenting territory NFFEs.
(B) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation may treat the
payee as a territory financial institution
if the withholding agent receives written
notification, whether signed or not, that
the payee is the beneficial owner of the
payment and the withholding agent has
general documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) or preexisting account
documentary evidence (as described in
paragraph (c)(5)(ii)(B) of this section)
establishing that the payee was
organized or incorporated under the
laws of any U.S. territory and is a
depository institution, custodial
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institution, or specified insurance
company.
(ii) Identification of territory financial
institutions acting as intermediaries or
that are flow-through entities. A
withholding agent may treat a payment
as being made to a territory financial
institution that is acting as an
intermediary or that is a flow-through
entity if the withholding agent has an
intermediary withholding certificate or
flow-through withholding certificate as
described in paragraph (c)(3)(iii) of this
section that identifies the person who
receives the payment as a territory
financial institution. A withholding
agent that obtains the documentation
described in the preceding sentence
may treat the territory financial
institution as the payee if the
withholding certificate contains a
certification that the territory financial
institution agrees to be treated as a U.S.
person with respect to the payment. If
the withholding certificate does not
contain such a certification, then the
withholding agent must treat the person
on whose behalf the territory financial
institution receives the payment as the
payee. See paragraph (c)(3)(iii) of this
section for additional documentation
that must accompany the withholding
certificate of the territory financial
institution in this case.
(iii) Reason to know. In addition to
the general standards of knowledge
described in paragraph (e) of this
section, a withholding agent will have
reason to know that an entity is not a
territory financial institution if the
withholding agent has: a current
residence or mailing address, either in
the entity’s account files or on
documentation provided by the payee,
for the entity that is outside the U.S.
territory in which the entity claims to be
organized; a current telephone number
for the payee that has a country code
other than the country code for the U.S.
territory or has an area code other than
the area code(s) of the applicable U.S.
territory and no telephone number for
the payee in the applicable U.S.
territory; or standing instructions for the
withholding agent to pay amounts from
its account to an address or account
outside the applicable U.S. territory. A
withholding agent that has knowledge
of a current address, current telephone
number, or standing payment
instructions for the entity outside of the
applicable U.S. territory, may
nevertheless treat the entity as a
territory financial institution if it
obtains documentary evidence that
establishes that the entity was organized
in the applicable U.S. territory.
(11) Identification of excepted
NFFEs—(i) Identification of excepted
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nonfinancial group entities—(A) In
general. A withholding agent may treat
a payee as an excepted nonfinancial
group entity described in § 1.1471–
5(e)(5)(i) if the withholding agent has a
withholding certificate identifying the
payee as such an entity.
(B) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat a payee as an
excepted nonfinancial group entity
described in § 1.1471–5(e)(5)(i) if the
withholding agent obtains:
(1) A written statement in which the
payee certifies that it is a foreign entity
operating primarily as an excepted
nonfinancial group entity for a group
that primarily engages in a business
other than a financial business
described in § 1.1471–5(e)(4) and, with
respect to a payment of U.S. source
FDAP income, documentary evidence
supporting a claim of foreign status (as
described in paragraph (c)(5)(i) of this
section); or
(2) General documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) that provides the
withholding agent with sufficient
information to establish that the payee
is an excepted nonfinancial group entity
described in § 1.1471–5(e)(5)(i).
(ii) Identification of excepted
nonfinancial start-up companies—(A)
In general. A withholding agent may
treat a payee as an excepted
nonfinancial start-up company
described in § 1.1471–5(e)(5)(ii) if the
withholding agent has a withholding
certificate that identifies the payee as a
start-up company that intends to operate
as other than a financial institution and
the withholding certificate provides a
formation date for the payee that is less
than 24 months prior to the date of the
payment.
(B) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat a payee as an
excepted nonfinancial start-up company
described in § 1.1471–5(e)(5)(ii) if it
obtains—
(1) A written statement from the
payee in which the payee certifies that
it is a foreign entity formed for the
purpose of operating a business other
than that of a financial institution and
provides the entity’s formation date
which was less than 24 months prior to
the date of the payment and, with
respect to a payment of U.S. source
FDAP income, documentary evidence
supporting a claim of foreign status (as
described in paragraph (c)(5)(i) of this
section); or
(2) General documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
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this section) that provides the
withholding agent with sufficient
information to establish that the payee
is a foreign entity other than a financial
institution and has a formation date
which is less than 24 months prior to
the date of the payment.
(C) Exception for preexisting offshore
obligations. A withholding agent may
treat a payment made with respect to an
offshore obligation that is also a
preexisting obligation as made to a startup company described in § 1.1471–
5(e)(5)(ii) if the withholding agent has
general documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) or preexisting account
documentary evidence (as described in
paragraph (c)(5)(ii)(B) of this section)
that provides the withholding agent
sufficient information to establish that
the payee is, or intends to be, engaged
in a business other than as a financial
institution and establishes that the
payee is a foreign entity that was
organized less than 24 months prior to
the date of the payment.
(iii) Identification of excepted
nonfinancial entities in liquidation or
bankruptcy—(A) In general. A
withholding agent may treat a payee as
an excepted nonfinancial entity in
liquidation or bankruptcy, as described
in § 1.1471–5(e)(5)(iii), if the
withholding agent has a withholding
certificate that identifies the payee as
such an entity and the withholding
agent has no knowledge that the payee
has claimed to be such an entity for
more than three years. A withholding
agent may continue to treat a payee as
an entity described in this paragraph for
longer than three years if it obtains, in
addition to a withholding certificate,
documentary evidence such as a
bankruptcy filing or other public
document that supports the payee’s
claim that it remains in liquidation or
bankruptcy.
(B) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat the payee as an
excepted nonfinancial entity in
liquidation or bankruptcy, as described
in § 1.1471–5(e)(5)(iii) if the
withholding agent has general
documentary evidence (as described in
paragraph (c)(5)(ii)(A) of this section) or
a copy of a bankruptcy filing, or similar
documentation, establishing that the
payee is a foreign entity in liquidation
or bankruptcy and establishing that
prior to the liquidation or bankruptcy
filing, the payee was engaged in a
business other than that of a financial
institution. A withholding agent may
also treat the payee with respect to an
offshore obligation as an excepted
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nonfinancial entity in liquidation or
bankruptcy, as described in § 1.1471–
5(e)(5)(iii), if the withholding agent
obtains a written statement stating that
the payee is a foreign entity in the
process of liquidating or reorganizing
with the intent to continue or
recommence its former business as a
nonfinancial institution, the
withholding agent has no knowledge
that the payee has claimed to be such an
entity for more than three years (unless
the withholding agent has obtained
additional documentary evidence to
support the claim that the entity
remains in bankruptcy or liquidation),
and, with respect to a payment of U.S.
source FDAP income, documentary
evidence supporting a claim of foreign
status (as described in paragraph
(c)(5)(i) of this section).
(C) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation may treat a payee
as an excepted nonfinancial entity in
liquidation or bankruptcy, as described
in § 1.1471–5(e)(5)(iii), if the
withholding agent has preexisting
account documentary evidence (as
described in paragraph (c)(5)(ii)(B) of
this section) that unambiguously
indicates that the payee is not a
financial institution and is a foreign
entity that entered liquidation or
bankruptcy within the three years
preceding the date of the payment.
(iv) Identification of section 501(c)
organizations—(A) In general. A
withholding agent may treat a payee as
a 501(c) organization described in
§ 1.1471–5(e)(5)(v) if the withholding
agent can reliably associate the payment
with a withholding certificate that
identifies the payee as a section 501(c)
organization and the payee provides
either a certification that the payee has
been issued a determination letter by
the IRS that is currently in effect
concluding that the payee is a section
501(c) organization and providing the
date of the letter, or a copy of an
opinion from U.S. counsel certifying
that the payee is a section 501(c)
organization (without regard to whether
the payee is a foreign private
foundation).
(B) Reason to know. A withholding
agent must cease to treat a foreign
organization’s claim that it is a section
501(c) organization as valid beginning
on the earlier of the date on which such
agent knows that the IRS has given
notice to such foreign organization that
it is not a section 501(c) organization or
90 days after the date on which the IRS
gives notice to the public that such
foreign organization is not a section
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501(c) organization. Further, a
withholding agent will have reason to
know that a payee is not a section 501(c)
organization if it has determined,
pursuant to its AML due diligence, that
the payee has beneficial owners (as
defined for purposes of the AML due
diligence).
(v) Identification of non-profit
organizations—(A) In general. A
withholding agent may treat a payee as
a non-profit organization described in
§ 1.1471–5(e)(5)(vi) if the withholding
agent has a withholding certificate that
identifies the payee as a non-profit
organization.
(B) Exception for offshore obligations.
A withholding agent may treat a
payment with respect to an offshore
obligation as made to a nonprofit
organization without obtaining a
withholding certificate for the payee if
the payee—
(1) Has provided a written statement
indicating that the payee is a non-profit
organization described in § 1.1471–
5(e)(5)(vi) and, with respect to a
payment of U.S. source FDAP income,
has provided documentary evidence
supporting a claim of foreign status (as
described in paragraph (c)(5)(i) of this
section); or
(2) Is required to be reported by the
withholding agent as a tax-exempt
charitable organization under the
information reporting laws of the
country in which the account is
maintained or is permitted an
exemption from withholding due to its
status as a tax exempt charitable
organization under the laws of the
country in which the account is
maintained, and the withholding agent
obtains general documentary evidence
(as described in paragraph (c)(5)(ii)(A)
of this section) establishing that the
payee was organized for charitable
purposes in the same country in which
the account is maintained by the
withholding agent for the purposes
described in § 1.1471–5(e)(5)(vi) and
that the payee has no beneficial owners
(as that term is used for purposes of that
country’s AML due diligence).
(C) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation may treat the
payee as a nonprofit organization
described in § 1.1471–5(e)(5)(vi) if the
payee—
(1) Provides a letter of local counsel
that certifies that the payee qualifies as
a tax-exempt entity in its local
jurisdiction; or
(2) Provides a letter issued by the tax
authority of the country in which the
payee is organized or a statement
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5933
provided on the Web site of such tax
authority indicating that the payee is a
tax-exempt entity or charitable
organization in the payee’s country of
organization.
(D) Reason to know. A withholding
agent will have reason to know that a
payee is not a nonprofit organization if
it has determined, pursuant to its AML
due diligence, that the payee has
beneficial owners (as defined for
purposes of the AML due diligence).
(vi) Identification of NFFEs that are
publicly traded corporations. A
withholding agent may treat a payee as
an NFFE described in § 1.1472–1(c)(1)(i)
(applying to an entity the stock of which
is regularly traded on an established
securities market) if it has a withholding
certificate that certifies that the payee is
such an entity and provides the name of
a securities exchange upon which the
payee’s stock is regularly traded.
(A) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat a payee as an NFFE
described in § 1.1472–1(c)(1)(i) if the
withholding agent obtains—
(1) A written statement that the payee
is a foreign corporation that is not a
financial institution, that its stock is
regularly traded on an established
securities market, the name of one of the
exchanges upon which the payee’s stock
is traded, and, with respect to a
payment of U.S. source FDAP income,
documentary evidence supporting a
claim of foreign status (as described in
paragraph (c)(5)(i) of this section); or
(2) Any documentation establishing
that the payee is listed on a public
securities exchange or on a stock market
index and general documentary
evidence (as described in paragraph
(c)(5)(ii)(A) of this section) establishing
that the payee is a foreign corporation
other than a financial institution.
(B) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation may treat the
payee as an entity described in
§ 1.1472–1(c)(1)(i) if the withholding
agent has any documentation
confirming that the payee is listed on a
public securities exchange or on a stock
market index and preexisting account
documentary evidence (as described in
paragraph (c)(5)(ii)(B) of this section)
establishing that the payee is a foreign
corporation other than a financial
institution.
(vii) Identification of NFFE affiliates.
A withholding agent may treat a payee
as an NFFE described in § 1.1472–
1(c)(1)(ii) (applying to an affiliate of an
entity the stock of which is regularly
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traded on an established exchange) if it
has a beneficial owner withholding
certificate that identifies the payee as a
foreign corporation that is an affiliate of
an entity, described § 1.1472–1(c)(1)(i),
whose stock is regularly traded on an
established exchange and provides the
name of the entity that is regularly
traded and one of the exchanges upon
which the entity’s stock is listed.
(A) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat a payment as being
made to an NFFE described in § 1.1472–
1(c)(1)(ii) if the withholding agent
obtains—
(1) Documentary evidence or other
information confirming that the payee is
affiliated with an entity listed on a
public securities exchange or on a stock
market index and general documentary
evidence (as described in paragraph
(c)(5)(ii)(A) of this section) that
indicates that the payee is a foreign
corporation other than a financial
institution; or
(2) A written statement that the payee
is a foreign corporation that is not a
financial institution, that the payee is an
affiliate of another nonfinancial entity
whose stock is regularly traded on an
established securities exchange,
providing the name of the payee’s
affiliate and one of the exchanges upon
which the affiliate’s stock is traded and,
in the case of a payment of U.S. source
FDAP income, documentary evidence
supporting the payee’s claim of foreign
status (as described in paragraph
(c)(5)(i) of this section).
(B) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation may treat the
payee as an NFFE described in
§ 1.1472–1(c)(1)(ii) if the withholding
agent has—
(1) Documentation or other
information confirming that the payee is
affiliated with a corporation that is
listed on a public securities exchange or
on a stock market index;
(2) Preexisting account documentary
evidence (as described in paragraph
(c)(5)(ii)(B) of this section) that
unambiguously indicates that the payee
is a corporation that is not a financial
institution; and
(3) In the case of a payment of U.S.
source FDAP income, documentary
evidence supporting the payee’s claim
of foreign status (as described in
paragraph (c)(5)(i) of this section).
(viii) Identification of excepted
territory NFFEs. A withholding agent
may treat a payee as an excepted
territory NFFE described in § 1.1472–
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1(c)(1)(iii) if it has a withholding
certificate that identifies the payee as an
NFFE that was organized in a U.S.
territory and includes a certification for
chapter 4 purposes that all of its owners
are bona fide residents of that U.S.
territory.
(A) Exception for payments made
prior to January 1, 2017, with respect to
preexisting obligations of $1,000,000 or
less (transitional). A withholding agent
that makes a payment prior to January
1, 2017, with respect to a preexisting
obligation with a balance or value not
exceeding $1,000,000 on December 31,
2013, and the last day of each
subsequent calendar year preceding the
payment, applying the aggregation
principles of § 1.1471–5(b)(4)(iii), may
treat a payee as an excepted territory
NFFE described in § 1.1472–1(c)(1)(iii)
if the withholding agent—
(1) Has a pre-FATCA Form W–8
identifying the payee as a foreign entity
with a permanent residence address in
a U.S. territory; and
(2) Has general documentary evidence
(as described in paragraph (c)(5)(ii)(A)
of this section), preexisting account
documentary evidence (as described in
paragraph (c)(5)(ii)(B) of this section), or
a prospectus establishing that the payee
is an entity other than a depository
institution, custodial institution, or
specified insurance company; and
(3) Is subject, with respect to such
obligation, to the laws of a FATFcompliant jurisdiction and as part of its
AML due diligence has not identified
any owners of the payee that are not
bona fide residents of the U.S. territory
in which the payee is organized.
(B) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat a payment as being
made to an excepted territory NFFE
described in § 1.1472–1(c)(1)(iii) if it
has—
(1) A written statement providing that
the payee is an entity other than a
depository institution, custodial
institution, or specified insurance
company, was organized in a U.S.
territory, and is wholly owned by one or
more bona fide residents of that U.S.
territory, and, with respect to a payment
of U.S. source FDAP income, the written
statement must indicate that the payee
is the beneficial owner of the income
and be accompanied by documentary
evidence supporting a claim of foreign
status (as described in paragraph
(c)(5)(i) of this section); or
(2) General documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) or a prospectus establishing
that the payee is an entity other than a
depository institution, custodial
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institution, or specified insurance
company, establishing that the payee
was organized in a U.S. territory, and
establishing that the payee is wholly
owned by one or more bona fide
residents of that U.S. territory.
(C) Exception for preexisting offshore
obligations of $1,000,000 or less. A
withholding agent that makes a payment
with respect to an offshore obligation
that is also a preexisting obligation with
a balance or value not exceeding
$1,000,000 on December 31, 2013, (or
the effective date of the FFI agreement
for a withholding agent that is a
participating FFI) and the last day of
each subsequent calendar year
preceding the payment, applying the
aggregation principles of § 1.1471–
5(b)(4)(iii), may rely upon its review
conducted for AML due diligence
purposes to determine whether the
owners of the payee are bona fide
residents of the U.S. territory in which
the payee is organized, in lieu of
obtaining a written statement or
documentary evidence described in
paragraph (d)(11)(viii)(B) of this section.
The preceding sentence applies only if
the withholding agent is subject, with
respect to such account, to the laws of
a FATF-compliant jurisdiction and has
identified the residence of the owners.
The withholding agent relying upon this
paragraph (d)(11)(viii)(C) must still
obtain a written statement, documentary
evidence, as provided in paragraph
(d)(11)(viii)(B) of this section, or
preexisting account documentary
evidence (as described in paragraph
(c)(5)(ii)(B) of this section) establishing
that the payee is an entity other than a
depository institution, custodial
institution, or specified insurance
company organized in a U.S. territory.
(ix) Identification of active NFFEs. A
withholding agent may treat a payee as
an active NFFE described in § 1.1472–
1(c)(1)(iv) if it has a withholding
certificate identifying the payee as an
active NFFE.
(A) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat the payee as an
active NFFE if the withholding agent
has—
(1) General documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) providing sufficient
information to determine that the payee
is a foreign entity engaged in an active
trade or business other than that of a
financial institution; or
(2) A written statement stating that
the payee is a foreign entity engaged in
an active business other than that of a
financial institution and, in the case of
a payment of U.S. source FDAP income,
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documentary evidence supporting the
payee’s claim of foreign status (as
described in paragraph (c)(5)(i) of this
section).
(B) Exception for preexisting offshore
obligations. A withholding agent that
makes a payment with respect to an
offshore obligation that is also a
preexisting obligation may treat the
payee as an active NFFE if the
withholding agent has preexisting
account documentary evidence (as
described in paragraph (c)(5)(ii)(B) of
this section) that unambiguously
indicates that the payee is a foreign
entity engaged in a trade or business
other than that of a financial institution
and, in the case of a payment of U.S.
source FDAP income, documentary
evidence supporting the payee’s claim
of foreign status (as described in
paragraph (c)(5)(i) of this section).
(C) Limit on reason to know. A
withholding agent relying on
documentary evidence to determine that
a payee is an active NFFE will not be
required to determine that the payee
meets the income and asset thresholds
but rather must determine only that the
payee is primarily engaged in a business
other than that of a financial institution.
(12) Identification of passive NFFEs.
A withholding agent may treat a
payment as having been made to a
passive NFFE if it has a withholding
certificate that identifies the payee as a
passive NFFE.
(i) Exception for offshore obligations.
A withholding agent that makes a
payment with respect to an offshore
obligation may treat the payment as
made to a passive NFFE if the
withholding agent has—
(A) General documentary evidence (as
described in paragraph (c)(5)(ii)(A) of
this section) for the payee providing
sufficient information to determine that
the payee is a foreign entity that is not
a financial institution; or
(B) A written statement that the payee
is a foreign entity that is not a financial
institution and, for a payment of U.S.
source FDAP income, documentary
evidence supporting the payee’s claim
of foreign status (as described in
paragraph (c)(5)(i) of this section).
(ii) Special rule for preexisting
offshore obligations. A withholding
agent that makes a payment with respect
to an offshore obligation that is also a
preexisting obligation may treat the
payee as a passive NFFE if the
withholding agent has preexisting
account documentary evidence (as
described in paragraph (c)(5)(ii)(B) of
this section) providing sufficient
information to determine that the payee
is a foreign entity that is not a financial
institution and, with respect to a
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payment of U.S. source FDAP income,
documentary evidence supporting the
payee’s claim of foreign status (as
described in paragraph (c)(5)(i) of this
section).
(iii) Required owner certification for
passive NFFEs—(A) In general. Unless it
is a WP or WT, a passive NFFE will be
required to provide to the withholding
agent either a written certification
(contained on a withholding certificate
or in a written statement) that it does
not have any substantial U.S. owners or
the name, address, and TIN of each
substantial U.S. owner of the NFFE to
avoid being withheld upon under
§ 1.1472–1(b).
(B) Exception for preexisting
obligations of $1,000,000 or less
(transitional). A withholding agent that
makes a payment prior to January 1,
2017, with respect to a preexisting
obligation with a balance or value not
exceeding $1,000,000 on December 31,
2013, and the last day of each
subsequent calendar year preceding the
payment, applying the aggregation
principles of § 1.1471–5(b)(4)(iii), may
rely upon its review conducted for AML
due diligence purposes to identify any
substantial U.S. owners of the payee in
lieu of obtaining the certification or
information required in paragraph
(d)(12)(iii)(A) of this section if the
withholding agent is subject, with
respect to such obligation, to the laws of
a FATF-compliant jurisdiction and has
identified the residence of any
controlling persons (within the meaning
of the withholding agent’s AML due
diligence rules). A withholding agent
that makes a payment with respect to an
offshore obligation that is also a
preexisting obligation with a balance or
value not exceeding $1,000,000 on
December 31, 2013, (or the effective date
of the FFI agreement for a withholding
agent that is a participating FFI) and the
last day of each subsequent calendar
year preceding the payment, applying
the aggregation principles of § 1.1471–
5(b)(4)(iii), may rely upon its review
conducted for AML due diligence
purposes to identify any substantial U.S.
owners of the payee in lieu of obtaining
the certification or information required
in paragraph (d)(12)(iii)(A) of this
section if the withholding agent is
subject, with respect to such obligation,
to the laws of a FATF-compliant
jurisdiction and has identified the
residence of any controlling persons
(within the meaning of the withholding
agent’s AML due diligence rules).
(e) Standards of knowledge—(1) In
general. The standards of knowledge
discussed in this section apply for
purposes of determining the chapter 4
status of payees, beneficial owners,
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5935
intermediaries, flow-through entities,
and persons that own an interest in an
owner-documented FFI. A withholding
agent shall be liable for tax, interest, and
penalties to the extent provided under
section 1474 and the regulations under
that section if it fails to withhold the
correct amount despite knowing or
having reason to know the amount
required to be withheld. A withholding
agent that cannot reliably associate the
payment with documentation and fails
to act in accordance with the
presumption rules set forth in paragraph
(f) of this section may also be liable for
tax, interest, and penalties. See
paragraph (e)(4) in this section for the
specific standards of knowledge
applicable to a person’s specific claims
of chapter 4 status.
(2) Notification by the IRS. A
withholding agent that has received
notification by the IRS that a claim of
status as a U.S. person, a participating
FFI, a deemed-compliant FFI, or other
entity entitled to a reduced rate of
withholding under section 1471 or 1472
is incorrect knows that such a claim is
incorrect beginning on the date that is
30 business days after the date the
notice is received.
(3) Participating FFIs and registered
deemed-compliant FFIs—(i) In general.
A withholding agent that has received a
payee’s claim of status as a participating
FFI or registered deemed-compliant FFI
and that is required under paragraph
(d)(4) of this section to confirm that the
branch of the FFI claiming status as a
participating FFI or registered-deemed
compliant FFI has a GIIN that appears
on the published IRS FFI list, has reason
to know that such payee is not such a
financial institution if the payee’s name
(including a name reasonably similar to
the name the withholding agent has on
file for the payee) and GIIN do not
appear on the most recently published
IRS FFI list within 90 calendar days of
the date that the claim is made. The
withholding agent will also have reason
to know that an FFI is either a limited
branch or limited FFI (and, thus, not a
participating FFI or registered-deemed
compliant FFI) if the withholding agent
has a permanent residence address or
mailing address for the FFI that is in a
country other than the country that in
which the FFI claims to be a
participating FFI or registered deemedcompliant FFI or the withholding agent
makes a payment to the FFI at an
address outside of the country in which
the FFI claims to be a participating FFI
or registered deemed-compliant FFI. A
payee whose registration with the IRS as
a participating FFI or a registered
deemed-compliant FFI is in process but
has not yet received a GIIN may provide
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a withholding agent with a Form W–8
claiming the chapter 4 status it applied
for and writing ‘‘applied for’’ in the box
for the GIIN. In such case, the FFI will
have 90 calendar days from the date of
its claim to provide the withholding
agent with its GIIN and the withholding
agent will have 90 calendar days from
the date it receives the GIIN to verify the
accuracy of the GIIN against the
published IRS FFI list before it has
reason to know that the payee is not a
participating FFI or registered deemedcompliant FFI. If an FFI is removed
from the published IRS FFI list, the
withholding agent knows that such FFI
is not a participating FFI or registered
deemed-compliant FFI on the earlier of
the date that the withholding agent
discovers that the FFI has been removed
from the list or the date that is one year
from the date the FFI’s GIIN was
actually removed from the list.
(ii) Special rules for reporting Model
1 FFIs. Prior to January 1, 2015, a
withholding agent that receives an FFI’s
claim of status as a reporting Model 1
FFI will not be required to confirm that
the FFI has a GIIN that appears on the
published IRS FFI list. A withholding
agent will have reason to know that the
FFI is not a reporting Model 1 FFI if the
withholding agent does not have a
permanent residence address for the
FFI, or an address of the relevant branch
of the FFI, located in the country in
which the FFI claims to be a reporting
Model 1 FFI or the withholding agent is
directing a payment to a branch of the
FFI that is not located in the country in
which the FFI claims to be a reporting
Model 1 FFI.
(4) Reason to know. A withholding
agent shall be considered to have reason
to know that a claim of chapter 4 status
is unreliable or incorrect if its
knowledge of relevant facts or
statements contained in the withholding
certificates or other documentation is
such that a reasonably prudent person
in the position of the withholding agent
would question the claims made. For
accounts opened on or after January 1,
2014, a withholding agent will also be
considered to have reason to know that
a claim of chapter 4 status is unreliable
or incorrect if any information
contained in its account opening files or
other customer account files, including
documentation collected for AML due
diligence purposes, conflicts with the
payee’s claim of chapter 4 status. In
addition to the general standards of
knowledge set forth in this paragraph (e)
regarding a person’s claim of chapter 4
status, a withholding agent is also
required to apply any specific standards
of knowledge applicable to the chapter
4 status claimed as set forth in
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paragraph (d) of this section. A
withholding agent that has relied upon
documentation that is valid pursuant to
paragraph (c) to treat a person as a
foreign person, however, will have
reason to know that a person’s claim of
status as a foreign person is inaccurate
only if there are U.S. indicia associated
with the person, as described in
paragraphs (e)(4)(ii) through (vi) of this
section, for which appropriate
documentation sufficient to cure the
U.S. indicia in the manner set forth in
this paragraph (e) has not been obtained.
(i) Information conflicting with
person’s claim of chapter 4 status. A
withholding certificate, written
statement, or documentary evidence is
unreliable or incorrect if there is
information on the face of the
documentation or in the withholding
agent’s account files that conflicts with
the person’s claim regarding its chapter
4 status. For example, a withholding
agent will have reason to know that a
person’s claim that it is an excepted
NFFE is unreliable or incorrect if the
withholding agent has a financial
statement or credit report that indicates
that the person is engaged in business
as a financial institution or if
documentation submitted by the person
indicates that the person is acting as an
intermediary with respect to the
payment and, thus, is not a beneficial
owner for purposes of § 1.1472–1(c)(1).
Further, a withholding agent that has
classified the person as engaged in a
particular type of business in its own
records, such as through a standard
industrial classification code, will have
reason to know that that the chapter 4
status claimed by the person is
unreliable or incorrect if the claim
conflicts with the withholding agent’s
internal classification.
(ii) Specific standards of knowledge
applicable to withholding certificates—
(A) In general. A withholding agent has
reason to know that a withholding
certificate provided by a person is
unreliable or incorrect if the
withholding certificate is incomplete
with respect to any item on the
certificate that is relevant to the claims
made by the person, the withholding
certificate contains any information that
is inconsistent with the person’s claim,
the withholding agent has other account
information that is inconsistent with the
person’s claim, or the withholding
certificate lacks information necessary
to establish entitlement to an exemption
from withholding for chapter 4
purposes. A withholding agent that
relies on an agent to review and
maintain a withholding certificate is
considered to know or have reason to
know the facts within the knowledge of
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the agent. Paragraphs (e)(4)(ii)(B)
through (D) of this section do not apply
to a withholding certificate provided by
a participating FFI, a registered deemedcompliant FFI, or a sponsored FFI,
described in § 1.1471–5(f)(2)(iii), if the
certificate contains a GIIN for the FFI or
sponsor that the withholding agent
verifies on the current published IRS
FFI list as provided in paragraph (e)(3)
of this section.
(B) Classification of U.S. status, U.S.
address, or U.S. telephone number. A
withholding agent has reason to know
that a withholding certificate provided
by a person is unreliable or incorrect if
the withholding agent has classified the
person as a U.S. person in its customer
files, the withholding certificate has a
current permanent residence address in
the United States, the withholding
certificate has a current mailing address
in the United States, the withholding
agent has a current residence or mailing
address as part of its account
information that is an address in the
United States, or the person notifies the
withholding agent of a new residence or
mailing address in the United States
(whether or not provided on a
withholding certificate). A withholding
agent also has reason to know that a
withholding certificate provided by a
person is unreliable or incorrect if the
withholding agent has a current
telephone number for the person in the
United States and has no telephone
number for the person outside of the
United States. Notwithstanding the
foregoing, a withholding agent may rely
upon a withholding certificate to
establish the person’s status as a foreign
person despite knowing that the person
has any of the U.S. indicia described in
this paragraph (e)(4)(ii)(B) if it may do
so under the provisions of paragraphs
(e)(4)(ii)(B)(1) and (2) of this section.
(1) Presumption of individual’s
foreign status. A withholding agent may
treat an individual that has U.S. indicia
described in paragraph (e)(4)(ii)(B) of
this section as a foreign person if the
individual has provided a withholding
certificate and—
(i) The withholding agent has in its
possession, or obtains, documentary
evidence establishing foreign status (as
described in paragraph (c)(5)(i) of this
section) that does not contain a U.S.
address and the individual provides the
withholding agent with a reasonable
written explanation supporting the
claim of foreign status;
(ii) For a payment made with respect
to an offshore obligation, the
withholding agent has in its possession,
or obtains, documentary evidence
establishing foreign status (as described
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in paragraph (c)(5)(i) of this section),
that does not contain a U.S. address; or
(iii) For a payment made with respect
to an offshore obligation, the
withholding agent classifies the
individual as a resident of the country
in which the obligation is maintained,
the withholding agent is required to
report payments made to the individual
annually on a tax information statement
that is filed with the tax authority of the
country in which the office is located as
part of that country’s resident reporting
requirements, and that country has a tax
information exchange agreement or
income tax treaty in effect with the
United States.
(2) Presumption of entity’s foreign
status. A withholding agent may treat an
entity that has U.S. indicia described in
paragraph (e)(4)(ii)(B) of this section as
a foreign person if the entity has
provided a withholding certificate
and—
(i) The withholding agent has in its
possession, or obtains, documentary
evidence establishing foreign status (as
described in paragraph (c)(5)(i) of this
section) that substantiates that the entity
is actually organized or created under
the laws of a foreign country; or
(ii) For a payment made with respect
to an offshore obligation, the
withholding agent classifies the entity
as a resident of the country in which the
obligation is maintained, the
withholding agent is required to report
payments made to the entity annually
on a tax information statement that is
filed with the tax authority of the
country in which the office is located as
part of that country’s resident reporting
requirements, and that country has a tax
information exchange agreement or
income tax treaty in effect with the
United States.
(C) U.S. place of birth—(1) Accounts
opened on or after January 1, 2014. For
accounts opened on or after January 1,
2014, a withholding agent has reason to
know that a withholding certificate
indicating foreign status provided by an
individual is unreliable or incorrect if
the withholding agent has, either on
accompanying documentation or as part
of its account information, an
unambiguous indication of a place of
birth for the individual in the United
States. A withholding agent may treat
the individual as a foreign person,
notwithstanding the U.S. place of birth,
if the withholding agent has no
knowledge that the individual has any
other U.S. indicia described in
paragraph (e)(4)(ii) of this section and
the withholding agent obtains a copy of
the individual’s Certificate of Loss of
Nationality of the United States. A
withholding agent may also treat the
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individual as a foreign person,
notwithstanding the U.S. place of birth
and any other U.S. indicia described in
paragraph (e)(4)(ii) of this section, if the
withholding agent obtains a non-U.S.
passport or other government-issued
identification that is evidence of
citizenship in a country other than the
United States and either a copy of the
individual’s Certificate of Loss of
Nationality of the United States, or a
reasonable written explanation of the
account holder’s renunciation of U.S.
citizenship or the reason the account
holder did not obtain U.S. citizenship at
birth.
(2) Preexisting obligations. For a
payment made with respect to a
preexisting obligation, a withholding
agent will not be required to conduct a
search of its documentation to identify
a U.S. place of birth associated with an
individual. However, if the withholding
agent, on or after January 1, 2014,
reviews documentation that contains a
U.S. birth place for an individual that is
treated as a foreign person or is notified
that the individual has a U.S. place of
birth, then the account will be
considered to have experienced a
change in circumstances as of the date
that the withholding agent reviewed the
documentation and the withholding
agent will be considered to have reason
to know that the individual is a U.S.
person. See paragraph (c)(6)(ii)(E) of this
section for rules regarding the time
period allowed to cure a change in
circumstances.
(D) Standing instructions with respect
to offshore obligations. A withholding
agent has reason to know that a
withholding certificate provided by a
person is unreliable or incorrect if it is
provided with respect to an offshore
obligation and the person has standing
instructions directing the withholding
agent to pay amounts to an address or
an account maintained in the United
States. The withholding agent may rely
upon the withholding certificate to
establish the person’s status as a foreign
person, however, if the person provides
documentary evidence establishing
foreign status (as described in paragraph
(c)(5)(i) of this section).
(iii) Specific standard of knowledge
applicable to written statements. A
withholding agent must apply the
standards of knowledge applicable to
withholding certificates, as set forth in
paragraph (e)(4)(i) and (ii) of this
section, when determining whether it
can rely on a written statement.
(iv) Specific standard of knowledge
applicable to documentary evidence—
(A) In general. A withholding agent may
not treat documentary evidence
provided by a person as valid if the
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5937
documentary evidence does not
reasonably establish the identity of the
person presenting the documentary
evidence. For example, documentary
evidence is not valid if it is provided in
person by an individual and the
photograph or signature on the
documentary evidence, if any, does not
match the appearance or signature of the
person presenting the document. A
withholding agent may not rely on
documentary evidence to reduce the
rate of withholding that would
otherwise apply under the presumption
rules in paragraph (f) of this section if
the documentary evidence contains
information that is inconsistent with the
person’s claim as to its chapter 4 status,
the withholding agent has other account
information that is inconsistent with the
person’s claim, or the documentary
evidence lacks information necessary to
establish the person’s chapter 4 status.
(B) Classification of U.S. status, U.S.
address, or U.S. telephone number. A
withholding agent may not treat
documentary evidence provided by a
person as valid for purposes of
establishing the person’s foreign status
if the withholding agent does not have
a permanent residence address for the
person. The previous sentence will not
apply, however, to a withholding agent
that is making a payment with respect
to an offshore obligation. Documentary
evidence is unreliable or incorrect to
establish a person’s status as a foreign
person if the withholding agent has
classified the person as a U.S. person in
its customer files, the withholding agent
has a current residence or mailing
address (whether or not on the
documentation) for the person in the
United States, if the person notifies the
withholding agent of a new address in
the United States, or if the withholding
agent has a current telephone number
for the person in the United States and
has no telephone number for the person
outside of the United States.
Notwithstanding the foregoing, a
withholding agent may rely on
documentary evidence to establish the
person’s status as a foreign person
despite knowing that the person has any
of the U.S. indicia described in this
paragraph (e)(4)(iv)(B) if it may do so
under the provisions of paragraphs
(e)(4)(iv)(B)(1) and (2) of this section.
(1) Presumption of individual’s
foreign status. A withholding agent may
treat an individual that has U.S. indicia
described in paragraph (e)(4)(iv)(B) of
this section as a foreign person if the
individual has provided documentary
evidence and—
(i) The withholding agent has in its
possession, or obtains, additional
documentary evidence establishing
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foreign status (as described in paragraph
(c)(5)(i) of this section), that does not
contain a U.S. address, and the
individual provides the withholding
agent with a reasonable written
explanation supporting the claim of
foreign status;
(ii) The withholding agent has in its
possession, or obtains, a valid beneficial
owner withholding certificate that
contains a permanent residence address
outside the United States and a mailing
address, if any, outside the United
States (or, if a mailing address is inside
the United States, the direct account
holder provides a reasonable written
explanation supporting the individual’s
claim of foreign status); or
(iii) For a payment made with respect
to an offshore obligation, the
withholding agent has in its possession,
or obtains, a beneficial owner
withholding certificate that contains a
permanent residence address outside
the United States.
(2) Presumption of entity’s foreign
status. A withholding agent may treat an
entity that has U.S. indicia described in
paragraph (e)(4)(iv)(B) of this section as
a foreign person if the entity has
provided documentary evidence and—
(i) The withholding agent has in its
possession, or obtains, documentary
evidence establishing foreign status (as
described in paragraph (c)(5)(i) of this
section) that substantiates that the entity
is actually organized or created under
the laws of a foreign country;
(ii) The withholding agent obtains a
valid withholding certificate that
contains a permanent residence address
outside the United States and a mailing
address, if any, outside the United
States; or
(iii) For a payment made with respect
to an offshore obligation, the
withholding agent classifies the entity
as a resident of the country in which the
account is maintained, the withholding
agent is required to report payments
made to the entity annually on a tax
information statement that is filed with
the tax authority of the country in
which the office is located as part of that
country’s resident reporting
requirements, and that country has a tax
information exchange agreement or
income tax treaty in effect with the
United States.
(C) U.S. place of birth—(1) Accounts
opened on or after January 1, 2014. For
accounts opened on or after January 1,
2014, a withholding agent has reason to
know that documentary evidence
provided to demonstrate an individual’s
status as a foreign person is unreliable
or incorrect if the documentation
contains a U.S. birth place for the
individual or the withholding agent has,
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as part of its account information, a
place of birth for the individual in the
United States. A withholding agent may
treat the individual as a foreign person,
notwithstanding the U.S. birth place, if
the withholding agent has no knowledge
that the individual has any other U.S.
indicia described in paragraph (e)(4)(iv)
of this section and the withholding
agent obtains a copy of the individual’s
Certificate of Loss of Nationality of the
United States. A withholding agent may
also treat the individual as a foreign
person, notwithstanding the U.S. birth
place and any other U.S. indicia
described in paragraph (e)(4)(iv) of this
section, if the withholding agent obtains
a withholding certificate from the
individual that establishes the payee’s
foreign status and either a copy of the
individual’s Certificate of Loss of
Nationality of the United States or a
reasonable written explanation of the
individual’s renunciation of U.S.
citizenship or the reason the individual
did not obtain U.S. citizenship at birth.
(2) Preexisting obligations. For a
payment made with respect to a
preexisting obligation, a withholding
agent will not be required to conduct a
search of its documentation to identify
a U.S. place of birth associated with an
individual. However, if the withholding
agent, on or after January 1, 2014,
reviews documentation that contains a
U.S. place of birth for the individual
that is treated as a foreign person or is
notified that the individual has a U.S.
place of birth, then the account will be
considered to have experienced a
change in circumstances as of the date
that the withholding agent reviewed the
documentation and the withholding
agent will be considered to have reason
to know that the individual is a U.S.
person. See paragraph (c)(6)(ii)(E) of this
section for rules regarding the time
period allowed to cure a change in
circumstances.
(D) Standing Instructions. With
respect to an offshore obligation,
documentary evidence is unreliable or
incorrect as an indication of a person’s
status as a foreign person if the person
has standing instructions directing the
withholding agent to pay amounts to an
address or an account maintained in the
United States. The withholding agent
may treat the person as a foreign person,
however, if the person provides a
withholding certificate and
documentary evidence establishing
foreign status (as described in paragraph
(c)(5)(i) of this section), to the extent
such documentary evidence was not
already provided.
(E) Standards of knowledge
applicable to certain types of
documentary evidence—(1) Financial
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statement. A withholding agent that
obtains a financial statement for
purposes of establishing that a foreign
payee meets a certain asset threshold
will have reason to know that the
chapter 4 status claimed is inaccurate
only if the total assets shown on the
financial statement for the payee, and if
relevant the payee’s expanded affiliated
group, are not within the permissible
thresholds or the footnotes to the
financial statement indicate that the
payee is not a foreign entity or is not a
type of FFI eligible for the chapter 4
status claimed. A withholding agent that
obtains a financial statement for
purposes of establishing that the payee
is an active NFFE will be required to
review the balance sheet and income
statement to determine whether the
payee meets the income and asset
thresholds set forth in § 1.1472–
1(c)(1)(iv) and the footnotes of the
financial statement for an indication
that the payee is not a foreign entity or
is a financial institution. A withholding
agent that obtains a financial statement
for purposes of establishing a chapter 4
status for a payee that does not require
the payee to meet an asset or income
threshold will be required to review
only the footnotes to the financial
statement to determine whether the
financial statement supports the claim
of chapter 4 status. A withholding agent
that is not relying upon a financial
statement to establish the chapter 4
status of the payee (for example because
it has other documentation that
establishes the payee’s chapter 4 status)
is not required to independently
evaluate the financial statement solely
because the withholding agent also has
collected the financial statement in the
course of its account opening or other
procedures.
(2) Organizational documents. A
withholding agent that obtains
organizational documents for an entity
solely for the purpose of supporting the
chapter 4 status claimed will only be
required to review the document
sufficiently to establish that the entity is
a foreign person and that the purposes
for which the entity was formed and its
basic activities appear to be of a type
consistent with the chapter 4 status
claimed, unless otherwise specified in
paragraph (d) of this section. A
withholding agent that obtains
organizational documents for the
purpose of establishing that an entity
has a particular chapter 4 status will
only be required to review the
document to the extent needed to
establish that the entity is a foreign
person, that the requirements applicable
to the particular chapter 4 status are
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met, and that the document was
executed, but will not be required to
review the remainder of the document.
(v) Specific standards of knowledge
applicable when only documentary
evidence is a code or classification
described in paragraph (c)(5)(ii)(B) of
this section. A withholding agent may
not rely upon a standard industry code
or classification described in paragraph
(c)(5)(ii)(B) of this section to treat an
entity as having a foreign chapter 4
status if there are U.S. indicia described
in paragraph (e)(4)(v)(A) of this section
associated with the entity, unless such
U.S. indicia are cured in the manner set
forth in paragraph (e)(4)(v)(B) of this
section.
(A) U.S. indicia for entities. The term
U.S. indicia when used with respect to
an entity includes, for purposes of this
paragraph (e)(4)(v) any of the
following—
(1) Classification of an account holder
as a U.S. resident in the withholding
agent’s customer files;
(2) A current U.S. residence address
or U.S. mailing address;
(3) With respect to an offshore
obligation, standing instructions to pay
amounts to a U.S. address or an account
maintained in the United States;
(4) A current telephone number for
the entity in the United States but no
telephone number for the entity outside
of the United States;
(5) A current telephone number for
the entity in the United States in
addition to a telephone number for the
entity outside of the United States;
(6) A power of attorney or signatory
authority granted to a person with a U.S.
address; and
(7) An ‘‘in-care-of’’ address or ‘‘hold
mail’’ address that is the sole address
provided for the entity.
(B) Documentation required to cure
U.S. indicia. A withholding agent may
rely upon a code or classification
described in paragraph (c)(5)(ii)(B) of
this section to treat an entity as having
a foreign chapter 4 status if there are
U.S. indicia associated with the entity
and the withholding agent obtains the
relevant documentation described in
this paragraph (e)(4)(v)(B).
(1) If there are U.S. indicia described
in paragraphs (e)(4)(v)(A)(1) through (4)
of this section associated with the
entity, the withholding agent may treat
the entity as a foreign person only if the
withholding agent obtains a
withholding certificate for the entity
and one form of documentary evidence,
described in paragraph (c)(5) of this
section that establishes the entity’s
status as a foreign person (such as a
certificate of incorporation).
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(2) If there are U.S. indicia described
in paragraphs (e)(4)(v)(A)(1) to (4) of this
section associated with the entity and
the withholding agent is making a
payment with respect to an offshore
obligation, the withholding agent may
also treat the entity as a foreign person
if the withholding agent obtains a
withholding certificate for the entity
and the withholding agent treats the
entity as foreign for purposes of foreign
tax reporting. A withholding agent will
treat an entity as foreign for purposes of
foreign tax reporting only if the
withholding agent classifies the entity
as a resident of the country in which the
obligation is maintained, the
withholding agent is required to report
payments made to the entity annually
on a tax information statement that is
filed with the tax authority of the
country in which the account is
maintained as part of that country’s
resident reporting requirements, and
that country has an tax information
exchange agreement or income tax
treaty in effect with the United States.
(3) If there are indicia described in
paragraphs (e)(4)(v)(A)(5) through (7) of
this section associated with the entity,
the withholding agent may treat the
entity as a foreign person if the
withholding agent obtains a
withholding certificate or one form of
documentary evidence, described in
paragraph (c)(5) of this section, that
establishes the entity’s status as a
foreign person (such as a certificate of
incorporation).
(vi) Specific standards of knowledge
applicable to documentation received
from intermediaries and flow-through
entities—(A) In general. A withholding
agent that receives documentation from
a payee through an intermediary or
flow-through entity is required to
review all documentation obtained with
respect to the payee and all
intermediaries and/or flow-through
entities in the chain of payment,
applying the standards of knowledge set
forth in paragraph (e) of this section.
This standard requires, but is not
limited to, a withholding agent’s
compliance with the rules of paragraphs
(e)(4)(vi)(A)(1) and (2) of this section.
(1) The withholding agent is required
to review the withholding statement or
owner reporting statement provided and
may not rely on information in the
statement to the extent the information
does not support the claims made
regarding the chapter 4 status of the
person. For this purpose, a withholding
agent may not treat a person as a foreign
person if an address in the United States
is provided for such person unless the
withholding statement is accompanied
by a valid withholding certificate and
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5939
documentary evidence establishing
foreign status (as described in paragraph
(c)(5)(i) of this section).
(2) The withholding agent must
review each withholding certificate and
written statement in accordance with
paragraph (e)(4)(i) through (iii) of this
section and all documentary evidence in
accordance with paragraph (e)(4)(i) and
(iv) of this section, and must verify that
the information contained on the
withholding certificate, written
statement, and documentary evidence is
consistent with the information on the
withholding statement or owner
reporting statement. If there is a
discrepancy between the withholding
certificate, written statement, or
documentary evidence and the
withholding statement or owner
reporting statement, the withholding
agent may choose to rely on the
withholding certificate, written
statement, or documentary evidence
provided such documentation is valid
and the intermediary or flow-through
entity does not indicate that the
documentation is unreliable or
inaccurate, or may apply the
presumption rules set forth in paragraph
(f) of this section. If the withholding
agent chooses to rely upon the
withholding certificate, written
statement, or documentary evidence, the
withholding agent is required to instruct
the intermediary or flow-through entity
to correct the withholding statement
and confirm that the intermediary or
flow-through entity does not know or
have reason to know that the
documentation is unreliable or
inaccurate.
(B) Limits on reason to know with
respect to documentation received from
participating FFIs and registered
deemed-compliant FFIs that are
intermediaries or flow-through entities.
A withholding agent that receives
documentation from a participating FFI
or registered deemed-compliant FFI that
is not the payee must apply the
requirements of paragraph (e)(4)(vi)(A)
of this section, except that the
withholding agent may rely upon the
chapter 4 status provided by the
participating FFI or registered deemedcompliant FFI in the withholding
statement unless the withholding agent
has information that conflicts with the
chapter 4 status provided. If underlying
documentation is provided for the payee
and information in the documentation
or in the withholding agent’s records
conflicts with the chapter 4 status
claimed, the withholding agent will
have reason to know that the chapter 4
status claimed is inaccurate. A
withholding agent is not, however,
required to verify information contained
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in documentation provided by an
intermediary or flow-through entity that
is a participating FFI or registered
deemed-compliant FFI that is not
facially incorrect and is not required to
obtain supporting documentation for the
payee in addition to a withholding
certificate unless the withholding agent
obtains such documentation for
purposes of chapter 3 or 61 or unless the
withholding agent knows that the
review conducted by the participating
FFI or registered deemed-compliant FFI
for purposes of chapter 4 was not
adequate. For example, a withholding
agent that receives a withholding
statement from a participating FFI that
is an intermediary stating that the payee
is a registered deemed-compliant FFI is
only required to determine that any
withholding certificate provided for the
payee contains a GIIN and that the GIIN
does not appear to be facially invalid
(for example, because it does not
contain the correct amount of digits),
but is not subject to the requirements set
forth in paragraph (e)(3) of this section.
Similarly, a withholding agent that
receives from a participating FFI that is
a partnership a withholding statement
claiming that the payee is an active
NFFE will have reason to know that the
claim is inaccurate if it receives a
withholding statement that contains a
U.S. address for the payee unless the
partnership also provides a copy of
documentation sufficient to cure the
U.S. indicia in the manner set forth in
paragraph (e) of this section or the
withholding statement indicates that
appropriate documentation sufficient to
cure the U.S. indicia in the manner set
forth in paragraph (e) of this section has
been obtained and provides details of
such documentation, such as the type of
documentation and an identification
number of the person contained on the
document.
(vii) Limits on reason to know—(A)
Scope of review for preexisting
obligations of entities. For purposes of
determining whether a withholding
agent that makes a payment with respect
to a preexisting obligation to an entity
has reason to know that the chapter 4
status applied to the entity is unreliable
or incorrect, the withholding agent is
only required to review information
contradicting the chapter 4 status
claimed if such information is contained
in the current customer master file, the
most recent withholding certificate,
written statement, and documentary
evidence for the person, the most recent
account opening contract, the most
recent documentation obtained by the
withholding agent for purposes of AML
due diligence or for other regulatory
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purposes, any power of attorney or
signature authority forms currently in
effect, and any standing instructions to
pay amounts that is currently in effect.
(B) Reason to know there is a U.S.
telephone number associated with a
preexisting obligation. For payments
made with respect to a preexisting
obligation, a withholding agent, in lieu
of searching the account files addressed
in paragraph (e)(4)(vii)(A) of this section
to determine whether the payee (or
other person receiving the payment) has
a current telephone number in the
United States, may rely upon a search
of its electronically searchable
information associated with such
person. However, the withholding agent
may only rely upon the electronic
search described in the previous
sentence if the electronic search
produces at least one current phone
number for the person. If the electronic
search does not produce a telephone
number for the person, the withholding
agent will be required, by January 1,
2017, to search the files described in
paragraph (e)(4)(vii)(A) of this section to
locate a current telephone number for
the payee.
(C) Reason to know there are U.S.
indicia associated with preexisting
offshore obligations. For payments made
outside of the United States with respect
to an offshore obligation that is also a
preexisting obligation and with respect
to a withholding agent that had not
already documented the payee for
purposes of chapter 3 or 61, the
withholding agent, in lieu of searching
the account files addressed in paragraph
(e)(4)(vii)(A) of this section to determine
whether there are U.S. indicia
associated with the payee (or other
person who receives the payment), may
instead rely upon a search of its
electronically searchable information
associated with such person. A
withholding agent that relies upon an
electronic search pursuant to this
paragraph (e)(4)(vii)(C) must also review
for U.S. indicia any documentation
upon which the withholding agent
relies to determine the chapter 4 status
of the person and any documentation
that the withholding agent had been
relying upon to determine the residency
or citizenship of the person.
(D) Limits on reason to know for
multiple obligations belonging to a
single person. A withholding agent that
maintains multiple obligations for a
single person will have reason to know
that a chapter 4 status assigned to the
person is inaccurate based on
information contained in the customer
files for another obligation held by the
person only to the extent that—
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(1) The withholding agent’s
computerized systems link the
obligations by reference to a data
element such as client number, EIN, or
foreign tax identifying number and
consolidates the customer information
and payment information for the
obligations; or
(2) The withholding agent has treated
the obligations as consolidated
obligations for purposes of sharing
documentation pursuant to paragraph
(c)(8) of this section or for purposes of
treating one or more accounts as
preexisting obligations.
(viii) Reasonable explanation
supporting claim of foreign status. A
reasonable explanation supporting a
claim of foreign status for an individual
means a written statement prepared by
the individual (or the individual’s
completion of a checklist provided by
the withholding agent), stating that the
individual meets one of the
requirements of paragraphs
(e)(4)(viii)(A) through (D).
(A) The individual certifies that he or
she—
(1) Is a student at a U.S. educational
institution and holds the appropriate
visa;
(2) Is a teacher, trainee, or intern at a
U.S. educational institution or a
participant in an educational or cultural
exchange visitor program, and holds the
appropriate visa;
(3) Is a foreign individual assigned to
a diplomatic post or a position in a
consulate, embassy, or international
organization in the United States; or
(4) Is a spouse or unmarried child
under the age of 21 years of one of the
persons described in paragraphs
(e)(4)(viii)(A) through (C) of this section;
(B) The individual provides
information demonstrating that he or
she has not met the substantial presence
test set forth in § 301.7701(b)–1(c) of
this chapter (for example, a written
statement indicating the number of days
present in the United States during the
3-year period that includes the current
year);
(C) The individual certifies that he or
she meets the closer connection
exception described in § 301.7701(b)–2,
states the country to which the
individual has a closer connection, and
demonstrates how that closer
connection has been established; or
(D) With respect a payment entitled to
a reduced rate of tax under a U.S.
income tax treaty, the individual
certifies that he or she is treated as a
resident of a country other than the
United States and is not treated as a U.S.
resident or U.S. citizen for purposes of
that income tax treaty.
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(5) Conduit financing arrangements.
The rules set forth in § 1.1441–7(f),
regarding a withholding agent’s liability
for failing to withhold in the case in
which the financing arrangement is a
conduit financing arrangement, apply
for purposes determining a withholding
agent’s liability for any withholding
required under chapter 4.
(6) Additional guidance. The IRS may
prescribe other circumstances for which
a withholding certificate or
documentary evidence to establish a
payee’s chapter 4 status is unreliable or
incorrect in addition to the
circumstances described in this
paragraph (e).
(f) Presumptions regarding chapter 4
status of the person receiving the
payment in the absence of
documentation—(1) In general. A
withholding agent that cannot, prior to
the payment, reliably associate (within
the meaning of paragraph (c) of this
section) a payment with valid
documentation may rely on the
presumptions of this paragraph (f) to
determine the status of the payee (or
other person receiving the payment) as
a U.S. or foreign person and such
person’s other relevant characteristics
(for example, as a participating FFI or a
nonparticipating FFI). See paragraph
(f)(9) of this section for consequences to
a withholding agent that fails to
withhold in accordance with the
presumptions set forth in this paragraph
(f) or that has actual knowledge or
reason to know facts that are contrary to
the presumptions set forth in this
paragraph (f).
(2) Presumptions of classification as
an individual or entity—(i) In general. A
withholding agent that cannot reliably
associate a payment with a valid
withholding certificate, or that has
received valid documentary evidence,
as described in paragraph (c)(5) of this
section, but cannot determine a person’s
status as an individual or an entity from
the documentary evidence, must
presume that the person is an individual
if the person appears to be an individual
(for example, based on the person’s
name or information in the customer
file). If the person does not appear to be
an individual, then the person shall be
presumed to be an entity. In the absence
of reliable documentation, a
withholding agent must treat a person
that is presumed to be an entity as a
trust or estate if the person appears to
be a trust or estate (for example, based
on the person’s name or information in
the customer file). In addition, a
withholding agent must treat a person
that is presumed to be a trust, or a
person that is known to be a trust but
for which the withholding agent cannot
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determine the type of trust, as a grantor
trust if the withholding agent knows
that the settlor of the trust is a U.S.
person, and otherwise as a simple trust.
In the absence of reliable indications
that the entity is a trust or estate, the
withholding agent must presume the
person is a corporation if it can be
treated as such under § 1.6049–
4(c)(1)(ii)(A)(1). If the withholding agent
cannot treat the person as a corporation
under § 1.6049–4(c)(1)(ii)(A)(1), then the
person must be presumed to be a
partnership. See paragraph (a) of this
section to determine, based upon the
person’s presumed entity type, whether
the person is treated as a payee.
(ii) Documentary evidence furnished
for offshore obligation. If the
withholding agent receives valid
documentary evidence, as described in
paragraph (d) of this section, with
respect to an offshore obligation from an
entity but the documentary evidence
does not establish the entity’s
classification as a corporation, trust,
estate, or partnership, the withholding
agent may presume that the entity is a
corporation unless the withholding
agent knows, or has reason to know, that
the entity is not classified as a
corporation for U.S. tax purposes.
However, a withholding agent may not
treat a person that is known or
presumed to be a foreign corporation as
a beneficial owner if the withholding
agent knows, or has reason to know, that
the person is not the beneficial owner
with respect to the payment. For this
purpose, a withholding agent will have
reason to know that the person is not a
beneficial owner if the documentary
evidence indicates that the person is a
bank, broker, intermediary, custodian,
or other agent. A withholding agent
may, however, treat such a person as a
beneficial owner if the foreign person
provides written notification, regardless
of whether such notification is signed,
that indicates the person is the
beneficial owner of the payment.
(3) Presumptions of U.S. or foreign
status. A payment that the withholding
agent cannot reliably associate with a
valid withholding certificate or
documentary evidence is presumed to
be made to a U.S. person, except as
otherwise provided in this paragraph
(f)(3). A payment that is reliably
associated with documentation that
indicates the payment is made to a U.S.
person but does not indicate whether
the person is a specified U.S. person,
will be presumed to be made to a
specified U.S. person unless the
withholding agent can apply the
presumption rules of § 1.6049–
4(c)(1)(ii)(B), (C), (D), (E), (I), (J), (K), (L),
or (N), to presume that the person is
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5941
other than a specified U.S. person or the
person’s name reasonably indicates that
the person is a bank (for example
because it contains the word ‘‘Bank’’ or
a foreign equivalent).
(i) Payments to entities with indicia of
foreign status. If a withholding agent
cannot reliably associate a payment
with valid documentation sufficient to
determine the person’s status as a U.S.
person or foreign person and the person
is presumed to be an entity, the person
is presumed to be a foreign person and
not a U.S. person—
(A) If the withholding agent has actual
knowledge of the person’s EIN and that
number begins with the two digits ‘‘98’’;
(B) If the withholding agent’s
communications with the person are
mailed to an address in a foreign
country;
(C) If the withholding agent has a
telephone number for the person
outside of the United States; or
(D) If the name of the person indicates
that the entity is of a type that is on the
per se list of foreign corporations
contained in § 301.7701–2(b)(8)(i) of this
chapter (other than a name which
contains the designation ‘‘corporation’’
or ‘‘company’’).
(ii) Payments to certain exempt
recipients. If the payment is made to an
entity that is treated as an exempt
recipient under the provisions of
§ 1.6049–4(c)(1)(ii)(A)(1), (F), (G), (H),
(I), (M), (O), (P), or (Q) in the case of
interest, or under similar provisions in
chapter 61 applicable to the type of
payment involved, the entity shall be
presumed to be a foreign person.
(iii) Payments with respect to offshore
obligations. A payment to an individual
or an entity is presumed to be made to
a foreign person if the payment is made
outside of the United States with respect
to an offshore obligation and the
withholding agent does not know that
the person is a U.S. person.
(4) Presumption of chapter 4 status
for a foreign entity. A withholding agent
that makes a payment to a foreign entity
that it cannot reliably associate with a
valid withholding certificate or
documentary evidence sufficient to
determine the chapter 4 status of that
entity under paragraph (d) of this
section (for example, as a participating
FFI, nonparticipating FFI, or NFFE)
must presume that the entity is a
nonparticipating FFI.
(5) Presumption of status as an
intermediary. If a withholding agent
cannot reliably associate a payment
with documentation to treat the
payment as made to an intermediary,
then the withholding agent must treat
the payment as made to an intermediary
if the withholding agent has
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documentary evidence or other
documentation that indicates, or the
facts and circumstances of the
transaction (including the name of the
person who receives the payment or the
presence of sub-account numbers not
corresponding to accounts maintained
by the withholding agent for such
person) indicate that the person who
receives the payment is a bank, broker,
custodian, intermediary, or other agent,
and the withholding agent has no
knowledge that the person is receiving
the payment for its own account. Any
portion of a payment that the
withholding agent must treat as made to
a foreign intermediary (whether a QI or
an NQI) but that the withholding agent
cannot treat as reliably associated with
valid documentation under the rules of
paragraph (c) of this section, is
presumed to be made to a
nonparticipating FFI account holder of
the intermediary. A person that the
withholding agent is not required to
treat as a foreign intermediary under
this paragraph (f)(5) is presumed to be
a person other than an intermediary.
(6) Presumption of effectively
connected income for payments to
certain U.S. branches. A withholding
agent that makes a payment to a U.S.
branch described in this paragraph (f)(6)
may presume, in the absence of
documentation indicating otherwise,
that the U.S. branch is the payee and the
payment is effectively connected with
the conduct of a trade or business in the
United States if the withholding agent
has both an EIN for the branch and a
valid GIIN for the home office
establishing that the U.S. branch is a
branch of a participating FFI or
registered deemed-compliant FFI. A
U.S. branch is described in this
paragraph (f)(6) if it is a 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. A payment is
treated as made to a U.S. branch of a
foreign bank or foreign insurance
company if the payment is credited to
an account maintained in the United
States in the name of a U.S. branch of
the foreign person, or the payment is
made to an address in the United States
where the U.S. branch is located and the
name of the U.S. branch appears on
documents (in written or electronic
form) associated with the payment (for
example, the check mailed or letter
addressed to the branch).
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Jkt 229001
(7) Joint payees—(i) In general. If a
withholding agent makes a payment to
joint payees and cannot reliably
associate the payment with valid
documentation from each payee but all
of the joint payees appear to be
individuals, then the payment is
presumed made to an unidentified U.S.
person. If any joint payee does not
appear, by its name and other
information contained in the account
file, to be an individual, then the entire
payment will be treated as made to a
nonparticipating FFI. However, if one of
the joint payees provides a Form W–9
furnished in accordance with the
procedures described in §§ 31.3406(d)–
1 through 31.3406(d)–5 of this chapter,
the payment shall be treated as made to
that payee.
(ii) Exception for offshore obligations.
If a withholding agent makes a payment
outside the United States with respect to
an offshore obligation held by joint
payees and cannot reliably associate a
payment with valid documentation from
each payee but all of the joint payees
appear to be individuals, then the
payment is presumed made to an
unknown foreign individual.
(8) Rebuttal of presumptions. A payee
may rebut the presumptions described
in this paragraph (f) by providing
reliable documentation to the
withholding agent or, if applicable, to
the IRS.
(9) Effect of reliance on presumptions
and of actual knowledge or reason to
know otherwise—(i) In general. Except
as otherwise provided in this paragraph
(f)(9), a withholding agent that
withholds on a payment under section
1471 or 1472 in accordance with the
presumptions set forth in this paragraph
(f) shall not be liable for withholding
under this section even if it is later
established that the payee has a chapter
4 status other than the status presumed.
A withholding agent that fails to report
and withhold in accordance with the
presumptions described in this
paragraph (f) with respect to a payment
that it cannot reliably associate with
valid documentation shall be liable for
tax, interest, and penalties. See
§ 1.1474–1(a) for the extent of a
withholding agent’s liability for failing
to withhold in accordance with the
presumptions described in this
paragraph (f).
(ii) Actual knowledge or reason to
know that amount of withholding is
greater than is required under the
presumptions or that reporting of the
payment is required. Notwithstanding
the provisions of paragraph (f)(9)(i) of
this section, a withholding agent that
knows or has reason to know that the
status or characteristics of the person
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are other than what is presumed under
this paragraph (f) may not rely on the
presumptions described in this
paragraph (f) to the extent that, if it
determined the status of the person
based on such knowledge or reason to
know, it would be required to withhold
(under this section or another
withholding provision of the Code) an
amount greater than would be the case
if it relied on the presumptions
described in this paragraph (f). In such
a case, the withholding agent must rely
on its knowledge or reason to know
rather than on the presumptions set
forth in this paragraph (f). Failure to do
so shall result in liability for tax,
interest, and penalties to the extent
provided under § 1.1474–1(a).
(g) Effective/applicability date. This
section generally applies on January 28,
2013. For other dates of applicability,
see §§ 1.1471–3(d)(1); 1.1471–3(d)(4)(i),
(ii), and (iv); 1.1471–3(d)(6)(v); 1.1471–
3(d)(11)(viii)(A); 1.1471–3(d)(12)(iii)(B);
1.1471–3(e)(3)(ii); and 1.1471–
3(e)(4)(vii)(B).
■ Par. 8. Section 1.1471–4 is added to
read as follows:
§ 1.1471–4
FFI agreement.
(a) In general. An FFI agreement will
be in effect in accordance with section
1471(b) if an FFI registers with the IRS
pursuant to procedures prescribed by
the IRS and agrees to comply with the
terms of an FFI agreement. The FFI
agreement will incorporate the
requirements set forth in this section,
any modifications set forth in an
applicable Model 2 IGA, and any
provisions applicable to a reporting
Model 1 FFI.
(1) Withholding. A participating FFI is
required to deduct and withhold tax
with respect to payments made to
recalcitrant account holders and
nonparticipating FFIs to the extent
required under paragraph (b) of this
section. A participating FFI that is
prohibited by foreign law from
withholding as required under
paragraph (b) of this section with
respect to an account must close such
account within a reasonable period of
time or must otherwise block or transfer
such account as described in paragraph
(i) of this section.
(2) Identification and documentation
of account holders. A participating FFI
is required to obtain such information
regarding each holder of each account
maintained by the participating FFI to
determine whether each account is a
U.S. account or an account held by a
recalcitrant account holder or
nonparticipating FFI in accordance with
the due diligence procedures for
identifying and documenting account
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holders described in paragraph (c) of
this section.
(3) Reporting. A participating FFI is
required to report the information
described in paragraph (d) of this
section annually with respect to U.S.
accounts under section 1471(c) and
accounts held by recalcitrant account
holders. A participating FFI must also
comply with the filing requirements
described in § 1.1474–1(c) and (d) to
report payments that are chapter 4
reportable amounts paid to recalcitrant
account holders and nonparticipating
FFIs (including the transitional
reporting of foreign reportable amounts
paid to nonparticipating FFIs for
calendar years 2015 and 2016 described
in § 1.1474–1(d)(4)(iii)(C)). A
participating FFI that is unable to obtain
a waiver, if required by foreign law, to
report an account as required under
paragraph (d) of this section must close
or transfer such account within a
reasonable period of time as described
in paragraph (i) of this section.
(4) Expanded affiliated group. Except
as otherwise provided in Model 1 IGA
or Model 2 IGA, in order for any FFI
that is a member of an expanded
affiliated group to be a participating FFI,
each FFI that is a member of the
expanded affiliated group must be a
participating FFI or registered deemedcompliant FFI as described in paragraph
(e) of this section. For a limited period
described in paragraph (e)(2) or (e)(3) of
this section, however, a branch of an FFI
or an FFI that is a member of an
expanded affiliated group and is unable
under foreign law to satisfy the
requirements of this section may instead
obtain status as a limited branch of a
participating FFI or limited FFI if the
branch or FFI meets the requirements
set forth in paragraph (e)(2) or (e)(3) of
this section (as applicable).
(5) Verification. A participating FFI is
required to adopt a compliance program
as described in paragraph (f) of this
section under the authority of the
responsible officer, who will be required
to certify periodically to the IRS on
behalf of the FFI regarding the
participating FFI’s compliance with the
requirements of the FFI agreement. If
the IRS identifies concerns about the
participating FFI’s compliance, the IRS
may request additional information to
verify compliance with the
requirements of the FFI agreement as
described in paragraph (f)(4) of this
section.
(6) Event of default. A participating
FFI is required to cure an event of
default with respect to the FFI
agreement as defined in paragraph (g) of
this section. Upon the occurrence of an
event of default, the IRS will deliver to
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a participating FFI a notice of default
and will allow the FFI an opportunity
to cure the event of default as described
in paragraph (g) of this section.
(7) Refunds. A participating FFI may
file a collective refund on behalf of
certain account holders and payees for
amounts withheld by the participating
FFI or its withholding agent under
chapter 4 in excess of the account
holder or payee’s U.S. tax liability to the
extent permitted in paragraph (h) of this
section. A participating FFI may also
make an adjustment for
overwithholding using either the
reimbursement procedure described in
§ 1.1474–2(a)(3) or the set-off procedure
described in § 1.1474–2(a)(4).
(b) Withholding requirements—(1) In
general. Except as otherwise provided
in a Model 2 IGA, a participating FFI is
required to deduct and withhold a tax
equal to 30 percent of any withholdable
payment made by such participating FFI
to an account held by a recalcitrant
account holder or to a nonparticipating
FFI after December 31, 2013, to the
extent required under paragraph (b)(3)
of this section. See paragraph (b)(2) of
this section for rules for a participating
FFI to identify the payee of a payment
in order to determine whether
withholding is required under this
paragraph (b). See paragraph (b)(4) of
this section for the extent of a
participating FFI’s requirement to
deduct and withhold tax on a foreign
passthru payment made by such
participating FFI to an account held by
a recalcitrant account holder or to a
nonparticipating FFI. See paragraph
(b)(5) of this section for the rules for
withholding on payments to limited
branches and limited FFIs. See
paragraph (b)(6) for the special
allowance to set aside in escrow
amounts withheld with respect to
dormant accounts. See paragraph (b)(7)
of this section for the withholding
requirements of certain U.S. branches of
participating FFIs. See § 1.1471–2 for
the exceptions to withholding and the
exclusion from the definition of
withholdable payment and foreign
passthru payment that applies to any
payment made under a grandfathered
obligation or the gross proceeds from
the disposition of such an obligation.
See § 1.1474–1(d)(4)(iii) for the
requirement of participating FFIs to
report payments that are chapter 4
reportable amounts. See § 1.1474–6 for
the coordination of withholding on
payments under this paragraph (b) with
the other withholding provisions under
the Code.
(2) Withholding determination. Except
as otherwise provided under § 1.1471–2
and paragraph (c) of this section with
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5943
respect to certain preexisting accounts,
a participating FFI is required to
determine whether withholding applies
at the time a payment is made by
reliably associating the payment with
valid documentation described in
paragraph (c) of this section for the
payee of the payment. For a payment
made to an account, if the account is
held by one or more individuals, the
payee is each individual account holder.
For a payment made to an account held
by an entity, except as otherwise
provided in § 1.1471–3(a)(3), the payee
is the account holder of the payment. If
the participating FFI makes a
withholdable payment to a payee that is
an entity and the payment is made with
respect to an obligation that is not an
account, except as otherwise provided
in § 1.1471–3(a)(3), the payee is the
person to whom the payment is made.
See § 1.1473–1(a) to determine when a
payment is made in the case of a
withholdable payment. If a participating
FFI cannot reliably associate a payment
(or any portion of a payment) with valid
documentation, the rules described in
paragraph (c) of this section shall apply
to determine the chapter 4 status of the
account holder (and payee if other than
the account holder). Notwithstanding
the foregoing, a participating FFI may
establish after the date of payment that
withholding was not required to the
extent permitted under § 1.1471–3(c)(7)
or may apply the procedures provided
in § 1.1474–2 when overwithholding
occurs.
(3) Satisfaction of withholding
requirements. A participating FFI that
complies with the withholding
obligations of this paragraph (b) with
respect to accounts held by recalcitrant
account holders and payees that are
nonparticipating FFIs shall be deemed
to satisfy its withholding obligations
under sections 1471(a) and 1472 with
respect to such account holders and
payees. A participating FFI that is an
NQI, NWP, NWT, or that is a QI that
elects under section 1471(b)(3) not to
assume withholding responsibility for
the payment and that provides its
withholding agent with the information
necessary to allocate all or a portion of
the payment to each payee as part of a
withholding certificate described in
§ 1.1471–3(c)(3)(iii) will generally not be
required to withhold under paragraph
(b)(1) of this section. See § 1.1471–
2(a)(2)(ii), however, for the
circumstances under which a
participating FFI that is an NQI, NWP,
or NWT has a residual withholding
responsibility. See also § 1.1471–
3(c)(9)(iii)(B) for the circumstances
under which a participating FFI that is
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a broker has a residual withholding
responsibility as an intermediary of the
payment and may also be liable for any
underwithholding that occurs. See
§§ 1.1471–2(a) and 1.1472–1(a)(2)(i) and
the QI, WP, or WT agreement for the
withholding requirements of a
participating FFI that is a QI, WP, or WT
for purposes of chapter 4.
(4) Foreign passthru payments. A
participating FFI is not required to
deduct and withhold tax on a foreign
passthru payment made by such
participating FFI to an account held by
a recalcitrant account holder or to a
nonparticipating FFI before the later of
January 1, 2017, or the date of
publication in the Federal Register of
final regulations defining the term
foreign passthru payment.
(5) Withholding on limited FFIs and
limited branches—(i) Limited FFIs. A
participating FFI is required to withhold
on a withholdable payment made to a
limited FFI identifying itself as a
nonparticipating FFI. A participating
FFI that is a member of an expanded
affiliated group that includes one or
more limited FFIs will also be required
to treat any such limited FFI as a
nonparticipating FFI with respect to
withholdable payments made to such
limited FFI. A participating FFI will be
considered to have made a withholdable
payment to a limited FFI if such
participating FFI receives a
withholdable payment with respect to a
security or instrument held on behalf of
a limited FFI (or an account maintained
by the limited FFI). A participating FFI
will also be considered to have made a
withholdable payment to a limited FFI
when the limited FFI receives a
payment with respect to a transaction
between the limited FFI and such
participating FFI that is in the same
expanded affiliated group and such
transaction hedges or otherwise
provides total return exposure to
another transaction between such
participating FFI and a third party that
gives rise to a withholdable payment.
(ii) Limited branches. A participating
FFI is required to withhold on a
withholdable payment made to a
limited branch identifying itself as a
nonparticipating FFI. A branch of the
participating FFI other than the limited
branch is also required to withhold on
a withholdable payment when it
receives the payment on behalf of a
limited branch of the participating FFI.
A branch of the participating FFI other
than a limited branch will be considered
to have received a withholdable
payment on behalf of a limited branch
when such other branch receives a
withholdable payment with respect to a
security or instrument it holds on behalf
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of a limited branch (or an account
maintained by the limited branch). A
branch of a participating FFI other than
a limited branch will be considered to
hold a security or instrument on behalf
of a limited branch when it executes a
transaction with a limited branch that
hedges or otherwise provides total
return exposure to another transaction
between such other branch and a third
party that gives rise to a withholdable
payment.
(6) Special rule for dormant accounts.
A participating FFI that makes a
payment to a recalcitrant account holder
of a dormant account and that
withholds on such payment as required
under paragraph (b)(1) of this section
may, in lieu of depositing the tax
withheld under § 1.6302–2 and
described in § 1.1474–1(b), set aside the
amount withheld in escrow until the
date that the account ceases to be a
dormant account. In such case, the tax
withheld becomes due 90 days
following the date that the account
ceases to be a dormant account if the
account holder does not provide the
documentation required under
paragraph (c) of this section or becomes
refundable to the account holder if the
account holder provides the
documentation required under
paragraph (c) of this section establishing
that withholding does not apply. If a
dormant account escheats to a foreign
government under the relevant laws in
the jurisdiction in which the
participating FFI (or branch thereof)
operates, the participating FFI is not
required to deposit with the IRS the
amount held in escrow with respect to
the account. See paragraph (d)(6)(ii) of
this section for the definition of
dormant account.
(7) Withholding requirements for U.S.
branches of participating FFIs that are
treated as U.S. persons. A U.S. branch
of a participating FFI that is treated as
a U.S. person and that satisfies its
backup withholding obligations under
section 3406(a) with respect to accounts
held at the U.S. branch by account
holders that are treated as U.S. nonexempt recipients under chapter 61 will
be treated as satisfying its withholding
obligation with respect to such accounts
under section 1471(b)(1) and this
paragraph (b). See paragraph
(d)(2)(iii)(B) of this section for the
special reporting requirements
applicable to U.S. branches of
participating FFIs that are treated as
U.S. persons. See paragraphs (c)(2) and
(d)(4) of this section for the reporting
requirements of U.S. branches of
participating FFIs with respect to
payments that are chapter 4 reportable
amounts.
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(c) Due diligence for the identification
and documentation of account holders
and payees—(1) Scope of paragraph.
Except to the extent that a participating
FFI relies on the due diligence
procedures set forth in an applicable
Model 2 IGA, a participating FFI must
follow this paragraph (c) to identify and
document the chapter 4 status of each
holder of an account maintained by the
participating FFI to determine if the
account is a U.S. account, non-U.S.
account, or an account held by a
recalcitrant account holder or
nonparticipating FFI. Paragraph (c)(2) of
this section provides the general rules
for identification and documentation of
account holders and payees, and
paragraph (c)(2)(v) provides special
documentation requirements for certain
U.S. branches of participating FFIs.
Paragraph (c)(3) of this section provides
the rules for documenting entity
accounts and payees. Paragraph (c)(4) of
this section provides the general rules
for documenting individual accounts
other than preexisting accounts.
Paragraph (c)(5) of this section provides
the identification and documentation
procedure for preexisting individual
accounts. Paragraph (c)(6) of this section
provides examples illustrating the
application of the documentation
exceptions for entity accounts and
individual accounts. Paragraph (c)(7) of
this section outlines the certification
requirement relating to the due
diligence procedures of this paragraph
(c) with respect to preexisting accounts
within the specified periods of time.
(2) General rules for the identification
and documentation of account holders
and payees—(i) Overview. Except as
otherwise provided in paragraphs
(c)(3)(iii) and (c)(5)(iii) of this section
(documentation exceptions for certain
preexisting accounts), a participating
FFI is required to identify among
accounts maintained by the
participating FFI each account that is a
U.S. account or an account held by a
recalcitrant account holder or
nonparticipating FFI, and to report
information about such accounts in the
manner provided in paragraph (d) of
this section and § 1.1474–1(d)(4)(iii).
See § 1.1471–5(a)(3) for rules to
determine the holder of an account. The
participating FFI is also required to
retain a record of the documentation
collected or otherwise maintained that
meets the requirements described in this
paragraph (c) when making certain
payments to an account holder or payee
(if other than an account holder) to
determine whether withholding applies
under paragraph (b) of this section or
whether reporting applies under
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§ 1.1474–1(d)(4)(iii)(C) and any payee
for which it provides the certification
described in § 1.1471–3(c)(9)(iii)(A) to
another withholding agent.
(ii) Standards of knowledge—(A) In
general. A participating FFI may rely on
valid documentation that is collected
pursuant to the due diligence
procedures set forth in this paragraph
(c) or that is otherwise maintained in
the participating FFI’s files, unless the
participating FFI knows or has reason to
know that such documentation is
unreliable or incorrect. For purposes of
a participating FFI documenting an
account holder under this paragraph (c),
the requirements for the validity of
withholding certificates, written
statements, and documentary evidence
provided in § 1.1471–3(c) shall apply
regardless of whether the participating
FFI makes a payment to the account.
Except as otherwise provided paragraph
(c)(2)(ii)(B) of this section (certain
mergers or bulk acquisitions) and in
paragraph (c)(5)(iv) of this section
(preexisting individual accounts), to
determine whether a participating FFI
knows or has reason to know that the
documentation collected or otherwise
maintained with respect to the account
holder is unreliable or incorrect, the
standards of knowledge provided in
§ 1.1471–3(e) shall apply regardless of
whether the participating FFI makes a
payment to the account. See § 1.1471–
3(c)(8) and (9) for the requirement to
obtain documentation on an account-byaccount basis and the exceptions to this
requirement.
(B) Limits on reason to know with
respect to certain accounts acquired in
merger or bulk acquisition. A
participating FFI that acquires accounts
of another financial institution either in
a merger or bulk acquisition of accounts
for value (other than a related party
transaction described in § 1.1471–
3(c)(9)(v)) may apply the limitations on
reason to know provided in paragraphs
(c)(2)(ii)(B)(1) or (2) of this section (as
applicable and subject to the conditions
therein), or the rules of § 1.1471–
3(c)(9)(v) to rely upon documentation
collected by another financial
institution for an account acquired
either in a merger or bulk acquisition of
accounts for value.
(1) In general. The participating FFI
may treat accounts acquired in a
transaction described in this paragraph
(c)(2)(ii)(B) as preexisting accounts for
purposes of applying the identification
and documentation procedures of this
paragraph (c) by substituting the date of
acquisition of such accounts for the
effective date of the FFI agreement.
(2) Participating FFIs and certain
deemed-compliant FFIs that apply the
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18:04 Jan 25, 2013
Jkt 229001
due diligence rules, and U.S. financial
institutions. If a participating FFI
(transferee FFI) acquires accounts of
another participating FFI or deemedcompliant FFI (including a U.S. branch
of either such FFI) that applies the due
diligence requirements of this paragraph
(c) as a condition of its status (as
described in § 1.1471–5(f)), or of a U.S.
financial institution (transferor FI), the
transferee FFI may rely on the chapter
4 status determination made by the
transferor FI for an account holder and
will not be subject to the standards of
knowledge set forth in paragraph
(c)(2)(ii)(A) of this section until there is
a change in circumstances with respect
to the account if the following
conditions are met—
(i) The transferee FFI does not have
actual knowledge that the chapter 4
status determination provided by the
transferor FI is unreliable or incorrect;
(ii) For the certification period
following the acquisition of such
accounts (described in paragraph
(f)(3)(i) of this section), the transferee
FFI acquiring the accounts tests a
sample of the acquired accounts to
determine if the chapter 4 status
determinations made by the transferor
FI are reliable;
(iii) In the case of a transferor FI that
is a branch of a participating FFI or of
a registered deemed-compliant FFI
(other than a U.S. branch that is treated
as a U.S. person) or that is a deemedcompliant FFI that applies the requisite
due diligence rules of this paragraph (c)
as a condition of its status, the transferor
FI provides a written representation to
the transferee FFI acquiring the
accounts that the transferor FI has
applied the due diligence procedures of
this paragraph (c) with respect to the
transferred accounts and, in the case of
a transferor FI that is a participating FFI,
has complied with the requirements of
paragraph (f)(2) of this section; and
(iv) In the case of a transferor FI that
is a U.S. financial institution or that is
a U.S branch of a participating FFI or of
a registered deemed-compliant FFI that
is treated as a U.S. person, the transferee
FFI may rely on the chapter 4 status
determinations for a payee that is an
entity only if prior to the date of transfer
the U.S. financial institution or U.S.
branch made a withholdable payment to
the payee or, for a payee that is an
individual, only if the U.S. financial
institution or U.S. branch made a
reportable payment (as defined under
section 3406(b)) to the payee.
(iii) Change in circumstances—(A)
Obligation to identify a change in
circumstances. A participating FFI is
required to institute procedures to
ensure that any change in
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5945
circumstances, as described in
paragraph (c)(2)(iii)(B) of this section, is
identified by the participating FFI,
including procedures to ensure that a
relationship manager identifies any
change in circumstances with respect to
an account. For example, if a
relationship manager is notified that the
account holder has a mailing address in
the United States when there was no
U.S. address previously associated with
the account, the participating FFI will
be required to treat the new address as
a change in circumstances and will be
required to retain a record of the
appropriate documentation from the
account holder as described in
paragraph (c)(5)(iv)(B)(2)(iii) of this
section.
(B) Definition of change in
circumstances. For purposes of this
section, a change in circumstances (as
defined in § 1.1471–3(c)(6)(ii)(D))
includes any change or addition of
information to the account holder’s
account (including the addition,
substitution, or other change of an
account holder) or any change or
addition of information to any account
associated with such account (applying
the account aggregation rules described
in § 1.1471–5(b)(4)(iii) or by treating the
accounts as consolidated obligations) if
such change or addition of information
affects the chapter 4 status of the
account holder. For example, if a holder
of an account (including a preexisting
account) opens another account that is
linked to such account in the
participating FFI’s computerized system
as described under § 1.1471–5(b)(4)(iii)
and as part of the participating FFI’s
account opening procedures the account
holder provides a U.S. telephone
number for such other account, this is
a change in circumstances with respect
to the first mentioned account. With
respect to a preexisting account that
meets a documentation exception
described in paragraphs (c)(3)(iii) and
(c)(5)(iii) of this section, a change in
circumstances also includes a change in
account balance or value in a
subsequent year that causes the account
no longer to meet the documentation
exception.
(C) Requirements following a change
in circumstances. With respect to an
individual account or an account held
by a passive NFFE for which there is a
change in circumstances with respect to
the information regarding its owners,
following a change in circumstances the
participating FFI must retain a record of
the appropriate documentation
described in paragraph (c)(3) or
(c)(5)(iv)(B)(2) of this section within the
time period provided by § 1.1471–
5(g)(3)(iii) or, if unable to do so, must
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treat such account as held by a
recalcitrant account holder. With
respect to an account held by an entity
other than a passive NFFE described in
the preceding sentence, following a
change in circumstances, the
participating FFI must retain a record of
the appropriate documentation
described in paragraph (c)(3) of this
section by the earlier of 90 days or the
date a withholdable payment or foreign
passthru payment is made to the
account or, if unable to do so, must treat
such account as held by a
nonparticipating FFI.
(iv) Record retention. A participating
FFI must retain a record of the
documentation collected (or otherwise
maintained) to establish the chapter 4
status of an account holder or payee
pursuant to the requirements of this
paragraph (c)(2)(iv). A participating FFI
will be treated as having retained a
record of a withholding certificate,
written statement, or documentary
evidence if the participating FFI retains
either an original, certified copy, or
photocopy (including a microfiche,
scan, or similar means of record
retention) of the withholding certificate,
written statement, or documentary
evidence collected to determine the
chapter 4 status of the account holder
for six calendar years following the year
in which the due diligence procedures
of this paragraph (c) were performed for
the account. With respect to
documentary evidence for an offshore
obligation, however, a participating FFI
that is not required to retain copies of
documentation reviewed pursuant to its
AML due diligence will be treated as
having retained a record of such
documentation if the participating FFI
retains a record in its files noting the
date the documentation was reviewed,
each type of document, the document’s
identification number (if any) (for
example, passport number), and
whether any U.S. indicia were
identified. The previous sentence
applies with respect to an offshore
obligation that is also a preexisting
obligation, except, in such case, the
requirement to record whether the
documentation contained U.S. indicia
does not apply. A participating FFI must
also retain a record of any searches,
including search results provided by
third-party credit agencies as described
in paragraph (c)(4)(ii) of this section,
results from electronic searches, and
requests made and responses to
relationship manager inquiries for six
calendar years following the year in
which the due diligence procedures of
this paragraph (c) were performed for
the account. A participating FFI may be
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required to extend the six year retention
period if the IRS requests such
extension prior to the end of the six year
retention period. Notwithstanding the
preceding sentences, a participating FFI
must retain a record of the chapter 4
status of an account holder or payee for
as long as the FFI maintains the account
or obligation. See § 1.1471–3(c)(6)(iii)(A)
for the record retention period
applicable to a participating FFI that is
a withholding agent with respect to
documentation collected (or otherwise
maintained) for a payee.
(v) Special rule for U.S. branches of
participating FFIs that are treated as
U.S. persons. A U.S. branch of a
participating FFI that is treated as a U.S.
person shall apply, in lieu of the due
diligence requirements of this paragraph
(c), the due diligence requirements of
§ 1.1471–3 to determine the chapter 4
status of account holders and payees
that are entities and shall apply the
documentation requirements of chapter
3 or 61 (as applicable) with respect to
individual account holders. See
paragraph (b)(6) of this section for
special withholding rules and paragraph
(d)(2)(iii)(B) of this section for special
reporting rules applicable to such U.S.
branches.
(3) Identification and documentation
procedure for entity accounts and
payees—(i) In general. With respect to
accounts held by entities, unless the
documentation exception described in
paragraph (c)(3)(iii) of this section
applies, a participating FFI must
determine if the account is a U.S.
account or an account held by a
recalcitrant account holder or
nonparticipating FFI by applying the
principles of § 1.1471–3(b), (c), and (d)
to establish the chapter 4 status of each
account holder and each payee
regardless of whether the participating
FFI makes a payment to the account. If
an account holder receiving a payment
is not the payee of the payment under
§§ 1.1471–3(a) and 1.1472–1(d)(3), the
participating FFI is also required to
establish the chapter 4 status of the
payee or payees in order to determine
whether withholding applies under
paragraph (b) of this section.
(ii) Timeframe for applying
identification and documentation
procedure for entity accounts and
payees. For preexisting entity accounts,
a participating FFI must perform the
requisite identification and
documentation procedures within six
months of the effective date of the FFI
agreement for any account holder that is
a prima facie FFI, as defined in
§ 1.1471–2(a)(4)(ii)(B), and within two
years of the effective date of the FFI
agreement for all other entity accounts,
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except as otherwise provided in
paragraph (c)(3)(iii) of this section. For
accounts that are not preexisting
accounts, the participating FFI must
perform the requisite identification and
documentation procedures by the earlier
of the date a withholdable payment or
a foreign passthru payment is made
with respect to the account or within 90
days of the date the participating FFI
opens the account. Notwithstanding the
foregoing sentences of this paragraph
(c)(3)(ii), with respect to a preexisting
obligation issued in nonregistered
(bearer) form by an investment entity,
the investment entity is required to
perform the requisite identification and
documentation procedures at the time a
payment is collected by the beneficial
owner of the payment (including a
beneficial owner that collects the
payment through an intermediary or
agent). If the participating FFI cannot
obtain all the documentation described
in § 1.1471–3(d) or if the participating
FFI knows or has reason to know that
the documentation provided for an
entity account is unreliable or incorrect
(by applying the standards of knowledge
applicable to entities in § 1.1471–3(e) as
modified by paragraph (c)(2)(ii)), the
participating FFI shall apply the
presumption rules of § 1.1471–3(f) (as
applicable to entities) to determine the
chapter 4 status of the account holder.
In the case of an account held by a
passive NFFE that provides the
documentation described in § 1.1471–
3(d)(12) to establish its status as a
passive NFFE but fails to provide the
information regarding its owners, see
§ 1.1471–5(g)(2)(iv) for the requirement
to treat the account as held by a
recalcitrant account holder.
(iii) Documentation exception for
certain preexisting entity accounts—(A)
Accounts to which this exception
applies. Unless the participating FFI
elects otherwise pursuant to paragraph
(c)(3)(iii)(C) of this section, a
participating FFI is not required to
perform the identification and
documentation procedure contained in
this paragraph (c)(3) with respect to a
preexisting entity account the aggregate
balance or value of which is $250,000 or
less if no holder of such account that
has previously been documented by the
FFI as a U.S. person for purposes of
chapter 3 or 61 is a specified U.S.
person. For purposes of applying this
exception, the account balance must be
determined as of the effective date of the
FFI agreement and the aggregation rules
of paragraph (c)(3)(iii)(B) of this section
shall apply. An account that meets this
exception will cease to meet this
exception as of the end of any
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subsequent calendar year in which the
account balance or value exceeds
$1,000,000, applying the aggregation
rules of paragraph (c)(3)(iii)(B) of this
section, or as of the date on which there
is another change in circumstances with
respect to the account or any account
aggregated with the account.
(B) Aggregation of entity accounts. For
purposes of determining the aggregate
balance or value of accounts held by an
entity in applying the exception in this
paragraph (c)(3)(iii), an FFI is required
to aggregate the balance or value of all
accounts held (in whole or in part) by
the same account holder to the extent
required under § 1.1471–5(b)(4)(iii)(A)
and (B).
(C) Election to forgo exception. A
participating FFI may elect to forgo the
exception described in this paragraph
(c)(3)(iii) by applying the identification
and documentation procedures
provided in this paragraph (c)(3) within
the time period provided by paragraph
(c)(3)(ii) of this section or otherwise
applying the presumption rules of
§ 1.1471–3(f) to determine the chapter 4
status of the account holder.
(4) Identification and documentation
procedure for individual accounts other
than preexisting accounts—(i) In
general. With respect to an individual
account that is not a preexisting account
or an account described under
paragraph (c)(4)(iii)(B) of this section or
§ 1.1471–5(a)(4)(i) (providing an
exception to U.S. account status for
certain depository accounts with an
aggregate balance or value of $50,000 or
less), a participating FFI must determine
if the account is a U.S. account or nonU.S. account by retaining a record of
certain documentation to establish the
chapter 4 status of each account holder.
Specifically, a participating FFI must
retain a record of documentary evidence
that meets the requirements of § 1.1471–
3(c)(5) (as applicable to individuals), the
information described in paragraph
(c)(4)(ii) or (c)(4)(iii)(A) of this section,
or a withholding certificate to establish
an account holder’s status as a foreign
person. Except as otherwise provided in
paragraph (c)(4)(iii)(A) of this section,
the participating FFI must also review
all information collected in connection
with the opening or maintenance of
each account, including documentation
collected as part of the participating
FFI’s account opening procedures and
documentation collected for other
regulatory purposes, and apply the
standards of knowledge in paragraph
(c)(2)(ii) of this section to determine if
an account holder’s claim of foreign
status is unreliable or incorrect. If the
participating FFI is not able to establish
an account holder’s status as a foreign
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person, the participating FFI must retain
a record of either a Form W–9 or U.S.
TIN (in any manner) and a valid and
effective waiver described in section
1471(b)(1)(F)(i), if necessary, to establish
an account holder’s status as a U.S.
person and to confirm that the account
is a U.S. account. A participating FFI
must complete the requisite
identification and documentation
procedures with respect to each account
within the time period provided by
§ 1.1471–5(g)(3)(ii), or, if unable to do
so, it must treat such account as held by
a recalcitrant account holder. The
presumption rules of § 1.1471–3(f) do
not apply to individual account holders
of a participating FFI.
(ii) Reliance on third party for
identification of individual accounts
other than preexisting accounts. A
participating FFI may establish an
account holder’s status as a foreign
person based on information provided
by a third-party credit agency only if the
following conditions are met—
(A) As part of the participating FFI’s
account opening procedures, the
account holder provides a residence
address outside the United States and
attests in writing that the account holder
is not a U.S. citizen or resident;
(B) The third-party credit agency
verifies the account holder’s claimed
residence with at least one government
data source from the jurisdiction in
which the participating FFI (or branch
thereof) operates or the account holder
claims residence; and
(C) The participating FFI (or branch
thereof) relies on the information
provided by the third-party credit
agency for purposes of satisfying AML
due diligence with respect to the
account in a FATF-compliant
jurisdiction.
(iii) Alternative identification and
documentation procedure for certain
cash value insurance or annuity
contracts—(A) Group cash value
insurance contracts or group annuity
contracts. A participating FFI may treat
an account that is a group cash value
insurance contract or group annuity
contract and that meets the
requirements of this paragraph
(c)(4)(iii)(A) as a non-U.S. account until
the date on which an amount is payable
to an employee/certificate holder or
beneficiary, if the participating FFI
obtains a certification from an employer
that no employee/certificate holder
(account holder) is a U.S. person. A
participating FFI is also not required to
review all the account information
collected by the FFI to determine if an
account holder’s claim of foreign status
is unreliable or incorrect. An account
that is a group cash value insurance
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5947
contract or group annuity contract meets
the requirements of this paragraph
(c)(4)(iii)(A) if—
(1) The group life insurance contract
or a group annuity contract issued to an
employer and covers twenty-five or
more employee/certificate holders;
(2) The employee/certificate holders
are entitled to receive any contract value
and to name beneficiaries for the benefit
payable upon the employee’s death; and
(3) The aggregate amount payable to
any employee/certificate holder or
beneficiary does not exceed $1,000,000.
(B) Accounts held by beneficiaries of
a cash value insurance contract that is
a life insurance contract. A participating
FFI may presume that an individual
beneficiary (other than the owner) of a
cash value insurance contract that is a
life insurance contract (account holder)
receiving a death benefit is a foreign
person and treat such account as a nonU.S. account unless the participating
FFI has actual knowledge or reason to
know that the beneficiary is a U.S.
person. A participating FFI has reason
to know that a beneficiary of a cash
value insurance contract is a U.S.
person if the information collected by
the participating FFI and associated
with the beneficiary contains U.S.
indicia as described in paragraph
(c)(5)(iv)(B)(1) of this section. If a
participating FFI has actual knowledge
or reason to know that the beneficiary
is a U.S. person, the participating FFI
must retain a record of the appropriate
documentation described in paragraph
(c)(5)(iv)(B)(2) of this section.
(5) Identification and documentation
procedure for preexisting individual
accounts—(i) In general. With respect to
a preexisting individual account, unless
the account is an account described in
§ 1.1471–5(a)(4)(i) (providing exception
to U.S. account status for certain
depository accounts with an aggregate
balance or value of $50,000 or less), a
participating FFI may follow the
identification and documentation
procedures described below in
paragraph (c)(5)(ii) through (iv) of this
section (as applicable), in lieu of the
identification and documentation
procedures described in paragraph (c)(4)
of this section, to determine if an
account that is a preexisting account is
a U.S. account, non-U.S. account, or
account held by a recalcitrant account
holder. A participating FFI must first
determine whether there are any U.S.
indicia associated with the account (as
defined in paragraph (c)(5)(iv)(B)(1) of
this section), and second, if there are
U.S. indicia associated with the
account, retain a record of the
documentation described in paragraph
(c)(5)(iv)(B)(2) of this section to
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establish the account holder’s chapter 4
status. For this purpose, the
presumption rules of § 1.1471–3(f) do
not apply. A participating FFI must
complete the requisite identification
and documentation procedures with
respect to each account within the time
period provided by § 1.1471–5(g)(3)(i) or
(ii) (as applicable) or, if unable to do so,
must treat such account as held by a
recalcitrant account holder. A
participating FFI may continue to treat
an account with no U.S. indicia or an
account that meets a documentation
exception described in paragraph
(c)(5)(iii) of this section or § 1.1471–
5(a)(4)(i) (providing exception to U.S.
account status for certain depository
accounts with an aggregate balance or
value of $50,000 or less) as a non-U.S.
account, until there is a change in
circumstances with respect to the
account as described in paragraph
(c)(2)(iii) of this section.
(ii) Special rule for preexisting
individual accounts previously
documented as U.S. accounts for
purposes of chapter 3 or 61. If a
participating FFI has documented an
individual account holder as a U.S.
person for purposes of chapter 3 or 61
and such account holder is a specified
U.S. person, the account holder’s
account will be treated as a U.S. account
for chapter 4 purposes and the
identification and documentation
procedures in paragraph (c)(5)(i) and
(iv) of this section will not apply.
(iii) Exceptions for certain low value
preexisting individual accounts—(A)
Accounts to which an exception applies.
Unless the participating FFI elects
otherwise pursuant to paragraph
(c)(5)(iii)(C) of this section, a
participating FFI is not required to
perform requisite identification and
documentation procedures described in
paragraph (c)(5)(i) and (iv) of this
section with respect to either a
preexisting individual account, other
than a cash value insurance or annuity
contract, the aggregate balance or value
of which is $50,000 or less, or a
preexisting individual account that is a
cash value insurance or annuity contract
described in § 1.1471–5(b)(1)(iv) the
aggregate balance or value of which is
$250,000 or less. For purposes of
applying these exceptions, the account
balance must be determined as of the
effective date of the FFI agreement and
the aggregation rules of paragraph
(c)(5)(iii)(B) of this section shall apply.
An account that meets either of these
exceptions will cease to meet these
exceptions as of the end of any
subsequent calendar year in which the
account balance or value exceeds
$1,000,000, applying the aggregation
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18:04 Jan 25, 2013
Jkt 229001
rules of paragraph (c)(3)(iii)(B) of this
section, or until there is another change
in circumstances with respect to the
account or any account aggregated with
the account.
(B) Aggregation of accounts. For
purposes of determining the aggregate
balance or value of a preexisting
individual account, other than an
account that is cash value insurance or
annuity contract, an FFI is required to
aggregate the balance or value of all
accounts that are not cash value
insurance or annuity contracts to the
extent required under § 1.1471–
5(b)(4)(iii)(A) or (B). For purposes of
determining the aggregate balance or
value of preexisting individual account
that is a cash value insurance or annuity
contract, an FFI will be required to
aggregate the balance or value of all
accounts that are cash value insurance
or annuity contracts to the extent
required under § 1.1471–5(b)(4)(iii)(A)
or (B).
(C) Election to forgo exception. A
participating FFI may elect to forgo the
exceptions described in paragraph
(c)(5)(iii) of this section by applying the
identification and documentation
procedures provided in this paragraph
(c) within the time provided by
paragraph (c)(5)(i) of this section or
otherwise treating the account as held
by a recalcitrant account holder
pursuant to § 1.1471–5(g).
(iv) Specific identification and
documentation procedures for
preexisting individual accounts—(A) In
general. A participating FFI applying
the identification and documentation
procedures of this paragraph (c)(5)(iv)
must review its preexisting individual
accounts (applying the electronic search
described in paragraph (c)(5)(iv)(C) of
this section and, if appropriate, the
enhanced review for high-value
accounts described in paragraph
(c)(5)(iv)(D) of this section) to determine
if there are any U.S. indicia (as
described in paragraph (c)(5)(iv)(B)(1) of
this section) associated with the
account. If no U.S. indicia are identified
with respect to an account, the
participating FFI may treat the account
as a non-U.S. account. If U.S. indicia are
identified with respect to an account,
the participating FFI must retain a
record of the appropriate documentation
described in paragraph (c)(5)(iv)(B)(2) of
this section to establish the account
holder’s status as a foreign person. A
participating FFI that follows the
procedures described in this paragraph
(c)(5)(iv) (as applicable) with respect to
its preexisting individual accounts will
not be treated as having reason to know
that the determination made with
respect to the account was unreliable or
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incorrect because of information
contained in any account files that the
participating FFI did not review and
was not required to review under the
applicable identification procedure.
Thus, for example, if a participating FFI
was only required to perform an
electronic search with respect to a
preexisting individual account and no
U.S. indicia were identified in the
results of the electronic search, the
participating FFI would not have reason
to know that the individual account
holder was a U.S. person, even if the
participating FFI had on file (but was
not required to and did not review) a
copy of the individual’s passport that
indicates that the individual was born
in the United States.
(B) U.S. indicia and relevant
documentation rules—(1) U.S. indicia.
A participating FFI must review an
account holder’s account information to
the extent required under paragraphs
(c)(5)(iv)(C) and (D) of this section for
any of the following U.S. indicia:
(i) Designation of the account holder
as a U.S. citizen or resident;
(ii) A U.S. place of birth;
(iii) A current U.S. residence address
or U.S. mailing address (including a
U.S. post office box);
(iv) A current U.S. telephone number
(regardless of whether such number is
the only telephone number associated
with the account holder);
(v) Standing instructions to pay
amounts from the account to an account
maintained in the United States;
(vi) A current power of attorney or
signatory authority granted to a person
with a U.S. address; or
(vii) An ‘‘in-care-of’’ address or a
‘‘hold mail’’ address that is the sole
address the FFI has identified for the
account holder.
(2) Documentation to be retained
upon identifying U.S. indicia. If U.S.
indicia are identified with respect to an
account holder’s account information, a
participating FFI must retain a record of
the documentation described in
paragraphs (c)(5)(iv)(B)(2)(i) through
(vii) of this section, applicable to the
U.S. indicia identified, to establish the
account holder’s status as a foreign
person. If the participating FFI cannot
establish an account holder’s status as a
foreign person based on such
documentation, the participating FFI
must retain a record of a Form W–9 and
a valid and effective waiver as described
in section 1471(b)(1)(F)(ii), if necessary,
to confirm that the account is a U.S.
account or, if unable to do so, must treat
the account as held by a recalcitrant
account holder.
(i) Designation of account holder as a
U.S. citizen or resident. If the
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information required to be reviewed
with respect to the account contains a
designation of an account holder as a
U.S. citizen or resident, the
participating FFI must retain a record of
a withholding certificate and
documentary evidence described in
§ 1.1471–3(c)(5)(i)(B) evidencing
citizenship in a country other than the
United States in order to establish the
account holder’s status as a foreign
person.
(ii) Unambiguous indication of a U.S.
place of birth. If information required to
be reviewed with respect to the account
unambiguously indicates a U.S. place of
birth for an account holder, the
participating FFI must retain a record of
a form of documentary evidence
described in § 1.1471–3(c)(5)(i)(B)
evidencing citizenship in a country
other than the United States and a copy
of the individual’s Certificate of Loss of
Nationality of the United States, or,
alternatively, a withholding certificate, a
form of documentary evidence
described in § 1.1471–3(c)(5)(i)(B)
evidencing citizenship in a country
other than the United States, and a
reasonable written explanation of the
account holder’s renunciation of U.S.
citizenship or the reason the account
holder did not obtain U.S. citizenship at
birth in order to establish the account
holder’s status as a foreign person.
(iii) U.S. address or U.S. mailing
address. If information required to be
reviewed with respect to the account
contains a U.S. address or a U.S. mailing
address for an account holder, the
participating FFI must retain a record of
a withholding certificate and a form of
documentary evidence described in
§ 1.1471–3(c)(5)(i)(A) through (C) in
order to establish the account holder’s
status as a foreign person.
(iv) Only U.S. telephone numbers. If
information required to be reviewed
with respect to the account contains one
or more telephone numbers in the
United States and no other telephone
numbers for an account holder, the
participating FFI must retain a record of
a withholding certificate and a form of
documentary evidence described in
§ 1.1471–3(c)(5)(i)(A) through (C) in
order to establish the account holder’s
status as a foreign person.
(v) U.S. telephone numbers and nonU.S. telephone numbers. If information
required to be reviewed with respect to
the account contains one or more
telephone numbers in the United States
and at least one telephone number
outside the United States for an account
holder, the participating FFI must retain
a record of a withholding certificate or
a form of documentary evidence
described in § 1.1471–3(c)(5)(i)(A)
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through (C) in order to establish the
account holder’s status as a foreign
person.
(vi) Standing instructions to pay
amounts. If information required to be
reviewed with respect to the account
contains standing instructions to pay
amounts from the account to an account
maintained in the United States for an
account holder, the participating FFI
must retain a record of a withholding
certificate and a form of documentary
evidence described in § 1.1471–
3(c)(5)(i)(A) through (C) in order to
establish the account holder’s status as
a foreign person.
(vii) Power of attorney or signatory
authority granted to a person with a
U.S. address or ‘‘in-care-of’’ address or
‘‘hold mail’’ address. If information
required to be reviewed with respect to
the account includes a power of
attorney or signatory authority granted
to a person with a U.S. address or
contains an ‘‘in-care-of’’ address or
‘‘hold mail’’ address that is the sole
address identified for the account
holder, the participating FFI must retain
a record of either a withholding
certificate or a form of documentary
evidence described in § 1.1471–
3(c)(5)(i)(A) through (C) in order to
establish the account holder’s status as
a foreign person.
(C) Electronic search for identifying
U.S. indicia. Except as provided in
paragraph (c)(5)(iv)(D) of this section
relating to the enhanced review for
high-value accounts, a participating FFI
may rely solely on a review of the
electronically searchable information
associated with an account and
maintained by the participating FFI to
determine if there are any of the U.S.
indicia described in paragraph
(c)(5)(iv)(B)(1) of this section associated
with the account. For purposes of this
paragraph (c)(5)(iv)(C), however, an FFI
will not be required to treat as U.S.
indicia an in-care-of address or a hold
mail address that is the sole address
identified for the account holder.
(D) Enhanced review for identifying
U.S. indicia in the case of certain highvalue accounts—(1) In general. With
respect to preexisting individual
accounts that have a balance or value
that exceeds $1,000,000 as of the
effective date of the FFI agreement, or at
the end of any subsequent calendar year
(‘‘high-value accounts’’), a participating
FFI must apply the enhanced review
described in this paragraph (c)(5)(iv)(D)
in addition to the electronic search
described in paragraph (c)(5)(iv)(C) of
this section to identify any U.S. indicia
described in paragraph (c)(5)(iv)(B)(1) of
this section associated with the account.
For purposes of determining the balance
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5949
or value of an account, a participating
FFI must apply the aggregation rules
§ 1.1471–5(b)(4)(iii)(A) and (B). If a
participating FFI applied the enhanced
review described in this paragraph
(c)(5)(iv)(D) to an account in a previous
year, the participating FFI will not be
required to reapply such procedures to
such account in a subsequent year.
(2) Relationship manager inquiry.
With respect to all high-value accounts,
a participating FFI must identify
accounts to which a relationship
manager is assigned (including any
accounts aggregated with such account)
and for which the relationship manager
has actual knowledge that the account
holder is a U.S. citizen or resident.
(3) Additional review of nonelectronic records. Except as provided
in paragraph (c)(5)(iv)(E) of this section,
and except with respect to any account
for which the participating FFI has
retained a record of a withholding
certificate and documentary evidence
described in § 1.1471–3(c)(5)
establishing the account holder’s foreign
status, a participating FFI must review
to identify any U.S. indicia the current
customer master file of a high-value
account and, if not contained in the
current customer master file, the
following documents described in
paragraphs (c)(5)(iv)(D)(3)(i) through (v)
of this section that are associated with
such an account and were obtained by
the participating FFI within the five
calendar years preceding the later of the
effective date of the FFI agreement, or
the end of the calendar year in which
the account exceeded the $1,000,000
threshold described in paragraph
(c)(5)(iv)(D)(1) of this section. The
documents to be reviewed by the
participating FFI if not contained in the
current customer master file are—
(i) The most recent withholding
certificate, written statement, and
documentary evidence;
(ii) The most recent account opening
contract or documentation;
(iii) The most recent documentation
obtained by the participating FFI for
purposes of AML due diligence or for
other regulatory purposes;
(iv) Any power of attorney or
signature authority forms currently in
effect; and
(v) Any standing instructions to pay
amounts to another account.
(4) Limitations on the enhanced
review in the case of comprehensive
electronically searchable information. A
participating FFI is not required to
apply the enhanced review of this
paragraph (c)(5)(iv)(D) and may instead
rely on the electronic search described
in paragraph (c)(5)(iv)(C) of this section
to identify U.S. indicia to the extent the
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following information is available in the
FFI’s electronically searchable
information—
(i) The account holder’s nationality
and/or residence status;
(ii) The account holder’s current
residence address and mailing address;
(iii) The account holder’s current
telephone number(s);
(iv) Whether there are standing
instructions to pay amounts to another
account;
(v) Whether there is a current ‘‘incare-of’’ address or ‘‘hold mail’’ address
for the account holder if no other
residence or mailing address is found
for the account; and
(vi) Whether there is any power of
attorney or signatory authority for the
account.
(E) Exception for preexisting
individual accounts that a participating
FFI has documented as held by foreign
individuals for purposes of meeting its
obligations under chapter 61 or its QI,
WP, or WT agreement. A participating
FFI that has previously obtained
documentation from an account holder
to establish the account holder’s status
as a foreign individual in order to meet
its obligations under its QI, WP, or WT
agreement with the IRS, or to fulfill its
reporting obligations as a U.S. payor
under chapter 61, is not required to
perform the electronic search described
in paragraph (c)(5)(iv)(C) of this section
or the enhanced review described in
paragraph (c)(5)(iv)(D)(3) of this section
for such account. The participating FFI
is required, however, to perform the
relationship manager inquiry described
in paragraph (c)(5)(iv)(D)(2) of this
section if the account is a high-value
account described in paragraph
(c)(5)(iv)(D)(1) of this section. For
purposes of this paragraph (c)(5)(iv)(E),
a participating FFI has documented an
account holder’s foreign status under
chapter 61 if the participating FFI has
retained a record of the documentation
required under chapter 61 to establish
the foreign status of an individual and
the account received a reportable
payment as defined under section
3406(b) in any prior year. In the case of
a participating FFI that is a QI, WP, or
WT, the participating FFI has
documented an account holder’s foreign
status under its QI, WP, or WT
agreement (as applicable) if the
participating FFI has met the relevant
documentation requirements of its
agreement with respect to an account
holder that received a reportable
amount in any year in which its
agreement was in effect.
(6) Examples. The following examples
illustrate the documentation exceptions
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provided in paragraphs (c)(3)(iii) and
(c)(5)(iii) of this section:
Example 1. Aggregation rules applicable to
preexisting individual accounts. U, a U.S.
resident individual, holds 100 shares of
common stock of FFI1, an investment entity.
On the effective date of FFI1’s FFI agreement,
the common stock held by U is worth
$45,000. U also holds shares of preferred
stock of FFI1. On the effective date of FFI1’s
FFI agreement, U’s preferred stock in FFI1 is
worth $35,000. Neither FFI1’s common stock
nor FFI1’s preferred stock is regularly traded
on an established securities market. U also
holds debt instruments issued by FFI1 that
are not regularly traded on an established
securities market. On the effective date of
FFI1’s FFI agreement, U’s FFI1 debt
instruments are worth $15,000. U’s common
and preferred equity interests are associated
with U and with one another by reference to
U’s foreign tax identification number in
FFI1’s computerized information
management system. However, U’s debt
instruments are not associated with U’s
equity interests in FFI1’s computerized
information management system. None of
these accounts are managed by a relationship
manager. Previously, FFI1 was not required
to and did not obtain a Form W–9 from U
for purposes of chapter 3 or 61. U’s FFI1 debt
interests are eligible for the paragraph
(c)(5)(iii)(A) documentation exception
because that account does not exceed the
$50,000 threshold described in paragraph
(c)(5)(iii)(A)(1) of this section, taking into
account the aggregation rule described in
paragraph (c)(5)(iii)(A)(2) of this section.
However, U’s common and preferred equity
interests are not eligible for the paragraph
(c)(5)(iii)(A) documentation exception
because the accounts exceed the $50,000
threshold described in paragraph
(c)(5)(iii)(A)(1) of this section, taking into
account the aggregation rules described in
§ 1.1471–5(b)(4)(iii) pursuant to the
requirements of paragraph (c)(5)(iii)(A)(2) of
this section.
Example 2. Aggregation rules for owners of
entity accounts. In Year 1, U, a U.S. resident
individual, maintains a depository account
that is a preexisting account in CB, a
commercial bank. The balance in U’s
depository account on the first date CB’s FFI
agreement is in effect is $20,000. U also owns
100% of Entity X, which maintains a
depository account that is a preexisting
account in CB, and 50% of Entity Y, which
maintains a depository account that is a
preexisting account in CB. The balance in
Entity X’s account on the first date CB’s FFI
agreement is in effect is $130,000 and the
balance in Entity Y’s account on effective
date of CB’s FFI agreement is $110,000. All
three accounts are associated with one
another in CB’s computerized information
management system by reference to U’s
foreign tax identification number. None of
the accounts are managed by a relationship
manager. Previously, CB was not required to
and did not obtain a Form W–9 from U for
purposes of chapter 3 or 61. U’s depository
account qualifies for the § 1.1471–5(a)(4)(i)
exception to U.S. account status because it
does not exceed the $50,000 threshold, taking
into account the aggregation rule described in
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§ 1.1471–5(a)(4)(i)(B)(2). Entity X’s account
and Entity Y’s account both qualify for the
paragraph (c)(3)(iii) documentation exception
because the accounts do not exceed the
$250,000 threshold described in paragraph
(c)(3)(iii)(B)(1) of this section taking into
account the aggregation rules described in
§ 1.1471–5(b)(4)(iii) pursuant to the
requirements of paragraph (c)(3)(iii)(B)(2) of
this section.
(7) Certifications of responsible
officer. In order for a participating FFI
to comply with the requirements of an
FFI agreement with respect to its
identification procedures for preexisting
accounts, a responsible officer of the
participating FFI must certify to the IRS
regarding the participating FFIs
compliance with the diligence
requirements of this paragraph (c). Such
certification must be made no later than
60 days following the date that is two
years after the effective date of the FFI
agreement. The responsible officer must
certify that the participating FFI has
completed the review of all high-value
accounts as required under paragraphs
(c)(5)(iv)(D) and (E) of this section and
treats any account holder of an account
for which the participating FFI has not
retained a record of any required
documentation as a recalcitrant account
holder as required under this section
and § 1.1471–5(g).The responsible
officer must also certify that the
participating FFI has completed the
account identification procedures and
documentation requirements of this
paragraph (c) for all other preexisting
accounts or, if it has not retained a
record of the documentation required
under this paragraph (c) with respect to
an account, treats such account in
accordance with the requirements of
this section and § 1.1471–5(g). The
responsible officer must also certify to
the best of the responsible officer’s
knowledge after conducting a
reasonable inquiry, that the
participating FFI did not have any
formal or informal practices or
procedures in place from August 6,
2011, through the date of such
certification to assist account holders in
the avoidance of chapter 4. A reasonable
inquiry for purposes of this paragraph
(c)(7) is a review of the participating
FFI’s procedures and a written inquiry,
such as email requests to relevant lines
of business, that requires responses from
relevant customer on-boarding and
management personnel as to whether
they engaged in any such practices
during that period. Practices or
procedures that assist account holders
in the avoidance of chapter 4 include,
for example, suggesting that account
holders split up accounts to avoid
classification as a high-value account;
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suggesting that account holders of U.S.
accounts close, transfer, or withdraw
from their account to avoid reporting;
intentional failures to disclose a known
U.S. account; suggesting that an account
holder remove U.S. indicia from its
account information; or facilitating the
manipulation of account balances or
values to avoid thresholds. If the
responsible officer is unable to make
any of the certifications described in
this paragraph (c)(7), the responsible
officer must make a qualified
certification to the IRS stating that such
certification cannot be made and that
corrective actions will be taken by the
responsible officer.
(d) Account reporting—(1) Scope of
paragraph. This paragraph (d) provides
rules addressing the information
reporting requirements applicable to
participating FFIs with respect to U.S.
accounts, accounts held by ownerdocumented FFIs, and recalcitrant
account holders. Paragraph (d)(2) of this
section describes the accounts subject to
reporting under this paragraph (d), and
specifies the participating FFI that is
responsible for reporting an account or
account holder. Paragraph (d)(3) of this
section describes the information
required to be reported and the manner
of reporting by a participating FFI under
section 1471(c)(1) with respect to a U.S.
account or an account held by an
owner-documented FFI. Paragraph
(d)(4) of this section provides
definitions of terms applicable to
paragraph (d)(3). Paragraph (d)(5) of this
section describes the conditions for a
participating FFI to elect to report its
U.S. accounts and accounts held by
owner-documented FFIs under section
1471(c)(2) and the information required
to be reported under such election.
Paragraph (d)(6) of this section provides
rules for a participating FFI to report its
recalcitrant account holders. Paragraph
(d)(7) of this section provides special
transitional reporting rules applicable to
reports due in 2015 and 2016. Paragraph
(d)(8) of this section provides the
reporting requirements of a participating
FFI that is a QI, WP or WT with respect
to U.S. accounts. See § 301.1474–1(a) of
this chapter for the requirement for a
financial institution to file the
information required under this
paragraph (d) on magnetic media.
(2) Reporting requirements in
general—(i) Accounts subject to
reporting. Subject to the rules of
paragraph (d)(7) of this section, a
participating FFI shall report by the
time and in the manner prescribed in
paragraph (d)(3)(vii) of this section, the
information described in paragraph
(d)(3) of this section with respect to
accounts maintained at any time during
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each calendar year for which the
participating FFI is responsible for
reporting under paragraph (d)(2)(ii) of
this section and that it is required to
treat as U.S. accounts or accounts held
by owner-documented FFIs, including
accounts that are identified as U.S.
accounts by the end of such calendar
year pursuant to a change in
circumstances during such year as
described in paragraph (c)(2)(iii) of this
section. Alternatively, a participating
FFI may elect to report under paragraph
(d)(5) of this section with respect to
such accounts for each calendar year.
With respect to accounts held by
recalcitrant account holders, a
participating FFI is required to report
with respect to each calendar year under
paragraph (d)(6) of this section and not
under paragraph (d)(3) or (5) of this
section. For separate reporting
requirements of participating FFIs with
respect to payments and for transitional
rules for participating FFIs to report
certain foreign reportable amounts made
to nonparticipating FFIs, see § 1.1474–
1(d)(4)(iii).
(ii) Financial institution required to
report an account—(A) In general.
Except as otherwise provided in
paragraphs (d)(2)(ii)(B) through (E) of
this section, the participating FFI that
maintains the account is responsible for
reporting the account in accordance
with the requirements of paragraph
(d)(2)(iii), (3), or (5) of this section (as
applicable) for each calendar year.
Except as otherwise provided in
paragraph (d)(2)(ii)(C) of this section, a
participating FFI is responsible for
reporting accounts held by recalcitrant
account holders that it maintains in
accordance with the requirements of
paragraph (d)(6) of this section. A
participating FFI is not required to
report the information required under
paragraph (d)(6) of this section with
respect to an account held by a
recalcitrant account holder of another
participating FFI even if that other
participating FFI holds the account as
an intermediary on behalf of such
account holder and regardless of
whether the participating FFI is
required to report payments made to the
recalcitrant account holder of such other
FFI under § 1.1474–1(d)(4)(iii).
(B) Special reporting of account
holders of territory financial
institutions. In the case of an account
held by a territory financial institution
acting as an intermediary with respect
to a withholdable payment—
(1) If the territory financial institution
agrees to be treated as a U.S. person
with respect to the payment under
§ 1.1471–3(c)(3)(iii)(F), a participating
FFI is not required to report under
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5951
paragraph (d)(2)(i) of this section with
respect to the account holders of the
territory financial institution; or
(2) If the territory financial institution
does not agree to be treated as a U.S.
person with respect to a withholdable
payment, the participating FFI must
report with respect to each specified
U.S. person or substantial U.S. owner of
a foreign entity that is an NFFE with
respect to which the territory financial
institution acts as an intermediary and
provides the participating FFI with the
information and documentation
required under § 1.1471–3(c)(3)(iii)(G).
(C) Special reporting of account
holders of a sponsored FFI. A
sponsoring entity that has agreed to
fulfill the reporting responsibilities of
this paragraph (d) on behalf of a
sponsored FFI shall report in
accordance with the requirements of
paragraph (d)(2)(iii), (3), or (5) of this
section (as applicable) with respect to
each U.S. account and paragraph (d)(6)
of this section with respect to each
account held by a recalcitrant account
holder of the sponsored FFI to the
extent and in the manner required if
such sponsored FFI were a participating
FFI. The sponsoring entity shall identify
each sponsored FFI for which it is
reporting to the extent required on the
forms for reporting U.S. accounts and
recalcitrant account holders and the
accompanying instructions to the forms.
(D) Special reporting of accounts held
by owner-documented FFIs. A
participating FFI that maintains an
account held by an FFI that it has agreed
to treat as an owner-documented FFI
under § 1.1471–3(d)(6) shall report the
information described in paragraph
(d)(3)(iv) or (d)(5)(iii) of this section
with respect to each specified U.S.
person identified in § 1.1471–
3(d)(6)(iv)(A)(1). See § 1.1474–1(i) for
the reporting obligations of a
participating FFI with respect to a payee
of an obligation other than an account
that it has agreed to treat as an ownerdocumented FFI.
(E) Branch reporting of accounts. A
participating FFI may elect to comply
with its obligation to report under
paragraph (d)(3) or (d)(5) of this section
by reporting its accounts on a branchby-branch basis with respect to one or
more of its branches. A participating FFI
that makes this election shall use the
information reporting number assigned
to the branch to identify the branch that
is reporting its accounts separately. A
branch that reports under this election
shall file with the IRS the information
required to be reported on accounts that
it maintains in accordance with the
forms and their accompanying
instructions provided by the IRS for
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purposes of this election. For the
definition of a branch that applies for
purposes of this paragraph (d), see
paragraph (e)(2)(ii) of this section.
(iii) Special U.S. account reporting
rules for U.S. payors—(A) Special
reporting rule for U.S. payors other than
U.S. branches. Participating FFIs that
are U.S. payors (other than U.S.
branches) that report the information
required under chapter 61 with respect
to account holders of accounts that the
participating FFI is required to treat as
U.S. accounts or accounts held by
owner-documented FFIs and that report
the information described in paragraph
(d)(5)(ii) of this section with respect to
each such account shall be treated as
having satisfied the reporting
requirements described in paragraph
(d)(2)(i) of this section with respect to
accounts that the participating FFI is
required to treat as U.S. accounts or
accounts held by owner-documented
FFIs.
(B) Special reporting rules for U.S.
branches treated as U.S. persons. A U.S.
branch of a participating FFI that is
treated as a U.S. person shall be treated
as having satisfied the reporting
requirements described in paragraphs
(d)(2)(i) and (d)(2)(ii)(C) of this section
if it reports under—
(1) Chapter 61 with respect to account
holders that are U.S. non-exempt
recipients;
(2) Chapter 61 with respect to persons
subject to withholding under section
3406;
(3) Section 1.1474–1(i) with respect to
substantial U.S. owners of NFFEs that
are not excepted NFFEs as defined in
§ 1.1472–1(c) and;
(4) Section 1.1474–1(i) with respect to
specified U.S. persons identified in
§ 1.1471–3(d)(6)(iv)(A)(1) of ownerdocumented FFIs.
(3) Reporting of accounts under
section 1471(c)(1)—(i) In general. The
participating FFI (or branch thereof) that
is responsible for reporting an account
that it is required to treat as a U.S.
account or accounts held by ownerdocumented FFIs under paragraph
(d)(2)(ii) of this section shall be required
to report such account under this
paragraph (d)(3) for each calendar year
unless it elects to report its U.S.
accounts or accounts held by ownerdocumented FFIs under paragraph (d)(5)
of this section.
(ii) Accounts held by specified U.S.
persons. In the case of an account
described in paragraph (d)(3)(i) of this
section that is held by one or more
specified U.S. persons, a participating
FFI is required to report the following
information under this paragraph
(d)(3)—
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(A) The name, address, and TIN of
each account holder that is a specified
U.S. person;
(B) The account number;
(C) The account balance or value of
the account;
(D) The payments made with respect
to the account, as described in
paragraph (d)(4)(iv) of this section,
during the calendar year; and
(E) Such other information as is
otherwise required to be reported under
this paragraph (d)(3) or in the form
described in paragraph (d)(3)(vi) of this
section and its accompanying
instructions.
(iii) Accounts held by U.S. owned
foreign entities. With respect to each
U.S. account described in paragraph
(d)(3)(i) of this section that is held by an
NFFE that is a U.S. owned foreign
entity, a participating FFI is required to
report under this paragraph (d)(3)(iii)—
(A) The name of the U.S. owned
foreign entity that is the account holder;
(B) The name, address, and TIN of
each substantial U.S. owner of such
entity;
(C) The account number;
(D) The account balance or value of
the account held by the NFFE;
(E) The payments made with respect
to the account, as described in
paragraph (d)(4)(iv) of this section,
during the calendar year; and
(F) Such other information as is
otherwise required to be reported under
this paragraph (d)(3) or in the form
described in paragraph (d)(3)(vi) of this
section and its accompanying
instructions.
(iv) Special reporting of accounts held
by owner-documented FFIs. With
respect to each account held by an
owner-documented FFI, a participating
FFI is required to report under this
paragraph (d)(3)(iv)—
(A) The name of the ownerdocumented FFI;
(B) The name, address, and TIN of
each specified U.S. person identified in
§ 1.1471–3(d)(6)(iv)(A)(1);
(C) The account number of the
account held by the owner-documented
FFI;
(D) The account balance or value of
the account held by the U.S. owned
foreign entity;
(E) The payments made with respect
to the account held by the ownerdocumented FFI, as described in
paragraph (d)(4)(iv) of this section,
during the calendar year; and
(F) Such other information as is
otherwise required to be reported under
this paragraph (d)(3) or in the form
described in paragraph (d)(3)(vi) of this
section and its accompanying
instructions.
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(v) Branch reporting. Except in the
case of a branch that reports separately
under paragraph (d)(2)(ii)(E) of this
section, a participating FFI that reports
the information described in paragraphs
(d)(3)(ii) through (iv) of this section
shall also report the jurisdiction of the
branch that maintains the account being
reported in accordance with
instructions to the form provided for
purposes of such reporting.
(vi) Form for reporting accounts under
section 1471(c)(1). The information
described in paragraphs (d)(3)(ii)
through (iv) of this section shall be
reported on Form 8966, ‘‘FATCA
Report,’’ (or such other form as the IRS
may prescribe) with respect to each
account subject to reporting under
paragraph (d)(3)(i) of this section
maintained at any time during the
calendar year. This form shall be filed
in accordance with its requirements and
its accompanying instructions.
(vii) Time and manner of filing.
Except as provided in paragraph
(d)(7)(iv)(B) of this section, Form 8966
shall be filed electronically with the IRS
on or before March 31 of the year
following the end of the calendar year
to which the form relates. See the
accompanying instructions to this form
for electronic filing instructions.
(viii) Extensions in filing. The IRS
shall grant an automatic 90-day
extension of time in which to file Form
8966. Form 8809, ‘‘Request for
Extension of Time to File Information
Returns,’’ (or such other form as the IRS
may prescribe) must be used to request
such extension of time and must be filed
no later than the due date of Form 8966.
Under certain hardship conditions, the
IRS may grant an additional 90-day
extension. A request for extension due
to hardship must contain a statement of
the reasons for requesting the extension
and such other information as the forms
or instructions may require.
(4) Descriptions applicable to
reporting requirements of § 1.1471–
4(d)(3)—(i) Address. The address to be
reported with respect to an account held
by a specified U.S. person is the
residence address recorded by the
participating FFI for the account holder
or, if no residence address is associated
with the account holder, the address for
the account used for mailing or for other
purposes by the participating FFI. In the
case of an account held by a U.S. owned
foreign entity, the address to be reported
is the address of each substantial U.S.
owner of such entity. In the case of an
account held by an owner-documented
FFI, the address to be reported is the
address of each specified U.S. person
identified in § 1.1471–3(d)(6)(iv)(A)(1).
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(ii) Account number. The account
number to be reported with respect to
an account is the identifying number
assigned by the participating FFI for
purposes other than to satisfy the
reporting requirements of this paragraph
(d), or, if no such number is assigned to
the account, a unique serial number or
other number such participating FFI
assigns to the financial account for
purposes of reporting under paragraph
(d)(3) of this section that distinguishes
the account from other accounts
maintained by such institution.
(iii) Account balance or value—(A) In
general. The participating FFI shall
report the average balance or value of
the account if the FFI reports average
balance or value to the account holder
for a calendar year. If the participating
FFI does not report the average balance
or value of the account to the account
holder, the participating FFI shall report
the balance or value of the account as
of the end of the calendar year as
determined in accordance with
§ 1.1471–5(b)(4). In the case of an
account that is a cash value insurance
or annuity contract, a participating FFI
shall report the balance or value of the
account as determined in accordance
with § 1.1471–5(b)(4).
(B) Currency translation of account
balance or value. The account balance
or value of an account may be reported
in U.S. dollars or in the currency in
which the account is denominated. In
the case of an account denominated in
one or more foreign currencies, the
participating FFI may elect to report the
account balance or value in a currency
in which the account is denominated
and is required to identify the currency
in which the account is reported. If the
participating FFI elects to report such an
account in U.S. dollars, the participating
FFI must calculate the account balance
or value of the account in the manner
described in § 1.1471–5(b)(4).
(iv) Payments made with respect to an
account—(A) Depository accounts. The
payments made during a calendar year
with respect to a depository account
consist of the aggregate gross amount of
interest paid or credited to the account
during the year.
(B) Custodial accounts. The payments
made during a calendar year with
respect to a custodial account consist
of—
(1) The aggregate gross amount of
dividends paid or credited to the
account during the calendar year;
(2) The aggregate gross amount of
interest paid or credited to the account
during the calendar year;
(3) The gross proceeds from the sale
or redemption of property paid or
credited to the account during the
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calendar year with respect to which the
FFI acted as a custodian, broker,
nominee, or otherwise as an agent for
the account holder; and
(4) The aggregate gross amount of all
other income paid or credited to the
account during the calendar year.
(C) Other accounts. In the case of an
account described in § 1.1471–
5(b)(1)(iii) (relating to debt or equity
interests) or (iv) (relating to cash value
insurance contracts and annuity
contracts), the payments made during
the calendar year with respect to such
account are the gross amounts paid or
credited to the account holder during
the calendar year including payments in
redemption (in whole or part) of the
account.
(D) Transfers and closings of deposit,
custodial, insurance, and annuity
financial accounts. In the case of an
account closed or transferred in its
entirety by an account holder during a
calendar year that is a depository
account, custodial account, or a cash
value insurance contract or annuity
contract, the payments made with
respect to the account shall be—
(1) The payments and income paid or
credited to the account that are
described in paragraph (d)(4)(iv)(A) or
(B) of this section for the calendar year
until the date of transfer or closure; and
(2) The amount or value withdrawn or
transferred from the account in
connection with the closure or transfer
of the account.
(E) Amount and character of
payments subject to reporting. For
purposes of reporting under paragraph
(d)(3) of this section, the amount and
character of payments made with
respect to an account may be
determined under the same principles
that the participating FFI uses to report
information on its resident account
holders to the tax administration of the
jurisdiction in which the FFI (or branch
thereof) is located. Thus, the amount
and character of items of income
described in paragraphs (d)(4)(iv)(A),
(B), and (C) need not be determined in
accordance with U.S. federal income tax
principles. If any of the types of
payments described in paragraph
(d)(4)(iv) of this section are not reported
to the tax administration of the
jurisdiction in which the participating
FFI (or branch thereof) is located, such
amounts may be determined in the same
manner as is used by the participating
FFI for purposes of reporting to the
account holder. If any of the types of
payments described in this paragraph
(d)(4)(iv) is neither reported to the tax
administration of the jurisdiction in
which the FFI (or branch thereof) is
located nor reported to the account
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5953
holder for the year for which reporting
is required under paragraph (d) of this
section, such item must be determined
and reported either in accordance with
U.S. federal tax principles or in
accordance with any reasonable method
of reporting that is consistent with the
accounting principles generally applied
by the participating FFI. Once a
participating FFI (or branch thereof) has
applied a method to determine such
amounts, it must apply such method
consistently for all account holders and
for all subsequent years unless the
Commissioner consents to a change in
such method. Consent will be
automatically granted for a change to
rely on U.S. federal income tax
principles to determine such amounts.
(F) Currency translation. A payment
described in this paragraph (d)(4)(iv)
may be reported in the currency in
which the payment is denominated or
in U.S. dollars. In the case of payments
denominated in one or more foreign
currencies, a participating FFI may elect
to report the payments in a currency in
which payments are denominated and is
required to identify the currency in
which the account is reported. If such
a payment is reported in U.S. dollars,
the participating FFI must calculate the
amount in the manner described in
§ 1.1471–5(b)(4).
(v) Record retention requirements. A
participating FFI that produces, in the
ordinary course of its business, account
statements that summarize the activity
(including withdrawals, transfers, and
closures) of an account for any calendar
year in which the account was required
to be reported under paragraph (d)(3) of
this section must retain a record of such
account statements. The record must be
retained for the longer of six years or the
retention period under the FFI’s normal
business procedures. A participating FFI
may be required to extend the six year
retention period if the IRS requests such
an extension prior to the expiration of
the six year period.
(5) Election to perform chapter 61
reporting—(i) In general—(A) Election
under section 1471(c)(2). Except as
otherwise provided in this paragraph
(d)(5), a participating FFI may elect
under section 1471(c)(2) and this
paragraph (d)(5) to report under sections
6041, 6042, 6045, and 6049, as
appropriate, with respect to any account
required to be reported under this
paragraph (d). Such reporting must be
done as if such participating FFI were
a U.S. payor and each holder of an
account that is a specified U.S. person,
U.S. owned foreign entity, or ownerdocumented FFI were a payee who is an
individual and citizen of the United
States. If a participating FFI makes such
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an election, the FFI is required to report
the information required under this
paragraph (d)(5) with respect to each
such U.S. account or account held by an
owner-documented FFI, regardless of
whether the account holder of such
account qualifies as a recipient exempt
from reporting by a payor or middleman
under sections 6041, 6042, 6045, or
6049, including the reporting of
payments made to such account of
amounts that are subject to reporting
under any of these sections. A
participating FFI that elects to report an
account under the election described in
this paragraph (d)(5) is required to
report the information described in
paragraph (d)(5)(ii) or (iii) of this section
for a calendar year regardless of whether
a reportable payment was made to the
U.S. account during the calendar year.
A participating FFI that reports an
account under the election described in
this paragraph (d)(5) is not required to
report the information described in
paragraph (d)(3) of this section with
respect to the account. The election
under section 1471(c)(2) described in
this paragraph (d)(5)(i)(A) does not
apply to cash value insurance contracts
or annuity contracts that are financial
accounts described in § 1.1471–
5(b)(1)(iv). See paragraph (d)(5)(i)(B) of
this section for an election to report
cash value insurance contracts or
annuity contracts that are U.S. accounts
held by specified U.S. persons in a
manner similar to section 6047(d).
(B) Election to report in a manner
similar to section 6047(d). Except as
otherwise provided in this paragraph
(d)(5), a participating FFI may elect to
report with respect to any of its cash
value insurance contracts or annuity
contracts that are U.S. accounts held by
specified U.S. persons under section
6047(d), modified as follows. The
amount to be reported is the sum of the
account balance or value (as of the
calendar year end or the most recent
contract anniversary date) and any
amount paid under the contract during
such reporting period as if such
participating FFI were a U.S. payor.
Each holder of a U.S. account that is a
specified U.S. person is treated for
purposes of reporting under this
paragraph (d)(5)(i)(B) as a contract
holder or payee who is an individual
and citizen of the United States.
(ii) Additional information to be
reported. In addition to the information
otherwise required to be reported under
sections 6041, 6042, 6045, 6047(d) (in
the manner described in paragraph
(d)(5)(i)(B) of this section with respect to
U.S. accounts held by specified U.S.
persons), and 6049, including the
reporting of payments made to such
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accounts subject to reporting under the
applicable section, a participating FFI
that elects to report under this
paragraph (d)(5)(ii) must report with
respect to each account that it is
required to treat as a U.S. account—
(A) In the case of an account holder
that is a specified U.S. person—
(1) The name, address, and TIN of the
account holder; and
(2) The account number; and
(B) In the case of an account holder
that is a U.S. owned foreign entity that
is an NFFE—
(1) The name of such entity;
(2) The name, address, and TIN of
each substantial U.S. owner of such
entity; and
(3) The account number.
(iii) Special reporting of accounts
held by owner-documented FFIs. With
respect to each account held by an
owner-documented FFI, a participating
FFI that elects to report under this
paragraph (d)(5) must report payments
made to the owner-documented FFI
under the requirements of sections
6041, 6042, 6045, 6047(d), and 6049, the
other information required under each
applicable section, and the following
information—
(A) The name of such FFI;
(B) The name, address, and TIN of
each specified U.S. person identified in
§ 1.1471–3(d)(6)(iv)(A)(1); and
(C) The account number for the
account held by the owner-documented
FFI.
(iv) Branch reporting. A participating
FFI that reports the information
described in paragraphs (d)(5)(ii) and
(iii) of this section shall also report the
jurisdiction of the branch that maintains
the account being reported.
(v) Time and manner of making the
election. A participating FFI (or one or
more branches of the participating FFI)
may make the election described in this
paragraph (d)(5) by reporting the
information described in this paragraph
(d)(5) on the form described in
paragraph (d)(5)(vii) of this section on
the next reporting date following the
calendar year for which the election is
made.
(vi) Revocation of election. A
participating FFI may revoke the
election described in paragraph (d)(5)(i)
(as a whole or with regard to any of its
accounts) by reporting the information
described in paragraph (d)(3) on the
next reporting date following the
calendar year for which the election is
revoked.
(vii) Filing of information under
election. In the case of an account
holder that is a specified U.S. person,
the information required to be reported
under the election described in this
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paragraph (d)(5) shall be filed with the
IRS and issued to the account holder in
the time and manner prescribed in
sections 6041, 6042, 6045, 6047(d), and
6049 and in accordance with the forms
referenced therein and their
accompanying instructions provided by
the IRS for reporting under each of these
sections. If the account holder is an
NFFE that is a U.S. owned foreign entity
or owner-documented FFI, however, the
information required to be reported
under the election described in this
paragraph (d)(5) shall be filed on Form
8966 in accordance with its
requirements and its accompanying
instructions.
(6) Reporting on recalcitrant account
holders—(i) In general. Except as
otherwise provided in a Model 2 IGA,
a participating FFI, as part of its
reporting responsibilities under this
paragraph (d), shall report to the IRS for
each calendar year the information
described for each of the classes of
account holders described in paragraphs
(d)(6)(A) through (E) of this section. See
§ 1.1474–1(d)(4)(ii) for a participating
FFI or registered deemed-compliant
FFI’s requirement to report chapter 4
reportable amounts paid to such
account holders and tax withheld.
(A) The aggregate number and
aggregate balance or value of accounts
held by recalcitrant account holders at
the end of the calendar year that are
described in § 1.1471–5(g)(2)(iv)
(referencing passive NFFEs that are
recalcitrant account holders).
(B) The aggregate number and
aggregate balance or value of accounts
held by recalcitrant account holders at
the end of the calendar year that are
described in § 1.1471–5(g)(2)(ii) and (iii)
(referencing U.S. persons that are
recalcitrant account holders).
(C) The aggregate number and
aggregate balance or value of accounts
held by recalcitrant account holders at
the end of the calendar year, other than
accounts described in paragraph
(d)(6)(i)(A), (B), or (E) of this section,
that have U.S. indicia.
(D) The aggregate number and
aggregate balance or value of accounts
held by recalcitrant account holders at
the end of the calendar year, other than
accounts described in paragraph
(d)(6)(i)(A) or (E) of this section, that do
not have U.S. indicia.
(E) The aggregate number and
aggregate balance or value of accounts
held by recalcitrant account holders at
the end of the calendar year that are
dormant accounts.
(ii) Definition of dormant account. A
dormant account is an account (other
than a cash value insurance contract or
annuity contract) that is a dormant or
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inactive account under applicable laws
or regulations or the normal operating
procedures of the participating FFI that
are consistently applied for all accounts
maintained by such institution in a
particular jurisdiction. If neither
applicable laws or regulations nor the
normal operating procedures of the
participating FFI maintaining the
account address dormant or inactive
accounts, an account will be a dormant
account if—
(A) The account holder has not
initiated a transaction with regard to the
account or any other account held by
the account holder with the FFI in the
past three years; and
(B) The account holder has not
communicated with the FFI that
maintains such account regarding the
account or any other account held by
the account holder with the FFI in the
past six years.
(iii) End of dormancy. An account
that is a dormant account under
paragraph (d)(6)(ii) of this section ceases
to be a dormant account when—
(A) The account holder initiates a
transaction with regard to the account or
any other account held by the account
holder with the FFI;
(B) The account holder communicates
with the FFI that maintains such
account regarding the account or any
other account held by the account
holder with the FFI; or
(C) The account ceases to be a
dormant account under applicable laws
or regulations or the participating FFI’s
normal operating procedures.
(iv) Forms. Reporting under paragraph
(d)(6)(i) of this section shall be filed on
Form 8966 in accordance with its
requirements and accompanying
instructions.
(v) Time and manner of filing. Except
as provided in paragraph (d)(7)(iv)(B) of
this section, Form 8966 shall be filed
electronically with the IRS on or before
March 31 of the year following the end
of the calendar year to which the form
relates. See the accompanying
instructions to this form for electronic
filing instructions.
(vi) Record retention requirements. A
participating FFI that produces, in the
ordinary course of its business, account
statements that summarize the activity
(including withdrawals, transfers, and
closures) of an account held by a
recalcitrant account holder described in
paragraph (d)(6)(i)(B) of this section for
any calendar year in which the account
was required to be reported under
paragraph (d)(6) of this section must
retain a record of such account
statements. Such record must be
retained for the longer of six years or the
retention period under the FFI’s normal
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business procedures. A participating FFI
may be required to extend the six year
retention period if the IRS requests such
an extension prior to the expiration of
the six year period.
(7) Special reporting rules with
respect to the 2013 through 2015
calendar years—(i) In general. If the
effective date of the FFI agreement of a
participating FFI is on or before
December 31, 2014, the participating
FFI is required to report U.S. accounts
and accounts held by ownerdocumented FFIs that it maintained (or
that is otherwise required to report
under paragraph (d)(2)(ii) of this
section) during the 2013, 2014, and
2015 calendar years in accordance with
paragraph (d)(7)(ii) or (iii) of this
section.
(ii) Participating FFIs that report
under § 1.1471–4(d)(3). With respect to
accounts that a participating FFI is
required to report in accordance with
paragraph (d)(2) of this section, the
participating FFI may, instead of the
information described in paragraphs
(d)(3)(ii) and (iii) of this section, report
only the following information—
(A) Reporting with respect to the 2013
and 2014 calendar years. With respect
to accounts maintained during the 2013
and 2014 calendar years—
(1) The name, address, and TIN of
each specified U.S. person who is an
account holder and, in the case of any
account holder that is an NFFE that is
a U.S. owned foreign entity or that is an
owner-documented FFI, the name of
such entity and the name, address, and
TIN of each substantial U.S. owner of
such NFFE or, in the case of an ownerdocumented FFI, of each specified U.S.
person identified in § 1.1471–
3(d)(6)(iv)(A)(1);
(2) The account balance or value as of
the end of the relevant calendar year, or
if the account was closed after the
effective date of the FFI agreement, the
amount or value withdrawn or
transferred from the account in
connection with closure; and
(3) The account number of the
account.
(B) Reporting with respect to the 2015
calendar year. With respect to the 2015
calendar year, the participating FFI may
report only—
(1) The information described in
paragraph (d)(7)(ii)(A) of this section;
and
(2) The payments made with respect
to the account except for those
payments described in paragraph
(d)(4)(iv)(B)(3) of this section (certain
gross proceeds).
(iii) Participating FFIs that report
under § 1.1471–4(d)(5). A participating
FFI that elects to report under paragraph
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5955
(d)(5) of this section may report only the
information described in paragraphs
(d)(7)(ii)(A)(1) and (3) of this section for
its 2013 and 2014 calendar years. With
respect to its 2015 calendar year, a
participating FFI is required to report all
of the information required to be
reported under paragraphs (d)(5)(i)
through (iii) of this section but may
exclude from such reporting amounts
reportable under section 6045.
(iv) Forms for reporting—(A) In
general. Except as provided in
paragraph (d)(7)(iv)(B) of this section,
reporting under paragraph (d)(7)(ii) of
this section shall be made on Form 8966
(or such other form as the IRS may
prescribe), in the manner described in
paragraph (d)(3)(vii) of this section.
Reporting under paragraph (d)(7)(iii) of
this section shall be made in accordance
with paragraph (d)(5)(vii) of this section.
(B) Special determination date and
timing for reporting with respect to the
2013 calendar year. With respect to the
2013 calendar year, a participating FFI
must report under paragraph (d)(3) or
(5) of this section on all accounts that
are identified and documented under
paragraph (c) of this section as U.S.
accounts or accounts held by ownerdocumented FFIs as of December 31,
2014, (or as of the date an account is
closed if the account is closed prior to
December 31, 2014) if such account was
outstanding on December 31, 2013.
Reporting for both the 2013 and 2014
calendar year shall be filed with the IRS
on or before March 31, 2015. However,
a U.S. payor (including a U.S. branch of
a participating FFI or registered
deemed-compliant FFI that is treated as
a U.S. person) that reports in accordance
with paragraph (d)(2)(iii) of this section
may report all or a portion of its U.S.
accounts and accounts held by ownerdocumented FFIs in accordance with
the dates otherwise applicable to
reporting under chapter 61 with respect
to the 2013 calendar year.
(8) Reporting requirements of QIs,
WPs and WTs. See the QI, WP, or WT
agreement for the reporting
requirements of a participating FFI that
is a QI, WP, or WT with respect to U.S.
accounts that it maintains.
(9) Examples. The following examples
illustrate the provisions of this
paragraph (d):
Example 1. Financial institution required
to report U.S. account. PFFI1, a participating
FFI, issues shares of stock that are financial
accounts under § 1.1471–5(b). Such shares
are held in custody by PFFI2, another
participating FFI, on behalf of U, a specified
U.S. person that holds an account with
PFFI2. The shares of PFFI1 held by PFFI2
will not be subject to reporting by PFFI1 if
PFFI1 may treat PFFI2 as a participating FFI
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under § 1.1471–3(d)(3). See paragraph
(d)(2)(ii)(A) of this section.
Example 2. Financial institution required
to report U.S. account. U, a specified U.S.
person, holds shares in PFFI1, a participating
FFI that invests in other financial institutions
(a fund of funds). The shares of PFFI1 are
financial accounts under § 1.1471–5(b)(3)(iii).
PFFI1 holds shares that are also financial
accounts under § 1.1471–5(b)(3)(iii) in PFFI2,
another participating FFI. The shares of
PFFI2 held by PFFI1 are not subject to
reporting by PFFI2, if PFFI2 may treat PFFI1
as a participating FFI under § 1.1471–3(d)(3).
See paragraph (d)(2)(ii)(A) of this section.
Example 3. U.S. owned foreign entity. FC,
a passive NFFE, holds a custodial account
with PFFI1, a participating FFI. U, a specified
U.S. person, owns 3% of the only class of
stock of FC. Q, another specified U.S. person,
owns 12% of the only class of stock of FC.
U is not a substantial U.S. owner of FC. See
§ 1.1473–1(b). Q is a substantial U.S. owner
of FC and FC identifies her as such to PFFI1.
PFFI1 does not elect to report under
paragraph (d)(5) of this section. PFFI1 must
complete and file the reporting form
described in paragraph (d)(3)(vi) of this
section and report the information described
in paragraph (d)(3)(iii) with respect to both
FC and Q. See paragraph (d)(3)(ii) of this
section.
Example 4. Election to perform Form 1099
reporting with regard to an NFFE. Same facts
as in Example 3, except that PFFI1 has made
the election in accordance with paragraph
(d)(5) of this section. PFFI1 must complete
and file the forms described in paragraph
(d)(5)(vii) for FC, treating FC as if it were an
individual and citizen of the United States
and must identify Q as a substantial U.S.
owner of FC on such form. See paragraph
(d)(5)(ii) of this section. PFFI1 shall not
complete the forms described in paragraph
(d)(5)(vii) with regard to U.
Example 5. Owner-documented FFI. DC, an
owner-documented FFI under § 1.1471–
3(d)(6), holds a custodial account with PFFI1,
a participating FFI. U, a specified U.S.
person, owns 3% of the only class of stock
of DC. Q, another specified U.S. person, owns
12% of the only class of stock of DC. Both
U and Q are persons identified in § 1.1471–
3(d)(6)(iv)(A)(1) and DC identifies U and Q to
PFFI1 and otherwise provides to PFFI1 all of
the information required to be reported with
respect to DC. PFFI1 must complete and file
a form described in paragraph (d)(3)(vi) of
this section with regard to U and Q. See
paragraph (d)(3)(iii) of this section.
Example 6. Election to perform Form 1099
reporting with regard to an ownerdocumented FFI. Same facts as in Example
5, except that PFFI1 has made the election in
accordance with paragraph (d)(5) of this
section. PFFI1 must complete and file the
forms described in paragraph (d)(5)(vii) for U
and Q.
Example 7. Sponsored FFI. DC2 is an FFI
that has agreed to have a sponsoring entity,
PFFI1, fulfill DC2’s chapter 4 responsibilities
under § 1.1471–5(f)(2)(iii). U, a specified U.S.
person, holds an equity interest in DC2 that
is a financial account under § 1.1471–
5(b)(3)(iii). PFFI1 must complete and file a
form described in paragraph (d)(3)(vi) of this
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section with regard to U’s account on behalf
of DC2. See paragraph (d)(2)(ii)(C) of this
section.
(e) Expanded affiliated group
requirements—(1) In general. Except as
otherwise provided in this paragraph
(e)(1) or paragraphs (e)(2) and (e)(3) of
this section, each FFI that is a member
of an expanded affiliated group must
have the chapter 4 status of a
participating FFI or registered deemedcompliant FFI as a condition for any
member of such group to obtain the
status of a participating FFI or registered
deemed-compliant FFI. Accordingly,
except as otherwise provided in
published guidance, each FFI in an
expanded affiliated group must submit
a registration form to the IRS in such
manner as the IRS may prescribe
requesting an FFI agreement, registered
deemed-compliant status, or limited FFI
status as a condition for any member to
become a participating FFI or registered
deemed-compliant FFI. Except as
provided in paragraph (e)(2) of this
section, each FFI that is a member of
such group must also agree to all of the
requirements for the status for which it
applies with respect to all accounts
maintained at all of its branches, offices,
and divisions. For the withholding
requirements of a participating FFI with
respect to limited branches and affiliates
that are limited FFIs, see paragraph
(b)(5) of this section. Notwithstanding
the foregoing, an FFI (or branch thereof)
that is treated as a participating FFI or
a deemed-compliant FFI pursuant to a
Model 1 IGA or Model 2 IGA will
maintain such status provided that it
meets the terms for such status pursuant
to such agreement.
(2) Limited branches—(i) In general.
An FFI that otherwise satisfies the
requirements for participating FFI status
as described in this section will be
allowed to become a participating FFI
notwithstanding that one or more of its
branches cannot satisfy all of the
requirements of a participating FFI as
described in this section if—
(A) All branches (as defined in
paragraph (e)(2)(ii) of this section) that
cannot satisfy all of the requirements of
a participating FFI as described in this
section are limited branches as
described in paragraph (e)(2)(iii) of this
section;
(B) The FFI maintains at least one
branch that complies with all of the
requirements of a participating FFI,
even if the only branch that can comply
is a U.S. branch; and
(C) The FFI agrees to and complies
with the conditions in paragraph
(e)(2)(iv) of this section.
(ii) Branch defined. For purposes of
this section, a branch is a unit, business,
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or office of an FFI that is treated as a
branch under the regulatory regime of a
country or is otherwise regulated under
the laws of such country as separate
from other offices, units, or branches of
the FFI and that maintains books and
records separate from the books and
records of other branches of the FFI. For
purposes of this section, a branch
includes units, businesses, and offices
of an FFI located in the country in
which the FFI is created or organized.
All units, businesses, or offices of a
participating FFI in a single country
shall be treated as a single branch for
purposes of this paragraph (e)(2). An
account will be treated as maintained by
a branch for purposes of this paragraph
(e)(2) if the rights and obligations of the
account holder and the participating FFI
with regard to such account (including
any assets held in the account) are
governed by the laws of the country of
the branch.
(iii) Limited branch defined. A limited
branch is a branch of an FFI that, under
the laws of the jurisdiction as of
February 15, 2012, and that apply with
respect to the accounts maintained by
the branch, cannot satisfy the conditions
of both paragraphs (e)(2)(iii)(A) and (B)
of this section, but with respect to
which the FFI will agree to the
conditions of paragraph (e)(2)(iv) of this
section.
(A) With respect to accounts that
pursuant to this section the
participating FFI is required to treat as
U.S. accounts, either report such
accounts to the IRS as described in
paragraph (d) of this section, close such
accounts within a reasonable period of
time, or transfer such accounts to a U.S.
financial institution, a branch of the FFI
that will so report, a participating FFI,
or a reporting Model 1 FFI.
(B) With respect to recalcitrant
account holders and accounts held by
nonparticipating FFIs, withhold with
respect to each such account as required
under paragraph (b) of this section,
block each such account (as defined in
this paragraph), close each such account
within a reasonable period of time, or
transfer each such account to a U.S.
financial institution, a branch of the FFI
that will so report, a participating FFI,
or a reporting Model 1 FFI. For purposes
of this paragraph (e)(2)(iii)(B), an
account is a blocked account if the FFI
prohibits the account holder from
effecting any transactions with respect
to an account until such time as the
account is closed, transferred, or the
account holder provides the
documentation described in paragraph
(c) of this section for the FFI to
determine the U.S. or non-U.S. status of
the account and report the account if
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required under paragraph (d) of this
section.
(iv) Conditions for limited branch
status. An FFI with one or more limited
branches must satisfy the following
requirements when applying for
participating FFI status with the IRS—
(A) Identify the relevant jurisdiction
of each branch for which it seeks
limited branch status;
(B) Agree that each such branch will
identify its account holders under the
due diligence requirements applicable
to participating FFIs under paragraph (c)
of this section, retain account holder
documentation pertaining to those
identification requirements for six years
from the effective date of the FFI
agreement, and report to the IRS with
respect to accounts that it is required to
treat as U.S. accounts to the extent
permitted under the relevant laws
pertaining to the branch;
(C) Agree to treat each such branch as
an entity separate from its other
branches for purposes of the
withholding requirements described in
paragraph (b)(5) of this section;
(D) Agree that each such branch will
not open accounts that it is required to
treat as U.S. accounts or accounts held
by nonparticipating FFIs, including
accounts transferred from any branch of
the FFI or from any member of its
expanded affiliated group; and
(E) Agree that each limited branch
will identify itself to withholding agents
as a nonparticipating FFI (including to
affiliates of the FFI in the same
expanded affiliated group that are
withholding agents).
(v) Term of limited branch status
(transitional). An FFI that becomes a
participating FFI with one or more
limited branches will cease to be a
participating FFI after December 31,
2015, unless otherwise provided
pursuant to Model 1 IGA or Model 2
IGA. A branch will cease to be a limited
branch as of the beginning of the third
calendar quarter following the date on
which the branch is no longer
prohibited from complying with the
requirements of a participating FFI as
described in this section. In such case,
a participating FFI will retain its status
as a participating FFI if it notifies the
IRS by the date such branch ceases to be
a limited branch that it will comply
with the requirements of an FFI
agreement with respect to such branch,
or if otherwise provided pursuant to a
Model 1 IGA or Model 2 IGA.
(3) Limited FFI—(i) In general. An FFI
will be allowed to become either a
participating FFI or a registered
deemed-compliant FFI notwithstanding
that one or more of the FFIs in the
expanded affiliated group of which the
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FFI is a member cannot comply with all
of the requirements of a participating
FFI as described in this section if each
such FFI is a limited FFI under
paragraph (e)(3)(ii) of this section.
(ii) Limited FFI defined. A limited FFI
is a member of an expanded affiliated
group that includes one or more
participating FFIs that agrees to the
conditions described in paragraph
(e)(3)(iii) of this section to become a
limited FFI and if under the laws of
each jurisdiction that apply with respect
to the accounts maintained by the
affiliate, the affiliate cannot satisfy the
conditions of both paragraphs
(e)(3)(ii)(A) and (B) of this section.
(A) With respect to accounts that are
U.S. accounts, report such accounts to
the IRS as described in paragraph (d) of
this section, close such accounts within
a reasonable period of time, or transfer
such accounts to a U.S. financial
institution, a participating FFI, or a
reporting Model 1 FFI.
(B) With respect to recalcitrant
account holders and accounts held by
nonparticipating FFIs, withhold with
respect to each such account as required
under paragraph (b) of this section,
block each such account, close each
such account within a reasonable period
of time, or transfer each such account to
a U.S. financial institution, a
participating FFI, or a reporting Model
1 FFI. See paragraph (e)(2)(ii)(B) of this
section for when an account is
considered blocked.
(iii) Conditions for limited FFI status.
An FFI that seeks to become a limited
FFI must—
(A) Register as part of its expanded
affiliated group’s FFI agreement process
for limited FFI status;
(B) Agree as part of such registration
to identify its account holders under the
due diligence requirements applicable
to participating FFIs under paragraph (c)
of this section, retain account holder
documentation pertaining to those
identification requirements for six years
from the effective date of its registration
as a limited FFI, and report with respect
to accounts that it is required to treat as
U.S. accounts to the extent permitted
under the relevant laws pertaining to
the FFI;
(C) Agree as part of such registration
that it will not open accounts that it is
required to treat as U.S. accounts or
accounts held by nonparticipating FFIs,
including accounts transferred from any
member of its expanded affiliated group;
and
(D) Agree as part of such registration
that it will identify itself to withholding
agents as a nonparticipating FFI.
(iv) Period for limited FFI status
(transitional). A limited FFI will cease
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to be a limited FFI after December 31,
2015. An FFI will also cease to be a
limited FFI when it becomes a
participating FFI or deemed-compliant
FFI, or as of the beginning of the third
calendar quarter following the date on
which the FFI is no longer prohibited
from complying with the requirements
of a participating FFI as described in
this section. In such case, participating
FFIs and deemed-compliant FFIs that
are members of the same expanded
affiliated group will retain their status
if, by the date that an FFI ceases to be
a limited FFI, such FFI enters into an
FFI agreement or becomes a registered
deemed-compliant FFI, unless
otherwise provided pursuant to an
applicable Model 1 IGA or Model 2 IGA.
(4) Special rule for QIs. An FFI that
has in effect a QI agreement with the
IRS will be allowed to become a limited
FFI notwithstanding that none of the
FFIs in the expanded affiliated group of
which the FFI is a member can comply
with the requirements of a participating
FFI as described in this section if the
FFI that is a QI meets the conditions of
a limited FFI under paragraph (e)(3)(ii)
of this section.
(f) Verification—(1) In general. This
paragraph (f) describes the requirement
for a participating FFI to establish and
implement a compliance program for
satisfying its requirements under this
section. Paragraph (f)(2) of this section
provides the requirement for a
participating FFI to establish a
compliance program and the option for
a group of FFIs to adopt a consolidated
compliance program. Paragraph (f)(3)
describes the periodic certification that
the participating FFI must make to the
IRS regarding the participating FFI’s
compliance with the requirements of an
FFI agreement. Paragraph (f)(4)
describes IRS information requests
related to compliance with an FFI
agreement.
(2) Compliance program—(i) In
general. The participating FFI must
appoint a responsible officer to oversee
the participating FFI’s compliance with
the requirements of the FFI agreement.
The responsible officer must (either
personally or through designated
persons) establish a compliance
program that includes policies,
procedures, and processes sufficient for
the participating FFI to satisfy the
requirements of the FFI agreement. The
responsible officer (or designee) must
periodically review the sufficiency of
the FFI’s compliance program and the
FFI’s compliance with the requirements
of an FFI agreement during the
certification period described in
paragraph (f)(3) of this section. The
results of the periodic review must be
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considered by the responsible officer in
making the periodic certifications
required under paragraph (f)(3) of this
section.
(ii) Consolidated compliance
program—(A) In general. A
participating FFI that is a member of an
expanded affiliated group that includes
one or more FFIs may elect to be part
of a consolidated compliance program
(and perform a consolidated periodic
review) under the authority of a
participating FFI, reporting Model 1 FFI,
or U.S. financial institution (compliance
FI) that is a member of the electing FFI’s
expanded affiliated group, regardless of
whether all such members so elect. A
sponsoring entity is required to act as
the compliance FI for the sponsored FFI
group. In addition, when an FFI elects
to be part of a consolidated compliance
program, each branch that it maintains
(including a limited branch or a branch
described in § 1.1471–5(f)(1)) must be
subject to periodic review as part of
such program.
(B) Requirements of compliance FI. A
participating FFI, reporting Model 1 FFI,
or U.S. financial institution that agrees
to establish and maintain a consolidated
compliance program and perform a
consolidated periodic review on behalf
of one or more FFIs (the compliance
group), must agree to identify itself as
the compliance FI and identify each FFI
for which it acts (an electing FFI) to the
extent required by the IRS as part of the
FFI registration process or certification
procedures. The agreement between the
compliance FI and each electing FFI
must permit either the compliance FI or
the electing FFI to terminate the
agreement upon a finding by the IRS or
by either party that the other party to
the agreement is not fulfilling its
obligations under the agreement or is no
longer able to fulfill such obligations.
(3) Certification of compliance—(i) In
general. In addition to the certifications
required under paragraph (c)(7) of this
section, six months following the end of
each certification period, the
responsible officer must make the
certification described in either
paragraph (f)(3)(ii) or (iii) of this section.
The first certification period begins on
the effective date of the FFI agreement
and ends at the close of the third full
calendar year following the effective
date of the FFI agreement. Each
subsequent certification period is the
three calendar year period following the
previous certification period, unless the
FFI agreement provides for a different
period. The responsible officer must
either certify that the participating FFI
maintains effective internal controls or,
if the participating FFI has failed to
remediate any material failures (defined
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in paragraph (f)(3)(iv) of this section) as
of the date of the certification, must
make the qualified certification
described in paragraph (f)(3)(iii) of this
section.
(ii) Certification of effective internal
controls. The responsible officer must
certify to the following statements—
(A) The responsible officer (or
designee) has established a compliance
program that is in effect as of the date
of the certification and that has been
subjected to the review as described in
paragraph (f)(2)(i) of this section;
(B) With respect to material failures—
(1) There are no material failures for
the certification period; or
(2) If there are any material failures,
appropriate actions were taken to
remediate such failures and to prevent
such failures from reoccurring; and
(C) With respect to any failure to
withhold, deposit, or report to the
extent required under the FFI
agreement, the FFI has corrected such
failure by paying any taxes due
(including interest and penalties) and
filing the appropriate return (or
amended return).
(iii) Qualified certification. If the
responsible officer has identified an
event of default or a material failure that
the participating FFI has not corrected
as of the date of the certification, the
responsible officer must certify to the
following statements—
(A) With respect to the event of
default or material failure—
(1) The responsible officer (or
designee) has identified an event of
default as defined in paragraph (g)(1) of
this section; or
(2) The responsible officer has
determined that as of the date of the
certification, there are one or more
material failures with respect to the
participating FFI’s compliance with the
FFI agreement and that appropriate
actions will be taken to prevent such
failures from reoccurring;
(B) With respect to any failure to
withhold, deposit, or report to the
extent required under the FFI
agreement, the FFI will correct such
failure by paying any taxes due
(including interest and penalties) and
filing the appropriate return (or
amended return); and
(C) The responsible officer (or
designee) will respond to any notice of
default (if applicable) or will provide to
the IRS, to the extent requested, a
description of each material failure and
a written plan to correct each such
failure.
(iv) Material failures defined. A
material failure is a failure of the
participating FFI to fulfill the
requirements of the FFI agreement if the
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failure was the result of a deliberate
action on the part of one or more
employees of the participating FFI (its
agent, sponsor, or compliance FI) to
avoid the requirements of the FFI
agreement or was an error attributable to
a failure of the participating FFI to
implement internal controls sufficient
for the participating FFI to meet the
requirements of this section. A material
failure will not constitute an event of
default unless such material failure
occurs in more than limited
circumstances when a participating FFI
has not substantially complied with the
requirements of an FFI agreement.
Material failures include the
following—
(A) The deliberate or systemic failure
of the participating FFI to report
accounts that it was required to treat as
U.S. accounts, withhold on passthru
payments to the extent required, deposit
taxes withheld, or accurately report
recalcitrant account holders or payees
that are nonparticipating FFIs as
required;
(B) A criminal or civil penalty or
sanction imposed on the participating
FFI (or any branch or office thereof) by
a regulator or other governmental
authority or agency with oversight over
the participating FFI’s compliance with
the AML due diligence procedures to
which it (or any branch or office thereof)
is subject and that is imposed based on
a failure to properly identify account
holders under the requirements of those
procedures; and
(C) A potential future tax liability
related to the participating FFI’s
compliance (or lack thereof) with the
FFI agreement for which the FFI
establishes, for financial statement
purposes, a tax reserve or provision.
(4) IRS review of compliance—(i)
General inquiries. The IRS, based upon
the information reporting forms
described in paragraphs (d)(3)(v),
(d)(5)(vi), or (d)(6)(iv) of this section
filed with the IRS for each calendar
year, may request additional
information with respect to the
information reported on the forms or
may request the account statements
described in paragraph (d)(4)(v) of this
section.
(ii) Inquiries regarding substantial
non-compliance. If, based on the
information reporting forms described
in paragraphs (d)(3)(v), (d)(5)(vi), or
(d)(6)(iv) of this section filed with the
IRS for each calendar year, the
certifications made by the responsible
officer described in paragraph (f)(3) of
this section, or any other information
related to the participating FFI’s
compliance with its FFI agreement, the
IRS determines in its discretion that the
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participating FFI may not have
substantially complied with the
requirements of an FFI agreement, the
IRS may request from the responsible
officer (or designee) information
necessary to verify the participating
FFI’s compliance with the FFI
agreement. The IRS may request, for
example, a description or copy of the
participating FFI’s policies and
procedures for fulfilling the
requirements of the FFI agreement, a
description of the participating FFI’s
procedures for conducting its periodic
review, or a copy of any written reports
documenting the findings of such
review in order to evaluate the
sufficiency of the participating FFI’s
compliance program and review of such
program. The IRS may also request the
performance of specified review
procedures by a person (including an
external auditor or third-party
consultant) that the IRS identifies as
competent to perform such procedures
given the facts and circumstances
surrounding the FFI’s potential failure
to comply with the FFI agreement.
(g) Event of default—(1) Defined. An
event of default occurs if a participating
FFI fails to perform material obligations
required with respect to the due
diligence, withholding, or reporting
requirements of the FFI agreement or if
the IRS determines that the participating
FFI has failed to substantially comply
with the requirements of the FFI
agreement. An event of default also
includes the occurrence of the
following—
(i) Failure to obtain, in any case in
which foreign law would (but for a
waiver) prevent the reporting of U.S.
accounts required under paragraph (d)
of this section, valid and effective
waivers from holders of U.S. accounts or
failure to otherwise close or transfer
such U.S. accounts as required under
paragraph (i) of this section;
(ii) Failure to significantly reduce,
over a period of time, the number of
account holders or payees that the
participating FFI is required to treat as
recalcitrant account holders or
nonparticipating FFIs;
(iii) Failure, in any case in which
foreign law prevents or otherwise limits
withholding to the extent required
under paragraph (b) of this section, to
fulfill the requirements of paragraph (i)
of this section;
(iv) Failure to establish or maintain a
compliance program for fulfilling the
requirements of the FFI agreement or to
perform a periodic review of the
participating FFI’s compliance;
(v) Failure to take timely corrective
actions to remedy a material failure
described in paragraph (f)(3)(iv) of this
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section after making the qualified
certification described in paragraph
(f)(3)(iii) of this section;
(vi) Failure to make the initial
certification required under paragraph
(c)(7) of this section or to make the
periodic certification required under
paragraph (f)(3) of this section within
the specified time period;
(vii) Making incorrect claims for
refund under the collective refund
procedures described in paragraph (h) of
this section;
(viii) Failure to cooperate with an IRS
request for additional information or
making any fraudulent statement or
misrepresentation of material fact to the
IRS; or
(ix) Any transaction relating to
sponsorship, promotion, or
noncustodial distribution for or on
behalf of any Local FFI, as described in
§ 1.1471–5(f)(1)(i)(A), that is an
investment entity.
(2) Notice of event of default.
Following an event of default known by
or disclosed to the IRS, the IRS will
deliver to the participating FFI a notice
of default specifying the event of
default. The IRS will request that the
participating FFI remediate the event of
default within a specified time period.
The participating FFI must respond to
the notice of default and provide
information responsive to an IRS
request for information or state the
reasons why the participating FFI does
not agree that an event of default has
occurred. Taking into account the terms
of any applicable Model 2 IGA, if the
participating FFI does not provide a
response within the specified time
period, the IRS may, at its sole
discretion, deliver a notice of
termination that terminates the FFI’s
participating FFI status. A participating
FFI may request, within a reasonable
period of time, reconsideration of a
notice of default or notice of termination
by written request to the LB&I, Assistant
Deputy Commissioner (International).
(3) Remediation of event of default. A
participating FFI will be permitted to
remediate an event of default to the
extent that it agrees with the IRS on a
remediation plan. Such a plan may, for
example, allow a participating FFI to
remediate an event of default described
in paragraph (g)(1)(iii) of this section by
providing specific information regarding
its U.S. accounts when the FFI has been
unable to report all of the information
with respect to such accounts as
required under paragraph (d) of this
section and has been unable to close or
transfer such accounts. The IRS may, as
part of a remediation plan, require
additional information from the FFI or
the performance of the specified review
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5959
procedures described in paragraph
(f)(4)(ii) of this section.
(h) Collective credit or refund
procedures for overpayments—(1) In
general. Except as otherwise provided
in the FFI agreement, if there has been
an overpayment of tax with respect to
an account holder or payee of a
participating FFI or reporting Model 1
FFI resulting from tax withheld under
chapter 4 by either the participating FFI
or reporting Model 1 FFI or by its
withholding agent during a calendar
year and the amount withheld has not
been recovered under the
reimbursement or set-off procedures
described in § 1.1474–2(a) (applied by
either the withholding agent or the
participating FFI or reporting Model 1
FFI), the participating FFI or reporting
Model 1 FFI may request a credit or
refund from the IRS of the overpayment
to the extent permitted under this
paragraph (h) on behalf of such account
holder or payee. For purposes of this
paragraph (h), an overpayment means
an amount withheld in excess of the
account holder or payee’s U.S. tax
liability with respect to the payment
(including overwithholding as defined
§ 1.1474–2(a)(2)). If a participating FFI
or reporting Model 1 FFI does not elect
the procedure provided in this
paragraph (h) to request a credit or
refund, the participating FFI or
reporting Model 1 FFI is required to (or
must request that its withholding agent)
file and furnish within a reasonable
period a Form 1042–S (or such other
form as the IRS may prescribe) and
Form 1042 (or amended forms) to report
to any account holder or payee that has
requested such form with regard to the
tax withheld by the participating FFI or
reporting Model 1 FFI or its withholding
agent.
(2) Persons for which a collective
refund is not permitted. A participating
FFI or reporting Model 1 FFI cannot
include in its collective refund claim
any payments made to an account
holder or payee that is a
nonparticipating FFI, a participating FFI
or reporting Model 1 FFI that is a flowthrough entity (including a WP or WT)
or that is acting as an intermediary
(including a QI), a U.S. person, or a
passive NFFE that is a flow-through
entity with respect to taxes allocated to
its substantial U.S. owners. A
participating FFI or reporting Model 1
FFI must follow the procedures set forth
under sections 6402 and 6414 and the
regulations thereunder, as modified by
this paragraph (h), to claim the credit or
refund. No credit or refund will be
allowed after the expiration of the
statutory period of limitation for refunds
under section 6511.
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(3) Payments for which a collective
refund is permitted. A collective refund
is permitted only for payments withheld
upon under chapter 4.
(4) Procedural and other requirements
for collective refund. A participating FFI
or reporting Model 1 FFI may use the
collective refund procedures of this
paragraph (h) under the following
conditions—
(i) All account holders and payees for
which the participating FFI or reporting
Model 1 FFI seeks a refund must have
been included on a Form 1042–S in a
reporting pool of nonparticipating FFIs
or recalcitrant account holders
described in § 1.1474–1(d)(4)(iii) with
respect to the payments for which
refund is sought and the participating
FFI or reporting Model 1 FFI (or the
withholding agent) has not filed or
furnished a Form 1042–S to any such
account holder or payee with respect to
which the refund is sought;
(ii) If a refund is sought on the
grounds that the account holder or
payee of a payment that is U.S. source
FDAP income subject to withholding
under chapter 3 is entitled to a reduced
rate of tax by reason of any treaty
obligation of the United States, the
participating FFI or reporting Model 1
FFI has also obtained valid
documentation that meets the
requirements of chapter 3 for a reduced
rate of tax and such documentation is
available to the IRS upon request with
respect to each such account holder or
payee; and
(iii) In filing a claim for refund with
the IRS under this paragraph (h), the
participating FFI or reporting Model 1
FFI submits the following, together with
its Form 1042 (or amended Form 1042)
on which it provides a reconciliation of
amounts withheld and claims a credit or
refund, a schedule identifying the taxes
withheld with respect to each account
holder or payee to which the claim
relates, and, if applicable, a copy of the
Form 1042–S (or such other form as the
IRS may prescribe) furnished to the
participating FFI or reporting Model 1
FFI by its withholding agent reporting
the taxes withheld to which the claim
relates, and a statement that includes
the following representations and
explanation—
(A) The reason(s) for the
overpayment;
(B) A representation that the
participating FFI or reporting Model 1
FFI or its withholding agent deposited
the tax for which a refund is being
sought under section 6302 and has not
applied the reimbursement or set-off
procedure of § 1.1474–2 to adjust the tax
withheld to which the claim relates;
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(C) A representation that the
participating FFI or reporting Model 1
FFI has repaid or will repay the amount
for which refund is sought to the
appropriate account holders or payees;
(D) A representation that the
participating FFI or reporting Model 1
FFI retains a record showing the total
amount of tax withheld, credits from
other withholding agents, tax assumed
by the participating FFI or reporting
Model 1 FFI, adjustments for
underwithholding, and reimbursements
for overwithholding as its relates to each
account holder and payee and also
showing the repayment to such account
holders or payees for the amount of tax
for which a refund is being sought;
(E) A representation that the
participating FFI or reporting Model 1
FFI retains valid documentation that
meets the requirements of chapters 3 (if
applicable) and 4 to substantiate the
amount of overwithholding with respect
to each account holder and payee for
which a refund is being sought and that
such documentation is available to the
IRS upon request; and
(F) A representation that the
participating FFI or reporting Model 1
FFI will not issue a Form 1042–S (or
such other form as the IRS may
prescribe) to any account holder or
payee for which a refund is being
sought.
(i) Legal prohibitions on reporting
U.S. accounts and withholding—(1) In
general. A participating FFI (or branch
thereof) that is prohibited by foreign law
from reporting the information required
under paragraph (d) of this section with
respect to a U.S. account must follow
the procedures of paragraph (i)(2) of this
section to obtain a valid and effective
waiver of such law and, if such waiver
is not obtained within a reasonable
period of time, to close or transfer such
account. A participating FFI (or branch
thereof) that is prohibited by law from
withholding with respect to a
recalcitrant account holder or
nonparticipating FFI as required under
paragraph (b) of this section is required
to perform the procedures of paragraph
(i)(3) of this section to obtain an
authorization to withhold on payments
made to the account holder or payee to
the extent required under paragraph (b)
of this section, close the account or
terminate the obligation (as applicable),
or to sell the assets in the account that
produce (or could produce)
withholdable payments and, if such
authorization is not obtained within a
reasonable period of time, to transfer or
block such account or obligation. An
FFI that cannot comply with any of the
requirements of this paragraph (i) is not
eligible to enter into an FFI agreement
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with the IRS, but may obtain status as
a limited FFI if the FFI meets the
requirements and agrees to the
conditions of paragraph (e)(3) of this
section. If a branch of an FFI cannot
comply with the requirements of this
paragraph (i), then the FFI must agree to
the conditions of a limited branch as
described in paragraph (e)(2) of this
section to obtain status as a
participating FFI.
(2) Requesting waiver or closure of a
U.S. account—(i) In general. If a
participating FFI (or branch thereof) is
prohibited by law from reporting the
information required under paragraph
(d) of this section with respect to a U.S.
account that it maintains unless a valid
and effective waiver of such law is
obtained, the participating FFI must
request a valid and effective waiver
(including by obtaining waivers from all
relevant account holders if necessary).
For accounts other than preexisting
accounts, the participating FFI must
obtain a valid and effective waiver upon
opening the account or, if prohibitions
on disclosure cannot by law be waived,
the participating FFI must refrain from
opening accounts that are U.S. accounts
or must transfer such accounts as
described in paragraph (i)(2)(iii) of this
section. Beginning on the date provided
in § 1.1471–5(g)(3) and until such time
as the holder of a U.S. account either
consents to disclosure or closure of the
account or until the account is
transferred, the participating FFI is
required to treat the account as held by
a recalcitrant account holder.
(ii) Valid and effective waiver for a
U.S. account. For purposes of this
paragraph (i)(2), a valid and effective
waiver is a waiver that, under the
applicable law governing the
participating FFI’s agreement with the
account holder, permits the
participating FFI (or branch thereof) to
report to the IRS all of the information
specified in paragraph (d) of this section
with respect to the U.S. account and
permits the FFI to provide the IRS with
additional information concerning such
account as specified in paragraph (f) or
(g) of this section.
(iii) Closure or transfer of U.S.
account. If the participating FFI (or
branch thereof) is prohibited by law
from reporting a U.S. account to the IRS
under paragraph (d) of this section and
the participating FFI either does not
obtain a valid and effective waiver (and
Form W–9) or prohibitions on
disclosure cannot by law be waived, the
participating FFI (or branch thereof)
must close or transfer the account
within a reasonable time. If the
participating FFI cannot close or
transfer the account absent the account
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holder consenting to closure, the
participating FFI must request such a
consent from such account holder and,
if obtained, close or transfer the account
within a reasonable period of time.
(3) Legal prohibitions preventing
withholding—(i) In general. If the
participating FFI (or branch thereof) is
prohibited by law from withholding
with respect to payments subject to
withholding under paragraph (b) of this
section, the participating FFI (or a
branch thereof) must obtain the
authorization described in this
paragraph (i)(3)(i) from each account
holder or payee receiving such
payments to either withhold, close the
account or terminate the obligation, or
sell all of the assets in the account that
produce (or could produce)
withholdable payments. If the
participating FFI does not receive such
authorization from the account holder
or payee within a reasonable period of
time, the participating FFI must block or
transfer such accounts or obligations as
described in paragraph (i)(3)(ii) of this
section.
(ii) Block or transfer accounts or
obligations. If the participating FFI does
not receive the authorization described
in paragraph (i)(3)(i) of this section from
the account holder or payee within a
reasonable period of time and is
prohibited by law from closing accounts
or terminating obligations with account
holders or payees as described in
paragraph (i)(3)(i) of this section, the
participating FFI must either block or
transfer such accounts or obligations
prior to the date on which the
participating FFI would otherwise be
required to withhold under paragraph
(b) of this section. See paragraph
(e)(2)(iii)(B) of this section for when an
account is considered blocked. A
transfer of an account or obligation must
be made to a branch of the FFI that may
so withhold or to a participating FFI or
reporting Model 1 FFI.
(j) Effective/applicability date. This
section generally applies on January 28,
2013. For other dates of applicability,
see §§ 1.1471–4(b)(1), (4); 1.1471–
4(d)(7); 1.1471–4(e)(2)(v); 1.1471–
4(e)(3)(iv).
■ Par. 9. Section 1.1471–5 is added to
read as follows:
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§ 1.1471–5 Definitions applicable to
section 1471.
(a) U.S. accounts—(1) In general. This
paragraph (a) defines the term U.S.
account and describes when a person is
treated as the holder of a financial
account (account holder). This
paragraph also provides rules for
determining when an exception to U.S.
account status applies for certain
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depository accounts, including account
aggregation requirements relevant to
applying the exception.
(2) Definition of U.S. account. Subject
to the exception described in paragraph
(a)(4)(i) of this section, a U.S. account is
any financial account maintained by an
FFI that is held by one or more specified
U.S. persons or U.S. owned foreign
entities. For the definition of the term
financial account, see paragraph (b) of
this section. For the definition of the
term specified U.S. person, see
§ 1.1473–1(c). For the definition of the
term U.S. owned foreign entity, see
paragraph (c) of this section. For
reporting requirements of participating
FFIs with respect to U.S. accounts, see
§ 1.1471–4(d).
(3) Account holder—(i) In general.
Except as otherwise provided in this
paragraph (a)(3), the account holder is
the person listed or identified as the
holder or owner of the account with the
FFI that maintains the account,
regardless of whether such person is a
flow-through entity. Thus, for example,
except as otherwise provided in
paragraphs (a)(3)(ii) and (iii) of this
section, if a trust (including a simple or
grantor trust) or an estate is listed as the
holder or owner of a financial account,
the trust or estate is the account holder,
rather than its owners or beneficiaries.
Similarly, except as otherwise provided
in this paragraph (a)(3), if a partnership
is listed as the holder or owner of a
financial account, the partnership is the
account holder, rather than the partners
in the partnership. In the case of an
account held by an entity that is
disregarded for U.S. federal tax
purposes under § 301.7701–2(c)(2)(i) of
this chapter, the account shall be treated
as held by the person owning such
entity. With respect to an account held
by an exempt beneficial owner, such
account is treated as held by an exempt
beneficial owner only when all
payments made to such account would
be treated as made to an exempt
beneficial owner. See § 1.1471–6(h) for
when a payment derived from certain
commercial activities is not treated as
made to an exempt beneficial owner.
(ii) Grantor trust. A trust is not treated
as an account holder if a person is
treated as the owner of the entire trust
under sections 671 through 679. In that
case, the account is held by the person
that is treated as the owner of the trust
under such sections. In the case of a
person that is treated as the owner of a
portion of the trust under sections 671
through 679—
(A) If such person is treated as owning
all the assets in the account under
sections 671 through 679, the account is
treated as held by such person;
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5961
(B) If such person is treated as owning
a portion of the account or the assets in
the account under sections 671 through
679, the account is treated as held by
both such person and the trust; and
(C) If such person is not treated as
owning any portion of the account or
any of the assets in the account under
sections 671 through 679, the account is
treated as held by the trust.
(iii) Financial accounts held by agents
that are not financial institutions. A
person, other than a financial
institution, that holds a financial
account for the benefit or account of
another person as an agent, custodian,
nominee, signatory, investment advisor,
or intermediary, is not treated as an
account holder with respect to such
account for purposes of this section.
Instead, such other person is treated as
the account holder.
(iv) Jointly held accounts. With
respect to a jointly held account, each
joint holder is treated as an account
holder for purposes of determining
whether the account is a U.S. account.
Thus, an account is a U.S. account if
any of the account holders is a specified
U.S. person or a U.S. owned foreign
entity and the account is not otherwise
excepted from U.S. account status under
paragraph (a)(4) of this section. When
more than one U.S. person is a joint
holder, each U.S. person will be treated
as an account holder and will be
attributed the entire balance of the
jointly held account, including for
purposes of applying the aggregation
rules set forth in paragraph (b)(4)(iii) of
this section.
(v) Account holder for insurance and
annuity contracts. An insurance or
annuity contract is held by each person
that is entitled to access the contract’s
value (for example, through a loan,
withdrawal, surrender, or otherwise) or
change a beneficiary under the contract.
If no person can access the contract’s
value or change a beneficiary, the
account holders are any person named
in the contract as an owner and any
person who is entitled to receive a
future payment under the terms of the
contract. When an obligation to pay an
amount under the contract becomes
fixed, each person entitled to receive a
payment is an account holder.
(vi) Examples. The following
examples illustrate the provisions of
paragraph (a)(3) of this section:
Example 1. Account held by agent. F, a
nonresident alien, holds a power of attorney
from U, a specified U.S. person, that
authorizes F to open, hold, and make
deposits and withdrawals with respect to a
depository account on behalf of U. The
balance of the account for the calendar year
is $100,000. F is listed as the holder of the
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depository account at a participating FFI, but
because F holds the account as an agent for
the benefit of U, F is not ultimately entitled
to the funds in the account. Because the
depository account is treated as held by U,
a specified U.S. person, the account is a U.S.
account.
Example 2. Jointly held accounts. U, a
specified U.S. person, holds a depository
account in a participating FFI. The balance
of the account for the calendar year is
$100,000. The account is jointly held with A,
an individual who is a nonresident alien.
Because one of the joint holders is a specified
U.S. person, the account is a U.S. account.
Example 3. Jointly held accounts. U and Q,
both specified U.S. persons, hold a
depository account in a participating FFI.
The balance of the account for the calendar
year is $100,000. The account is a U.S.
account and both U and Q are treated as
holders of the account.
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(4) Exceptions to U.S. account
status—(i) Exception for certain
individual accounts of participating
FFIs. Unless a participating FFI elects
under paragraph (a)(4)(ii) of this section
not to apply this paragraph (a)(4)(i), the
term U.S. account shall not include any
depository account maintained by such
financial institution during a calendar
year if the account is held solely by one
or more individuals and, with respect to
each holder of such account, the
aggregate balance or value of all
depository accounts held by each such
individual does not exceed $50,000 as
of the end of the calendar year or on the
date the account is closed. For rules for
determining the account balance or
value, see paragraphs (a)(3)(iv) and
(b)(4) of this section.
(ii) Election to forgo exception. A
participating FFI may elect to disregard
the exception described in paragraph
(a)(4)(i) of this section by reporting all
U.S. accounts, including those accounts
that would otherwise meet the
conditions of the exception.
(iii) Example. Aggregation rules for
exception to U.S. account status for certain
depository accounts. In Year 1, a U.S.
resident individual, U, holds a depository
account with CB, a commercial bank that is
a participating FFI. The balance in U’s CB
account at the end of Year 1 is $35,000. In
Year 1, U also holds a custodial account with
CB’s brokerage business. The custodial
account has a $45,000 balance as of the end
of Year 1. CB’s retail banking and brokerage
businesses share computerized information
management systems that associate U’s
depository account and U’s custodial account
with U and with one another within the
meaning of paragraph (b)(4)(iii)(A) of this
section. For purposes of applying the $50,000
threshold described in paragraph (a)(4)(i) of
this section, however, a depository account is
aggregated only with other depository
accounts. Therefore, U’s depository account
is eligible for the paragraph (a)(4)(i)
exception to U.S. account status because the
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balance of the depository account does not
exceed $50,000.
(b) Financial accounts—(1) In general.
Except as otherwise provided in this
paragraph (b), the term financial
account means—
(i) Depository account. Any
depository account (as defined in
paragraph (b)(3)(i) of this section)
maintained by a financial institution;
(ii) Custodial account. Any custodial
account (as defined in paragraph
(b)(3)(ii) of this section) maintained by
a financial institution;
(iii) Equity or debt interest—(A)
Equity or debt interests in an investment
entity. Any equity or debt interest (other
than interests regularly traded on an
established securities market under
paragraph (e)(3)(iv) of this section) in an
investment entity described in
paragraph (e)(4)(i)(B) or (C) of this
section (including an entity that is also
a depository institution, custodial
institution, insurance company, or
investment entity described in
paragraph (e)(4)(i)(A) of this section);
(B) Certain equity or debt interests in
a holding company or treasury center.
Any equity or debt interest (other than
interests regularly traded on an
established securities market under
paragraph (e)(3)(iv) of this section) in a
holding company or treasury center
described in paragraph (e)(1)(v) of this
section if—
(1) The expanded affiliated group of
which the entity is a member includes
one or more investment entities
described in paragraph (e)(4)(i)(B) or (C)
of this section or passive NFFEs and the
income derived by such investment
entities or passive NFFEs is 50 percent
or more of the aggregate income earned
by the expanded affiliated group;
(2) The redemption or retirement
amount or return earned on the interest
is determined, directly or indirectly,
primarily by reference to one or more
investment entities described in
paragraph (e)(4)(i)(B) or (C) of this
section or one or more passive NFFEs
that are members of the entity’s
expanded affiliated group (as
determined under paragraph (b)(3)(vi) of
this section);
(3) The value of the interest is
determined, directly or indirectly,
primarily by reference to assets that give
rise (or could give rise) to withholdable
payments (as determined under
paragraph (b)(3)(v)) of this section); or
(4) The interest is issued with a
principal purpose of avoiding the
reporting or withholding requirements
of chapter 4;
(C) Equity or debt interests in other
financial institutions. Any equity or
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debt interest (other than interests
regularly traded on an established
securities market under paragraph
(e)(3)(iv) of this section) in an entity that
is a depository institution, custodial
institution, investment entity described
in paragraph (e)(4)(i)(A) of this section,
or insurance company if—
(1) The value of the interest is
determined, directly or indirectly,
primarily by reference to assets that give
rise (or could give rise) to withholdable
payments (as determined under
paragraph (b)(3)(v) of this section); or
(2) The interest is issued with a
principal purpose of avoiding the
reporting or withholding requirements
of chapter 4.
(iv) Insurance and annuity contracts.
A contract issued or maintained by an
insurance company, a holding company
(as described in paragraph (e)(5)(i)(C) of
this section) of an insurance company,
or a financial institution described in
paragraphs (e)(1)(i), (ii), (iii), or (v) of
this section, if the contract is a cash
value insurance contract (as defined in
paragraph (b)(3)(vii) of this section) or
an annuity contract.
(2) Exceptions. A financial account
does not include an account described
in this paragraph (b)(2).
(i) Certain savings accounts—(A)
Retirement and pension accounts. A
retirement or pension account that
satisfies the following conditions under
the laws of the jurisdiction where the
account is maintained:
(1) The account is subject to
regulation as a personal retirement
account or is part of a registered or
regulated retirement or pension plan for
the provision of retirement or pension
benefits (including disability or death
benefits);
(2) The account is tax-favored (as
described in paragraph (b)(2)(i)(E) of
this section);
(3) Annual information reporting is
required to the relevant tax authorities
with respect to the account;
(4) Withdrawals are conditioned on
reaching a specified retirement age,
disability, or death, or penalties apply to
withdrawals made before such specified
events; and
(5) Either—
(i) Annual contributions are limited to
$50,000 or less, or
(ii) There is a maximum lifetime
contribution limit to the account of
$1,000,000 or less.
(B) Non-retirement savings accounts.
An account (other than an insurance or
annuity contract) that satisfies the
following conditions under the laws of
the jurisdiction where the account is
maintained:
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(1) The account is subject to
regulation as a savings vehicle for
purposes other than for retirement;
(2) The account is tax-favored (as
described in paragraph (b)(2)(i)(E) of
this section);
(3) Withdrawals are conditioned on
meeting specific criteria related to the
purpose of the savings account (for
example, the provision of educational or
medical benefits), or penalties apply to
withdrawals made before such criteria
are met; and
(4) Annual contributions are limited
to $50,000 or less;
(C) Rollovers. A financial account that
otherwise satisfies the requirements of
paragraph (b)(2)(i)(A) or (B) of this
section will not fail to satisfy such
requirements solely because such
financial account may receive assets or
funds transferred from one or more
financial accounts that meet the
requirements of paragraph (b)(2)(i)(A) or
(B) of this section or from one or more
retirement or pension funds that meet
the requirements of paragraph (f)(2)(ii)
of this section or § 1.1471–6(f).
(D) Coordination with section 6038D.
The exclusions provided under
paragraph (b)(2)(i) of this section shall
not apply for purposes of determining
whether an account or other
arrangement is a financial account for
purposes of section 6038D.
(E) Account that is tax-favored. For
purposes of this paragraph (b)(2)(i), an
account is tax-favored under the laws of
a jurisdiction where the account is
maintained if—
(1) Contributions to the account that
would otherwise be subject to tax under
such laws are deductible or excluded
from the gross income of the account
holder or taxed at a reduced rate; or
(2) Taxation of investment income
from the account is deferred or taxed at
a reduced rate.
(ii) Certain term life insurance
contracts. A life insurance contract with
a coverage period that will end before
the insured individual attains age 90,
provided that the contract satisfies the
following conditions—
(A) Periodic premiums, which do not
decrease over time, are payable at least
annually during the period the contract
is in existence or until the insured
attains age 90, whichever is shorter;
(B) The contract has no contract value
that any person can access (by
withdrawal, loan, or otherwise) without
terminating the contract;
(C) The amount (other than a death
benefit) payable upon cancellation or
termination of the contract cannot
exceed the aggregate premiums paid for
the contract, less the sum of mortality,
morbidity, and expense charges
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(whether or not actually imposed) for
the period or periods of the contract’s
existence and any amounts paid prior to
the cancellation or termination of the
contract; and
(D) The contract is not held by a
transferee for value.
(iii) Account held by an estate. An
account that is held solely by an estate
if the documentation for such account
includes a copy of the deceased’s will
or death certificate.
(iv) Certain escrow accounts. An
escrow account that is established in
connection with—
(A) A court order or judgment; or
(B) A sale, exchange, or lease of real
or personal property, provided that the
account meets the following
conditions—
(1) The account is funded solely with
a down payment, earnest money,
deposit in an amount appropriate to
secure an obligation of one of the parties
directly related to the transaction, or a
similar payment, or with a financial
asset that is deposited in the account in
connection with the sale, exchange, or
lease of the property;
(2) The account is established and
used solely to secure the obligation of
the purchaser to pay the purchase price
for the property, the seller to pay any
contingent liability, or the lessor or
lessee to pay for any damages relating to
the leased property as agreed under the
lease;
(3) The assets of the account,
including the income earned thereon,
will be paid or otherwise distributed for
the benefit of the purchaser, seller,
lessor, or lessee (including to satisfy
such person’s obligation) when the
property is sold, exchanged, or
surrendered, or the lease terminates;
(4) The account is not a margin or
similar account established in
connection with a sale or exchange of a
financial asset; and
(5) The account is not associated with
a credit card account.
(v) Certain annuity contracts. A noninvestment linked, non-transferable,
immediate life annuity contract
(including a disability annuity) that
monetizes a retirement or pension
account described in paragraph
(b)(2)(i)(A) of this section.
(vi) Account or product excluded
under an intergovernmental agreement.
An account or product that is excluded
from the definition of financial account
under the terms of an applicable Model
1 IGA or Model 2 IGA.
(3) Definitions. The following
definitions apply for purposes of
chapter 4—
(i) Depository account—(A) In
general. Except as otherwise provided
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5963
in this paragraph (b)(3)(i), the term
depository account means any account
that is—
(1) A commercial, checking, savings,
time, or thrift account, or an account
that is evidenced by a certificate of
deposit, thrift certificate, investment
certificate, passbook, certificate of
indebtedness, or any other instrument
for placing money in the custody of an
entity engaged in a banking or similar
business for which such institution is
obligated to give credit (regardless of
whether such instrument is interest
bearing or non-interest bearing),
including, for example, a credit balance
with respect to a credit card account
issued by a credit card company that is
engaged in a banking or similar
business; or
(2) Any amount held by an insurance
company under a guaranteed
investment contract or under a similar
agreement to pay or credit interest
thereon or to return the amount held.
(B) Exceptions. A depository account
does not include—
(1) A negotiable debt instrument that
is traded on a regulated market or overthe-counter market and distributed and
held through financial institutions; or
(2) An advance premium or premium
deposit described in paragraph
(b)(3)(vii)(C)(5) of this section.
(ii) Custodial account. The term
custodial account means an
arrangement for holding a financial
instrument, contract, or investment
(including, but not limited to, a share of
stock in a corporation, a note, bond,
debenture, or other evidence of
indebtedness, a currency or commodity
transaction, a credit default swap, a
swap based upon a nonfinancial index,
a notional principal contract as defined
in § 1.446–3(c), an insurance or annuity
contract, and any option or other
derivative instrument) for the benefit of
another person.
(iii) Equity interest in certain
entities—(A) Partnership. In the case of
a partnership that is a financial
institution, the term equity interest
means either a capital or profits interest
in the partnership.
(B) Trust. In the case of a trust that is
a financial institution, an equity interest
means an interest held by—
(1) A person who is an owner of all
or a portion of the trust under sections
671 through 679;
(2) A beneficiary who is entitled to a
mandatory distribution from the trust as
defined in § 1.1473–1(b)(3); or
(3) A beneficiary who may receive a
discretionary distribution as defined in
§ 1.1473–1(b)(3) from the trust but only
if such person receives a distribution in
the calendar year.
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(iv) Regularly traded on an
established securities market. Debt or
equity interests described in paragraph
(b)(1)(iii) of this section are regularly
traded on an established securities
market if the requirements of § 1.1472–
1(c)(1)(i)(A) and (C) are met. For
purposes of paragraph (b)(1)(iii) of this
section, an interest is not regularly
traded on an established securities
market if the holder of the interest
(excluding a financial institution acting
as an intermediary) is registered on the
books of the investment entity. The
preceding sentence shall not apply to
the extent a holder’s interest is
registered prior to January 1, 2014, on
the books of the investment entity.
(v) Value of interest determined,
directly or indirectly, primarily by
reference to assets that give rise (or
could give rise) to withholdable
payments—(A) Equity interest. The
value of an equity interest is
determined, directly or indirectly,
primarily by reference to assets that give
rise (or could give rise) to withholdable
payments if—
(1) The amount payable upon
redemption by the issuer of the interest
is secured primarily by reference to
assets that give rise (or could give rise)
to withholdable payments; or
(2) In the case of an unsecured
interest, the amount payable upon
redemption is determined primarily by
reference to assets that give rise (or
could give rise) to withholdable
payments.
(B) Debt interest. The value of a debt
interest is determined, directly or
indirectly, primarily by reference to
assets that give rise (or could give rise)
to withholdable payments if—
(1) Debt is convertible into stock of a
U.S. person;
(2) Amounts payable as interest or
upon redemption or retirement of the
debt are determined primarily by
reference to profits or assets of a U.S
person; or
(3) The debt is secured by assets of a
U.S. person.
(vi) Redemption or retirement amount
or return earned on the interest
determined, directly or indirectly,
primarily by reference to one or more
investment entities or passive NFFEs—
(A) Equity interest. The return earned on
an equity interest is determined,
directly or indirectly, primarily by
reference to one or more investment
entities described in paragraph
(e)(4)(i)(B) or (C) of this section or
passive NFFEs that are members of the
entity’s expanded affiliated group if the
return on such interest (including upon
a sale, exchange, or redemption) is
determined primarily by reference to the
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value or income (including the value of
or income from one or more assets) of
one or more investment entities
described in paragraph (e)(4)(i)(B) or (C)
of this section or passive NFFEs that are
members of the entity’s expanded
affiliated group.
(B) Debt interest. The redemption or
retirement amount or return earned on
a debt interest is determined, directly or
indirectly, primarily by reference to one
or more investment entities described in
paragraph (e)(4)(i)(B) or (C) of this
section or passive NFFEs that are
members of entity’s expanded affiliated
group if—
(1) Debt is convertible into stock of
one or more investment entities
described in paragraph (e)(4)(i)(B) or (C)
of this section or passive NFFEs that are
members of the entity’s expanded
affiliated group;
(2) Amounts payable as interest or
upon redemption or retirement of the
debt are determined primarily by
reference to the value or income
(including the value of or income from
one or more assets) of one or more
investment entities described in
paragraph (e)(4)(i)(B) or (C) of this
section or passive NFFEs that are
members of the entity’s expanded
affiliated group; or
(3) The debt is primarily secured by
the assets of one or more investment
entities described in paragraph
(e)(4)(i)(B) or (C) of this section or
passive NFFEs that are members of the
entity’s expanded affiliated group or is
guaranteed by one or more such entities.
(vii) Cash value insurance contract—
(A) In general. The term cash value
insurance contract means an insurance
contract (other than an indemnity
reinsurance contract between two
insurance companies and a term life
insurance contract described in
paragraph (b)(2)(ii) of this section) that
has an aggregate cash value greater than
$50,000 at any time during the calendar
year, applying the rules set forth in
paragraph (b)(4)(iii) of this section. A
participating FFI may elect to disregard
the $50,000 threshold in the preceding
sentence by reporting all contracts with
a cash value greater than zero.
(B) Cash value. Except as otherwise
provided in paragraph (b)(3)(vii)(C) of
this section, the term cash value means
any amount (determined without
reduction for any charge or policy loan)
that—
(1) Is payable under the contract to
any person upon surrender, termination,
cancellation, or withdrawal; or
(2) Any person can borrow under or
with regard to (for example, by pledging
as collateral) the contract.
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(C) Amounts excluded from cash
value. Cash value does not include an
amount payable—
(1) Solely by reason of the death of an
individual insured under a life
insurance contract;
(2) As a personal injury or sickness
benefit or a benefit providing
indemnification of an economic loss
incurred upon the occurrence of the
event insured against;
(3) As a refund of a previously paid
premium (less cost of insurance charges
whether or not actually imposed) under
an insurance contract (other than a life
insurance or annuity contract) due to
cancellation or termination of the
contract, decrease in risk exposure
during the effective period of the
contract, or arising from the correction
of a posting or similar error with regard
to the premium for the contract; or
(4) As a policyholder dividend (other
than a termination dividend) provided
that the dividend relates to an insurance
contract under which the only benefits
payable are described in paragraph
(b)(3)(vii)(C)(2) of this section.
(5) As a return of an advance
premium or premium deposit for an
insurance contract for which the
premium is payable at least annually if
the amount of the advance premium or
premium deposit does not exceed the
next annual premium that will be
payable under the contract.
(D) Policyholder dividend—(1) For
purposes of paragraph (b)(3)(vii)(C)(4) of
this section and except as otherwise
provided in this paragraph, a
policyholder dividend means any
dividend or similar distribution to
policyholders in their capacity as such,
including—
(i) An amount paid or credited
(including as an increase in benefits) if
the amount is not fixed in the contract
but rather depends on the experience of
the insurance company or the discretion
of management;
(ii) A reduction in the premium that,
but for the reduction, would have been
required to be paid; and
(iii) An experience rated refund or
credit based solely upon the claims
experience of the contract or group
involved.
(2) A policyholder dividend cannot
exceed the premiums previously paid
for the contract, less the sum of the cost
of insurance and expense charges
(whether or not actually imposed)
during the contract’s existence and the
aggregate amount of any prior dividends
paid or credited with regard to the
contract.
(3) A policyholder dividend does not
include any amount that is in the nature
of interest that is paid or credited to a
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contract holder to the extent that such
amount exceeds the minimum rate of
interest required to be credited with
respect to contract values under local
law.
(4) Account balance or value. This
paragraph (b)(4) provides rules for
determining the balance or value of a
financial account for purposes of
chapter 4. For example, the rules of this
paragraph apply for purposes of
determining whether an FFI meets the
requirements of paragraph (f)(2)(i),
(f)(2)(ii) or (f)(3) of this section to certify
to a deemed-compliant FFI status. The
rules of this paragraph also apply to a
participating FFI’s due diligence and
reporting obligations to the extent
required under § 1.1471–4(c) or (d) and
to a U.S. withholding agent’s due
diligence obligations to the extent
required under § 1.1471–3.
(i) In general. Except as otherwise
provided in paragraph (b)(4)(ii) of this
section with respect to immediate
annuities, the balance or value of a
financial account is the balance or value
calculated by the financial institution
for purposes of reporting to the account
holder. In the case of an account
described in paragraph (b)(1)(iii) of this
section, the balance or value of an
equity interest is the value calculated by
the financial institution for the purpose
that requires the most frequent
determination of value, and the balance
or value of a debt interest is its principal
amount. Except as provided in
paragraph (b)(3)(vii) of this section, the
balance or value of an insurance or
annuity contract is the balance or value
as of either the calendar year end or the
most recent contract anniversary date.
The balance or value of the account is
not to be reduced by any liabilities or
obligations incurred by an account
holder with respect to the account or
any of the assets held in the account and
is not to be reduced by any fees,
penalties, or other charges for which the
account holder may be liable upon
terminating, transferring, surrendering,
liquidating, or withdrawing cash from
the account. Each holder of a jointly
held account is attributed the entire
balance or value of the joint account.
See § 1.1473–1(b)(3) for rules regarding
the valuation of trust interests that also
apply under this paragraph (b)(4)(i) to
determine the value of trust interests
that are financial accounts.
(ii) Special rule for immediate
annuity—(A) Immediate annuities
without minimum benefit guarantees. If
the value of an immediate annuity
contract with no minimum benefit
guarantee is not reported to the account
holder, the account balance or value of
the contract is the sum of the net
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present values on the valuation date of
the amounts reasonably expected to be
payable in future periods under the
contract.
(B) Immediate annuities with a
minimum benefit guarantee. The
account balance or value of an annuity
contract with a minimum guarantee is
the sum of the net present values on the
valuation date of—
(1) The non-guaranteed amounts
reasonably expected to be payable in
future periods; and
(2) The guaranteed amounts payable
in future periods.
(C) Net present value of amounts
payable in future periods. The net
present value of an amount payable in
a future period shall be determined
using—
(1) A reasonable actuarial valuation
method, and
(2) The mortality tables and interest
rate(s)—
(i) Prescribed pursuant to section
7520 and the regulations thereunder; or
(ii) Used by the issuer of the contract
to determine the amounts payable under
the contract.
(iii) Account aggregation
requirements—(A) In general. To the
extent a financial institution is required
under chapter 4 to determine the
aggregate balance or value of an
account, the financial institution is
required to aggregate the account
balance or value of all accounts that are
held (in whole or in part) by the same
person and that are maintained by the
financial institution or members of its
expanded affiliated group, but only to
the extent that the financial institution’s
computerized systems link the accounts
by reference to a data element, such as
client number, EIN, or foreign tax
identifying number, and allow the
account balances of such accounts to be
aggregated. Notwithstanding the rules
set forth in this paragraph (b)(4)(iii), a
financial institution is required to
aggregate the balance or value of
accounts that it treats as consolidated
obligations.
(B) Aggregation rule for relationship
managers. To the extent a financial
institution is required under chapter 4
to apply the aggregation rules of this
paragraph (b)(4)(iii), the financial
institution also is required to aggregate
all accounts that a relationship manager
knows are directly or indirectly owned,
controlled, or established (other than in
a fiduciary capacity) by the same
person, as well as all accounts that the
relationship manager has associated
with one another through a relationship
code, customer identification number,
TIN, or similar indicator, or that the
relationship manager would typically
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associate with each other under the
procedures of the financial institution
(or the department, division, or unit
with which the relationship manager is
associated).
(C) Examples. The following
examples illustrate the account
aggregation requirements of this
paragraph (b)(4)(iii):
Example 1. FFI not required to aggregate
accounts for U.S. account exception. A U.S.
resident individual, U, holds a depository
account with Branch 1 of CB, a commercial
bank that is a participating FFI. The balance
in U’s Branch 1 account at the end of Year
1 is $35,000. U also holds a depository
account with Branch 2 of CB, with a $45,000
balance at the end of Year 1. CB’s retail
banking businesses share computerized
information management systems across its
branches, but U’s accounts are not associated
with one another in the shared computerized
information system. In addition, CB has not
assigned a relationship manager to U or U’s
accounts. Because the accounts are not
associated in CB’s system or by a relationship
manager, CB is not required to aggregate the
accounts under paragraph (b)(4)(iii) and both
accounts are eligible for the exception to U.S.
account status described in paragraph
(a)(4)(i) of this section as neither account
exceeds the $50,000 threshold.
Example 2. FFI required to aggregate
accounts for U.S. account exception. Same
facts as Example 1, except that both of U’s
depository accounts are associated with U
and with one another by reference to CB’s
internal identification number. The system
shows the account balances for both
accounts, and such balances may be
electronically aggregated, though the system
does not show a combined balance for the
accounts. In determining whether such
accounts meet the exception to U.S. account
status described in paragraph (a)(4)(i) of this
section for certain depository accounts with
an aggregate balance or value of $50,000 or
less, CB is required to aggregate the account
balances of all depository accounts under the
rules of paragraph (b)(4)(iii) of this section.
Under those rules, U is treated as holding
depository accounts with CB with an
aggregate balance of $80,000. Accordingly,
neither account is eligible for the exception
to U.S. account status, because the accounts,
when aggregated, exceed the $50,000
threshold.
Example 3. Aggregation rules for joint
accounts maintained by a participating FFI.
In Year 1, a U.S. resident individual, U, holds
a custodial account that is a preexisting
account at custodial institution CI, a
participating FFI. The balance in U’s CI
custodial account at the end of Year 1 is
$35,000. U also holds a joint custodial
account that is a preexisting account with her
sister, A, a nonresident alien for U.S. federal
income tax purposes, with another custodial
institution, CI2. The balance in the joint
account at the end of Year 1 is also $35,000.
CI and CI2 are part of the same expanded
affiliated group and share computerized
information management systems. Both U’s
custodial account at CI and U and A’s
custodial account at CI2 are associated with
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U and with one another by reference to CI’s
internal identification number and the
system allows the balances to be aggregated.
In determining whether such accounts meet
the documentation exception described in
§ 1.1471–4(c)(4)(iv) for certain preexisting
individual accounts with an aggregate
balance or value of $50,000 or less, CI is
required to aggregate the account balances of
accounts held in whole or in part by the same
account holder under the rules of paragraph
(b)(4)(iii) of this section. Under those rules,
U is treated as having financial accounts with
C1 and CI2, each with an aggregate balance
of $70,000. Accordingly, neither account is
eligible for the documentation exception.
Example 4. Aggregation for applying
indefinite validity periods. In Year 1, an
owner-documented FFI, O, holds an offshore
account with Branch 1 of CB, a commercial
bank that is a U.S. withholding agent. The
balance in O’s CB account at the end of Year
1 is $600,000. In Year 1, O also holds an
account in the United States with Branch 2
of CB. The Branch 2 account has a $450,000
balance at the end of Year 1. CB’s banking
businesses share computerized information
management systems across its branches. O’s
accounts are associated with one another in
the shared computerized information system
and the system allows the balances to be
aggregated. In determining whether CB is
permitted to apply an indefinite validity
period for the documentation submitted for
O’s account at Branch 1 pursuant to
§ 1.1471–3(c)(6)(ii)(C)(4) (permitting
indefinite validity for a withholding
statement of an owner-documented FFI if the
balance or value of all accounts held by the
owner-documented FFI does not exceed
$1,000,000), CB is required to aggregate the
account balance of O’s accounts at Branch 1
and Branch 2 to the extent required under the
rules of paragraph (b)(4)(iii) of this section.
Accordingly, O is treated as holding financial
accounts with CB with an aggregate balance
of $1,050,000 and the documentation
submitted for O’s account at Branch 1 is not
eligible for the indefinite validity period
described under § 1.1471–3(c)(6)(ii)(C)(4).
(iv) Currency translation of balance or
value. If the balance or value of a
financial account, other obligation, or
the aggregate amount payable under a
group life or group annuity contract
described in § 1.1471–4(c)(4) is
denominated in a currency other than
U.S. dollars, a withholding agent must
calculate the balance or value by
applying a spot rate determined under
§ 1.988–1(d) to translate such balance or
value into the U.S. dollar equivalent.
For the purpose of a participating or
registered deemed-compliant FFI
reporting an account under § 1.1471–
4(d), the spot rate must be determined
as of the last day of the calendar year
(or, in the case of an insurance contract
or annuity contract, the most recent
contract anniversary date, when
applicable) for which the account is
being reported or, if the account was
closed during such calendar year, the
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date the account was closed. In the case
of an FFI determining whether an
account meets (or continues to meet) a
preexisting account documentation
exception described in § 1.1471–
4(c)(3)(iii), (c)(4)(iv), or (c)(4)(v) or
whether the account is an account
described in paragraph (a)(4)(i) of this
section, the spot rate must be
determined on the date for which the
FFI is determining the threshold amount
as prescribed in those provisions.
(5) Account maintained by financial
institution. A custodial account is
maintained by the financial institution
that holds custody over the assets in the
account (including a financial
institution that holds assets in street
name for an account holder in such
institution). A depository account is
maintained by the financial institution
that is obligated to make payments with
respect to the account (excluding an
agent of a financial institution
regardless of whether such agent is a
financial institution under paragraph
(e)(1) of this section). Any equity or debt
interest in a financial institution that
constitutes a financial account under
paragraph (b)(1)(iii) of this section is
maintained by such financial
institution. A cash value insurance
contract or an annuity contract
described in paragraph (b)(1)(iv) of this
section is maintained by the financial
institution that is obligated to make
payments with respect to the contract.
(c) U.S. owned foreign entity. The
term U.S. owned foreign entity means
any foreign entity that has one or more
substantial U.S. owners (as defined in
§ 1.1473–1(b)), including a foreign entity
described in paragraph (c)(2) of this
section. See § 1.1473–1(e) for the
definition of foreign entity for purposes
of chapter 4. For the requirements
applicable to determining direct and
indirect ownership in an entity, see
§ 1.1473–1(b)(2).
(d) Definition of FFI. The term FFI
means, with respect to any entity that is
not resident in a country that has in
effect a Model 1 IGA or Model 2 IGA,
any financial institution (as defined in
paragraph (e) of this section) that is a
foreign entity. With respect to any entity
that is resident in a country that has in
effect a Model 1 IGA or Model 2 IGA,
an FFI is any entity that is treated as a
Financial Institution pursuant to such
Model 1 IGA or Model 2 IGA. A territory
financial institution is not an FFI under
this paragraph (d).
(e) Definition of financial institution—
(1) In general. Except as otherwise
provided in paragraph (e)(5) of this
section, the term financial institution
means any entity that—
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(i) Accepts deposits in the ordinary
course of a banking or similar business
(as defined in paragraph (e)(2) of this
section) (depository institution);
(ii) Holds, as a substantial portion of
its business (as defined in paragraph
(e)(3) of this section), financial assets for
the benefit of one or more other persons
(custodial institution);
(iii) Is an investment entity (as
defined in paragraph (e)(4) of this
section);
(iv) Is an insurance company or a
holding company (as described in
paragraph (e)(5)(i)(C) of this section)
that is a member of an expanded
affiliated group that includes an
insurance company, and the insurance
company or holding company issues, or
is obligated to make payments with
respect to, a cash value insurance or
annuity contract described in paragraph
(b)(1)(iv) of this section (specified
insurance company); or
(v) Is an entity that is a holding
company or treasury center (as
described in paragraphs (e)(5)(i)(C) and
(e)(5)(i)(D)(1) of this section) that—
(A) Is part of an expanded affiliated
group that includes a depository
institution, custodial institution,
insurance company, or investment
entity described in paragraphs
(e)(4)(i)(B) and (C) of this section; or
(B) Is formed in connection with or
availed of by a collective investment
vehicle, mutual fund, exchange traded
fund, private equity fund, hedge fund,
venture capital fund, leveraged buyout
fund, or any similar investment vehicle
established with an investment strategy
of investing, reinvesting, or trading in
financial assets.
(2) Banking or similar business—(i) In
general. Except as otherwise provided
in paragraph (e)(2)(ii) of this section, an
entity is considered to be engaged in a
banking or similar business if, in the
ordinary course of its business with
customers, the entity accepts deposits or
other similar investments of funds and
regularly engages in one or more of the
following activities—
(A) Makes personal, mortgage,
industrial, or other loans or provides
other extensions of credit;
(B) Purchases, sells, discounts, or
negotiates accounts receivable,
installment obligations, notes, drafts,
checks, bills of exchange, acceptances,
or other evidences of indebtedness;
(C) Issues letters of credit and
negotiates drafts drawn thereunder;
(D) Provides trust or fiduciary
services;
(E) Finances foreign exchange
transactions; or
(F) Enters into, purchases, or disposes
of finance leases or leased assets.
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(ii) Exception for certain lessors and
lenders. An entity is not considered to
be engaged in a banking or similar
business for purposes of this paragraph
(e)(2) if the entity solely accepts
deposits from persons as collateral or
security pursuant to a sale or lease of
property or pursuant to a similar
financing arrangement between such
entity and the person holding the
deposit with the entity.
(iii) Application of section 581.
Entities engaged in a banking or similar
business include, but are not limited to,
entities that would qualify as banks
under section 585(a)(2) (including banks
as defined in section 581 and any
corporation to which section 581 would
apply but for the fact that it is a foreign
corporation).
(iv) Effect of local regulation. Whether
an entity is subject to the banking and
credit laws of a foreign country, the
United States, a State, a U.S. territory,
or a subdivision thereof, or is subject to
supervision and examination by
agencies having regulatory oversight of
banking or similar institutions, is
relevant to, but not necessarily
determinative of, whether that entity
qualifies as a financial institution under
section 1471(d)(5)(A). Whether an entity
conducts a banking or similar business
is determined based upon the character
of the actual activities of such entity.
(3) Holding financial assets for others
as a substantial portion of its business—
(i) Substantial portion—(A) In general.
An entity holds financial assets for the
account of others as a substantial
portion of its business if the entity’s
gross income attributable to holding
financial assets and related financial
services equals or exceeds 20 percent of
the entity’s gross income during the
shorter of—
(1) The three-year period ending on
December 31 of the year preceding the
year in which the determination is
made; or
(2) The period during which the
entity has been in existence before the
determination is made.
(B) Special rule for start-up entities.
An entity with no operating history as
of the date of the determination is
considered to hold financial assets for
the account of others as a substantial
portion of its business if the entity
expects to meet the gross income
threshold described in paragraph
(e)(3)(i)(B) of this section based on its
anticipated functions, assets, and
employees, with due consideration
given to any purpose or functions for
which the entity is licensed or regulated
(including those of any predecessor).
(ii) Income attributable to holding
financial assets and related financial
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services. For purposes of this paragraph
(e)(3), income attributable to holding
financial assets and related financial
services means custody, account
maintenance, and transfer fees;
commissions and fees earned from
executing and pricing securities
transactions; income earned from
extending credit to customers with
respect to financial assets held in
custody (or acquired through such
extension of credit); income earned on
the bid-ask spread of financial assets;
and fees for providing financial advice
and for clearance and settlement
services.
(iii) Effect of local regulation.
Whether an entity is subject to the
banking and credit, broker-dealer,
fiduciary, or other similar laws and
regulations of the United States, a State,
a U.S. territory, a political subdivision
thereof, or a foreign country, or to
supervision and examination by
agencies having regulatory oversight of
banks, credit issuers, or other financial
institutions, is relevant to, but not
necessarily determinative of, whether
that entity holds financial assets for the
account of others as a substantial
portion of its business.
(4) Investment entity—(i) In general.
The term investment entity means any
entity that is described in paragraph
(e)(4)(i)(A), (B), or (C) of this section.
(A) The entity primarily conducts as
a business one or more of the following
activities or operations for or on behalf
of a customer—
(1) Trading in money market
instruments (checks, bills, certificates of
deposit, derivatives, etc.); foreign
currency; foreign exchange, interest rate,
and index instruments; transferable
securities; or commodity futures;
(2) Individual or collective portfolio
management; or
(3) Otherwise investing,
administering, or managing funds,
money, or financial assets on behalf of
other persons.
(B) The entity’s gross income is
primarily attributable to investing,
reinvesting, or trading in financial assets
(as defined in paragraph (e)(4)(ii) of this
section) and the entity is managed by
another entity that is described in
paragraph (e)(1)(i), (ii), (iv), or
(e)(4)(i)(A) of this section. For purposes
of this paragraph (e)(4)(i)(B), an entity is
managed by another entity if the
managing entity performs, either
directly or through another third-party
service provider, any of the activities
described in paragraph (e)(4)(i)(A) of
this section on behalf of the managed
entity.
(C) The entity functions or holds itself
out as a collective investment vehicle,
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mutual fund, exchange traded fund,
private equity fund, hedge fund, venture
capital fund, leveraged buyout fund, or
any similar investment vehicle
established with an investment strategy
of investing, reinvesting, or trading in
financial assets.
(ii) Financial assets. For purposes of
this paragraph, the term financial asset
means a security (as defined in section
475(c)(2) without regard to the last
sentence thereof), partnership interest,
commodity (as defined in section
475(e)(2)), notional principal contract
(as defined in § 1.446–3(c)), insurance
contract or annuity contract, or any
interest (including a futures or forward
contract or option) in a security,
partnership interest, commodity,
notional principal contract, insurance
contract, or annuity contract.
(iii) Primarily conducts as a
business—(A) In general. An entity is
treated as primarily conducting as a
business one or more of the activities
described in paragraph (e)(4)(i)(A) of
this section if the entity’s gross income
attributable to such activities equals or
exceeds 50 percent of the entity’s gross
income during the shorter of—
(1) The three-year period ending on
December 31 of the year preceding the
year in which the determination is
made; or
(2) The period during which the
entity has been in existence.
(B) Special rule for start-up entities.
An entity with no operating history as
of the date of the determination is
treated as primarily conducting as a
business one or more of the activities
described in paragraph (e)(4)(i)(A) of
this section if such entity expects to
meet the gross income threshold
described in paragraph (e)(4)(iii)(A) of
this section based on its anticipated
functions, assets, and employees, with
due consideration given to any purpose
or functions for which the entity is
licensed or regulated (including those of
any predecessor).
(iv) Primarily attributable to investing,
reinvesting, or trading in financial
assets—(A) In general. An entity’s gross
income is primarily attributable to
investing, reinvesting, or trading in
financial assets for purposes of
paragraph (e)(4)(i)(B) of this section if
the entity’s gross income attributable to
investing, reinvesting, or trading in
financial assets equals or exceeds 50
percent of the entity’s gross income
during the shorter of—
(1) The three-year period ending on
December 31 of the year preceding the
year in which the determination is
made; or
(2) The period during which the
entity has been in existence.
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(B) Special rule for start-up entities.
An entity with no operating history as
of the date of the determination will be
considered to have income that is
primarily attributable to investing,
reinvesting, or trading in financial assets
for purposes of paragraph (e)(4)(i)(B) of
this section if such entity expects to
meet the income threshold described in
paragraph (e)(4)(iv)(A) of this section
based on its anticipated functions,
assets, and employees, with due
consideration given to any purpose or
functions for which the entity is
licensed or regulated (including those of
any predecessor).
(v) Examples. The following examples
illustrate the provisions of paragraph
(e)(4) of this section:
Example 1. Investment advisor. Fund
Manager is an investment entity within the
meaning of paragraph (e)(4)(i)(A) of this
section. Fund Manager, among its various
business operations, organizes and manages
a variety of funds, including Fund A, a fund
that invests primarily in equities. Fund
Manager hires Investment Advisor, a foreign
entity, to provide advice about the financial
assets in which Fund A invests. Investment
Advisor earned more than 50% of its gross
income for the last three years from
providing services as an investment advisor.
Because Investment Adviser primarily
conducts as a business providing investment
advice on behalf of clients, Investment
Advisor is an investment entity under
paragraph (e)(4)(i)(A) of this section and an
FFI under paragraph (e)(1)(iii) of this section.
Example 2. Entity that is managed by an
FFI. The facts are the same as in Example 1.
In addition, in every year since it was
organized, Fund A has earned more than
50% of its gross income from investing in
financial assets. Accordingly, Fund A is an
investment entity under paragraph (e)(4)(i)(B)
of this section because it is managed by Fund
Manager and Investment Advisor and its
gross income is primarily attributable to
investing, reinvesting, or trading in financial
assets.
Example 3. Investment manager.
Investment Manager, a U.S. entity, is an
investment entity within the meaning of
paragraph (e)(4)(i)(A) of this section.
Investment Manager organizes and registers
Fund A in Country A. Investment Manager is
authorized to facilitate purchases and sales of
financial assets held by Fund A in
accordance with Fund A’s investment
strategy. In every year since it was organized,
Fund A has earned more than 50% of its
gross income from investing, reinvesting, or
trading in financial assets. Accordingly, Fund
A is an investment entity under paragraph
(e)(4)(i)(B) of this section and an FFI under
paragraph (e)(1)(iii) of this section.
Example 4. Foreign real estate investment
fund that is managed by an FFI. The facts are
the same as in Example 3, except that Fund
A’s assets consist solely of non-debt, direct
interests in real property located within and
without the United States. Fund A is not an
investment entity under paragraph (e)(4)(i)(B)
of this section, even though it is managed by
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Investment Manager, because less than 50%
of its gross income is attributable to
investing, reinvesting, or trading in financial
assets.
Example 5. Trust managed by an
individual. On January 1, 2013, X, an
individual, establishes Trust A, a nongrantor
foreign trust for the benefit of X’s children,
Y and Z. X appoints Trustee A, an
individual, to act as the trustee of Trust A.
Trust A’s assets consists solely of financial
assets, and its income consists solely of
income from those financial assets. Pursuant
to the terms of the trust instrument, Trustee
A manages and administers the assets of the
trust. Trustee A does not hire any entity as
a third-party service provider to perform any
of the activities described in paragraph
(e)(4)(i)(A) of this section. Trust A is not an
investment entity under paragraph (e)(4)(i)(B)
of this section because it is managed solely
by Trustee A, an individual.
Example 6. Trust managed by a trust
company. The facts are the same as in
Example 5, except that X hires Trust
Company, an FFI, to act as trustee on behalf
of Trust A. As trustee, Trust Company
manages and administers the assets of Trust
A in accordance with the terms of the trust
instrument for the benefit of Y and Z.
Because Trust A is managed by an FFI, Trust
A is an investment entity under paragraph
(e)(4)(i)(B) of this section and an FFI under
paragraph (e)(1)(iii) of this section.
Example 7. Individual introducing broker.
IB, an individual introducing broker,
provides investing advice to her clients, and
uses the services of a foreign entity to
conduct and execute trades on behalf of her
clients. IB has earned 50% or more of her
gross income for the past three years from her
services as an investment advisor. Because IB
is an individual, she is not an investment
entity within the meaning of paragraph (e)(4)
of this section.
Example 8. Entity introducing broker. The
facts are the same as in Example 7, except
that IB is a foreign entity and not an
individual. Because IB is an entity that
conducts investment activities and its gross
income is primarily attributable to such
investment activities, IB is an investment
entity under paragraph (e)(4)(i)(A) of this
section and an FFI under paragraph (e)(1)(iii)
of this section.
(5) Exclusions. A financial institution
does not include an entity described in
this paragraph, provided that the entity
is not also described in paragraph
(e)(1)(iv) of this section. For the
treatment of foreign entities described in
this paragraph under section 1472, see
§ 1.1472–1(c)(1)(vi).
(i) Excepted nonfinancial group
entities—(A) In general. A foreign entity
that is a member of a nonfinancial group
(as defined in paragraph (e)(5)(i)(B) of
this section) if—
(1) The entity is not a depository
institution or custodial institution (other
than for members of its expanded
affiliated group);
(2) The entity is a holding company,
treasury center, or captive finance
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company and substantially all the
activities of such entity are to perform
one or more of the functions described
in paragraphs (e)(5)(i)(C), (D), or (E) of
this section; and
(3) The entity does not hold itself out
as (and was not formed in connection
with or availed of by) an arrangement or
investment vehicle that is a private
equity fund, venture capital fund,
leveraged buyout fund, or any similar
investment vehicle established with an
investment strategy to acquire or fund
companies and to treat the interests in
those companies as capital assets held
for investment purposes.
(B) Nonfinancial group. An expanded
affiliated group is a nonfinancial group
if, taking into account the application of
this section,—
(1) For the three-year period
preceding the year for which the
determination is made, no more than 25
percent of the gross income of the
expanded affiliated group (excluding
income derived by any member that is
an entity described in paragraph
(e)(5)(ii) or (iii) of this section) consists
of passive income (as defined in
§ 1.1472–1(c)(1)(v)); no more than five
percent of the gross income of the
expanded affiliated group is derived by
members of the expanded affiliated
group that are FFIs (excluding income
derived from transactions between
members of the expanded affiliated
group or by any member of the
expanded affiliated group that is a
certified deemed-compliant FFI); and no
more than 25 percent of the fair market
value of assets held by the expanded
affiliated group (excluding assets held
by a member that is an entity described
in paragraph (e)(5)(ii) or (iii) of this
section) are assets that produce or are
held for the production of passive
income; and
(2) Any member of the expanded
affiliated group that is an FFI is either
a participating FFI or deemed-compliant
FFI.
(C) Holding company. For purposes of
this paragraph (e)(5)(i), an entity is a
holding company if its primary activity
consists of holding (directly or
indirectly) all or part of the outstanding
stock of one or more members of its
expanded affiliated group.
(D) Treasury center—(1) Except as
otherwise provided in this paragraph,
an entity is a treasury center for
purposes of this paragraph (e)(5)(i) if the
primary activity of such entity is to
enter into investment, hedging, and
financing transactions with or for
members of its expanded affiliated
group for purposes of—
(i) Managing the risk of price changes
or currency fluctuations with respect to
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property that is held or to be held by the
expanded affiliated group (or any
member thereof);
(ii) Managing the risk of interest rate
changes, price changes, or currency
fluctuations with respect to borrowings
made or to be made by the expanded
affiliated group (or any member thereof);
(iii) Managing the risk of interest rate
changes, price changes, or currency
fluctuations with respect to assets or
liabilities to be reflected in financial
statements of the expanded affiliated
group (or any member thereof);
(iv) Managing the working capital of
the expanded affiliated group (or any
member thereof) by investing or trading
in financial assets solely for the account
and risk of such entity or any member
of its expanded affiliated group; or
(v) Acting as a financing vehicle for
borrowing funds for use by the
expanded affiliated group (or any
member thereof).
(2) An entity is not a treasury center
if any equity or debt interest in the
entity is held by a person that is not a
member of the entity’s expanded
affiliated group and the redemption or
retirement amount or return earned on
such interest is determined primarily by
reference to—
(i) The investment, hedging, and
financing activities of the treasury
center with members outside of its
expanded affiliated group; or
(ii) Any member of the group that is
an investment entity described in
(e)(4)(i)(B) or passive NFFE (as
described in paragraph (b)(3)(vi) of this
section with respect to either such
entity).
(E) Captive finance company. For
purposes of this paragraph (e)(5)(i), an
entity is a captive finance company if
the primary activity of such entity is to
enter into financing (including the
extension of credit) or leasing
transactions with or for suppliers,
distributors, dealers, franchisees, or
customers of such entity or of any
member of such entity’s expanded
affiliated group that is an active NFFE.
(ii) Excepted nonfinancial start-up
companies or companies entering a new
line of business—(A) In general. A
foreign entity that is investing capital in
assets with the intent to operate a new
business or line of business other than
that of a financial institution or passive
NFFE for a period of—
(1) In the case of an entity intending
to operate a new business, 24 months
from the initial organization of such
entity; and
(2) In the case of an entity with the
intent to operate a new line of business,
24 months from the date of the board
resolution (or its equivalent) approving
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the new line of business, provided that
such entity qualified as an active NFFE
for the 24 months preceding the date of
such approval.
(B) Exception for investment funds.
An entity is not described in this
paragraph (e)(5)(ii) if the entity
functions (or holds itself out) as an
investment fund, such as a private
equity fund, venture capital fund,
leveraged buyout fund, or any
investment vehicle whose purpose is to
acquire or fund companies and hold
interests in those companies as capital
assets for investment purposes.
(iii) Excepted nonfinancial entities in
liquidation or bankruptcy. A foreign
entity that was not a financial
institution or passive NFFE at any time
during the past five years and that is in
the process of liquidating its assets or
reorganizing with the intent to continue
or recommence operations as a
nonfinancial entity.
(iv) Excepted inter-affiliate FFI. A
foreign entity that is a member of a
participating FFI group if—
(A) The entity does not maintain
financial accounts (other than accounts
maintained for members of its expanded
affiliated group);
(B) The entity does not hold an
account with or receive payments from
any withholding agent other than a
member of its expanded affiliated group;
(C) The entity does not make
withholdable payments to any person
other than to members of its expanded
affiliated group that are not limited FFIs
or limited branches; and
(D) The entity has not agreed to report
under § 1.1471–4(d)(1)(ii) or otherwise
act as an agent for chapter 4 purposes
on behalf of any financial institution,
including a member of its expanded
affiliated group.
(v) Section 501(c) entities. A foreign
entity that is described in section 501(c)
other than an insurance company
described in section 501(c)(15).
(vi) Non-profit organizations. A
foreign entity that is established and
maintained in its country of residence
exclusively for religious, charitable,
scientific, artistic, cultural or
educational purposes if—
(A) The entity is exempt from income
tax in its country of residence;
(B) The entity has no shareholders or
members who have a proprietary or
beneficial interest in its income or
assets;
(C) Neither the laws of the entity’s
country of residence nor the entity’s
formation documents permit any
income or assets of the entity to be
distributed to, or applied for the benefit
of, an individual or noncharitable entity
other than pursuant to the conduct of
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5969
the entity’s charitable activities, or as
payment of reasonable compensation for
services rendered or the use of property,
or as payment representing the fair
market value of property that the entity
has purchased; and
(D) The laws of the entity’s country of
residence or the entity’s formation
documents require that, upon the
entity’s liquidation or dissolution, all of
its assets be distributed to an entity that
meets the requirements of § 1.1471–6(b)
or another organization that meets the
requirements of this paragraph (e)(5)(vi)
or escheat to the government of the
entity’s country of residence or any
political subdivision thereof.
(6) Reserving activities of an
insurance company. The reserving
activities of an insurance company will
not cause the company to be a financial
institution described in (e)(1)(i), (ii), or
(iii) of this section.
(f) Deemed-compliant FFIs. The term
deemed-compliant FFI includes a
registered deemed-compliant FFI (as
defined in paragraph (f)(1) of this
section), a certified deemed-compliant
FFI (as defined in paragraph (f)(2) of this
section), and, to the extent provided in
paragraph (f)(3) of this section, an
owner-documented FFI. A deemedcompliant FFI will be treated pursuant
to section 1471(b)(2) as having met the
requirements of section 1471(b). A
deemed-compliant FFI that complies
with the due diligence and withholding
requirements applicable to such entity
as provided in this paragraph (f) will
also be deemed to have met its
withholding obligations under sections
1471(a) and 1472(a). For this purpose,
an intermediary or flow-through entity
that has a residual withholding
obligation under § 1.1471–2(a)(2)(ii)
must fulfill such obligation to be
considered a deemed-compliant FFI.
(1) Registered deemed-compliant FFIs.
A registered deemed-compliant FFI
means an FFI that meets the procedural
requirements described in paragraph
(f)(1)(ii) of this section and that either is
described in any of paragraphs
(f)(1)(i)(A) through (F) of this section or
is treated as a registered deemedcompliant FFI under a Model 2 IGA. A
registered deemed-compliant FFI also
includes any FFI, or branch of an FFI,
that is a reporting Model 1 FFI that
complies with the registration
requirements of a Model 1 IGA.
(i) Registered deemed-compliant FFI
categories—(A) Local FFIs. An FFI is
described in this paragraph (f)(1)(i)(A) if
the FFI meets the following
requirements.
(1) The FFI is licensed and regulated
as a financial institution under the laws
of its country of incorporation or
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organization (which must be a FATFcompliant jurisdiction at the time the
FFI registers for deemed-compliant
status).
(2) The FFI does not have a fixed
place of business outside its country of
incorporation or organization. For this
purpose, a fixed place of business does
not include a location that is not
advertised to the public and from which
the FFI performs solely administrative
support functions.
(3) The FFI does not solicit customers
or account holders outside its country of
incorporation or organization. For this
purpose, an FFI will not be considered
to have solicited customers or account
holders outside its country of
incorporation or organization merely
because it operates a Web site, provided
that the Web site does not specifically
indicate that the FFI maintains accounts
for or provides services to nonresidents,
and does not otherwise target or solicit
U.S. customers or account holders. An
FFI will also not be considered to have
solicited customers or account holders
outside its country of incorporation or
organization merely because it
advertises in print media or on a radio
or television station that is distributed
or aired primarily within its country of
incorporation or organization but is also
incidentally distributed or aired in other
countries, provided that the
advertisement does not specifically
indicate that the FFI maintains accounts
for or provides services to nonresidents
and does not otherwise target or solicit
U.S. customers or account holders.
(4) The FFI is required under the laws
of its country of incorporation or
organization to identify resident account
holders for purposes of either
information reporting or withholding of
tax with respect to accounts held by
residents or is required to identify
resident accounts for purposes of
satisfying such country’s AML due
diligence requirements.
(5) At least 98 percent of the accounts
by value maintained by the FFI as of the
last day of the preceding calendar year
are held by residents (including
residents that are entities) of the country
in which the FFI is incorporated or
organized. An FFI that is incorporated
or organized in a member state of the
European Union may treat account
holders that are residents (including
residents that are entities) of other
member states of the European Union as
residents of the country in which the
FFI is incorporated or organized for
purposes of this calculation.
(6) By the later of December 31, 2013,
or the date it registers as a deemedcompliant FFI, the FFI implements
policies and procedures, consistent with
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those set forth for a participating FFI
under § 1.1471–4(c), to monitor whether
the FFI opens or maintains an account
for a specified U.S. person who is not
a resident of the country in which the
FFI is incorporated or organized
(including a U.S. person that was a
resident when the account was opened
but subsequently ceases to be a
resident), an entity controlled or
beneficially owned (as determined
under the FFI’s AML due diligence) by
one or more specified U.S. persons that
are not residents of the country in
which the FFI is incorporated or
organized, or a nonparticipating FFI.
Such policies and procedures must
provide that if any such account is
discovered, the FFI will close such
account, transfer such account to a
participating FFI, reporting Model 1 FFI,
or U.S. financial institution, or withhold
and report on such account as would be
required under § 1.1471–4(b) and (d) if
the FFI were a participating FFI.
(7) With respect to each preexisting
account held by a nonresident of the
country in which the FFI is organized or
held by an entity, the FFI reviews those
accounts in accordance with the
procedures described in § 1.1471–4(c)
applicable to preexisting accounts to
identify any U.S. account or account
held by a nonparticipating FFI, and
certifies to the IRS that it did not
identify any such account as a result of
its review, that it has closed any such
accounts that were identified or
transferred them to a participating FFI,
reporting Model 1 FFI, or U.S. financial
institution, or that it agrees to withhold
and report on such accounts as would
be required under § 1.1471–4(b) and (d)
if it were a participating FFI.
(8) In the case of an FFI that is a
member of an expanded affiliated group,
each FFI in the group is incorporated or
organized in the same country and, with
the exception of any member that is a
retirement plan described in § 1.1471–
6(f), meets the requirements set forth in
this paragraph (f)(1)(i)(A) and the
procedural requirements of paragraph
(f)(1)(ii) of this section.
(9) The FFI does not have policies or
practices that discriminate against
opening or maintaining accounts for
individuals who are specified U.S.
persons and who are residents of the
FFI’s country of incorporation or
organization.
(B) Nonreporting members of
participating FFI groups. An FFI that is
a member of a participating FFI group
is described in this paragraph (f)(1)(i)(B)
if it meets the following requirements.
(1) By the later of December 31, 2013,
or the date it registers with the IRS
pursuant to paragraph (f)(1)(ii) of this
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section, the FFI implements policies
and procedures to ensure that within six
months of opening a U.S. account or an
account held by a recalcitrant account
holder or a nonparticipating FFI, the FFI
either transfers such account to an
affiliate that is a participating FFI,
reporting Model 1 FFI, or U.S. financial
institution, closes the account, or
becomes a participating FFI.
(2) The FFI reviews its accounts that
were opened prior to the time it
implements the policies and procedures
(including time frames) described in
paragraph (f)(1)(i)(B)(1) of this section,
using the procedures described in
§ 1.1471–4(c) applicable to preexisting
accounts of participating FFIs, to
identify any U.S. account or account
held by a nonparticipating FFI. Within
six months of the identification of any
account described in this paragraph, the
FFI transfers the account to an affiliate
that is a participating FFI, reporting
Model 1 FFI, or U.S. financial
institution, closes the account, or
becomes a participating FFI.
(3) By the later of December 31, 2013,
or the date it registers with the IRS
pursuant to paragraph (f)(1)(ii) of this
section, the FFI implements policies
and procedures to ensure that it
identifies any account that becomes a
U.S. account or an account held by a
recalcitrant account holder or a
nonparticipating FFI due to a change in
circumstances. Within six months of the
date on which the FFI first has
knowledge or reason to know of the
change in the account holder’s chapter
4 status, the FFI transfers any such
account to an affiliate that is a
participating FFI, reporting Model 1 FFI,
or U.S. financial institution, closes the
account, or becomes a participating FFI.
(C) Qualified collective investment
vehicles. An FFI is described in this
paragraph (f)(1)(i)(C) if it meets the
following requirements.
(1) The FFI is an FFI solely because
it is an investment entity, and it is
regulated as an investment fund either
in its country of incorporation or
organization or in all of the countries in
which it is registered and all of the
countries in which it operates. A fund
will be considered to be regulated as an
investment fund under this paragraph if
its manager is regulated with respect to
the investment fund in all of the
countries in which the investment fund
is registered and in all of the countries
in which the investment fund operates.
(2) Each holder of record of direct
debt interests in the FFI in excess of
$50,000, direct equity interests in the
FFI (for example the holders of its units
or global certificates), and any other
account holder of the FFI is a
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participating FFI, registered deemedcompliant FFI, retirement plan
described in § 1.1471–6(f), non-profit
organization described in paragraph
(e)(5)(vi) of this section, U.S. person that
is not a specified U.S. person,
nonreporting IGA FFI, or exempt
beneficial owner. Notwithstanding the
prior sentence, an FFI will not be
prohibited from qualifying as a qualified
collective investment vehicle solely
because it has issued interests in bearer
form provided that the FFI ceased
issuing interests in such form after
December 31, 2012, retires all such
interests upon surrender, and
establishes policies and procedures to
redeem or immobilize all such interests
prior to January 1, 2017, and that prior
to payment the FFI documents the
account holder in accordance with the
procedures set forth in § 1.1471–4(c)
applicable to accounts other than
preexisting accounts and agrees to
withhold and report on such accounts
as would be required under § 1.1471–
4(b) and (d) if it were a participating
FFI. For purposes of this paragraph
(f)(1)(i)(C), an FFI may disregard equity
interests owned by specified U.S.
persons acquired with seed capital
within the meaning of paragraph (i)(4)
of this section if the specified U.S.
person is described in paragraph (i)(3)(i)
and (ii) of this section (substituting the
term ‘‘U.S. person’’ for ‘‘FFI’’ and
‘‘member’’), and the specified U.S.
person neither has held, nor intends to
hold, such interest for more than three
years.
(3) In the case of an FFI that is part
of an expanded affiliated group, all
other FFIs in the expanded affiliated
group are participating FFIs, registered
deemed-compliant FFIs, sponsored FFIs
described in paragraph (f)(1)(i)(F)(1) or
(2) of this section, nonreporting IGA
FFIs, or exempt beneficial owners.
(D) Restricted funds. An FFI is
described in this paragraph (f)(1)(i)(D) if
it meets the following requirements.
(1) The FFI is an FFI solely because
it is an investment entity, and it is
regulated as an investment fund under
the laws of its country of incorporation
or organization (which must be a FATFcompliant jurisdiction at the time the
FFI registers for deemed-compliant
status) or in all of the countries in
which it is registered and in all of the
countries in which it operates. A fund
will be considered to be regulated as an
investment fund for purposes of this
paragraph if its manager is regulated
with respect to the fund in all of the
countries in which the investment fund
is registered and in all of the countries
in which the investment fund operates.
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(2) Interests issued directly by the
fund are redeemed by or transferred by
the fund rather than sold by investors
on any secondary market.
Notwithstanding the prior sentence, an
FFI will not be prohibited from
qualifying as a restricted fund solely
because it issued interests in bearer
form provided that the FFI ceased
issuing interests in bearer form after
December 31, 2012, retires all such
interests upon surrender, and
establishes policies and procedures to
redeem or immobilize all such interests
prior to January 1, 2017, and that prior
to payment the FFI documents the
account holder in accordance with the
procedures set forth in § 1.1471–4(c)
applicable to accounts other than
preexisting accounts and agrees to
withhold and report on such accounts
as would be required under § 1.1471–
4(b) and (d) if it were a participating
FFI. For purposes of this paragraph
(f)(1)(i)(D), interests in the FFI that are
issued by the fund through a transfer
agent or distributor that does not hold
the interests as a nominee of the account
holder will be considered to have been
issued directly by the fund.
(3) Interests that are not issued
directly by the fund are sold only
through distributors that are
participating FFIs, registered deemedcompliant FFIs, nonregistering local
banks described in paragraph (f)(2)(i) of
this section, or restricted distributors
described in paragraph (f)(4) of this
section. For purposes of this paragraph
(f)(1)(i)(D) and paragraph (f)(4) of this
section, a distributor means an
underwriter, broker, dealer, or other
person who participates, pursuant to a
contractual arrangement with the FFI, in
the distribution of securities and holds
interests in the FFI as a nominee.
(4) The FFI ensures that by the later
of June 30, 2014, or six months after the
date the FFI registers as a deemedcompliant FFI, each agreement that
governs the distribution of its debt or
equity interests prohibits sales and other
transfers of debt or equity interests in
the FFI (other than interests that are
both distributed by and held through a
participating FFI) to specified U.S.
persons, nonparticipating FFIs, or
passive NFFEs with one or more
substantial U.S. owners. In addition, by
that date, the FFI’s prospectus and all
marketing materials must indicate that
sales and other transfers of interests in
the FFI to specified U.S. persons,
nonparticipating FFIs, or passive NFFEs
with one or more substantial U.S.
owners are prohibited unless such
interests are both distributed by and
held through a participating FFI.
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5971
(5) The FFI ensures that by the later
of June 30, 2014, or six months after the
date the FFI registers as a deemedcompliant FFI, each agreement entered
into by the FFI that governs the
distribution of its debt or equity
interests requires the distributor to
notify the FFI of a change in the
distributor’s chapter 4 status within 90
days of the change. The FFI must certify
to the IRS that, with respect to any
distributor that ceases to qualify as a
distributor identified in paragraph
(f)(1)(i)(D)(3) of this section, the FFI will
terminate its distribution agreement
with the distributor, or cause the
distribution agreement to be terminated,
within 90 days of notification of the
distributor’s change in status and, with
respect to all debt and equity interests
of the FFI issued through that
distributor, will redeem those interests,
convert those interests to direct
holdings in the fund, or cause those
interests to be transferred to another
distributor identified in paragraph
(f)(1)(i)(D)(3) of this section within six
months of the distributor’s change in
status.
(6) With respect to any of the FFI’s
preexisting direct accounts that are held
by the beneficial owner of the interest
in the FFI, the FFI reviews those
accounts in accordance with the
procedures (and time frames) described
in § 1.1471–4(c) applicable to
preexisting accounts to identify any U.S.
account or account held by a
nonparticipating FFI. Notwithstanding
the previous sentence, the FFI will not
be required to review the account of any
individual investor that purchased its
interest at a time when all of the FFI’s
distribution agreements and its
prospectus contained an explicit
prohibition of the issuance and/or sale
of shares to U.S. entities and U.S.
resident individuals. An FFI will not be
required to review the account of any
investor that purchased its interest in
bearer form until the time of payment,
but at such time will be required to
document the account in accordance
with procedures set forth in § 1.1471–
4(c) applicable to accounts other than
preexisting accounts. By the later of
June 30, 2014, or six months after the
date the FFI registers as a deemedcompliant FFI, the FFI will be required
to certify to the IRS either that it did not
identify any U.S. account or account
held by a nonparticipating FFI as a
result of its review or, if any such
accounts were identified, that the FFI
will either redeem such accounts,
transfer such accounts to an affiliate or
other FFI that is a participating FFI,
reporting Model 1 FFI, or U.S. financial
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institution, or withhold and report on
such accounts as would be required
under § 1.1471–4(b) and (d) if it were a
participating FFI.
(7) By the later of December 31, 2013,
or the date that it registers as a deemedcompliant FFI, the FFI implements the
policies and procedures described in
§ 1.1471–4(c) to ensure that it either—
(i) Does not open or maintain an
account for, or make a withholdable
payment to, any specified U.S. person,
nonparticipating FFI, or passive NFFE
with one or more substantial U.S.
owners and, if it discovers any such
accounts, closes all accounts for any
such person within six months of the
date that the FFI had reason to know the
account holder became such a person;
or
(ii) Withholds and reports on any
account held by, or any withholdable
payment made to, any specified U.S.
person, nonparticipating FFI, or passive
NFFE with one or more substantial U.S.
owners to the extent and in the manner
that would be required under § 1.1471–
4(b) and (d) if the FFI were a
participating FFI.
(8) For an FFI that is part of an
expanded affiliated group, all other FFIs
in the expanded affiliated group are
participating FFIs, registered deemedcompliant FFIs, sponsored FFIs
described in paragraph (f)(2)(iii)(B) or
(C) of this section, nonreporting IGA
FFIs, or exempt beneficial owners.
(E) Qualified credit card issuers. An
FFI is described in this paragraph
(f)(1)(i)(E) if the FFI meets the following
requirements.
(1) The FFI is an FFI solely because
it is an issuer of credit cards that accepts
deposits only when a customer makes a
payment in excess of a balance due with
respect to the card and the overpayment
is not immediately returned to the
customer.
(2) By the later of December 31, 2013,
or the date it registers as a deemedcompliant FFI, the FFI implements
policies and procedures to either
prevent a customer deposit in excess of
$50,000 or to ensure that any customer
deposit in excess of $50,000 is refunded
to the customer within 60 days. For this
purpose, a customer deposit does not
refer to credit balances to the extent of
disputed charges but does include credit
balances resulting from merchandise
returns.
(F) Sponsored investment entities and
controlled foreign corporations. An FFI
is described in this paragraph (f)(1)(i)(F)
if the FFI is described in paragraph
(f)(1)(i)(F)(1) or (2) of this section and
the sponsoring entity meets the
requirements of paragraph (f)(1)(i)(F)(3)
of this section.
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(1) An FFI is a sponsored investment
entity described in this paragraph
(f)(1)(i)(F)(1) if—
(i) It is an investment entity that is not
a QI, WP, or WT; and
(ii) An entity has agreed with the FFI
to act as a sponsoring entity for the FFI.
(2) An FFI is a sponsored controlled
foreign corporation described in this
paragraph (f)(1)(i)(F)(2) if the FFI meets
the following requirements—
(i) The FFI is a controlled foreign
corporation as defined in section 957(a)
that is not a QI, WP, or WT;
(ii) The FFI is wholly owned, directly
or indirectly, by a U.S. financial
institution that agrees with the FFI to
act as a sponsoring entity for the FFI;
and
(iii) The FFI shares a common
electronic account system with the
sponsoring entity that enables the
sponsoring entity to identify all account
holders and payees of the FFI and to
access all account and customer
information maintained by the FFI
including, but not limited to, customer
identification information, customer
documentation, account balance, and all
payments made to the account holder or
payee.
(3) A sponsoring entity described in
paragraph (f)(1)(i)(F)(1)(ii) or
(f)(1)(i)(F)(2)(ii) of this section meets the
requirements of this paragraph
(f)(1)(i)(F)(3) if the sponsoring entity—
(i) Is authorized to manage the FFI
and enter into contracts on behalf of the
FFI (such as a fund manager, trustee,
corporate director, or managing partner);
(ii) Has registered with the IRS as a
sponsoring entity;
(iii) Has registered the FFI with the
IRS;
(iv) Agrees to perform, on behalf of
the FFI, all due diligence, withholding,
reporting, and other requirements that
the FFI would have been required to
perform if it were a participating FFI;
(v) Identifies the FFI in all reporting
completed on the FFI’s behalf to the
extent required under §§ 1.1471–
4(d)(2)(ii)(C) and 1.1474–1; and
(vi) Has not had its status as a sponsor
revoked.
(4) The IRS may revoke a sponsoring
entity’s status as a sponsor with respect
to all sponsored FFIs if there is a
material failure by the sponsoring entity
to comply with its obligations under
paragraph (f)(1)(i)(F)(3) of this section
with respect to any sponsored FFI.
(5) A sponsored FFI will remain liable
for any failure of its sponsoring entity to
comply with the obligations contained
in paragraph (f)(1)(i)(F)(3) of this section
that the sponsoring entity has agreed to
undertake on behalf of the FFI.
(ii) Procedural requirements for
registered deemed-compliant FFIs. A
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registered deemed-compliant FFI
described in paragraph (f)(1)(i)(A)
through (E) of this section may use one
or more agents to perform the necessary
due diligence to identify its account
holders and to take any required action
associated with obtaining and
maintaining its deemed-compliant
status. The FFI, however, remains
responsible for ensuring that the
requirements for its deemed-compliant
status are met. Unless otherwise
provided in this section, a registered
deemed-compliant FFI described in
paragraph (f)(1)(i)(A) through (E) of this
section is required to—
(A) Register with the IRS pursuant to
procedures prescribed by the IRS and
agree to comply with the terms of its
registered deemed-compliant status.
(B) Have its responsible officer certify
every three years to the IRS, either
individually or collectively for the FFI’s
expanded affiliated group, that all of the
requirements for the deemed-compliant
category claimed by the FFI have been
satisfied since the later of the date the
FFI registers as a deemed-compliant FFI
or December 31, 2013;
(C) Maintain in its records the
confirmation from the IRS of the FFI’s
registration as a deemed-compliant FFI
and GIIN or such other information as
the IRS specifies in forms or other
guidance; and
(D) Agree to notify the IRS if there is
a change in circumstances that would
make the FFI ineligible for the deemedcompliant status for which it has
registered, and to do so within six
months of the change in circumstances
unless the FFI is able to resume its
eligibility for its registered-deemed
compliant status within the six month
notification period.
(iii) Deemed-compliant FFI that is
merged or acquired. A deemedcompliant FFI that becomes a
participating FFI or a member of a
participating FFI group as a result of a
merger or acquisition will not be
required to redetermine the chapter 4
status of any account maintained by the
FFI prior to the date of the merger or
acquisition unless that account has a
subsequent change in circumstances.
(2) Certified deemed-compliant FFIs.
A certified deemed-compliant FFI
means an FFI described in any of
paragraphs (f)(2)(i) through (iv) of this
section that has certified as to its status
as a deemed-compliant FFI by providing
a withholding agent with the
documentation described in § 1.1471–
3(d)(6) applicable to the relevant
deemed-compliant category. An FFI that
is described in paragraph (f)(2)(iv) of
this section (a limited life debt
investment entity) will be treated as a
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certified deemed-compliant FFI prior to
January 1, 2017. A certified deemedcompliant FFI also includes any
nonreporting IGA FFI. A certified
deemed-compliant FFI is not required to
register with the IRS.
(i) Nonregistering local bank. An FFI
is described in this paragraph (f)(2)(i) if
the FFI meets the following
requirements.
(A) The FFI operates solely as (and is
licensed and regulated under the laws of
its country of incorporation or
organization as)—
(1) A bank; or
(2) A credit union or similar
cooperative credit organization that is
operated without profit.
(B) The FFI’s business consists
primarily of receiving deposits from and
making loans to unrelated retail
customers.
(C) The FFI does not have a fixed
place of business outside its country of
incorporation or organization. For this
purpose, a fixed place of business does
not include a location that is not
advertised to the public and from which
the FFI performs solely administrative
support functions.
(D) The FFI does not solicit customers
or account holders outside its country of
incorporation or organization. For this
purpose, an FFI will not be considered
to have solicited customers or account
holders outside its country of
incorporation or organization merely
because it operates a Web site, provided
that the Web site does not permit
account opening, does not indicate that
the FFI maintains accounts for or
provides services to nonresidents, and
does not otherwise target or solicit U.S.
customers or account holders. An FFI
will also not be considered to have
solicited customers or account holders
outside its country of incorporation or
organization merely because it
advertises in print media or on a radio
or television station that is distributed
or aired primarily within its country of
incorporation or organization but is also
incidentally distributed or aired in other
countries, provided that the
advertisement does not indicate that the
FFI maintains accounts for or provides
services to nonresidents and does not
otherwise target or solicit U.S.
customers or account holders.
(E) The FFI does not have more than
$175 million in assets on its balance
sheet and, if the FFI is a member of an
expanded affiliated group, the group
does not have more than $500 million
in total assets on its consolidated or
combined balance sheets.
(F) With respect to an FFI that is part
of an expanded affiliated group, each
member of the expanded affiliated
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group is incorporated or organized in
the same country and does not have a
fixed place of business outside of that
country. For this purpose, a fixed place
of business does not include a location
that is not advertised to the public and
from which the FFI performs solely
administrative support functions.
Further, each FFI in the group, other
than an FFI described in paragraph
(f)(2)(ii) of this section or § 1.1471–6(f),
meets the requirements set forth in this
paragraph (f)(2)(i). For this purpose, a
fixed place of business does not include
a location that is not advertised to the
public and from which the FFI performs
solely administrative support functions.
(ii) FFIs with only low-value accounts.
An FFI is described in this paragraph
(f)(2)(ii) if the FFI meets the following
requirements:
(A) The FFI is not an investment
entity.
(B) No financial account maintained
by the FFI (or, in the case of an FFI that
is a member of an expanded affiliated
group, by any member of the expanded
affiliated group) has a balance or value
in excess of $50,000. The balance or
value of a financial account shall be
determined by applying the rules
described in paragraph (b)(4) of this
section, substituting the term financial
account for the term depository account
and the term person for the term
individual.
(C) The FFI does not have more than
$50 million in assets on its balance
sheet as of the end of its most recent
accounting year. In the case of an FFI
that is a member of an expanded
affiliated group, the entire expanded
affiliated group does not have more than
$50 million in assets on its consolidated
or combined balance sheet as of the end
of its most recent accounting year.
(iii) Sponsored, closely held
investment vehicles. Subject to the
provisions of paragraph (f)(2)(iii)(F) of
this section, an FFI is described in this
paragraph (f)(2)(iii) if it meets the
requirements described in paragraphs
(f)(2)(iii)(A) through (E) of this section.
(A) The FFI is an FFI solely because
it is an investment entity and is not a
QI, WP, or WT.
(B) The FFI has a contractual
arrangement with a sponsoring entity
that is a participating FFI, reporting
Model 1 FFI, or U.S. financial
institution and that is authorized to
manage the FFI and enter into contracts
on behalf of the FFI (such as a
professional manager, trustee, or
managing partner), under which the
sponsoring entity agrees to fulfill all due
diligence, withholding, and reporting
responsibilities that the FFI would have
assumed if it were a participating FFI.
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5973
(C) The FFI does not hold itself out as
an investment vehicle for unrelated
parties.
(D) Twenty or fewer individuals own
all of the debt and equity interests in the
FFI (disregarding debt interests owned
by participating FFIs, registered
deemed-compliant FFIs, and certified
deemed-compliant FFIs and equity
interests owned by an entity if that
entity owns 100 percent of the equity
interests in the FFI and is itself a
sponsored FFI under this paragraph
(f)(2)(iii)).
(E) The sponsoring entity complies
with the following requirements—
(1) The sponsoring entity has
registered with the IRS as a sponsoring
entity;
(2) The sponsoring entity agrees to
perform, on behalf of the FFI, all due
diligence, withholding, reporting, and
other requirements that the FFI would
have been required to perform if it were
a participating FFI and retains
documentation collected with respect to
the FFI for a period of six years;
(3) The sponsoring entity identifies
the FFI in all reporting completed on
the FFI’s behalf to the extent required
under §§ 1.1471–4(d)(2)(ii)(C) and
1.1474–1; and
(4) The sponsoring entity has not had
its status as a sponsor revoked.
(F) The IRS may revoke a sponsoring
entity’s status as a sponsor with respect
to all sponsored FFIs if there is a
material failure by the sponsoring entity
to comply with its obligations under
paragraph (f)(2)(iii)(E) of this section
with respect to any sponsored FFI. A
sponsored FFI will remain liable for any
failure of its sponsoring entity to
comply with the obligations contained
in paragraph (f)(2)(iii)(E) of this section
that the sponsoring entity has agreed to
undertake on behalf of the FFI.
(iv) Limited life debt investment
entities (transitional). An FFI is
described in this paragraph (f)(2)(iv) if
the FFI is the beneficial owner of the
payment (or of payments made with
respect to the account) and the FFI
meets the following requirements. An
FFI that meets the requirements of this
paragraph (f)(2)(iv) will be treated as a
certified deemed-compliant FFI prior to
January 1, 2017.
(A) The FFI is a collective investment
vehicle formed pursuant to a trust
indenture or similar fiduciary
arrangement that is an FFI solely
because it is an investment entity that
offers interests primarily to unrelated
investors.
(B) The FFI was in existence as of
December 31, 2011, and the FFI’s
organizational documents require that
the entity liquidate on or prior to a set
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date, and do not permit amendments to
the organizational documents, including
the trust indenture, without the
agreement of all of the FFI’s investors.
(C) The FFI was formed for the
purpose of purchasing (and did in fact
purchase) specific types of indebtedness
and holding those assets (subject to
reinvestment only under prescribed
circumstances) until the termination of
the asset or the vehicle.
(D) All payments made to the
investors of the FFI are cleared through
a clearing organization that is a
participating FFI, reporting Model 1 FFI,
or U.S. financial institution or made
through a trustee that is a participating
FFI, reporting Model 1 FFI, or U.S.
financial institution.
(E) The FFI’s trust indenture or
similar fiduciary arrangement only
authorizes the trustee or fiduciary to
engage in activities specifically
designated in the trust indenture, and
the trustee or fiduciary is not authorized
through a fiduciary duty or otherwise to
fulfill the obligations that a participating
FFI is subject to under § 1.1471–4 absent
a legal requirement to fulfill them, even
if the consequence of the trustee failing
to fulfill these obligations is to cause the
FFI to be withheld upon. Further, no
other person has the authority to fulfill
the obligations that a participating FFI
is subject to under § 1.1471–4 on behalf
of the FFI.
(3) Owner-documented FFIs—(i) In
general. An owner-documented FFI
means an FFI that meets the
requirements of paragraph (f)(3)(ii) of
this section. An FFI may only be treated
as an owner-documented FFI with
respect to payments received from and
accounts held with a designated
withholding agent (or with respect to
payments received from and accounts
held with another FFI that is also
treated as an owner-documented FFI by
such designated withholding agent). A
designated withholding agent is a U.S.
financial institution, participating FFI,
or reporting Model 1 FFI that agrees to
undertake the additional due diligence
and reporting required under
paragraphs (f)(3)(ii)(D) and (E) of this
section in order to treat the FFI as an
owner-documented FFI. An FFI meeting
the requirements of this paragraph (f)(3)
will only be treated as a deemedcompliant FFI with respect to a payment
or account for which it does not act as
an intermediary.
(ii) Requirements of ownerdocumented FFI status. An FFI meets
the requirements of this paragraph
(f)(3)(ii) only if—
(A) The FFI is an FFI solely because
it is an investment entity;
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(B) The FFI is not owned by or in an
expanded affiliated group with any FFI
that is a depository institution, custodial
institution, or specified insurance
company;
(C) The FFI does not maintain a
financial account for any
nonparticipating FFI;
(D) The FFI provides the designated
withholding agent with all of the
documentation described in § 1.1471–
3(d)(6) and agrees to notify the
withholding agent if there is a change in
circumstances; and
(E) The designated withholding agent
agrees to report to the IRS (or, in the
case of a reporting Model 1 FFI, to the
relevant foreign government or agency
thereof) all of the information described
in § 1.1471–4(d) or § 1.1474–1(i) (as
appropriate) with respect to any
specified U.S. persons that are
identified in § 1.1471–3(d)(6)(iv)(A)(1).
Notwithstanding the previous sentence,
the designated withholding agent is not
required to report information with
respect to an indirect owner of the FFI
that holds its interest through a
participating FFI, a deemed-compliant
FFI (other than an owner-documented
FFI), an entity that is a U.S. person, an
exempt beneficial owner, or an excepted
NFFE.
(4) Definition of a restricted
distributor. An entity is a restricted
distributor for purposes of paragraph
(f)(1)(i)(D) of this section (relating to
registered deemed-compliant restricted
funds) if it operates as a distributor that
holds debt or equity interests in a
restricted fund as a nominee and meets
the following requirements.
(i) The distributor provides
investment services to at least 30
unrelated customers and less than half
of the distributor’s customers are related
persons.
(ii) The distributor is required to
perform AML due diligence procedures
under the anti-money laundering laws
of its country of incorporation or
organization (which must be a FATFcompliant jurisdiction).
(iii) The distributor operates solely in
its country of incorporation or
organization, does not have a fixed
place of business outside that country,
and, if such distributor belongs to an
expanded affiliated group, has the same
country of incorporation or organization
as all other members of its expanded
affiliated group. For this purpose, a
fixed place of business does not include
a location that is not advertised to the
public and from which the FFI performs
solely administrative support functions.
(iv) The distributor does not solicit
customers or account holders outside its
country of incorporation or
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organization. For this purpose, a
distributor will not be considered to
have solicited customers or account
holders outside its country of
organization merely because it operates
a Web site, provided that the Web site
does not permit account opening by
persons identified as nonresidents, does
not specifically state that nonresidents
may acquire securities from the
distributor, and does not otherwise
target U.S. customers or account
holders. A distributor will also not be
considered to have solicited customers
or account holders outside its country of
incorporation or organization merely
because it advertises in print media or
on a radio or television station that is
distributed or aired primarily within its
country of incorporation or organization
but is also incidentally distributed or
aired in other countries, provided that
the advertisement does not indicate that
the distributor maintains accounts for or
provides services to nonresidents and
does not otherwise target or solicit U.S.
customers or account holders.
(v) The distributor does not have more
than $175 million in total assets under
management and has no more than $7
million in gross revenue on its income
statement for the most recent financial
accounting year and, if the distributor
belongs to an expanded affiliated group,
the entire group does not have more
than $500 million in total assets under
management or more than $20 million
in gross revenue for its most recent
financial accounting year on a combined
or consolidated income statement.
(vi) The distributor provides the
restricted fund (or another distributor of
the restricted fund that is a participating
FFI or registered deemed-compliant FFI,
and with which the distributor has
entered into its distribution agreement)
with a valid Form W–8 indicating that
the distributor satisfies the requirements
to be a restricted distributor.
(vii) The agreement governing the
distributor’s distribution of debt or
equity interests of the restricted fund—
(A) Prohibits the distributor from
distributing any securities to specified
U.S. persons, passive NFFEs that have
one or more substantial U.S. owners,
and nonparticipating FFIs;
(B) Requires that if the distributor
does distribute securities to any of the
persons described in this paragraph
(f)(4)(vii), it will cause the restricted
fund to redeem or retire those interests,
or it will transfer those interests to a
distributor that is a participating FFI or
reporting Model 1 FFI, within six
months and the commission paid to the
distributor will be forfeited to the
restricted fund or to the participating
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FFI to which those interests are
transferred; and
(C) Requires the distributor to notify
the restricted fund (or another
distributor of the restricted fund that is
a participating FFI, reporting Model 1
FFI, or registered deemed-compliant FFI
and with which the distributor has
entered into its distribution agreement)
of a change in the distributor’s chapter
4 status within 90 days of the change in
status.
(viii) With respect to sales after
December 31, 2011, and prior to the
time the restrictions described in
paragraph (f)(4)(vii) of this section were
incorporated into the distribution
agreement, either the agreement
governing the distributor’s distribution
of debt or equity interests of the relevant
FFI contained a prohibition of the sale
of such securities to U.S. entities or U.S.
resident individuals, or the distributor
reviews all accounts relating to such
sales in accordance with the procedures
(and time frames) described in § 1.1471–
4(c) applicable to preexisting accounts
and certifies that it has caused the
restricted fund to redeem or retire, or it
has transferred all securities sold to any
of the persons described in paragraph
(f)(4)(vii) of this section. If the
distribution agreement addressed in the
prior sentence contained only a
prohibition on the sale of securities to
U.S. resident individuals, the distributor
will not be required to review the
individual accounts relating to such
sales but must review and make
certifications with respect to all entity
accounts in the manner described in the
previous sentence.
(g) Recalcitrant account holders—(1)
Scope. This paragraph (g) provides rules
for determining when an account holder
of a participating FFI or registered
deemed-compliant FFI is a recalcitrant
account holder. Paragraph (g)(2) of this
section defines the term recalcitrant
account holder. Paragraphs (g)(3) and (4)
of this section provide timing rules for
when an account holder will begin to be
treated as a recalcitrant account holder
by a participating FFI and when an
account holder will cease to be treated
as a recalcitrant account holder by such
institution. For rules for determining the
holder of an account, see paragraph
(a)(3) of this section. For the
withholding requirements of an FFI
with respect to its recalcitrant account
holders, see paragraph (f) of this section
and § 1.1471–4(b). For the reporting
requirements of an FFI with respect to
its recalcitrant account holders, see
§ 1.1471–4(d)(6), and, for the reporting
required with respect to payments made
to such account holders, see § 1.1474–
1(d)(4)(iii). The rules provided in this
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paragraph (g) to classify certain account
holders as recalcitrant account holders
shall not, however, apply to a U.S.
branch of a participating FFI. Instead, a
U.S. branch of a participating FFI or
registered deemed-compliant FFI that is
treated as a U.S. person shall apply the
presumption rules of § 1.1471–3(f) (for
foreign entity account holders) and
chapter 3 or 61 (for individual payees)
to determine the status of a payee if it
cannot reliably associate a reportable
payment made to the payee with valid
documentation.
(2) Recalcitrant account holder. The
term recalcitrant account holder means
any holder of an account maintained by
an FFI if such account holder is not an
FFI (or presumed to be an FFI under
§ 1.1471–3(f)), the account does not
meet the requirements of the exception
to U.S. account status described in
paragraph (a)(4) of this section (for
depository accounts with a balance of
$50,000 or less) and does not qualify for
any of the exceptions from the
documentation requirements described
in § 1.1471–4(c)(3)(iii), (c)(4)(iii),
(c)(5)(iii), (c)(5)(iv)(E) (or the
participating FFI elects to forego such
exceptions) and—
(i) The account holder fails to comply
with requests by the FFI for the
documentation or information that is
required under § 1.1471–4(c) for
determining the status of such account
as a U.S. account or other than a U.S.
account;
(ii) The account holder fails to
provide a valid Form W–9 upon request
from the FFI or fails to provide a correct
name and TIN combination upon
request from the FFI when the FFI has
received notice from the IRS indicating
that the name and TIN combination
reported by the FFI for the account
holder is incorrect;
(iii) If foreign law would (but for a
waiver) prevent reporting by the FFI (or
branch or division thereof) of the
information described in § 1.1471–
4(d)(3) or (5) with respect to such
account, the account holder (or
substantial U.S. owner of an account
holder that is a U.S. owned foreign
entity) fails to provide a valid and
effective waiver to permit such
reporting; or
(iv) The account holder provides the
documentation described in § 1.1471–
3(d)(12) to establish its status as a
passive NFFE (other than a WP or WT)
but fails to provide the information
regarding its owners required under
§ 1.1471–3(d)(12)(iii).
(3) Start of recalcitrant account holder
status—(i) Preexisting accounts
identified under the procedures
described in § 1.1471–4(c) for
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5975
identifying U. S. accounts—(A) In
general. An account holder of a
preexisting account described in
paragraph (g)(2) of this section
maintained by a participating FFI will
be treated as a recalcitrant account
holder beginning on the dates provided
in paragraphs (g)(3)(B) through (D) of
this section. An account holder of a
preexisting account described in
paragraph (g)(2) of this section that is
maintained by a registered deemedcompliant FFI will be treated as a
recalcitrant account holder beginning on
the dates provided in paragraph (f) of
this section (setting forth the time by
which the FFI must identify its accounts
in accordance with the requirements of
§ 1.1471–4(c) in order to meet the
requirements of its applicable registered
deemed-compliant status).
(B) Accounts other than high-value
accounts. Account holders of
preexisting accounts maintained by a
participating FFI that are not high-value
accounts (as described in § 1.1471–
4(c)(8)) and that are described in
paragraph (g)(2) of this section will be
treated as recalcitrant account holders
beginning on the date that is two years
after the effective date of the FFI
agreement.
(C) High-value accounts. Account
holders of preexisting accounts
maintained by a participating FFI that
are high-value accounts (as described in
§ 1.1471–4(c)(5)(iv)(D)) and that are
described in paragraph (g)(2) of this
section will be treated as recalcitrant
account holders beginning on the date
that is one year after the effective date
of the FFI agreement.
(D) Preexisting accounts that become
high-value accounts. With respect to a
calendar year beginning after the later of
the effective date of the FFI agreement
and December 31, 2014, an account
holder that is described in paragraph
(g)(2) of this section and that holds a
preexisting account that a participating
FFI identifies as a high-value account
pursuant to § 1.1471–4(c)(5)(iv)(D) will
be treated as a recalcitrant account
holder beginning on the earlier of the
date a withholdable payment is made to
the account following the calendar year
end in which the account is identified
as a high-value account or the date that
is six months after the calendar year
end.
(ii) Accounts that are not preexisting
accounts and accounts requiring name/
TIN correction. An account holder of an
account that is not a preexisting account
and that is described in paragraph (g)(2)
of this section will be treated as a
recalcitrant account holder beginning on
the earlier of the date a withholdable
payment or a foreign passthru payment
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is made to the account or 90 days after
the date the account is opened by the
participating FFI. An account holder for
which the participating FFI received a
notice from the IRS indicating that the
name and TIN combination provided for
the account holder is incorrect will be
treated as a recalcitrant account holder
following the date of such notice within
the time prescribed in § 31.3406(d)–5(a)
of this chapter.
(iii) Accounts with changes in
circumstances. An account holder
holding an account that is described in
paragraph (g)(2) of this section following
a change in circumstances (other than a
change in account balance or value in a
subsequent year that causes an
individual account to be identified as a
high-value account) will be treated as a
recalcitrant account holder beginning on
the earlier of the date a withholdable
payment or a foreign passthru payment
is made to the account or the date that
is 90 days after the change in
circumstances. For the definition of a
change in circumstances with respect to
an account, see § 1.1471–4(c)(2)(iii).
(4) End of recalcitrant account holder
status. An account holder that is treated
as a recalcitrant account holder under
paragraphs (g)(2) and (3) of this section
will cease to be so treated as of the date
on which the account holder is no
longer described in paragraph (g)(2) of
this section.
(h) Passthru payment—(1) Defined.
The term passthru payment means any
withholdable payment and any foreign
passthru payment.
(2) Foreign passthru payment.
[Reserved].
(i) Expanded affiliated group—(1)
Scope of paragraph. This paragraph (i)
defines the term expanded affiliated
group for purposes of chapter 4. For the
requirements of a participating FFI with
respect to members of its expanded
affiliated group that are FFIs, see
§ 1.1471–4(e).
(2) Expanded affiliated group
defined—(i) In general. Except as
otherwise provided in this paragraph (i),
an expanded affiliated group means an
affiliated group as defined in section
1504(a), determined—
(A) By substituting ‘‘more than 50
percent’’ for ‘‘at least 80 percent’’ each
place it appears;
(B) Without regard to paragraphs (2)
and (3) of section 1504(b);
(C) Without application of section
1504(a)(3); and
(D Without application of § 1.1504–
4(b)(2)(i)(A).
(ii) Partnerships and entities other
than corporations. A partnership or any
entity other than a corporation shall be
treated as a member of an expanded
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affiliated group if such entity is
controlled (within the meaning of
section 954(d)(3), without regard to
whether such entity is foreign or
domestic) by members of such group
(including any entity treated as a
member of such group by reason of this
sentence).
(3) Exception for FFIs holding certain
capital investments. Notwithstanding
paragraph (i)(2) of this section, an
investment entity will not be considered
a member of an expanded affiliated
group as a result of a contribution of
seed capital by a member of such
expanded affiliated group if—
(i) The member that owns the
investment entity is an FFI that is in the
business of providing seed capital to
form investment entities, the interests in
which it intends to sell to unrelated
investors;
(ii) The investment entity is created in
the ordinary course of such other FFI’s
business described in paragraph (i)(3)(i)
of this section;
(iii) As of the date the FFI acquired
the equity interest, any equity interest in
the investment entity in excess of 50
percent of the total value of the stock of
the investment entity is intended to be
held by such other FFI (including
ownership by other members of such
other FFI’s expanded affiliated group)
for no more than three years from the
date on which such other FFI first
acquired an equity interest in the
investment entity; and
(iv) In the case of an equity interest
that has been held by such other FFI for
over three years from the date
referenced in paragraph (i)(3)(iii) of this
section, the aggregate value of the equity
interest held by such other FFI and the
equity interests held by other members
of its expanded affiliated group is 50
percent or less of the total value of the
stock of the investment entity.
(4) Seed capital. For purposes of this
paragraph (i), the term seed capital
means an initial capital contribution
made to an investment entity that is
intended as a temporary investment and
is deemed by the manager of the entity
to be necessary or appropriate for the
establishment of the entity, such as for
the purpose of establishing a track
record of investment performance for
such entity, achieving economies of
scale for diversified investment,
avoiding an artificially high expense to
return ratio, or similar purposes.
(5) Anti-abuse rule. A change in
ownership, voting rights, or the form of
an entity that results in an entity
meeting or not meeting the ownership
requirements described in paragraph
(i)(2) of this section will be disregarded
for purposes of determining whether an
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entity is a member of an expanded
affiliated group if the change is pursuant
to a plan a principal purpose of which
is to avoid reporting or withholding that
would otherwise be required under any
chapter 4 provision. For purposes of this
paragraph (i)(5), a change in voting
rights includes a separation of voting
rights and value.
(j) Effective/applicability date. This
section generally applies on January 28,
2013. For other dates of applicability,
see § 1.1471–5(f)(2)(iv).
■ Par. 10. Section 1.1471–6 is added to
read as follows:
§ 1.1471–6 Payments beneficially owned
by exempt beneficial owners.
(a) In general. This section describes
classes of beneficial owners that are
identified in section 1471(f) (exempt
beneficial owners). Except as otherwise
provided in paragraphs (d) (regarding
securities held by foreign central banks
of issue) and (f) (regarding retirement
funds) of this section, a person must be
a beneficial owner of a payment to be
treated as an exempt beneficial owner
with respect to the payment. The
following classes of persons are exempt
beneficial owners: any foreign
government, any political subdivision of
a foreign government, or any wholly
owned agency or instrumentality of any
one or more of the foregoing described
in paragraph (b) of this section; any
international organization or any wholly
owned agency or instrumentality thereof
described in paragraph (c) of this
section; any foreign central bank of
issue described in paragraph (d) of this
section; any government of a U.S.
territory described in paragraph (e) of
this section; certain foreign retirement
funds described in paragraph (f) of this
section; and certain entities described in
paragraph (g) of this section that are
wholly owned by one or more other
exempt beneficial owners. In addition,
an exempt beneficial owner includes
any person treated as an exempt
beneficial owner pursuant to a Model 1
IGA or Model 2 IGA. See §§ 1.1471–
2(a)(4)(v) and 1.1472–1(c)(2) for the
exemptions from withholding for
payments beneficially owned by an
exempt beneficial owner; § 1.1471–
3(d)(9) for the documentation
requirements applicable to a
withholding agent for purposes of
determining when a withholdable
payment is beneficially owned by an
exempt beneficial owner; and § 1.1471–
3(d)(8)(ii) for when a withholding agent
may treat a payment made to a
nonparticipating FFI as beneficially
owned by an exempt beneficial owner.
(b) Any foreign government, any
political subdivision of a foreign
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government, or any wholly owned
agency or instrumentality of any one or
more of the foregoing. Solely for
purposes of this section and except as
provided in paragraph (h) of this
section, the term any foreign
government, any political subdivision of
a foreign government, or any wholly
owned agency or instrumentality of any
one or more of the foregoing means only
the integral parts, controlled entities,
and political subdivisions of a foreign
sovereign.
(1) Integral part. Solely for purposes
of this paragraph (b), an integral part of
a foreign sovereign is any person, body
of persons, organization, agency,
bureau, fund, instrumentality, or other
body, however designated, that
constitutes a governing authority of a
foreign country. The net earnings of the
governing authority must be credited to
its own account or to other accounts of
the foreign sovereign, with no portion
inuring to the benefit of any private
person as defined in paragraph (b)(3) of
this section. An integral part does not
include any individual who is a
sovereign, official, or administrator
acting in a private or personal capacity.
All the facts and circumstances will be
taken into account in determining
whether an individual is acting in a
private or personal capacity.
(2) Controlled entity. Solely for
purposes of this paragraph (b), a
controlled entity means an entity that is
separate in form from a foreign
sovereign or that otherwise constitutes a
separate juridical entity, provided that—
(i) The entity is wholly owned and
controlled by one or more foreign
sovereigns directly or indirectly through
one or more controlled entities;
(ii) The entity’s net earnings are
credited to its own account or to other
accounts of one or more foreign
sovereigns, with no portion of its
income inuring to the benefit of any
private person as defined in paragraph
(b)(3) of this section; and
(iii) The entity’s assets vest in one or
more foreign sovereigns upon
dissolution.
(3) Inurement to the benefit of private
persons. Solely for purposes of this
paragraph (b)—
(i) Income does not inure to the
benefit of private persons if such
persons (within the meaning of section
7701(a)(1)) are the intended
beneficiaries of a governmental program
carried on by a foreign sovereign, and
the program activities constitute
governmental functions under the
regulations under section 892.
(ii) Income is considered to inure to
the benefit of private persons if such
income benefits—
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(A) Private persons through the use of
a governmental entity as a conduit for
personal investment;
(B) Private persons through the use of
a governmental entity to conduct a
commercial business, such as a
commercial banking business, that
provides financial services to private
persons; or
(C) Private persons who divert such
income from its intended use by
exerting influence or control through
means explicitly or implicitly approved
of by the foreign sovereign.
(c) Any international organization or
any wholly owned agency or
instrumentality thereof. Except as
provided in paragraph (h) of this
section, the term any international
organization or any wholly owned
agency or instrumentality thereof means
any entity described in section
7701(a)(18). The term also includes any
intergovernmental or supranational
organization—
(1) That is comprised primarily of
foreign governments;
(2) That is recognized as an
intergovernmental or supranational
organization under a foreign law similar
to 22 U.S.C. 288–288f or that has in
effect a headquarters agreement with a
foreign government; and
(3) Whose income does not inure to
the benefit of private persons under the
principles of paragraph (b)(3)(ii) of this
section, as applied to the
intergovernmental or supranational
organization in place of the government
or governmental entity.
(d) Foreign central bank of issue—(1)
In general. Solely for purposes of this
section and except as provided in
paragraph (h) of this section, the term
foreign central bank of issue means a
bank that is by law or government
sanction the principal authority, other
than the government itself, issuing
instruments intended to circulate as
currency. Such a bank is generally the
custodian of the banking reserves of the
country under whose law it is
organized.
(2) Separate instrumentality. A
foreign central bank of issue may
include an instrumentality that is
separate from a foreign government,
whether or not owned in whole or in
part by a foreign government. For
example, foreign banks organized along
the lines of, and performing functions
similar to, the Federal Reserve System
qualify as foreign central banks of issue
for purposes of this section.
(3) Bank for International Settlements.
The Bank for International Settlements
is a foreign central bank of issue for
purposes of this section.
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5977
(4) Income on certain collateral.
Solely for purposes of determining
whether an entity is an exempt
beneficial owner of a payment under
this paragraph (d), a foreign central bank
of issue is a beneficial owner with
respect to income earned on securities,
including securities held as collateral or
in connection with a securities lending
transaction, held by the foreign central
bank of issue in the normal course of its
operations as a central bank of issue.
(e) Governments of U.S. territories.
Except as provided in paragraph (h) of
this section, whether a person or entity
constitutes a government of a U.S.
territory for purposes of this section is
determined by applying principles
analogous to those set forth in paragraph
(b) of this section.
(f) Certain retirement funds. A fund is
described in this paragraph (f) if it is
described in paragraphs (f)(1) through
(6) of this section. In addition, if a
withholding agent may treat a
withholdable payment as made to a
payee that is a retirement fund in
accordance with § 1.1471–3, then the
withholding agent may also treat such
retirement fund as the beneficial owner
of the payment. See § 1.1471–3(d)(9)(ii).
(1) Treaty-qualified retirement fund.
A fund established in a country with
which the United States has an income
tax treaty in force, provided that the
fund is entitled to benefits under such
treaty on income that it derives from
sources within the United States (or
would be entitled to such benefits if it
derived any such income) as a resident
of the other country that satisfies any
applicable limitation on benefits
requirement, and is operated principally
to administer or provide pension or
retirement benefits;
(2) Broad participation retirement
fund. A fund established to provide
retirement, disability, or death benefits,
or any combination thereof, to
beneficiaries that are current or former
employees (or persons designated by
such employees) of one or more
employers in consideration for services
rendered, provided that the fund—
(i) Does not have a single beneficiary
with a right to more than five percent of
the fund’s assets;
(ii) Is subject to government
regulation and provides annual
information reporting about its
beneficiaries to the relevant tax
authorities in the country in which the
fund is established or operates; and
(iii) Satisfies one or more of the
following requirements—
(A) The fund is generally exempt from
tax on investment income under the
laws of the country in which it is
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established or operates due to its status
as a retirement or pension plan;
(B) The fund receives at least 50
percent of its total contributions (other
than transfers of assets from accounts
described in § 1.1471–5(b)(2)(i)(A)
(referring to retirement and pension
accounts) or from other plans described
in this paragraph (f)) from the
sponsoring employers;
(C) Distributions or withdrawals from
the fund are allowed only upon the
occurrence of specified events related to
retirement, disability, or death (except
rollover distributions to accounts
described in § 1.1471–5(b)(2)(i)(A)
(referring to retirement and pension
accounts) or other retirement funds
described in this paragraph (f)), or
penalties apply to distributions or
withdrawals made before such specified
events; or
(D) Contributions (other than certain
permitted make-up contributions) by
employees to the fund are limited by
reference to earned income of the
employee or may not exceed $50,000
annually.
(3) Narrow participation retirement
funds. A fund established to provide
retirement, disability, or death benefits
to beneficiaries that are current or
former employees (or persons
designated by such employees) of one or
more employers in consideration for
prior services rendered, provided that—
(i) The fund has fewer than 50
participants;
(ii) The fund is sponsored by one or
more employers that are not investment
entities or passive NFFEs;
(iii) Employee and employer
contributions to the fund (other than
transfers of assets from other funds
described in paragraph (f)(1) of this
section or accounts described in
§ 1.1471–5(b)(2)(i)(A) (referring to
retirement and pension accounts)) are
limited by reference to earned income
and compensation of the employee,
respectively;
(iv) Participants that are not residents
of the country in which the fund is
established or operated are not entitled
to more than 20 percent of the fund’s
assets; and
(v) The fund is subject to government
regulation and provides annual
information reporting about its
beneficiaries to the relevant tax
authorities in the country in which the
fund is established or operates.
(4) Fund formed pursuant to a plan
similar to a section 401(a) plan. A fund
formed pursuant to a pension plan that
would meet the requirements of section
401(a), other than the requirement that
the plan be funded by a trust created or
organized in the United States.
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(5) Investment vehicles exclusively for
retirement funds. A fund established
exclusively to earn income for the
benefit of one or more retirement funds
described in paragraphs (f)(1) through
(5) of this section or accounts described
in § 1.1471–5(b)(2)(i)(A) (referring to
retirement and pension accounts).
(6) Pension fund of an exempt
beneficial owner. A fund established
and sponsored by an exempt beneficial
owner described in paragraph (b), (c),
(d), or (e) of this section to provide
retirement, disability, or death benefits
to beneficiaries or participants that are
current or former employees of the
exempt beneficial owner (or persons
designated by such employees), or that
are not current or former employees, but
the benefits provided to such
beneficiaries or participants are in
consideration of personal services
performed for the exempt beneficial
owner.
beneficial owner under paragraph (d)(1)
of this section with respect to payments
received in connection with an account
held in connection with such activity.
(2) Limitation. Paragraph (h)(1) of this
section will not apply if—
(i) An entity undertakes commercial
financial activity described in paragraph
(h)(1) of this section solely for or at the
direction of other exempt beneficial
owners and such commercial financial
activity is consistent with the purposes
of the entity;
(ii) The entity has no outstanding debt
that would be a financial account under
§ 1.1471–5(b)(1)(iii); and
(iii) The entity otherwise maintains
financial accounts only for exempt
beneficial owners.
(i) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 11. Section 1.1472–1 is added to
read as follows:
(7) Example. FP, a foreign pension fund
established in Country X, is generally exempt
from income taxation in Country X, and is
operated principally to provide retirement
benefits in such country. The U.S.-Country X
income tax treaty is identical in all material
respects to the 2006 U.S. model income tax
convention. FP is a resident of Country X
under Article 4(2)(a) and a qualified person
under Article 22(2)(d) of the U.S.-Country X
income tax treaty. Therefore, FP is a pension
fund described in paragraph (f)(1) of this
section.
(a) In general. This section provides
rules that a withholding agent must
apply to determine its obligations to
withhold under section 1472 on
withholdable payments made to a payee
that is an NFFE. A participating FFI that
complies with its withholding
obligations under § 1.1471–4(b) will be
deemed to satisfy its obligations under
section 1472 with respect to
withholdable payments made to NFFEs
that are account holders. The rules of
this section will apply, however, in the
case of a participating FFI acting as a
withholding agent with respect to a
payment made to an NFFE that is not an
account holder (for example, a payment
with respect to a contract that does not
constitute a financial account). See
§ 1.1473–1(a)(4)(vi), however, for rules
excepting from the definition of
withholdable payment certain payments
of U.S. source FDAP income made prior
to January 1, 2017, with respect to an
offshore obligation.
(b) Withholdable payments made to
an NFFE—(1) In general. Except as
otherwise provided in paragraph (b)(2)
of this section (providing transitional
relief) or paragraph (c) of this section
(providing exceptions for payments to
an excepted NFFE, a WP or WT, or an
exempt beneficial owner), a withholding
agent must withhold 30 percent of any
withholdable payment made after
December 31, 2013, to a payee that is an
NFFE unless—
(i) The beneficial owner of such
payment is the NFFE or any other NFFE;
(ii) The withholding agent can,
pursuant to paragraph (d) of this
section, treat the beneficial owner of the
payment as an NFFE that does not have
any substantial U.S. owners, or as an
(g) Entities wholly owned by exempt
beneficial owners. A person is described
in this paragraph (g) if it is an FFI solely
because it is an investment entity, each
direct holder of an equity interest in the
investment company is an exempt
beneficial owner described in paragraph
(b), (c), (d), (e), (f), or (g) of this section,
and each direct holder of a debt interest
in the investment entity is either a
depository institution (with respect to a
loan made to such entity) or an exempt
beneficial owner described in paragraph
(b), (c), (d), (e), (f), or (g) of this section.
(h) Exception for commercial
activities—(1) General rule. An exempt
beneficial owner described in paragraph
(b), (c), (d), or (e) of this section will not
be treated as an exempt beneficial
owner with respect to a payment that is
derived from an obligation held in
connection with a commercial financial
activity of a type engaged in by an
insurance company, custodial
institution, or depository institution
(including the accepting of deposits).
Thus, for example, a central bank of
issue that conducts a commercial
financial activity, such as acting as an
intermediary on behalf of persons other
than in the bank’s capacity as a central
bank of issue, is not an exempt
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§ 1.1472–1
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NFFE that has identified its substantial
U.S. owners; and
(iii) The withholding agent reports the
information described in § 1.1474–
1(i)(2) relating to any substantial U.S.
owners of the beneficial owner of such
payment.
(2) Transitional relief. For any
withholdable payment made prior to
January 1, 2015, with respect to a
preexisting obligation to a payee that is
not a prima facie FFI and for which a
withholding agent does not have
documentation indicating the payee’s
status as a passive NFFE with one or
more substantial U.S. owners, the
withholding agent is not required to
withhold under this section or report
under § 1.1474–1(i)(2) (describing the
reporting obligations of withholding
agents with respect to NFFEs).
(c) Exceptions—(1) Beneficial owner
that is an excepted NFFE. A
withholding agent is not required to
withhold under section 1472(a) and
paragraph (b) of this section on a
withholdable payment (or portion
thereof) if the withholding agent can
treat the payment as beneficially owned
by an excepted NFFE. An excepted
NFFE means an NFFE that is—
(i) Publicly traded corporation. A
corporation the stock of which is
regularly traded on one or more
established securities markets for the
calendar year.
(A) Regularly traded. For purposes of
this section, stock of a corporation is
regularly traded on one or more
established securities markets for a
calendar year if—
(1) One or more classes of stock of the
corporation that, in the aggregate,
represent more than 50 percent of the
total combined voting power of all
classes of stock of such corporation
entitled to vote and of the total value of
the stock of such corporation are listed
on such market or markets during the
prior calendar year; and
(2) With respect to each class relied
on to meet the more-than-50-percent
listing requirement of paragraph
(c)(1)(i)(A)(1) of this section—
(i) Trades in each such class are
effected, other than in de minimis
quantities, on such market or markets
on at least 60 days during the prior
calendar year; and
(ii) The aggregate number of shares in
each such class that are traded on such
market or markets during the prior year
are at least 10 percent of the average
number of shares outstanding in that
class during the prior calendar year.
(B) Special rules regarding the
regularly traded requirement—(1) Year
of initial public offering. For the
calendar year in which a corporation
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initiates a public offering of a class of
stock for trading on one or more
established securities markets, as
defined in paragraph (c)(1)(i)(C) of this
section, such class of stock meets the
requirements of this paragraph (c)(1)(i)
for such year if the stock is regularly
traded in more than de minimis
quantities on 1⁄6 of the days remaining
after the date of the offering in the
quarter during which the offering
occurs, and on at least 15 days during
each remaining quarter of the calendar
year. If a corporation initiates a public
offering of a class of stock in the fourth
quarter of the calendar year, such class
of stock meets the requirements of this
paragraph (c)(1)(i) in the calendar year
of the offering if the stock is regularly
traded on such established securities
market, other than in de minimis
quantities, on the greater of 1⁄6 of the
days remaining after the date of the
offering in the quarter during which the
offering occurs, or 5 days.
(2) Classes of stock treated as meeting
the regularly traded requirement. A
class of stock meets the trading
requirements of this paragraph (c)(1)(i)
for a calendar year if the stock is traded
during such year on an established
securities market located in the United
States and is regularly quoted by dealers
making a market in the stock. A dealer
makes a market in a stock only if the
dealer regularly and actively offers to,
and in fact does, purchase the stock
from, and sell the stock to, customers
who are not related persons (as defined
in section 954(d)(3)) with respect to the
dealer in the ordinary course of a trade
or business.
(3) Anti-abuse rule. Any trade
conducted with a principal purpose of
meeting the regularly traded
requirements of this paragraph (c)(1)(i)
shall be disregarded. Further, a class of
stock shall not be treated as regularly
traded if there is a pattern of trades
conducted to meet the requirements of
this paragraph (c)(1)(i). Similarly,
paragraph (c)(1)(i)(B)(1) of this section
shall not apply to a public offering of
stock that has as one of its principal
purposes qualification of the class of
stock as regularly traded under the
reduced regularly traded requirements
for the calendar year of an initial public
offering. For purposes of applying the
immediately preceding sentence,
consideration will be given to whether
the regularly traded requirements of this
paragraph (c)(1)(i) are satisfied in the
calendar year immediately following the
initial public offering.
(C) Established securities market—(1)
In general. For purposes of this
paragraph (c)(1)(i), the term established
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securities market means, for any
calendar year—
(i) A foreign securities exchange that
is officially recognized, sanctioned, or
supervised by a governmental authority
of the foreign country in which the
market is located, and has an annual
value of shares traded on the exchange
(or a predecessor exchange) exceeding
$1 billion during each of the three
calendar years immediately preceding
the calendar year in which the
determination is being made;
(ii) A national securities exchange that
is registered under section 6 of the
Securities Exchange Act of 1934 (15
USC 78f) with the Securities and
Exchange Commission;
(iii) Any exchange designated under a
Limitation on Benefits article of an
income tax treaty with the United States
that is in force; or
(iv) Any other exchange that the
Secretary may designate in published
guidance.
(2) Foreign exchange with multiple
tiers. If an exchange in a foreign country
has more than one tier or market level
on which stock may be separately listed
or traded, each such tier shall be treated
as a separate exchange.
(3) Computation of dollar value of
stock traded. For purposes of paragraph
(c)(1)(i)(C)(1)(i) of this section, the value
in U.S. dollars of shares traded during
a calendar year shall be determined on
the basis of the dollar value of such
shares traded as reported by the World
Federation of Exchanges located in Paris
(or a successor institution), or, if not so
reported, by converting into U.S. dollars
the aggregate value in local currency of
the shares traded using an exchange rate
equal to the average of the spot rates on
the last day of each month of the
calendar year.
(ii) Certain affiliated entities related
to a publicly traded corporation. Any
corporation that is a member of the
same expanded affiliated group (as
defined in § 1.1471–5(i)) as a
corporation described in paragraph
(c)(1)(i) of this section.
(iii) Certain territory entities. Any
territory entity that is directly or
indirectly wholly owned by one or more
bona fide residents of the U.S. territory
under the laws of which the entity is
organized. The term bona fide resident
of a U.S. territory means an individual
who qualifies as a bona fide resident
under section 937(a) and § 1.937–1.
(iv) Active NFFEs. Any entity (an
active NFFE) if less than 50 percent of
its gross income for the preceding
calendar year is passive income and less
than 50 percent of the weighted average
percentage of assets (tested quarterly)
held by it are assets that produce or are
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held for the production of passive
income, as determined after the
application of paragraph (c)(1)(iv)(B) of
this section (passive assets).
(A) Passive income. Except as
provided in paragraph (c)(1)(iv)(B) of
this section, the term passive income
means the portion of gross income that
consists of—
(1) Dividends, including substitute
dividend amounts;
(2) Interest;
(3) Income equivalent to interest,
including substitute interest and
amounts received from or with respect
to a pool of insurance contracts if the
amounts received depend in whole or
part upon the performance of the pool;
(4) Rents and royalties, other than
rents and royalties derived in the active
conduct of a trade or business
conducted, at least in part, by
employees of the NFFE;
(5) Annuities;
(6) The excess of gains over losses
from the sale or exchange of property
that gives rise to passive income
described in paragraphs (c)(1)(iv)(A)(1)
through (5) of this section;
(7) The excess of gains over losses
from transactions (including futures,
forwards, and similar transactions) in
any commodities, but not including—
(i) Any commodity hedging
transaction described in section
954(c)(5)(A), determined by treating the
entity as a controlled foreign
corporation; or
(ii) Active business gains or losses
from the sale of commodities, but only
if substantially all the foreign entity’s
commodities are property described in
paragraph (1), (2), or (8) of section
1221(a);
(8) The excess of foreign currency
gains over foreign currency losses (as
defined in section 988(b)) attributable to
any section 988 transaction;
(9) Net income from notional
principal contracts as defined in
§ 1.446–3(c)(1);
(10) Amounts received under cash
value insurance contracts; or
(11) Amounts earned by an insurance
company in connection with its reserves
for insurance and annuity contracts.
(B) Exceptions from passive income
treatment. Notwithstanding paragraph
(c)(1)(iv)(A) of this section, the term
passive income does not include—
(1) Any income from interest,
dividends, rents, or royalties that is
received or accrued from a related
person to the extent such amount is
properly allocable to income of such
related person that is not passive
income. For purposes of this paragraph
(c)(1)(iv)(B)(1), the term ‘‘related
person’’ has the meaning given such
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term by section 954(d)(3) determined by
substituting ‘‘foreign entity’’ for
‘‘controlled foreign corporation’’ each
place it appears in section 954(d)(3); or
(2) In the case of a foreign entity that
regularly acts as a dealer in property
described in paragraph (c)(1)(iv)(A)(6) of
this section (referring to the sale or
exchange of property that gives rise to
passive income), forward contracts,
option contracts, or similar financial
instruments (including notional
principal contracts and all instruments
referenced to commodities)—
(i) Any item of income or gain (other
than any dividends or interest) from any
transaction (including hedging
transactions and transactions involving
physical settlement) entered into in the
ordinary course of such dealer’s trade or
business as such a dealer; and
(ii) If such dealer is a dealer in
securities (within the meaning of
section 475(c)(2)), any income from any
transaction entered into in the ordinary
course of such trade or business as a
dealer in securities.
(C) Methods of measuring assets. For
purposes of this paragraph (c)(1)(iv), the
value of an NFFE’s assets is determined
based on the fair market value or book
value of the assets that is reflected on
the NFFE’s balance sheet.
(v) Excepted nonfinancial entities.
Any entity described in § 1.1471–5(e)(5)
(referring to holding companies,
treasury centers, and captive finance
companies that are members of a
nonfinancial group; start-up companies;
entities that are liquidating or emerging
from bankruptcy; and non-profit
organizations).
(2) Payments made to a WP, WT, or
an exempt beneficial owner. A
withholding agent is not required to
withhold on a withholdable payment (or
portion thereof) under section 1472(a)
and paragraph (b) of this section if the
withholding agent may—
(i) Treat the payee as an NFFE that is
a WP or WT; or
(ii) Treat the payment as made to an
exempt beneficial owner.
(d) Rules for determining payee and
beneficial owner—(1) In general. For
purposes of this section, except in the
case of a payee that is a WP or WT, a
withholding agent may treat a
withholdable payment as beneficially
owned by the payee as determined
under § 1.1471–3. Thus, a withholding
agent may treat a withholdable payment
as beneficially owned by an excepted
NFFE if the withholding agent can
reliably associate the payment with
valid documentation to determine the
payee’s status as an excepted NFFE
under the rules of § 1.1471–3(d).
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(2) Payments made to an NFFE that is
a WP or WT. A withholding agent may
treat the payee of a withholdable
payment as an NFFE that is a WP or WT
if the withholding agent can reliably
associate the payment with valid
documentation to determine the payee’s
status as such under the rules of
§ 1.1471–3(b)(3) and (d).
(3) Payments made to a partner or
beneficiary of an NFFE that is an NWP
or NWT. A withholding agent may treat
a partner or beneficiary of an NFFE that
is an NWP or NWT, respectively, as the
payee of a withholdable payment under
this section if the withholding agent can
reliably associate the payment with a
valid Form W–8 or written notification
that the NFFE is a flow-through entity
as described in § 1.1471–3(c)(2),
including valid documentation
sufficient to establish the chapter 4
status of each payee of the payment that
is a partner or beneficiary, respectively,
by applying the rules described in
§ 1.1471–3(d).
(4) Payments made to a beneficial
owner that is an NFFE. A withholding
agent may treat the beneficial owner of
a withholdable payment as an NFFE
that does not have any substantial U.S.
owners or that has identified all of its
substantial U.S. owners if it can reliably
associate the payment with valid
documentation identifying the
beneficial owner as an NFFE that does
not have any substantial U.S. owners or
that has identified all of its substantial
U.S. owners by applying the rules
described in § 1.1471–3(d).
(5) Absence of valid documentation.
A withholding agent that cannot reliably
associate the payment with
documentation as described in any of
paragraphs (d)(2) through (4) of this
section must treat the payment as made
to a payee in accordance with the
presumption rules under § 1.1471–3(f).
(e) Information reporting
requirements—(1) Reporting on
withholdable payments. A withholding
agent that treats a withholdable
payment as made to any payee
described in paragraph (d) of this
section must provide information about
such payee on Form 1042–S and file a
withholding income tax return on Form
1042 to the extent required under
§ 1.1474–1(d) and (c), respectively.
(2) Reporting on substantial U.S.
owners. A withholding agent that
receives information about any
substantial U.S. owners of an NFFE that
is not an excepted NFFE must report
information about the NFFE’s
substantial U.S. owners in accordance
with § 1.1474–1(i)(2). See § 1.1471–4(d)
for the reporting requirements of a
participating FFI with respect to the
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substantial U.S. owners of account
holders that are NFFEs.
(f) Effective/applicability date. This
section generally applies January 28,
2013. For other dates of applicability,
see § 1.1472–1(b).
■ Par. 12. Section 1.1473–1 is added to
read as follows:
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§ 1.1473–1
Section 1473 definitions.
(a) Definition of withholdable
payment—(1) In general. Except as
otherwise provided in this paragraph (a)
and § 1.1471–2(b) (regarding
grandfathered obligations), the term
withholdable payment means—
(i) Any payment of U.S. source FDAP
income (as defined in paragraph (a)(2) of
this section); and
(ii) For any sales or other dispositions
occurring after December 31, 2016, any
gross proceeds from the sale or other
disposition (as defined in paragraph
(a)(3)(i) of this section) of any property
of a type that can produce interest or
dividends that are U.S. source FDAP
income.
(2) U.S. source FDAP income
defined—(i) In general—(A) FDAP
income defined. For purposes of chapter
4, the term FDAP income means fixed
or determinable annual or periodic
income that is described in § 1.1441–
2(b)(1) or § 1.1441–2(c) (excluding
income described in paragraph (a)(2)(vi)
of this section or § 1.1441–2(b)(2) (such
as gains derived from the sale of certain
property)) and including the types of
income enumerated in paragraphs
(a)(2)(iii) through (v) of this section.
(B) U.S. source. The term U.S. source
means derived from sources within the
United States. A payment is derived
from sources within the United States if
it is income treated as derived from
sources within the United States under
sections 861 through 865 and other
relevant provisions of the Code. In the
case of a payment of FDAP income for
which the source cannot be determined
at the time of payment, see § 1.1471–
2(a)(5).
(C) Exceptions to withholding on U.S.
source FDAP income not applicable
under chapter 4. Except as otherwise
provided in paragraph (a)(4) of this
section, no exception to withholding on
U.S. source FDAP income for purposes
other than chapter 4 applies for
purposes of determining whether a
payment of such income is a
withholdable payment under chapter 4.
Thus, for example, an exclusion from an
amount subject to withholding under
§ 1.1441–2(a) or an exclusion from
taxation under section 881 does not
apply for purposes of determining
whether such income constitutes a
withholdable payment.
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(ii) Special rule for certain interest.
Interest that is described in section
861(a)(1)(A) (relating to interest paid by
foreign branches of domestic
corporations and partnerships) is treated
as U.S. source FDAP income.
(iii) Original issue discount. The rules
described in § 1.1441–2(b)(3)(ii) for
determining when an amount
representing original issue discount is
subject to withholding for chapter 3
purposes apply for purposes of
determining when original issue
discount from sources within the United
States is U.S. source FDAP income.
(iv) REMIC residual interests. U.S.
source FDAP income includes an
amount described in § 1.1441–2(b)(5).
(v) Withholding liability of payee that
is satisfied by withholding agent. If a
withholding agent satisfies a
withholding liability arising under
chapter 4 with respect to a withholdable
payment from the withholding agent’s
own funds, the satisfaction of such
liability is treated as an additional
payment of U.S. source FDAP income to
the payee to the extent that the
withholding agent’s satisfaction of such
withholding liability also satisfies a tax
liability of the payee under section 881
or 871 with respect to the same
payment, and the satisfaction of the tax
liability constitutes additional income
to the payee under § 1.1441–3(f) that is
U.S. source FDAP income. In such case,
the amount of any additional payment
treated as made by the withholding
agent for purposes of this paragraph
(a)(2)(v) and any tax liability resulting
from such payment shall be determined
under § 1.1441–3(f). See § 1.1474–6
regarding the coordination of the
withholding requirements under
chapters 3 and 4 in the case of a
withholdable payment that is also
subject to withholding under chapter 3.
(vi) Special rule for sales of interest
bearing debt obligations. Income that is
otherwise described as U.S. source
FDAP income in paragraphs (a)(2)(i)
through (v) of this section does not
include an amount of interest accrued
on the date of a sale or exchange of an
interest bearing debt obligation if the
sale occurs between two interest
payment dates.
(vii) Payment of U.S. source FDAP
income—(A) Amount of payment of
U.S. source FDAP income. The amount
of U.S. source FDAP income is the gross
amount of the payment of such income,
unreduced by any deductions or offsets.
The rules of § 1.1441–3(b)(1) shall apply
to determine the amount of an interest
payment on an interest-bearing
obligation. In the case of a corporate
distribution, the distributing
corporation or intermediary shall
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5981
determine the portion of the distribution
that is treated as U.S. source FDAP
income under this paragraph (a)(2) in
the same manner as the distributing
corporation or intermediary determines
the portion of the distribution subject to
withholding under § 1.1441–3(c). Any
portion of a payment on a debt
instrument or a corporate distribution
that does not constitute U.S. source
FDAP income under this paragraph
(a)(2) solely because of a provision other
than the source rules of sections 861
through 865 shall be taken into account
as gross proceeds under paragraph (a)(3)
of this section. For rules regarding the
determination of the amount of a
payment of U.S. source FDAP income
under paragraph (a)(2) of this section
made in a medium other than U.S.
dollars, see § 1.1441–3(e). For
determining the amount of a payment of
a dividend equivalent, see section
871(m) and the regulations thereunder.
(B) When payment of U.S. source
FDAP income is made. A payment is
considered made when the amount
would be includible in the income of
the beneficial owner under the U.S. tax
principles governing the cash method of
accounting. If an FFI acts as an
intermediary with respect to a payment
of U.S. source FDAP income, the FFI
will be treated as making a payment of
such U.S. source FDAP income to the
person with respect to which the FFI
acts as an intermediary when it pays or
credits such amount to such person. The
following rules also apply for purposes
of this paragraph (a)(2)(vii)(B):
§§ 1.1441–2(e)(2) (regarding when a
payment is considered made in the case
of income allocated under section 482);
1.1441–2(e)(3) (regarding blocked
income); 1.1441–2(e)(4) (regarding when
a dividend is considered paid); and
1.1441–2(e)(5) (regarding when interest
is considered paid if a foreign person
has made an election under § 1.884–
4(c)(1)).
(3) Gross proceeds defined—(i) Sale or
other disposition—(A) In general.
Except as otherwise provided in this
paragraph (a)(3)(i), the term sale or other
disposition means any sale, exchange, or
disposition of property described in
paragraph (a)(3)(ii) of this section that
requires recognition of gain or loss
under section 1001(c), determined
without regard to whether the owner of
such property is subject to U.S. federal
income tax with respect to such sale,
exchange, or disposition. The term sale
or other disposition includes (but is not
limited to) sales of securities;
redemptions of stock; retirements and
redemptions of indebtedness; entering
into short sales; and a closing
transaction under a forward contract,
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option, or other instrument that is
otherwise a sale. Such term further
includes a distribution from a
corporation to the extent the
distribution is a return of capital or a
capital gain to the beneficial owner of
the payment. Such term does not
include grants or purchases of options,
exercises of call options for physical
delivery, transfers of securities for
which gain or loss is excluded from
recognition under section 1058, or mere
executions of contracts that require
delivery of personal property or an
interest therein. For purposes of this
section only, a constructive sale under
section 1259 or a mark to fair market
value under section 475 or 1296 is not
a sale or disposition.
(B) Special rule for sales effected by
brokers. In the case of a sale effected by
a broker (with the term effect defined in
§ 1.6045–1(a)(10)), a sale means a sale as
defined in § 1.6045–1(a)(9) with respect
to property described in paragraph
(a)(3)(ii) of this section.
(C) Special rule for gross proceeds
from sales settled by a clearing
organization. In the case of a clearing
organization that settles sales and
purchases of securities between
members of such organization on a net
basis, the gross proceeds from sales or
dispositions are limited to the net
amount paid or credited to a member’s
account that is associated with sales or
other dispositions of property described
in paragraph (a)(3)(ii) of this section by
such member as of the time that such
transactions are settled under the
settlement procedures of such
organization.
(ii) Property of a type that can
produce interest or dividend payments
that would be U.S. source FDAP
income—(A) In general. Property is of a
type that can produce interest or
dividends payments that would be U.S.
source FDAP income if the property is
of a type that ordinarily gives rise to the
payment of interest or dividends that
would constitute U.S. source FDAP
income, regardless of whether any such
payment is made during the period such
property is held by the person selling or
disposing of such property. Thus, for
example, stock issued by a domestic
corporation is property of a type that
can produce dividends from sources
within the United States if a dividend
from such corporation would be from
sources within the United States,
regardless of whether the stock pays
dividends at regular intervals and
regardless of whether the issuer has any
plans to pay dividends or has ever paid
a dividend with respect to the stock.
(B) Contracts producing dividend
equivalent payments. In the case of any
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contract that results in the payment of
a dividend equivalent as defined in
section 871(m) and the regulations
thereunder (including as part of a
termination payment), such contract
shall be treated as property that is
described in paragraph (a)(3)(ii)(A) of
this section, without regard to whether
the taxpayer is a foreign person subject
to U.S. federal income tax with respect
to such transaction. To the extent that
the proceeds from a termination
payment include the payment of a
dividend equivalent, the gross amount
of such proceeds will not include the
amount of such dividend equivalent.
(C) Regulated investment company
distributions. The amount of a
distribution that is designated as a
capital gain dividend under section
852(b)(3)(C) or 871(k)(2) is a payment of
gross proceeds to the extent attributable
to property described in paragraph
(a)(3)(ii)(A) of this section.
(iii) Payment of gross proceeds—(A)
When gross proceeds are paid. With
respect to a sale that is effected by a
broker that results in a payment of gross
proceeds as defined in this paragraph
(a)(3), the date the gross proceeds are
considered paid is the date that the
proceeds of such sale are credited to the
account of or otherwise made available
to the person entitled to the payment. If
gross proceeds are paid to a financial
institution or other entity acting as an
intermediary for the person selling or
otherwise disposing of the property, the
gross proceeds are considered paid to
such person on the date that the
proceeds are credited to the account of
or otherwise made available to such
institution.
(B) Amount of gross proceeds. Except
as otherwise provided in this paragraph
(a)(3)—
(1) The amount of gross proceeds from
a sale or other disposition means the
total amount realized as a result of a sale
or other disposition of property
described in paragraph (a)(3)(ii) under
section 1001(b);
(2) In the case of a sale effected by a
broker, the amount of gross proceeds
from a sale or other disposition means
the total amount paid or credited to the
account of the person entitled to the
payment increased by any amount not
so paid by reason of the repayment of
margin loans. The broker may (but is not
required to) take commissions with
respect to the sale into account in
determining the amount of gross
proceeds;
(3) In the case of a corporate
distribution, the amount treated as gross
proceeds excludes the amount described
in paragraph (a)(2)(vii)(A) of this section
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Sfmt 4700
that is treated as U.S. source FDAP
income;
(4) In the case of a sale of an
obligation described in paragraph
(a)(2)(vi), gross proceeds includes any
interest accrued between interest
payment dates; and
(5) In the case of a sale, retirement, or
redemption of a debt obligation, gross
proceeds excludes the amount of
original issue discount treated as U.S.
source FDAP income under paragraph
(a)(2)(iii) of this section.
(4) Payments not treated as
withholdable payments. The following
payments are not withholdable
payments under paragraph (a)(1) of this
section—
(i) Certain short-term obligations. A
payment of interest or original issue
discount on short-term obligations
described in section 871(g)(1)(B)(i).
(ii) Effectively connected income. Any
payment to the extent it gives rise to an
item of income that is taken into
account under section 871(b)(1) or
882(a)(1) for the taxable year. An item
of income is taken into account under
section 871(b)(1) or 882(a)(1) when the
income is (or is deemed to be)
effectively connected with the conduct
of a trade or business in the United
States and is includible in the beneficial
owner’s gross income for the taxable
year. An amount of income shall not be
treated as taken into account under
section 871(b)(1) or 882(a)(1) if the
income is (or is deemed to be)
effectively connected with the conduct
of a trade or business in the United
States and the beneficial owner claims
an exception from tax under an income
tax treaty because the income is not
attributable to a permanent
establishment in the United States.
(iii) Excluded nonfinancial payments.
Payments for the following: services
(including wages and other forms of
employee compensation (such as stock
options)), the use of property, office and
equipment leases, software licenses,
transportation, freight, gambling
winnings, awards, prizes, scholarships,
and interest on outstanding accounts
payable arising from the acquisition of
goods or services. Notwithstanding the
preceding sentence and except as
otherwise provided in § 1.1471–2(b)
(regarding grandfathered obligations),
withholdable payments include:
payments in connection with a lending
transaction (including loans of
securities), a forward, futures, option, or
notional principal contract, or a similar
financial instrument; premiums for
insurance contracts or annuity
contracts; amounts paid under cash
value insurance or annuity contracts;
dividends; interest (including substitute
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interest described in § 1.861–2(a)(7))
other than interest described in the
preceding sentence; investment
advisory fees; custodial fees; and bank
or brokerage fees.
(iv) Gross proceeds from sales of
excluded property. Gross proceeds from
the sale or other disposition of any
property that can produce U.S. source
FDAP income if all such U.S. source
FDAP income would be excluded from
the definition of withholdable payment
under paragraphs (a)(4)(i) through (iii)
of this section.
(v) Fractional shares. Payments
arising in sales described in § 1.6045–
1(c)(3)(ix).
(vi) Offshore payments of U.S. source
FDAP income prior to 2017
(transitional). A payment of U.S. source
FDAP income made prior to January 1,
2017, with respect to an offshore
obligation if such payment is made by
a person that is not acting as an
intermediary with respect to the
payment. The exception for offshore
payments of U.S. source FDAP income
provided in the preceding sentence
shall not apply, however, in the case of
a flow-through entity that has a residual
withholding requirement with respect to
its partners, owners, or beneficiaries
under § 1.1471–2(a)(2)(ii). For purposes
of this paragraph (a)(4)(vi), an
intermediary includes a person that acts
as a qualified securities lender as
defined for purposes of chapter 3.
(5) Special payment rules for flowthrough entities, complex trusts, and
estates—(i) In general. This paragraph
(a)(5) provides special rules for a flowthrough entity, complex trust, or estate
to determine when such entity must
treat U.S. source FDAP income as
having been paid by such entity to its
partners, owners, or beneficiaries (as
applicable depending on the type of
entity).
(ii) Partnerships. An amount of U.S.
source FDAP income is treated as being
paid to a partner under rules similar to
the rules prescribing when withholding
is required for chapter 3 purposes as
described in § 1.1441–5(b)(2)(i)(A).
(iii) Simple trusts. An amount of U.S.
source FDAP income is treated as being
paid to a beneficiary of a simple trust
under rules similar to the rules
prescribing when withholding is
required for chapter 3 purposes as
described in § 1.1441–5(b)(2)(ii).
(iv) Complex trusts and estates. An
amount of U.S. source FDAP income is
treated as paid to a beneficiary of a
complex trust or estate under rules
similar to the rules prescribing when
withholding is required for chapter 3
purposes as described in § 1.1441–
5(b)(2)(iii).
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(v) Grantor trusts. If an amount of U.S.
source FDAP income is paid to a grantor
trust, a person treated as an owner of all
or a portion of such trust is treated as
having been paid such income by the
trust at the time it is received by or
credited to the trust or portion thereof.
(vi) Special rule for an NWP or NWT.
In the case of a partnership, simple
trust, or complex trust that is an NWP
or NWT, the rules described in
paragraphs (a)(5)(ii) and (iii) of this
section shall not apply, and U.S. source
FDAP income is treated as paid to the
partner or beneficiary at the time the
income is paid to the partnership or
trust, respectively.
(vii) Special rule for determining
when gross proceeds are treated as paid
to a partner, owner, or beneficiary of a
flow-through entity. [Reserved].
(6) Reporting of withholdable
payments. See § 1.1474–1(c) and (d) for
a description of the income tax return
and information reporting requirements
applicable to a withholding agent that
has made a withholdable payment.
(7) Example. Satisfaction of payee’s
chapter 4 liability by withholding agent.
Recalcitrant account holder (RA) is entitled
to receive a payment of $100 of U.S. source
interest from withholding agent, WA. The
payment is subject to withholding under
chapter 4, but is not subject to withholding
under section 1442, and RA has no
substantive tax liability under section 881
with respect to this payment. WA pays the
full $100 to RA and, after the date of
payment, pays the $30 of tax due under
chapter 4 to the IRS from its own funds.
Because no underlying tax liability of RA is
satisfied, and further because WA and RA
did not execute any agreement for WA to pay
this tax and WA did not have an obligation
to pay this tax apart from the requirements
of chapter 4, WA’s payment of the tax does
not give rise to a deemed payment of U.S.
source FDAP income to RA under paragraph
(a)(2)(v) of this section. Thus, WA is not
required to pay any additional tax with
respect to this payment for purposes of
chapter 4.
(b) Substantial U.S. owner—(1)
Definition. Except as otherwise
provided in paragraph (b)(4) or (5) of
this section, the term substantial United
States owner (or substantial U.S. owner)
means:
(i) With respect to any foreign
corporation, any specified U.S. person
that owns, directly or indirectly, more
than 10 percent of the stock of such
corporation (by vote or value);
(ii) With respect to any foreign
partnership, any specified U.S. person
that owns, directly or indirectly, more
than 10 percent of the profits interests
or capital interests in such partnership;
and
(iii) In the case of a trust—
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5983
(A) Any specified U.S. person treated
as an owner of any portion of the trust
under sections 671 through 679; and
(B) Any specified U.S. person that
holds, directly or indirectly, more than
10 percent of the beneficial interests of
the trust.
(2) Indirect ownership of foreign
entities. For purposes of determining a
person’s interest in a foreign entity, the
following rules shall apply.
(i) Indirect ownership of stock. Stock
of a foreign corporation that is owned
directly or indirectly by an entity (other
than a participating FFI, a deemedcompliant FFI (excluding an ownerdocumented FFI), a U.S. financial
institution, a U.S. person that is not a
specified U.S. person, an exempt
beneficial owner, or an excepted NFFE)
that is a corporation, partnership, or
trust shall be considered as being owned
proportionately by such entity’s
shareholders, partners, or, in the case of
a trust, persons treated as owners under
sections 671 through 679 of any portion
of the trust that includes the stock, and
the beneficiaries of the trust. Stock
considered to be owned by a person by
reason of the application of the
preceding sentence shall, for purposes
of applying such sentence, be treated as
actually owned by such person.
(ii) Indirect ownership in a foreign
partnership or ownership of a beneficial
interest in a foreign trust. A capital or
profits interest in a foreign partnership
or an ownership or beneficial interest
(as described in paragraph (b)(3) of this
section) in a foreign trust that is owned
or held directly or indirectly by an
entity (other than a participating FFI, a
deemed-compliant FFI (excluding an
owner-documented FFI), a U.S.
financial institution, a U.S. person that
is not a specified U.S. person, an
exempt beneficial owner, or an excepted
NFFE) that is a corporation, partnership,
or trust shall be considered as being
owned or held proportionately by such
entity’s shareholders, partners, or, in the
case of a trust, persons treated as owners
under sections 671 through 679 of any
portion of the trust that includes the
partnership or beneficial trust interest,
and the beneficiaries of the trust.
Partnership or beneficial trust interests
considered to be owned or held by a
person by reason of the application of
the preceding sentence shall, for
purposes of applying such sentence, be
treated as actually owned or held by
such person.
(iii) Ownership and holdings through
options. If a specified U.S. person holds,
directly or indirectly (applying the
principles of paragraphs (b)(2)(i) and (ii)
of this section) an option to acquire
stock in a foreign corporation, a capital
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or profits interest in a foreign
partnership, or an ownership or
beneficial interest in a foreign trust,
such person is considered to own the
underlying equity or other ownership
interest in such foreign entity for
purposes of this paragraph (b). For
purposes of the preceding sentence, an
option to acquire such an option, and
each one of a series of such options,
shall be considered an option to acquire
such stock or other ownership interest
described in this paragraph (b)(2)(iii).
(iv) Determination of proportionate
interest. For purposes of this paragraph
(b), and except as otherwise provided in
paragraph (b)(3) of this section, the
determination of a person’s
proportionate interest in a foreign
corporation, partnership, or trust is
based on all of the relevant facts and
circumstances. In making this
determination, any arrangement that
artificially decreases a specified U.S.
person’s proportionate interest in any
such entity will be disregarded in
determining whether such person is a
substantial U.S. owner. In lieu of
applying the rules of this paragraph
(b)(2) to determine whether an owner’s
proportionate interest in a foreign entity
meets the 10 percent threshold
described in paragraph (b)(1) of this
section, the entity or its withholding
agent may opt to treat the owner as a
substantial U.S. owner.
(v) Interests owned or held by a
related person. For purposes of
determining whether a person has more
than a 10 percent interest in a foreign
corporation, foreign partnership, or
foreign trust, the person must aggregate
the ownership or beneficial interests in
the foreign corporation, foreign
partnership, or foreign trust that are
owned or held by any person related to
such person. For purposes of the
preceding sentence, a person is related
to another person if the relationship
between such persons would result in a
disallowance of losses under
§§ 1.267(a)–1 through 1.267(f)–1 or
§ 1.707–1(b). Section 1.267(c)–1(a)(4) is
applied as if the family of an individual
includes the spouses of the members of
the individual’s family.
(3) Beneficial interest in a foreign
trust—(i) In general. For purposes of
paragraph (b)(1)(iii)(B) of this section, a
person holds a beneficial interest in a
foreign trust if such person has the right
to receive directly or indirectly (for
example, through a nominee) a
mandatory distribution or may receive,
directly or indirectly, a discretionary
distribution from the trust. For purposes
of this section, a mandatory distribution
means a distribution that is required to
be made pursuant to the terms of the
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trust document. A discretionary
distribution means a distribution that is
made to a person at the discretion of the
trustee or a person with a limited power
of appointment of such trust.
(ii) Determining the 10 percent
threshold in the case of a beneficial
interest in a foreign trust. A person will
be treated as holding directly or
indirectly more than 10 percent of the
beneficial interest in a foreign trust if—
(A) The beneficiary receives, directly
or indirectly, only discretionary
distributions from the trust and the fair
market value of the currency or other
property distributed, directly or
indirectly, from the trust to such person
during the prior calendar year exceeds
10 percent of the value of either all of
the distributions made by the trust
during that year or all of the assets held
by the trust at the end of that year;
(B) The person is entitled to receive,
directly or indirectly, mandatory
distributions from the trust and the
value of the person’s interest in the
trust, as determined under section 7520,
exceeds 10 percent of the value of all
the assets held by the trust; or
(C) The person is entitled to receive,
directly or indirectly, mandatory
distributions and may receive, directly
or indirectly, discretionary distributions
from the trust, and the value of the
person’s interest in the trust,
determined as the sum of the fair market
value of all of the currency or other
property distributed from the trust at the
discretion of the trustee during the prior
calendar year to the person and the
value of the person’s interest in the trust
as determined under section 7520 at the
end of that year, exceeds either 10
percent of the value of all distributions
made by such trust during the prior
calendar year or 10 percent of the value
of all the assets held by the trust at the
end of that year.
(4) Exceptions—(i) De minimis
amount or value exception. A specified
U.S. person is not treated as a
substantial U.S. owner if—
(A) The fair market value of the
currency or other property distributed,
directly or indirectly, from the trust to
such specified U.S. person during the
prior calendar year is $5,000 or less and,
(B) In the case of a specified U.S.
person that is entitled to receive
mandatory distributions, the value of
such person’s interest in the trust is
$50,000 or less.
(ii) Trusts wholly owned by certain
U.S. persons. A trust that is treated as
owned only by U.S. persons under
sections 671 through 679 is not required
to treat any of its beneficiaries as
substantial U.S. owners.
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(5) Special rule for certain financial
institutions. In the case of any financial
institution described in § 1.1471–
5(e)(1)(iii) or (iv) (referring to
investment entities and specified
insurance companies), this section shall
be applied by substituting ‘‘0 percent’’
for ‘‘10 percent’’ in each place that it
appears. Additionally, in the case of a
financial institution described in
§ 1471–5(e)(1)(iii) that is a trust, the
rules of paragraph (b)(3) and (4) of this
section (referring to beneficial interests
in a trust) shall be applied by
substituting ‘‘calendar year’’ for ‘‘prior
calendar year’’ in each place that it
appears.
(6) Determination dates for
substantial U.S. owners. A foreign entity
may make the determination of whether
it has one or more direct or indirect
substantial U.S. owners as of the last
day of such entity’s accounting year or
as of the date on which such foreign
entity provides the documentation
described in § 1.1471–3(d) to the
withholding agent for which such
determination is required to be made.
See § 1.1471–4(c) for when a
participating FFI is required to obtain
documentation with respect to its
account holders.
(7) Examples. The following examples
illustrate the provisions of paragraph (b)
of this section:
Example 1. Indirect ownership. U, a
specified U.S. person, owns directly 100% of
the sole class of stock of F1, a foreign
corporation. F1 owns directly 90% of the sole
class of stock of F2, a foreign corporation,
and U owns directly the remaining 10% of
the sole class of stock of F2. F2 owns directly
10% of the sole class of stock of F3, a foreign
corporation, and U owns directly 3% of the
sole class of stock of F3. U is treated as
owning 13% (3% directly and 10%
indirectly) of the sole class of stock of F3 and
100% (10% directly and 90% indirectly) of
the sole class of stock of F2 for purposes of
this paragraph (b). U is a substantial U.S.
owner of F1, F2, and F3.
Example 2. Indirect ownership through
entities that are specified U.S. persons. U, a
specified U.S. person, owns directly 100% of
the sole class of stock of US1, a U.S.
corporation that is a specified U.S. person.
US1 owns directly 100% of the sole class of
stock of US2, a U.S. corporation that is a
specified U.S. person. US2 owns directly
15% of the sole class of stock of FC, a foreign
corporation. For purposes of this paragraph
(b), U, US1, and US2 are all substantial U.S.
owners of FC.
Example 3. Determining the 10% threshold
in the case of a beneficial interest in a foreign
trust. U, a U.S. citizen, holds an interest in
FT1, a foreign trust, under which U may
receive discretionary distributions from FT1.
U also holds an interest in FT2, a foreign
trust, and FT2, in turn, holds an interest in
FT1 under which FT2 may receive
discretionary distributions from FT1. U
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receives $25,000 from FT1 in Year 1. FT2
receives $120,000 from FT1 in Year 1 and
distributes the entire amount to its
beneficiaries in Year 1. The distribution from
FT1 is FT2’s only source of income and FT2’s
distributions in Year 1 total $120,000. U
receives $40,000 from FT2 in Year 1. FT1’s
distributions in Year 1 total $750,000. U’s
discretionary interest in FT1 is valued at
$65,000 at the end of Year 1 and therefore
does not meet the 10% threshold as
determined under paragraph (b)(3)(ii)(A). U’s
discretionary interest in FT2, however, is
valued at $40,000 at the end of Year 1 and
therefore meets the 10% threshold as
determined under paragraph (b)(3)(ii)(A).
Example 4. Determining ownership
(determination date). F, a foreign corporation
that is an NFFE, has a calendar year
accounting year. On December 31 of Year 1,
U, a specified U.S. person, owns 12% of the
sole class of outstanding stock of F. In March
of Year 2, F redeems a portion of U’s stock
and reduces U’s ownership of F to 9%. In
May of Year 2, F opens an account with P,
a participating FFI, and delivers to P the
documentation required under § 1.1471–3(d).
At the time F opens its account with P, U is
the only specified U.S. person that directly
or indirectly owns stock in F. Because of the
redemption, U’s interest in F is 9% on the
date F opens its account with P. Pursuant to
paragraph (b)(6) of this section, F may
determine whether it has a substantial U.S.
owner as of the date it provides the
documentation required under § 1.1471–3(d)
to P, which would be the day it opens the
account. As a result, F may indicate in its
§ 1.1471–3(d) documentation that it has no
substantial U.S. owners.
(c) Specified U.S. person. The term
specified United States person (or
specified U.S. person) means any U.S.
person other than—
(1) A corporation the stock of which
is regularly traded on one or more
established securities markets, as
described in § 1.1472–1(c)(1)(i);
(2) Any corporation that is a member
of the same expanded affiliated group as
a corporation described in § 1.1472–
1(c)(1)(i);
(3) Any organization exempt from
taxation under section 501(a) or an
individual retirement plan as defined in
section 7701(a)(37);
(4) The United States or any wholly
owned agency or instrumentality
thereof;
(5) Any State, the District of
Columbia, any U.S. territory, any
political subdivision of any of the
foregoing, or any wholly owned agency
or instrumentality of any one or more of
the foregoing;
(6) Any bank as defined in section
581;
(7) Any real estate investment trust as
defined in section 856;
(8) Any regulated investment
company as defined in section 851 or
any entity registered with the Securities
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Exchange Commission under the
Investment Company Act of 1940 (15
U.S.C. 80a–64);
(9) Any common trust fund as defined
in section 584(a);
(10) Any trust that is exempt from tax
under section 664(c) or is described in
section 4947(a)(1);
(11) A dealer in securities,
commodities, or derivative financial
instruments (including notional
principal contracts, futures, forwards,
and options) that is registered as such
under the laws of the United States or
any State;
(12) A broker; and
(13) Any tax exempt trust under a
section 403(b) plan or section 457(g)
plan.
(d) Withholding agent—(1) In general.
Except as provided in this paragraph
(d), the term withholding agent means
any person, U.S. or foreign, in whatever
capacity acting, that has the control,
receipt, custody, disposal, or payment of
a withholdable payment or foreign
passthru payment.
(2) Participating FFIs and registered
deemed-compliant FFIs as withholding
agents. The term withholding agent
includes a participating FFI that has the
control, receipt, custody, disposal, or
payment of a passthru payment (as
defined in § 1.1471–5(h)). The term
withholding agent also includes a
registered deemed-compliant FFI to the
extent that such FFI is required to
withhold on a passthru payment as part
of the conditions for maintaining its
status as a deemed-compliant FFI under
§ 1.1471–5(f)(1)(ii). For the withholding
requirements of a participating FFI,
including the requirement to withhold
with respect to limited branches and
limited FFIs that are in the same
expanded affiliated group as the
participating FFI, see §§ 1.1471–4(b) and
1.1472–1(a).
(3) Grantor trusts as withholding
agents. The term withholding agent
includes a grantor trust with respect to
a withholdable payment or a foreign
passthru payment (in the case of a
grantor trust that is a participating FFI)
made to a person treated as an owner of
the trust under sections 671 through
679. For purposes of determining when
a payment is treated as made to such a
person, see § 1.1473–1(a)(5)(v).
(4) Deposit and return requirements.
See § 1.1474–1(b) for a withholding
agent’s requirement to deposit any tax
withheld, and § 1.1474–1(c) and (d) for
the requirement to file income tax and
information returns (including the
special allowance in § 1.1474–1(b)(2) for
participating FFIs with respect to
dormant accounts).
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5985
(5) Multiple withholding agents.
When several persons qualify as a
withholding agent with respect to a
single payment, only one tax is required
to be withheld and deposited. See
§ 1.1474–1(a). A person who, as a
nominee described in § 1.6031(c)–1T,
has furnished to a partnership all of the
information required to be furnished
under § 1.6031(c)–1T(a) shall not be
treated as a withholding agent if the
person has notified the partnership that
it is treating the provision of
information to the partnership as a
discharge of its obligations as a
withholding agent.
(6) Exception for certain individuals.
An individual is not a withholding
agent with respect to a withholdable
payment made by the individual outside
the course of such individual’s trade or
business (including as an agent with
respect to making or receiving such
payment).
(e) Foreign entity. The term foreign
entity means any entity that is not a U.S.
person and includes a territory entity.
(f) Effective/applicability date. This
section generally applies January 28,
2013. For other dates of applicability see
§§ 1.1473–1(a)(1)(ii) and 1.1473–
1(a)(4)(vi).
■ Par. 13. Section 1.1474–1 is added to
read as follows:
§ 1.1474–1 Liability for withheld tax and
withholding agent reporting.
(a) Payment and returns of tax
withheld—(1) In general. A withholding
agent is required to deposit any tax
withheld pursuant to chapter 4 as
provided under paragraph (b) of this
section and to make the returns
prescribed by paragraphs (c) and (d) of
this section. When several persons
qualify as withholding agents with
respect to a single payment, only one
tax is required to be withheld and
deposited.
(2) Withholding agent liability. A
withholding agent that is required to
withhold with respect to a payment
under § 1.1471–2(a), 1.1471–4(b) (in the
case of a participating FFI), or 1.1472–
1(b) but fails either to withhold or to
deposit any tax withheld with an
authorized financial institution, as
required under paragraph (b) of this
section, is liable for the amount of tax
not withheld and deposited.
(3) Use of agents—(i) In general.
Except as otherwise provided in this
paragraph (a)(3), a withholding agent
may authorize an agent to fulfill its
obligations under chapter 4. The acts of
an agent of a withholding agent
(including the receipt of withholding
certificates, the payment of amounts
subject to withholding, the withholding
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and deposit of tax withheld, and the
reporting required on the relevant form)
are imputed to the withholding agent on
whose behalf it is acting.
(ii) Authorized agent. An agent is
authorized only if—
(A) There is a written agreement
between the withholding agent and the
person acting as agent;
(B) A Form 8655, ‘‘Reporting Agent
Authorization,’’ is filed with the IRS if
the agent (including any sub-agent) is
acting as a reporting agent for filing
Form 1042 or making tax deposits and
payments;
(C) Books and records and relevant
personnel of the agent (including any
sub-agent) are available to the
withholding agent (on a continuous
basis, including after termination of the
relationship) in order to evaluate the
withholding agent’s compliance with
the provisions of chapter 4; and
(D) The withholding agent remains
fully liable for the acts of its agent (or
any sub-agent) and does not assert any
of the defenses that may otherwise be
available, including under common law
principles of agency, in order to avoid
tax liability under the Code.
(iii) Liability of withholding agent
acting through an agent. A withholding
agent acting through an agent is liable
for any failure of the agent, such as a
failure to withhold an amount or make
a payment of tax, in the same manner
and to the same extent as if the agent’s
failure had been the failure of the
withholding agent. For this purpose, the
agent’s actual knowledge or reason to
know shall be imputed to the
withholding agent. Except as otherwise
provided in the QI, WP, or WT
agreement, an agent of a withholding
agent is subject to the same withholding
and reporting obligations that apply to
any withholding agent under the
provisions of chapter 4 and does not
benefit from the special procedures or
exceptions that apply to a QI, WP, or
WT. If the agent is a foreign person,
however, a U.S. withholding agent may
treat the acts of the foreign agent as its
own for purposes of determining
whether it has complied with the
provisions of chapter 4. The
withholding agent’s liability under
paragraph (a)(2) of this section will exist
even if the agent is also a withholding
agent and is itself separately liable for
failure to comply with the provisions of
chapter 4. The same tax, interest, or
penalties, however, shall not be
collected more than once.
(4) Liability for failure to obtain
documentation timely or to act in
accordance with applicable
presumptions—(i) In general. A
withholding agent that cannot reliably
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associate a payment with
documentation on the date of payment
and that does not withhold under
§ 1.1471–2(a), 1.1471–4(b), or 1.1472–
1(b), or withholds at less than the 30
percent rate prescribed, is liable under
this section for the tax required to be
withheld under § 1.1471–2(a), 1.1471–
4(b), or 1.1472–1(b) (including interest,
penalties, or additions to tax otherwise
applicable in respect of the failure to
deduct and withhold) unless—
(A) The withholding agent has
appropriately relied on the
presumptions described in § 1.1471–3(f)
in order to treat the payment as exempt
from withholding; or
(B) The withholding agent obtained
after the date of payment valid
documentation that meets the
requirements of § 1.1471–3(c)(7) to
establish that the payment was, in fact,
exempt from withholding.
(ii) Withholding satisfied by another
withholding agent. If a withholding
agent fails to deduct and withhold any
amount required to be deducted and
withheld under § 1.1471–2(a), 1.1471–
4(b), or 1.1472–1(b), and the tax is
satisfied by another withholding agent
or is otherwise paid, then the amount of
tax required to be deducted and
withheld shall not be collected from the
first-mentioned withholding agent.
However, the withholding agent is not
relieved from liability in any such case
for any interest or penalties or additions
to tax otherwise applicable in respect of
the failure to deduct and withhold.
(b) Payment of withheld tax—(1) In
general. Except as otherwise provided
in this paragraph (b), every withholding
agent who withholds tax pursuant to
chapter 4 shall deposit such tax with an
authorized financial institution as
provided in § 1.6302–2(a) or by
electronic funds transfer as provided
under § 31.6302–1(h) of this chapter. If
for any reason the total amount of tax
required to be deposited for any
calendar year pursuant to the income
tax return described in paragraph (c) of
this section has not been deposited
pursuant to § 1.6302–2, the withholding
agent shall pay the balance of such tax
due for such year at such place as the
IRS shall specify. The tax shall be paid
when filing the return described in
paragraph (c)(1) of this section for such
year, unless the IRS specifies otherwise.
See § 1.1471–4(b)(6) for the special rule
allowing participating FFIs to set aside
in escrow amounts withheld with
respect to dormant accounts.
(2) Special rule for foreign passthru
payments and payments of gross
proceeds that include an undetermined
amount of income subject to tax.
[Reserved].
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(c) Income tax return—(1) In general.
Every withholding agent shall file an
income tax return on Form 1042,
‘‘Annual Withholding Tax Return for
U.S. Source Income of Foreign Persons,’’
(or such other form as the IRS may
prescribe) to report chapter 4 reportable
amounts (as defined in paragraph
(d)(2)(i) of this section). This income tax
return shall be filed on the same income
tax return used to report amounts
subject to reporting for chapter 3
purposes as described in § 1.1461–1(b).
The return must show the aggregate
amount of payments that are chapter 4
reportable amounts and must report the
tax withheld for the preceding calendar
year by the withholding agent, in
addition to any information required by
the form and its accompanying
instructions. Withholding certificates
and other statements or information
provided to a withholding agent are not
required to be attached to the return. A
Form 1042 must be filed under this
paragraph (c)(1) even if no tax was
required to be withheld for chapter 4
purposes during the preceding calendar
year. The withholding agent must retain
a copy of Form 1042 for the applicable
period of limitations on assessment and
collection with respect to the amounts
required to be reported on the Form
1042. See section 6501 and the
regulations thereunder for the
applicable period of limitations.
Adjustments to the total amount of tax
withheld described in § 1.1474–2 shall
be stated on the return as prescribed by
the form and its accompanying
instructions.
(2) Participating FFIs, registered
deemed-compliant FFIs, and U.S.
branches treated as U.S. persons. Except
as otherwise provided under an FFI
agreement, a participating FFI or
registered deemed-compliant FFI shall
file Form 1042 in accordance with
paragraph (c)(1) of this section to report
chapter 4 reportable amounts for which
the participating FFI or registered
deemed-compliant FFI is required to file
Form 1042–S, as described in paragraph
(d)(4)(iii) of this section. A participating
FFI or registered deemed-compliant FFI
with a U.S. branch that is treated as a
U.S. person must exclude from Form
1042 payments made and taxes
withheld by such U.S. branch. A U.S.
branch that is treated as a U.S. person
shall file a separate Form 1042 in
accordance with paragraph (c)(1) of this
section and the instructions on the form
to report chapter 4 reportable amounts.
(3) Amended returns. An amended
return under this paragraph (c)(3) must
be filed on Form 1042. An amended
return must include such information as
the form or its accompanying
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instructions shall require, including,
with respect to any information that has
changed from the time of the filing of
the return, the information that was
shown on the original return and the
corrected information.
(d) Information returns for payment
reporting—(1) Filing requirement—(i) In
general. Every withholding agent must
file an information return on Form
1042–S, ‘‘Foreign Person’s U.S. Source
Income Subject to Withholding,’’ (or
such other form as the IRS may
prescribe) to report to the IRS chapter 4
reportable amounts as described in
paragraph (d)(2)(i) of this section that
were paid to a recipient during the
preceding calendar year. Except as
otherwise provided in paragraphs
(d)(4)(ii)(B) (certain unknown
recipients) and (d)(4)(i)(B) and
(d)(4)(iii)(A) of this section (describing
payees includable in reporting pools of
a participating FFI or registered
deemed-compliant FFI), a separate Form
1042–S must be filed with the IRS for
each recipient of an amount subject to
reporting under paragraph (d)(2)(i) of
this section and for each separate type
of payment made to a single recipient in
accordance with paragraph (d)(4)(i) of
this section. The Form 1042–S shall be
prepared in such manner as the form
and its accompanying instructions
prescribe. One copy of the Form 1042–
S shall be filed with the IRS on or before
March 15 of the calendar year following
the year in which the amount subject to
reporting was paid, with a transmittal
form as provided in the instructions to
the form. Withholding certificates,
certifications, documentary evidence, or
other statements or documentation
provided to a withholding agent are not
required to be attached to the form. A
copy of the Form 1042–S must be
furnished to the recipient for whom the
form is prepared (or any other person,
as required under this paragraph or the
instructions to the form) and to any
intermediary or flow-through entity
described in paragraph (d)(3)(vii) of this
section on or before March 15 of the
calendar year following the year in
which the amount subject to reporting
was paid. The copy provided to the
persons described in the preceding
sentence may show more than one type
of income or other payment subject to
reporting on the Form 1042–S. The
withholding agent must retain a copy of
each Form 1042–S for the period of
limitations on assessment and collection
applicable to the tax reportable on the
Form 1042 to which the Form 1042–S
relates (determined as set forth in
paragraph (c)(1) of this section). See
paragraph (d)(4)(iii) of this section for
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the additional reporting requirements of
participating FFIs and deemedcompliant FFIs.
(ii) Recipient—(A) Defined. Except as
otherwise provided in paragraph
(d)(1)(ii)(B) of this section, the term
recipient under this paragraph (d)
means a person that is a recipient of a
chapter 4 reportable amount, and
includes—
(1) With respect to a payment of U.S.
source FDAP income—
(i) A QI (including a QI that is a
foreign branch of a U.S. person);
(ii) A WP or WT;
(iii) A participating FFI or a registered
deemed-compliant FFI that is an NQI,
NWP, or NWT (including its U.S.
branch that is not treated as a U.S.
person) and that provides its
withholding agent with sufficient
information to determine the portion of
the payment allocable to its reporting
pools of recalcitrant account holders,
payees that are nonparticipating FFIs,
and payees that are U.S. persons
described in paragraph (d)(4)(i)(B) of
this section;
(iv) An account holder or payee to the
extent that the withholding agent issues
a Form 1042–S to such account holder
or payee;
(v) An FFI that is a beneficial owner
of the payment (including a limited
branch of the FFI);
(vi) A U.S. branch of a participating
FFI or registered deemed-compliant FFI
that is treated as a U.S. person;
(vii) A territory financial institution
treated as a U.S. person;
(viii) An excepted NFFE that is not
acting as an agent or intermediary with
respect to the payment;
(ix) A passive NFFE except to the
extent described in paragraph
(d)(1)(ii)(A)(1)(x) (certain flow-through
NFFEs) of this section;
(x) A foreign person that is a partner
or beneficiary in a flow-through entity
that is an NFFE when the withholding
agent treats such partner or beneficiary
as a payee and beneficial owner because
the requirements of § 1.1472–1(d)(3) are
met;
(xi) An exempt beneficial owner of a
payment, including when the payment
is made to such owner through an FFI
(including a nonparticipating FFI) that
provides documentation and
information sufficient for a withholding
agent to determine the portion of the
payment allocable to such owner; and
(xii) Any person (including a flowthrough entity) or U.S. branch of a
participating FFI or reporting Model 1
FFI receiving such income that is (or is
deemed to be) effectively connected
with the conduct of its trade or business
in the United States;
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5987
(2) With respect to a payment other
than U.S. source FDAP income.
[Reserved]; and
(3) Any other person required to be
reported as a recipient by Form 1042–
S, its accompanying instructions, under
an FFI agreement, or paragraph
(d)(4)(iii) of this section with respect to
the Form 1042–S reporting requirements
of a participating FFI.
(B) Persons that are not recipients.
Persons that are not recipients include—
(1) With respect to a payment of U.S.
source FDAP income—
(i) A participating FFI, registered
deemed-compliant FFI, or certified
deemed-compliant FFI that is an NQI,
NWP, or NWT (including its U.S.
branch that is not treated as a U.S.
person) and that fails to provides its
withholding agent with sufficient
information to allocate the payment to
its account holders and payees;
(ii) A financial institution (other than
a nonparticipating FFI) to the extent that
the withholding agent issues a Form
1042–S to the FFI’s account holder or
payee;
(iii) A participating FFI or a registered
deemed-compliant FFI that is an NQI,
NWP, or NWT (including its U.S.
branch that is not treated as a U.S.
person) to the extent it provides its
withholding agent with sufficient
information to allocate the payment to
its account holders and payees that are
exempt from withholding under chapter
4;
(iv) An account holder or payee of a
participating FFI or registered deemedcompliant FFI (including an account
holder or payee of a U.S. branch of such
FFI that is not treated as a U.S. person)
that is included in the FFI’s reporting
pools described in paragraph (d)(4)(i)(B)
of this section;
(v) A nonparticipating FFI that acts as
an intermediary with respect to a
payment or that is a flow-through entity
(including a limited branch);
(vi) An account holder or payee of a
nonparticipating FFI except to the
extent described in paragraph
(d)(1)(ii)(A)(1)(xi) of this section for an
exempt beneficial owner;
(vii) Except as provided in paragraph
(d)(1)(ii)(A)(1)(i) of this section
(referring to a QI that is a foreign branch
of a U.S. person), a wholly owned entity
that is disregarded under § 301.7701–
2(c)(2) of this chapter as an entity
separate from its owner;
(viii) A territory financial institution
to the extent provided in paragraph
(d)(4)(i)(D)(2) and (3) of this section; and
(ix) A flow-through entity that is a
passive NFFE to the extent that the
withholding agent treats a foreign
person that is a partner or beneficiary of
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the NFFE as a recipient pursuant to
paragraph (d)(1)(ii)(A)(1)(x) of this
section;
(2) With respect to a payment other
than U.S. source FDAP income.
[Reserved]; and
(3) Any other person not treated as a
recipient on Form 1042–S, its
accompanying instructions, or under an
FFI agreement.
(2) Amounts subject to reporting—(i)
In general. Subject to paragraph
(d)(2)(iii) of this section, the term
chapter 4 reportable amount means
each of the following amounts
reportable on a Form 1042–S for
purposes of chapter 4—
(A) U.S. source FDAP income that is
reportable on Form 1042–S under
§ 1.1461–1(c)(2)(i) or that is otherwise
subject to withholding under chapter 4
paid on or after January 1, 2014;
(B) Gross proceeds subject to
withholding under chapter 4;
(C) A foreign passthru payment
subject to withholding under chapter 4;
and
(D) A foreign reportable amount paid
by a participating FFI to the extent
reporting of such amount is required
under paragraph (d)(4)(iii)(C) of this
section. The term foreign reportable
amount means a payment of FDAP
income as defined in § 1.1473–
1(a)(2)(i)(A) that would be a
withholdable payment if paid by a U.S.
person.
(ii) Exception to reporting. Except as
otherwise provided in this paragraph
(d)(2)(ii), a chapter 4 reportable amount
does not include an amount paid to a
U.S. person if the withholding agent
treats such U.S. person as a payee for
purposes of determining whether
withholding is required under
§§ 1.1471–2 and 1.1472–1. A chapter 4
reportable amount does, however,
include an amount paid to a
participating FFI or registered deemedcompliant FFI to the extent allocable to
its reporting pool of payees that are U.S.
persons as described in paragraph
(d)(4)(i)(B) of this section.
(iii) Coordination with chapter 3. A
payment that is not subject to reporting
under this paragraph (d)(2) may be
subject to chapter 3 reporting on Form
1042–S to the extent provided on such
form and its accompanying instructions
or under § 1.1461–1(c)(2). The recipient
information and other information
required to be reported on Form 1042–
S for purposes of chapter 4 shall be in
addition to the information required to
be provided on Form 1042–S for
purposes of chapter 3.
(3) Required information. The
information required to be furnished
under this paragraph (d)(3) shall be
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based upon the information provided by
or on behalf of the recipient of an
amount subject to reporting (as
corrected and supplemented based on
the withholding agent’s actual
knowledge) or the presumption rules
provided under § 1.1471–3(f) for a U.S.
withholding agent and under § 1.1471–
4(c)(3)(ii) and (c)(4)(i) for a participating
FFI. The Form 1042–S must include the
following information, if applicable—
(i) The name, address, and EIN or
GIIN (as applicable) of the withholding
agent (as required on the instructions to
the form) and the withholding agent’s
status for chapter 3 and chapter 4
purposes (as defined in the instructions
to the form);
(ii) A description of each category of
income or payment made based on the
income and payment codes provided on
the form (for example, interest,
dividends, and gross proceeds) and the
aggregate amount in each category
expressed in U.S. dollars;
(iii) For the reporting required by a
participating FFI under paragraph
(d)(4)(iii)(C) of this section, the
aggregate amount of foreign reportable
amounts paid to a nonparticipating FFI
in addition to the information described
in this paragraph (d)(3);
(iv) The rate and amount of
withholding applied or, in the case of a
payment of U.S. source FDAP income
not subject to withholding and
reportable under paragraph (d)(2)(i)(A)
of this section, the basis for exempting
the payment from withholding under
chapter 4 based on exemption codes
provided on the form);
(v) The name and address of the
recipient and its TIN or GIIN (as
applicable) and foreign taxpayer
identification number and date of birth
(as required on the instructions to the
form);
(vi) In the case of a payment to a
person (including a flow-through entity
or U.S. branch) for which the payment
is reported as effectively connected with
its conduct of a trade or business in the
United States or, in the case of a U.S.
branch that is treated as a U.S. person,
the EIN used by the person or U.S.
branch to file its U.S. income tax
returns;
(vii) The name, address of any FFI,
flow-through entity that is an NFFE, or
U.S. branch or territory financial
institution that is not treated as a U.S.
person when an account holder or
owner of such entity (including an
unknown recipient or owner) is treated
as the recipient of the payment;
(viii) The EIN or GIIN (as applicable),
status for chapter 3 and chapter 4
purposes (as required on the
instructions to the form) of an entity
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Fmt 4701
Sfmt 4700
reported under paragraph (d)(3)(vii) of
this section;
(ix) The country of incorporation or
organization (based on the country
codes provided on the form) of any
entity the name of which appears on the
form; and
(x) Such information as the form or
instructions may require in addition to,
or in lieu of, information required under
this paragraph (d)(3).
(4) Method of reporting—(i) Payments
by U.S. withholding agent to recipients.
Except as otherwise provided in this
paragraph (d)(4) or on the Form 1042–
S and its accompanying instructions, a
withholding agent that is a U.S. person
(including a U.S. branch that is treated
as a U.S. person and excluding a foreign
branch of a U.S. person that is a QI) and
that makes a payment of a chapter 4
reportable amount must file a separate
form for each recipient that receives
such amount. Except as otherwise
provided on Form 1042–S or its
instructions, only payments for which
the income or payment code, exemption
code, withholding rate, and recipient
code are the same may be reported on
a single form filed with the IRS. See
paragraph (d)(4)(ii) of this section for
reporting of payments made to a person
that is not a recipient and that is
otherwise required to be reported on
Form 1042–S.
(A) Payments to certain entities that
are beneficial owners. If the beneficial
owner of a payment made by a U.S.
withholding agent is an exempt
beneficial owner, an FFI, an NFFE, or a
territory entity, it must complete Form
1042–S treating such entity as the
recipient of the payment.
(B) Payments to participating FFIs,
deemed-compliant FFIs, and certain
QIs. Except as otherwise provided in
this paragraph (d)(4)(i)(B), a U.S.
withholding agent that makes a payment
of a chapter 4 reportable amount to a
participating FFI or deemed-compliant
FFI that is an NQI, NWP, or NWT must
complete a Form 1042–S treating such
FFI as the recipient. With respect to a
payment of U.S. source FDAP income
made to a participating FFI or registered
deemed-compliant FFI that is an NQI,
NWP, or NWT or QI that elects to be
withheld upon under section 1471(b)(3)
and from whom the withholding agent
receives pooled information regarding
such FFI’s account holders and payees,
a U.S. withholding agent must complete
a separate Form 1042–S issued to the
participating FFI, registered deemedcompliant FFI, or QI (as applicable) as
the recipient with respect to each such
pool of account holders or payees. See
§ 1.1471–2(a)(2)(i) for the requirement of
a withholding agent to withhold on
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payments of U.S. source FDAP income
made to a participating FFI or registered
deemed-compliant FFI that is an NQI,
NWP, or NWT. See also § 1.1471–
2(a)(2)(iii) in the case of payments made
to a QI. See § 1.1461–1(c)(4)(A) for the
extent to which reporting is required
under that section for U.S. source FDAP
income that is reportable on Form 1042–
S under chapter 3 and not subject to
withholding under chapter 4, in which
case the U.S. withholding agent must
report in the manner described under
§ 1.1461–1(c)(4)(ii) and paragraph
(d)(4)(ii)(A) of this section. See
paragraph (d)(4)(ii)(A) of this section for
reporting rules applicable if
participating FFIs, deemed-compliant
FFIs, or QIs provide specific payee
information for reporting to the
recipient of the payment for Form 1042–
S reporting purposes. See paragraph
(d)(4)(iii) of this section for the residual
reporting responsibilities of an NQI,
NWP, or NWT that is an FFI.
(C) Amounts paid to a U.S. branch of
a participating FFI or registered
deemed-compliant FFI. A U.S.
withholding agent making a payment of
U.S. source FDAP income to a U.S.
branch of a participating FFI or
registered deemed-compliant FFI shall
complete Form 1042–S as follows—
(1) If the U.S. branch is treated as a
U.S. person, the withholding agent
treats amounts paid as effectively
connected with the conduct of the
branch’s trade or business in the United
States, or the U.S. branch is the
beneficial owner of the payment, the
withholding agent must file Form 1042–
S reporting the U.S. branch as the
recipient;
(2) If the U.S. branch is not treated as
a U.S. person and provides the
withholding agent with a withholding
certificate that transmits information
regarding its reporting pools as
described in paragraph (d)(4)(i)(B) of
this section or information regarding
each recipient that is an account holder
or payee of the U.S. branch, the
withholding agent must complete a
separate Form 1042–S issued to the U.S.
branch for each such pool to the extent
required on the form and its
accompanying instructions or must
complete a separate Form 1042–S issued
to each recipient whose documentation
is associated with the U.S. branch’s
withholding certificate as described in
paragraph (d)(4)(ii)(A) of this section
and report the U.S. branch as an entity
not treated as a recipient; or
(3) If the U.S. branch is not treated as
a U.S. person, to the extent its fails to
provide sufficient information regarding
its account holders or payees, the
withholding agent shall report the
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18:04 Jan 25, 2013
Jkt 229001
recipient of the payment as an unknown
recipient to the extent recipient
information is not provided and report
the U.S. branch as provided in
paragraph (d)(4)(ii)(A) of this section for
an entity not treated as a recipient.
(D) Amounts paid to territory
financial institutions that are flowthrough entities or acting as
intermediaries. A U.S. withholding
agent making a withholdable payment
to a territory financial institution that is
a flow-through entity or that acts as an
intermediary must complete Form
1042–S as follows—
(1) If the territory financial institution
is treated as a U.S. person or is the
beneficial owner of the payment, the
withholding agent must file Form 1042–
S treating the territory financial
institution as the recipient;
(2) If the territory financial institution
is not treated as a U.S. person and
provides the withholding agent with a
withholding certificate that transmits
information regarding each recipient
that is an partner, beneficiary, owner,
account holder, or payee, the
withholding agent must complete a
separate Form 1042–S for each recipient
whose documentation is associated with
the territory financial institution’s
withholding certificate as described in
paragraph (d)(4)(ii)(A) of this section
and must report the territory financial
institution under that paragraph; or
(3) If the territory financial institution
is not treated as a U.S. person, to the
extent its fails to provide sufficient
information regarding its partners,
beneficiaries, owners, account holders
or payees, the withholding agent shall
report the recipient of the payment as an
unknown recipient and report the
territory financial institution as
provided in paragraph (d)(4)(ii)(A) of
this section for an entity not treated as
a recipient.
(E) Amounts paid to NFFEs. A U.S.
withholding agent that makes payments
of chapter 4 reportable amounts to a
passive NFFE shall complete Forms
1042–S treating the passive NFFE as the
recipient, except to the extent such
withholding agent treats a partner,
beneficiary, or owner in a flow-through
entity that is a passive NFFE as a payee.
In the case of an excepted NFFE that is
a flow-through entity, see § 1.1461–
1(c)(4)(A) for the extent to which
reporting is required with respect to the
partners, beneficiaries, or owners of
such entities.
(ii) Payments made by withholding
agents to certain entities that are not
recipients—(A) Entities that provide
information for a withholding agent to
perform specific payee reporting. If a
U.S. withholding agent makes a
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5989
payment of a chapter 4 reportable
amount to a flow-through entity that is
a passive NFFE, a nonparticipating FFI
receiving a payment on behalf of an
exempt beneficial owner, or a
participating FFI or deemed-compliant
FFI that is an NQI, NWP, or NWT,
except as otherwise provided in
paragraph (d)(4)(i)(B) of this section, the
withholding agent must complete a
separate Form 1042–S for each recipient
that is a partner, beneficiary, owner, or
account holder of such entity to the
extent the withholding agent can
reliably associate the payment with
valid documentation (under the rules of
§ 1.1471–3(c) and (d)) provided by such
entity, as applicable, with respect to
each such recipient. If a payment is
made through tiers of such entities, the
withholding agent must nevertheless
complete Form 1042–S for the recipient
to the extent it can reliably associate the
payment with documentation provided
with respect to that recipient. A
withholding agent that is completing a
Form 1042–S for a recipient described
in this paragraph (d)(4)(ii)(A) must
include on the form the information
described in paragraph (d)(3)(vii) of this
section for the entity through which the
recipient directly receives the payment.
(B) Nonparticipating FFI that is a
flow-through entity or intermediary. If a
withholding agent makes a payment of
a chapter 4 reportable amount to a
nonparticipating FFI that it is required
to treat as an intermediary with regard
to a payment or as a flow-through entity
under rules described in § 1.1471–
3(c)(2)(iii), and except as otherwise
provided in paragraph (d)(1)(ii)(A)(1)(xi)
of this section (relating to an exempt
beneficial owner), the withholding agent
must report the recipient of the payment
as an unknown recipient and report the
nonparticipating FFI as provided in
paragraph (d)(4)(ii)(A) of this section for
an entity not treated as a recipient.
(C) Disregarded entities. If a U.S.
withholding agent makes a payment to
a disregarded entity but receives a valid
withholding certificate or other
documentary evidence from a person
that is the single owner of a disregarded
entity, the withholding agent must file
a Form 1042–S treating the single owner
as the recipient. The GIIN on the form,
or TIN, if required, must be the single
owner’s reporting identification number
or TIN.
(iii) Reporting by participating FFIs
and deemed-compliant FFIs (including
QIs, WPs, and WTs)—(A) In general.
Except as otherwise provided in
paragraphs (d)(4)(iii)(B) (relating to
NQIs, NWPs, NWTs, and FFIs electing
under section 1471(b)(3)) and
(d)(4)(iii)(C) of this section (relating to
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transitional payee specific reporting for
payments to nonparticipating FFIs), a
participating FFI or deemed-compliant
FFI (including a QI, WP, WT, or U.S.
branch of such FFIs that is not treated
as a U.S. person) that makes a payment
that is a chapter 4 reportable amount to
a recalcitrant account holder or
nonparticipating FFI, must complete a
Form 1042–S to report such payments.
A participating FFI or registered
deemed-compliant FFI (including a QI,
WP, WT or U.S. branch of such FFI that
is not treated as a U.S. person) may
report in pools consisting of its
recalcitrant account holders and payees
that are nonparticipating FFIs. With
respect to recalcitrant account holders,
the FFI may report in pools consisting
of recalcitrant account holders within a
particular status described in § 1.1471–
4(d)(6) and within a particular income
code. Except as otherwise provided in
paragraph (d)(4)(iii)(C) of this section,
with respect to payees that are
nonparticipating FFIs, the FFI may
report in pools consisting of one or more
nonparticipating FFIs that fall within a
particular income code and within a
particular status code described in the
instructions to Form 1042–S.
Alternatively, a participating FFI or
registered deemed-compliant FFI
(including a QI, WP, WT, or U.S. branch
of such FFI that is not treated as a U.S.
person) may (and a certified deemedcompliant FFI is required to) perform
specific payee reporting to report a
chapter 4 reportable amount made to a
recalcitrant account holder or a
nonparticipating FFI when withholding
was applied (or should have applied) to
the payment.
(B) Special reporting requirements of
participating FFIs, deemed-compliant
FFIs, and FFIs that make an election
under section 1471(b)(3). Except as
otherwise provided in paragraph
(d)(4)(iii)(C) of this section, a
participating FFI or deemed-compliant
FFI that is an NQI, NWP, NWT
(including a U.S. branch of such FFI
that is not treated as a U.S. person), or
an FFI that has made an election under
section 1471(b)(3) and has provided
sufficient information to its withholding
agent to withhold and report the
payment, is not required to report the
payment on Form 1042–S as described
in paragraph (d)(4)(iii)(A) of this section
if the payment is made to a
nonparticipating FFI or recalcitrant
account holder and its withholding
agent has withheld the correct amount
of tax on such payment and correctly
reported the payment on a Form 1042–
S. Such FFI is required to report a
payment, however, when the FFI knows
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or, has reason to know, that less than
the required amount has been withheld
by the withholding agent on the
payment or the withholding agent has
not correctly reported the payment on
Form 1042–S. In such case, the FFI must
report on Form 1042–S to the extent
required under paragraph (d)(4)(iii)(A)
of this section. See, however, § 1.1471–
4(d)(6) for the requirement to report
certain aggregate information regarding
accounts held by recalcitrant account
holders on Form 8966, ‘‘FATCA
Report,’’ regardless of whether
withholdable payments are made to
such accounts.
(C) Reporting by participating FFIs
and registered deemed-compliant FFIs
(including QIs, WPs, and WTs) for
certain payments made to
nonparticipating FFIs (transitional).
Except as otherwise provided in the
instructions to Form 1042–S, if a
participating FFI or registered deemedcompliant FFI (including a QI, WP, WT,
or U.S. branch of such FFI that is not
treated as a U.S. person) makes a
payment to a nonparticipating FFI of a
foreign reportable amount as defined in
paragraph (d)(2)(i)(D) of this section, the
FFI must report on Form 1042–S on a
payee specific basis the aggregate
amount of all foreign reportable
amounts paid by the FFI to the
nonparticipating FFI and any payment
of U.S. source FDAP income made to
such nonparticipating FFI for whom the
FFI receives the payment (and tax
withheld) for each of the calendar years
2015 and 2016.
(D) Reporting by U.S. branches of a
participating FFI or registered deemedcompliant FFI that is treated as a U.S.
person. A U.S. branch of a participating
FFI or registered deemed-compliant FFI
that is treated as a U.S. person must
report amounts paid to recipients on
Forms 1042–S in the same manner as a
U.S. withholding agent under paragraph
(d)(4)(i) of this section.
(iv) Reporting by territory financial
institutions. A territory financial
institution that is not treated as a U.S.
person will not be required to report on
Form 1042–S if another withholding
agent has reported the same amount
with regard to the same recipient for
which such entity would otherwise be
required to file a return under this
paragraph (d)(4)(iv) and such
withholding agent has withheld the
entire amount required to be withheld
from such payment. A territory financial
institution must, however, report
payments made to recipients for whom
it has failed to provide the appropriate
documentation to another withholding
agent or to the extent it knows, or has
reason to know, that less than the
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required amount has been withheld. A
territory financial institution that is
treated as a U.S. person or is otherwise
required under this paragraph (d)(4)(iv)
to report amounts paid to recipients on
Forms 1042–S must report in the same
manner as a U.S. withholding agent.
(v) Nonparticipating FFIs. A
nonparticipating FFI that is a flowthrough entity or that acts as an
intermediary with respect to a payment
may file Forms 1042 and 1042–S only
to report and allocate tax withheld to
the account holders, partners, owners,
or beneficiaries of the nonparticipating
FFI.
(vi) Other withholding agents. Any
person that is a withholding agent that
is not described in any of paragraphs
(d)(4)(i) through (v) of this section shall
file Forms 1042–S in the same manner
as a U.S. withholding agent and in
accordance with the instructions to the
form.
(e) Magnetic media reporting. A
withholding agent that is not a financial
institution and that is required to file
250 or more Form 1042–S information
returns for a taxable year must file Form
1042–S returns on magnetic media. See
§ 301.6011–2(b) of this chapter for the
requirements of a withholding agent
that is not a financial institution with
respect to the filing of Forms 1042–S on
magnetic media. See § 301.1474–1(a) of
this chapter for the requirements
applicable to a withholding agent that is
a financial institution with respect to
the filing of Forms 1042–S on magnetic
media.
(f) Indemnification of withholding
agent. A withholding agent is
indemnified against the claims and
demands of any person for the amount
of any tax it deducts and withholds in
accordance with the provisions of
chapter 4 and the regulations
thereunder. A withholding agent that
withholds based on a reasonable belief
that such withholding is required under
chapter 4 and the regulations
thereunder is treated for purposes of
section 1474 and this paragraph (f) as
having withheld tax in accordance with
the provisions of chapter 4 and the
regulations thereunder. This paragraph
(f) does not relieve a withholding agent
from tax liability under chapter 3 or
chapter 4 or the regulations under those
chapters.
(g) Extensions of time to file Forms
1042 and 1042–S. The IRS may grant an
extension of time to file Form 1042 or
1042–S as described in § 1.1461–1(g).
(h) Penalties. For penalties and
additions to tax for failure to file returns
or file and furnish statements in
accordance with this section, see
sections 6651, 6662, 6663, 6721, 6722,
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6723, 6724(c), 7201, 7203, and the
regulations under those sections. For
penalties and additions to tax for failure
to timely pay the tax required to be
withheld under chapter 4, see sections
6656, 6672, 7202, and the regulations
under those sections.
(i) Additional reporting requirements
with respect to U.S. owned foreign
entities and owner-documented FFIs—
(1) Reporting by certain withholding
agents with respect to ownerdocumented FFIs. Beginning in calendar
year 2014, if a withholding agent (other
than an FFI reporting accounts held by
owner-documented FFIs under
§ 1.1471–4(d)) makes during a calendar
year a payment of a chapter 4 reportable
amount to an entity account holder or
payee of an obligation and the
withholding agent treats the entity as an
owner-documented FFI under § 1.1471–
3(d)(6), the withholding agent is
required to report for such calendar year
with respect to each specified U.S.
person that has a direct or indirect debt
or equity interest in such entity. Such
report must be made on Form 8966 (or
such other form as the IRS may
prescribe) and filed on or before March
31 of the calendar year following the
year in which the withholdable
payment was made. The report must
contain the following information—
(i) The name of the ownerdocumented FFI;
(ii) The name, address, and TIN of
each specified U.S. person identified in
§ 1.1471–3(d)(6)(iv)(A)(1);
(iii) The total of all payments made to
the owner-documented FFI;
(iv) The account balance or value of
the account held by the ownerdocumented FFI; and
(v) Any other information required on
Form 8966 and its accompanying
instructions provided for purposes of
such reporting.
(2) Reporting by certain withholding
agents with respect to U.S. owned
foreign entities that are NFFEs.
Beginning in calendar year 2014, in
addition to the reporting on Form 1042–
S required under paragraph (d)(4)(i)(E)
of this section, a withholding agent
(other than an FFI reporting accounts
held by NFFEs under § 1.1471–4(d)) that
receives information about any
substantial U.S. owners of an NFFE that
is not an excepted NFFE as defined in
§ 1.1472–1(c) shall file a report with the
IRS for such calendar year with respect
to any substantial U.S. owners of such
NFFE. Such report must be made on
Form 8966 (or such other form as the
IRS may prescribe) and filed on or
before March 31 of the calendar year
following the year in which the
withholdable payment was made. The
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report must contain the following
information—
(i) Name of the NFFE that is owned
by a substantial U.S. owner;
(ii) The name, address, and TIN of
each substantial U.S. owner of such
NFFE;
(iii) The total of all payments made to
the NFFE; and
(iv) Any other information as required
by the form and its accompanying
instructions.
(3) Cross reference to reporting by
participating FFIs. For the reporting
requirements of a participating FFI with
respect to an account holder that is a
U.S. owned foreign entity or that it
treats as an owner-documented FFI, see
§ 1.1471–4(d).
(j) Effective/applicability date. This
section generally applies on January 28,
2013. For other dates of applicability see
§§ 1.1474–1(d)(4)(iii)(C) and 1.1474–1(i).
■ Par. 14. Section 1.1474–2 is added to
read as follows:
§ 1.1474–2 Adjustments for
overwithholding or underwithholding of tax.
(a) Adjustments of overwithheld tax—
(1) In general. Except as otherwise
provided by this section, a withholding
agent that has overwithheld tax under
chapter 4 and made a deposit of the tax
as provided in § 1.6302–2(a) may adjust
the amount of overwithheld tax either
pursuant to the reimbursement
procedure described in paragraph (a)(3)
of this section or pursuant to the set-off
procedure described in paragraph (a)(4)
of this section. Adjustments under this
paragraph (a) may only be made within
the time prescribed under paragraph
(a)(3) or (a)(4) of this section. After such
time, a refund of the amount of
overwithheld tax can only be claimed
pursuant to the procedures described in
§ 1.1474–5 and chapter 65 of the Code
and the regulations thereunder.
(2) Overwithholding. For purposes of
this section, the term overwithholding
means an amount actually withheld
(determined before application of the
adjustment procedures under this
section and regardless of whether such
overwithholding was in error or
appeared correct at the time it occurred)
from an item of income or other
payment pursuant to chapter 4 that is in
excess of the greater of—
(i) The amount required to be
withheld with respect to such item of
income or other payment under chapter
4; and
(ii) The actual tax liability of the
beneficial owner that is attributable to
the income or payment from which the
amount was withheld.
(3) Reimbursement of tax—(i) General
rule. Under the reimbursement
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5991
procedure, the withholding agent may
repay the beneficial owner or payee for
an amount of overwithheld tax. In such
case, the withholding agent may
reimburse itself by reducing, by the
amount actually repaid to the beneficial
owner or payee, the amount of any
deposit of tax made by the withholding
agent under § 1.6302–2(a)(1)(iii) for any
subsequent payment period occurring
before the end of the calendar year
following the calendar year of
overwithholding. A withholding agent
must obtain valid documentation as
described under § 1.1471–3(c)(6) with
respect to the beneficial owner or payee
supporting a reduced rate of
withholding before reducing the amount
of any deposit of tax under this
paragraph (a)(3)(i). Any such reduction
that occurs for a payment period in the
calendar year following the calendar
year of overwithholding shall be
allowed only if—
(A) The repayment of the beneficial
owner or payee occurs before the earlier
of the due date (without regard to
extensions) for filing the Form 1042–S
for the calendar year of overwithholding
or the date that the Form 1042–S is
actually filed with the IRS;
(B) The withholding agent states on a
timely filed (not including extensions)
Form 1042–S the amount of tax
withheld and the amount of any actual
repayment; and
(C) The withholding agent states on a
timely filed (not including extensions)
Form 1042 for the calendar year of
overwithholding that the filing of the
Form 1042 constitutes a claim for credit
in accordance with § 1.6414–1.
(ii) Record maintenance. If the
beneficial owner or payee is repaid an
amount of overwithheld tax under the
provisions of this paragraph (a)(3), the
withholding agent shall keep as part of
its records a receipt showing the date
and amount of repayment, and the
withholding agent must provide a copy
of such receipt to the beneficial owner
or payee. For this purpose, a canceled
check or an entry in a statement is
sufficient, provided that the check or
statement contains a specific notation
that it is a refund of tax overwithheld.
(4) Set-offs. Under the set-off
procedure, the withholding agent may
repay the beneficial owner or payee for
an amount of overwithheld tax by
applying the amount overwithheld
against any amount which otherwise
would be required under chapter 3 or 4
to be withheld from the amount paid by
the withholding agent to such person
before the earlier of the due date
(without regard to extensions) for filing
the Form 1042–S for the calendar year
of overwithholding or the date that the
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Form 1042–S is actually filed with the
IRS. For purposes of making a return on
Form 1042 or 1042–S (or an amended
form) for the calendar year of
overwithholding and for purposes of
making a deposit of the amount
withheld, the reduced amount shall be
considered the amount required to be
withheld from such payment under
chapter 3 or 4, respectively.
(5) Examples. The principles of this
paragraph (a) are illustrated by the
following examples:
Example 1. (i) Fund A is a unit investment
trust that is an FFI and a resident of Country
X. Fund A also qualifies for the benefits of
the income tax treaty between the United
States and Country X. On December 1, 2016,
domestic corporation C pays a dividend of
$100 to Fund A, at which time C withholds
$30 of tax pursuant to § 1.1471–2(a) and
remits the balance of $70 to Fund A, because
it does not hold valid documentation that
Fund A is a participating FFI or deemedcompliant FFI. On February 10, 2017, prior
to the time that C is obligated to file its Form
1042, Fund A furnishes a valid Form W–
8BEN described in §§ 1.1441–1(e)(2)(i) and
1.1471–3(c)(3)(ii) upon which C may rely to
treat Fund A as the beneficial owner of the
income and as a participating FFI so that C
may reduce the rate of withholding to 15%
under the provisions of the United StatesCountry X income tax treaty with respect to
the payment. C repays the excess tax
withheld of $15 to Fund A.
(ii) During the 2016 calendar year, C makes
no other payments upon which tax is
required to be withheld under chapter 3 or
4; accordingly, its Form 1042 for such year,
filed on March 15, 2017, shows total tax
withheld of $30, an adjusted total tax
withheld of $15, and tax deposited of $30 for
such year. Pursuant to § 1.6414–1, C claims
a credit for the overpayment of $15 shown on
the Form 1042 for 2016. Accordingly, C is
permitted to reduce by $15 any deposit
required by § 1.6302–2 to be made of tax
withheld during the 2017 calendar year with
respect to taxes due under chapter 3 or 4. The
Form 1042–S required to be filed by C with
respect to the dividend of $100 paid to Fund
A in 2016 is required to show tax withheld
of $30 and tax repaid of $15 to Fund A.
Example 2. (i) In November 2016, Bank A,
a foreign bank organized in Country X that
is an NQI, receives on behalf of one of its
account holders, Z, an individual, a $100
dividend payment from C, a domestic
corporation. At the time of payment, C
withholds $30 pursuant to § 1.1471–2(a) and
remits the balance of $70 to Bank A, because
it does not hold valid documentation that it
may rely on to treat Bank A as a participating
FFI or deemed-compliant FFI. In December
2016, prior to the time that C files its Forms
1042 and 1042–S, Bank A furnishes a valid
Form W–8IMY and FFI withholding
statement described in § 1.1471–3(c)(3)(iii)
that establishes Bank A’s status as a
participating FFI that is an NQI, as well as
a valid Form W–8BEN that has been
completed by Z as described in § 1.1471–
3(c)(3)(ii) and § 1.1441–1(e)(2)(i) upon which
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C may rely to treat the payment as made to
Z, a nonresident alien individual who is a
resident of Country X eligible for a reduced
rate of withholding of 15% under the income
tax treaty between the United States and
Country X. Although C has already deposited
the $30 that was withheld, as required by
§ 1.6302–2(a)(1)(iv), C remits the amount of
$15 to Bank A for the benefit of Z.
(ii) During the 2016 calendar year, C makes
no other payments upon which tax is
required to be withheld under chapter 3 or
4; accordingly, its return on Form 1042 for
such year, which is filed on March 15, 2017,
shows total tax withheld of $30, an adjusted
total tax withheld of $15, and tax deposited
of $30. Pursuant to § 1.6414–1(b), C claims a
credit for the overpayment of $15 shown on
the Form 1042 for 2014. Accordingly, it is
permitted to reduce by $15 any deposit
required by § 1.6302–2 to be made of tax
withheld during the 2017 calendar year. The
Form 1042–S required to be filed by C for
2016 with respect to the dividend of $100
beneficially owned by Z is required to show
tax withheld of $30 and tax repaid of $15 to
Z.
(b) Withholding of additional tax
when underwithholding occurs. A
withholding agent that has
underwithheld under chapter 4 may
apply the procedures described in
§ 1.1461–2(b) (by substituting the term
‘‘chapter 4’’ for ‘‘chapter 3’’) to satisfy
its withholding obligations under
chapter 4 with respect to a payee or
beneficial owner.
(c) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 15. Section 1.1474–3 is added to
read as follows:
§ 1.1474–3 Withheld tax as credit to
beneficial owner of income.
(a) Creditable tax. The entire amount
of the income, if any, attributable to a
payment from which tax is required to
be withheld under chapter 4 (including
income deemed paid by a withholding
agent under § 1.1473–1(a)(2)(v)) shall be
included in gross income in a return
required to be made by the beneficial
owner of the income, without deduction
for the amount required to be or actually
withheld, but the amount of tax actually
withheld shall be allowed as a credit
against the total income tax computed
in the beneficial owner’s return.
(b) Amounts paid to persons that are
not the beneficial owners. Amounts
actually deducted and withheld under
chapter 4 on payments made to a
fiduciary, agent, partnership, trust, or
intermediary are deemed to have been
paid by the beneficial owner of the item
of income or other payment subject to
withholding under chapter 4, except
when the fiduciary, agent, partnership,
trust, or intermediary pays the tax from
its own funds and does not in turn
withhold with respect to the payment
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made to such person. Thus, for example,
if a beneficiary of a trust is subject to the
taxes imposed by section 1, 2, 3, or 11
upon any amount of distributable net
income or other taxable distribution
received from a foreign trust, the part of
any amount withheld at source under
chapter 4 that is properly allocable to
the income so taxed to such beneficiary
shall be credited against the amount of
the income tax computed upon the
beneficiary’s return, and any excess
shall be refunded to the beneficiary in
accordance with § 1.1474–5 and chapter
65 of the Code.
(c) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 16. Section 1.1474–4 is added to
read as follows:
§ 1.1474–4
Tax paid only once.
(a) Tax paid. If the tax required to be
withheld under chapter 4 on a payment
is paid by the payee, beneficial owner,
or the withholding agent, it shall not be
re-collected from any other, regardless
of the original liability therefor.
However, this section does not relieve a
person that was required to, but did not,
withhold tax from liability for interest
or any penalties or additions to tax
otherwise applicable.
(b) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 17. Section 1.1474–5 is added to
read as follows:
§ 1.1474–5
Refunds or credits.
(a) Refund and credit—(1) In general.
Except to the extent otherwise provided
in this section, a refund or credit of tax
which has actually been withheld at the
source at the time of payment under
chapter 4 shall be made to the beneficial
owner of the payment to which the
amount of withheld tax is attributable if
the beneficial owner or payee meets the
requirements of this paragraph (a) and
any other requirements that may be
required under chapter 65. To the extent
that the amount withheld under chapter
4 is not actually withheld at source, but
is later paid by the withholding agent to
the IRS, the refund or credit under
chapter 65 of the Code shall be made to
the withholding agent to the extent the
withholding agent provides
documentation with respect to the
beneficial owner or payee described in
paragraphs (a)(2) and (3) of this section
sufficient for the beneficial owner or
payee to have obtained a refund of the
tax and sufficient for the withholding
agent to have applied a reduced rate or
exemption from withholding under
chapter 4. The preceding sentence shall
not, however, apply to a
nonparticipating FFI that is acting as a
withholding agent with respect to one or
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more of its account holders. In such a
case, only the account holders of the
nonparticipating FFI will be entitled to
a credit or refund of an amount
withheld under chapter 4, to the extent
otherwise allowable under this section.
Additionally, there are collective refund
procedures for a participating FFI or
reporting Model 1 FFI to claim a refund
or credit on behalf of certain direct
account holders that are beneficial
owners of the payment under § 1.1471–
4(h) (in lieu of such account holders
claiming refund or credit under this
paragraph (a)(1)).
(2) Limitation to refund and credit for
a nonparticipating FFI. Notwithstanding
paragraph (a)(1) of this section, a
nonparticipating FFI (determined as of
the time of payment) that is the
beneficial owner of an item of income
or other payment that is subject to
withholding under chapter 4 shall not
be entitled to any credit or refund
pursuant to section 1474(b)(2) and this
section unless it is entitled to a reduced
rate of tax with respect to the income or
other payment by reason of any treaty
obligation of the United States. If the
nonparticipating FFI is entitled to a
reduced rate of tax with respect to an
item of income or other payment by
reason of any treaty obligation of the
United States, the amount of any credit
or refund with respect to such tax shall
not exceed the amount of credit or
refund attributable to such reduction in
rate on the item of income or other
payment, and no interest otherwise
allowable under section 6611 shall be
allowed or paid with respect to such
credit or refund.
(3) Requirement to provide additional
documentation for certain beneficial
owners—(i) In general. Except as
provided in paragraph (a)(3)(ii) of this
section, no refund or credit shall be
allowed under paragraph (a)(1) of this
section to the beneficial owner of the
income or other payment to which the
amount of such withheld tax was
attributable if such beneficial owner is
an NFFE, unless the NFFE attaches to its
income tax return the information
described in paragraph (a)(3)(iii) of this
section.
(ii) Claim of reduced withholding
under an income tax treaty. Paragraph
(a)(3)(i) of this section does not apply to
the extent that the beneficial owner is
entitled to a reduced rate of tax with
respect to the income or other payment
by reason of any treaty obligation of the
United States.
(iii) Additional documentation to be
furnished to the IRS for certain NFFEs.
The information described in this
paragraph (a)(3)(iii) is—
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(A) A certification that the beneficial
owner does not have any substantial
U.S. owners;
(B) The form described in § 1.1474–
1(i)(2) relating to each substantial U.S.
owner of such entity; or
(C) Other appropriate documentation
to establish withholding was not
required under chapter 4.
(b) Tax repaid to payee. For purposes
of this section and § 1.6414–1, any
amount of tax withheld under chapter 4,
which, pursuant to § 1.1474–2(a)(1), is
repaid by the withholding agent to the
beneficial owner of the income or
payment to which the withheld amount
is attributable shall be considered as tax
which, within the meaning of sections
1474 and 6414, was not actually
withheld by the withholding agent.
(c) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 18. Section 1.1474–6 is added to
read as follows:
§ 1.1474–6 Coordination of chapter 4 with
other withholding provisions.
(a) In general. This section
coordinates the withholding
requirements of a withholding agent
when a withholdable payment or
foreign passthru payment is subject to
withholding under both chapter 4 and
another Code provision. See § 1.1473–
1(a) for the definition of withholdable
payment and see § 1.1471–5(h)(2) for the
definition of foreign passthru payment.
(b) Coordination of withholding for
amounts subject to withholding under
sections 1441, 1442, and 1443—(1) In
general. In the case of a withholdable
payment that is both subject to
withholding under chapter 4 and is an
amount subject to withholding under
§ 1.1441–2(a), a withholding agent may
credit the withholding applied under
chapter 4 against its liability for any tax
due under sections 1441, 1442, or 1443.
See § 1.1474–1(c) and (d) for the income
tax return and information return
reporting requirements that apply in the
case of a payment that is a withholdable
payment subject to withholding under
chapter 4 that is also an amount subject
to withholding under § 1.1441–2(a).
(2) When withholding is applied. For
purposes of paragraph (b)(1) of this
section, withholding is applied by a
withholding agent under section 1441
(or section 1442 or 1443) or chapter 4
(as applicable) when the withholding
agent has withheld on the payment and
has designated the withholding as
having been made under section 1441
(or section 1442 or 1443) or chapter 4
to the extent required in the reporting
described in § 1.1474–1(c) and (d). For
purposes of allowing an offset of
withholding and allowing a credit to a
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5993
withholding agent against its liability
for such tax as described in paragraph
(b)(1) of this section, withholding is
treated as applied for purposes of
paragraph (a) of this section only when
the withholding agent has actually
withheld on a payment and has not
made any adjustment for overwithheld
tax applicable to the amount withheld
that would otherwise be permitted with
respect to the payment.
(3) Special rule for certain substitute
dividend payments. In the case of a
dividend equivalent under section
871(m) paid pursuant to a securities
lending transaction described in section
1058 (or a substantially similar
transaction), or pursuant to a salerepurchase transaction, a withholding
agent may offset its obligation to
withhold under chapter 4 for amounts
withheld by another withholding agent
under chapters 3 and 4 with respect to
the same underlying security in such a
transaction, but only to the extent that
there is sufficient evidence as required
under chapter 3 that tax was actually
withheld on a prior dividend equivalent
paid to the withholding agent or a prior
withholding agent with respect to the
same underlying security in such
transaction.
(c) Coordination with amounts subject
to withholding under section 1445—(1)
In general. An amount subject to
withholding under section 1445 is not
subject to withholding under chapter 4
as described in paragraphs (c)(2)(i) and
(ii) of this section.
(2) Determining the amount of the
distribution from certain domestic
corporations subject to section 1445 or
chapter 4 withholding—(i) Distribution
from qualified investment entity. In the
case of a passthru payment (including a
withholdable payment) subject to
withholding under chapter 4 that is a
distribution with respect to the stock of
a qualified investment entity as
described in section 897(h)(4)(A),
withholding under chapter 4 does not
apply when withholding under section
1445 applies to such amounts. With
respect to the portion of such
distribution that is not subject to
withholding under section 1445 but is
subject to withholding under section
1441 (or section 1442 or 1443) and
chapter 4, the coordination rule
described in paragraph (b)(1) of this
section shall apply.
(ii) Distribution from a United States
real property holding corporation. A
distribution (or portion of a distribution)
from a United States real property
holding corporation (or from a
corporation that was a United States real
property holding corporation at any
time during the five-year period ending
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on the date of the distribution) with
respect to its stock that is a United
States real property interest under
section 897(c) is subject to withholding
under chapter 4 and is also subject to
the withholding provisions of section
1441 (or section 1442 or 1443) and
section 1445. In such case, to the extent
that the United States real property
holding corporation chooses to
withhold on a distribution only under
section 1441 (or section 1442 or 1443)
pursuant to § 1.1441–3(c)(4)(i)(A), the
coordination rule described in
paragraph (b)(1) of this section shall
apply to such distribution.
Alternatively, to the extent that the
United States real property holding
corporation chooses to withhold under
both section 1441 (or section 1442 or
1443) and section 1445 pursuant to
§ 1.1441–3(c)(4)(i)(B), the coordination
rule described in paragraph (b)(1) of this
section shall apply to the portion of
such distribution described in § 1.1441–
3(c)(4)(i)(B)(1), and withholding under
section 1445 shall apply to the amount
of such distribution described in
§ 1.1441–3(c)(4)(i)(B)(2). A withholding
agent other than a United States real
property holding corporation may rely,
absent actual knowledge or reason to
know otherwise, on the representations
of the United States real property
holding corporation making the
distribution regarding the portion of the
distribution that is estimated to be a
dividend under § 1.1441–3(c)(2)(ii)(A),
and in the case of a failure by the
withholding agent to withhold under
chapter 4 due to this reliance, the
required amount shall be imputed to the
United States real property holding
corporation.
(d) Coordination with section 1446—
(1) In general. Except as otherwise
provided in paragraph (d)(2) of this
section, a withholdable payment or a
foreign passthru payment subject to
withholding under section 1446 shall
not be subject to withholding under
chapter 4. See § 1.1473–1(a)(4)(ii) for the
exclusion from withholdable payment
and the requirements for such exclusion
for any item of income that is taken into
account under section 871(b)(1) or
882(a)(1) for the taxable year.
(2) Determining the amount of
distribution subject to section 1446.
[Reserved].
(e) Example Chapter 4 withholding
satisfies chapter 3 withholding obligation.
WA, a U.S. withholding agent, makes a
payment consisting of a dividend from
sources within the United States to NPFFI.
NPFFI is a nonparticipating FFI that is a
resident of Country X, a country that has an
income tax treaty in force with the United
States that would allow WA to reduce the
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rate of withholding for section 1442 purposes
on a payment of U.S. source dividends paid
to NPFFI to 15%. Because the payment is a
withholdable payment and NPFFI is a
nonparticipating FFI, WA withholds on the
payment at the rate of 30% under chapter 4.
WA does not make any adjustment for
overwithholding that is otherwise permitted
with respect to this payment. Although the
payment is also an amount subject to
withholding under section 1442, WA is not
required to withhold any tax on this payment
under section 1442. WA may credit its
withholding applied under chapter 4 against
the amount of tax otherwise required to be
withheld on this payment under section
1442. See § 1.1474–5(a)(2) for the credit and
refund procedures for nonparticipating FFIs
that are entitled to a reduced rate of tax with
respect to an amount subject to withholding
under chapter 4 by reason of any treaty
obligation of the United States.
(f) Effective/applicability date. This
section applies January 28, 2013.
■ Par. 19. Section 1.1474–7 is added to
read as follows:
§ 1.1474–7
Confidentiality of information.
(a) Confidentiality of information.
Pursuant to section 1474(c)(1), the
provisions of § 31.3406(f)–1(a) of this
chapter shall apply (substituting
‘‘sections 1471 through 1474’’ for
‘‘section 3406’’) to information obtained
or used in connection with the
requirements of chapter 4.
(b) Exception for disclosure of
participating FFIs. Pursuant to section
1474(c)(2), the identity of a participating
FFI or deemed-compliant FFI shall not
be treated as return information for
purposes of section 6103.
(c) Effective/applicability date. This
section applies January 28, 2013.
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 20. The authority citation
for part 301 is amended by adding an
entry in numerical order to read in part
as follows:
■
Authority: 26 U.S.C. 7805.
Section 301.1474–1 also issued under 26
U.S.C. 1474(f). * * *
Par. 21. Section 301.1474–1 is added
to read as follows:
■
§ 301.1474–1 Required use of magnetic
media for financial institutions filing Form
1042–S or Form 8966.
(a) Financial institutions filing certain
information returns. If a financial
institution is required to file a Form
1042–S, ‘‘Foreign Person’s U.S. Source
Income Subject to Withholding,’’ (or
such other form as the IRS may
prescribe) under § 1.1474–1(d) of this
chapter, the financial institution must
file the information required by the
applicable forms and schedules on
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magnetic media. Additionally, if a
financial institution is required to file
Form 8966, ‘‘FATCA Report,’’ (or such
other form as the IRS may prescribe) to
report certain information about U.S.
accounts, substantial U.S. owners of
foreign entities, or owner-documented
FFIs as required under this chapter, the
financial institution must file the
required information on magnetic media
or other machine-readable form. Returns
filed on magnetic media must be made
in accordance with applicable
regulations, revenue procedures,
publications, forms, instructions, and
the IRS.gov Internet site. In prescribing
regulations, revenue procedures,
publications, forms, and instructions,
including those on the IRS.gov Internet
site, the Commissioner may direct the
type of magnetic media or other
machine-readable form used for filing.
(b) Waiver. The Commissioner may
grant waivers from the requirements of
this section in cases of undue hardship.
A request for waiver must be made in
accordance with applicable revenue
procedures or publications. The waiver
also will be subject to such terms and
conditions regarding the method of
filing as may be prescribed by the
Commissioner.
(c) Failure to file. If a financial
institution fails to file a Form 1042–S or
a Form 8966 on magnetic media when
required to do so by this section, the
financial institution is deemed to have
failed to comply with the information
reporting requirements under section
6723 of the Code. See section 6724(c) for
failure to meet magnetic media
requirements. In determining whether
there is reasonable cause for failure to
file the return, § 301.6651–1(c) and rules
similar to the rules in § 301.6724–1(c)(3)
(undue economic hardship related to
filing information returns on magnetic
media) will apply.
(d) Meaning of terms. The following
definitions apply for purposes of this
section—(1) Magnetic media. The term
magnetic media means any magnetic
media permitted under applicable
regulations, revenue procedures,
publications, forms, or instructions.
These generally include magnetic tape,
tape cartridge, and diskette, as well as
other media, such as electronic filing,
specifically permitted under the
applicable regulations, revenue
procedures, publications, forms, or
instructions.
(2) Financial institution. The term
financial institution has the meaning set
forth in section 1471(d)(5) of the Code
and the regulations thereunder.
(e) Effective/applicability date. This
section applies to any Form 1042–S or
Form 8966 (or any other form that the
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Federal Register / Vol. 78, No. 18 / Monday, January 28, 2013 / Rules and Regulations
IRS may prescribe) filed with respect to
calendar years ending after December
31, 2013.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: January 11, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2013–01025 Filed 1–17–13; 4:15 pm]
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5995
Agencies
[Federal Register Volume 78, Number 18 (Monday, January 28, 2013)]
[Rules and Regulations]
[Pages 5873-5995]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01025]
[[Page 5873]]
Vol. 78
Monday,
No. 18
January 28, 2013
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 301
Regulations Relating to Information Reporting by Foreign Financial
Institutions and Withholding on Certain Payments to Foreign Financial
Institutions and Other Foreign Entities; Final Rule
Federal Register / Vol. 78 , No. 18 / Monday, January 28, 2013 /
Rules and Regulations
[[Page 5874]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9610]
RIN 1545-BK68
Regulations Relating to Information Reporting by Foreign
Financial Institutions and Withholding on Certain Payments to Foreign
Financial Institutions and Other Foreign Entities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final Regulations.
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SUMMARY: This document contains final regulations under chapter 4 of
Subtitle A (sections 1471 through 1474) of the Internal Revenue Code of
1986 (Code) regarding information reporting by foreign financial
institutions (FFIs) with respect to U.S. accounts and withholding on
certain payments to FFIs and other foreign entities. These regulations
affect persons making certain U.S.-related payments to FFIs and other
foreign entities and payments by FFIs to other persons.
DATES: Effective date. These regulations are effective January 28,
2013.
Applicability dates. For dates of applicability, see Sec. Sec.
1.1471-1(c); 1.1471-2(a)(1); 1.1471-2(a)(2)(i), (ii), (iii)(A); 1.1471-
2(a)(4)(ii); 1.1471-3(d)(1); 1.1471-3(d)(4)(i), (ii); (iv); 1.1471-
3(d)(6)(v); 1.1471-3(d)(11)(viii)(A); 1471-3(d)(12)(iii)(B); 1471-
3(e)(3)(ii); 1471-3(e)(4)(vii)(B); 1.1471-4(b)(1), (4); 1.1471-4(d)(7);
1.1471-4(e)(2)(v); 1.1471-4(e)(3)(iv); 1.1471-5(f)(2)(iv); 1.1471-6(i);
1.1472-1(b); 1.1473-1(a)(1)(ii) and 1.1473-1(a)(4)(vi); 1.1474-
1(d)(4)(iii)(C) and 1.1474-1(i); 1.1474-2(c); 1.1471-3(c); 1.1474-4(b);
1.1474-5(c); 1.1474-6(f); 1.1474-7(c); 301.1474-1(e).
FOR FURTHER INFORMATION CONTACT: John Sweeney, (202) 622-3840 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
I. In General
This document contains final amendments to the Income Tax
Regulations (CFR parts 1 and 301) under sections 1471 through 1474 of
the Code (commonly known as the Foreign Account Tax Compliance Act, or
FATCA). On March 18, 2010, the Hiring Incentives to Restore Employment
Act of 2010, Public Law 111-147 (the HIRE Act), added chapter 4 of
Subtitle A (chapter 4), comprised of sections 1471 through 1474, to the
Code. Chapter 4 generally requires U.S. withholding agents to withhold
tax on certain payments to foreign financial institutions (FFIs) that
do not agree to report certain information to the Internal Revenue
Service (IRS) regarding their United States accounts (U.S. accounts),
and on certain payments to certain nonfinancial foreign entities
(NFFEs) that do not provide information on their substantial United
States owners (substantial U.S. owners) to withholding agents. Since
the enactment of chapter 4, the Department of the Treasury (Treasury
Department) and the IRS have issued preliminary guidance on the
implementation of chapter 4. See Notice 2010-60 (2010-37 I.R.B. 329),
Notice 2011-34 (2011-19 I.R.B. 765), and Notice 2011-53 (2011-32 I.R.B.
124) (collectively, the FATCA Notices). The FATCA Notices are available
at IRS.gov.
On February 15, 2012 (77 FR 9022), the Treasury Department and the
IRS published a notice of proposed rulemaking (the proposed
regulations) addressing chapter 4's due diligence, withholding,
reporting, and associated requirements. On October 24, 2012, the
Treasury Department and the IRS released Announcement 2012-42, which
announced the intention to amend certain provisions of the proposed
regulations in adopting the final regulations.
The Treasury Department and the IRS received numerous comments in
response to the proposed regulations, and a public hearing on the
proposed regulations was held on May 15, 2012. The comments received in
writing and at the public hearing were carefully considered in
developing these final regulations.
II. Chapter 4 Policy in the Context of the U.S. Federal Income Tax Laws
U.S. taxpayers' investments have become increasingly global in
scope. FFIs now provide a significant proportion of the investment
opportunities for, and act as intermediaries with respect to the
investments of, U.S. taxpayers. Like U.S. financial institutions, FFIs
are generally in the best position to identify and report with respect
to their U.S. customers. Absent such reporting by FFIs, some U.S.
taxpayers may attempt to evade U.S. tax by hiding money in offshore
accounts. To prevent this abuse of the U.S. voluntary tax compliance
system and address the use of offshore accounts to facilitate tax
evasion, it is essential in today's global investment climate that
reporting be available with respect to both the onshore and offshore
accounts of U.S. taxpayers. This information reporting strengthens the
integrity of the U.S. voluntary tax compliance system by placing U.S.
taxpayers that have access to international investment opportunities on
an equal footing with U.S. taxpayers that do not have such access or
otherwise choose to invest within the United States.
To this end, chapter 4 extends the scope of the U.S. information
reporting regime to include FFIs that maintain U.S. accounts. Chapter 4
also imposes increased disclosure obligations on certain NFFEs that
present a high risk of U.S. tax avoidance. In addition, chapter 4
provides for withholding on FFIs and NFFEs that do not comply with the
reporting and other requirements of chapter 4. This withholding
generally may be credited against the U.S. income tax liability of the
beneficial owner of the payment to which the withholding is
attributable, and generally may be refunded to the extent the
withholding exceeds such liability. An FFI that does not comply with
the requirements of section 1471(b), however, and that beneficially
owns the payment from which tax is withheld under chapter 4, may not
receive a credit or refund of such tax except to the extent required by
a treaty obligation of the United States.
III. Statutory Provisions
The following discussion briefly explains the statutory provisions
of FATCA, which are implemented by these regulations. Section 1471(a)
requires any withholding agent to withhold 30 percent of any
withholdable payment to an FFI that does not meet the requirements of
section 1471(b). A withholdable payment is defined in section 1473(1)
to mean, subject to certain exceptions: (i) Any payment of interest,
dividends, rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, and other fixed or determinable annual or
periodical gains, profits, and income (FDAP income), if such payment is
from sources within the United States; and (ii) any gross proceeds from
the sale or other disposition of any property of a type which can
produce interest or dividends from sources within the United States.
An FFI meets the requirements of section 1471(b) if it either
enters into an agreement (an FFI agreement) with the IRS under section
1471(b)(1) to perform certain obligations or meets requirements
prescribed by the Treasury Department and the IRS to be deemed to
comply with the requirements of section 1471(b). An FFI is defined as
[[Page 5875]]
any financial institution that is a foreign entity, other than a
financial institution organized under the laws of a possession of the
United States (generally referred to as a U.S. territory in this
preamble). For this purpose, section 1471(d)(5) defines a financial
institution as, except to the extent provided by the Secretary, any
entity that: (i) Accepts deposits in the ordinary course of a banking
or similar business; (ii) as a substantial portion of its business,
holds financial assets for the account of others; or (iii) is engaged
(or holding itself out as being engaged) primarily in the business of
investing, reinvesting, or trading in securities, partnership
interests, commodities, or any interest in such securities, partnership
interests, or commodities.
Section 1471(b)(1)(A) and (B) requires an FFI that enters into an
FFI agreement (a participating FFI) to identify its U.S. accounts and
comply with verification and due diligence procedures prescribed by the
Secretary. A U.S. account is defined under section 1471(d)(1) as any
financial account held by one or more specified United States persons,
as defined in section 1473(3), (specified U.S. persons) or United
States owned foreign entities (U.S. owned foreign entities), subject to
certain exceptions. Section 1471(d)(2) defines a financial account to
mean, except as otherwise provided by the Secretary, any depository
account, any custodial account, and any equity or debt interest in an
FFI, other than interests that are regularly traded on an established
securities market. A U.S. owned foreign entity is defined in section
1471(d)(3) as any foreign entity that has one or more substantial U.S.
owners (as defined in section 1473(2)).
A participating FFI is required under section 1471(b)(1)(C) and (E)
to report certain information on an annual basis to the IRS with
respect to each U.S. account and to comply with requests for additional
information by the Secretary with respect to any U.S. account. The
information that must be reported with respect to each U.S. account
includes: (i) The name, address, and taxpayer identifying number (TIN)
of each account holder who is a specified U.S. person (or, in the case
of an account holder that is a U.S. owned foreign entity, the name,
address, and TIN of each specified U.S. person that is a substantial
U.S. owner of such entity); (ii) the account number; (iii) the account
balance or value; and (iv) except to the extent provided by the
Secretary, the gross receipts and gross withdrawals or payments from
the account (determined for such period and in such manner as the
Secretary may provide). In lieu of reporting account balance or value
and reporting gross receipts and gross withdrawals or payments, a
participating FFI may, subject to conditions provided by the Secretary,
elect under section 1471(c)(2) to report the information required under
sections 6041, 6042, 6045, and 6049 as if such institution were a U.S.
person and each holder of such U.S. account that is a specified U.S.
person or U.S. owned foreign entity were a natural person and citizen
of the United States. If foreign law would prevent the FFI from
reporting the required information absent a waiver from the account
holder, and the account holder fails to provide a waiver within a
reasonable period of time, the FFI is required under section
1471(b)(1)(F) to close the account.
Section 1471(b)(1)(D)(i) requires a participating FFI to withhold
30 percent of any passthru payment to a recalcitrant account holder or
to an FFI that does not meet the requirements of section 1471(b)
(nonparticipating FFI). A passthru payment is defined in section
1471(d)(7) as any withholdable payment or other payment to the extent
attributable to a withholdable payment. Section 1471(d)(6) defines a
recalcitrant account holder as any account holder that fails to provide
the information required to determine whether the account is a U.S.
account, or the information required to be reported by the FFI, or that
fails to provide a waiver of a foreign law that would prevent
reporting. A participating FFI may, subject to such requirements as the
Secretary may provide, elect under section 1471(b)(3) not to withhold
on passthru payments, and instead be subject to withholding on payments
it receives, to the extent those payments are allocable to recalcitrant
account holders or nonparticipating FFIs. Section 1471(b)(1)(D)(ii)
requires a participating FFI that does not make such an election to
withhold on passthru payments it makes to any participating FFI that
makes such an election.
Section 1471(e) provides that the requirements of the FFI agreement
shall apply to the U.S. accounts of the participating FFI and, except
as otherwise provided by the Secretary, to the U.S. accounts of each
other FFI that is a member of the same expanded affiliated group, as
defined in section 1471(e)(2).
Section 1471(f) exempts from withholding under section 1471(a)
certain payments beneficially owned by certain persons, including any
foreign government, international organization, foreign central bank of
issue, or any other class of persons identified by the Secretary as
posing a low risk of tax evasion. Section 1472(a) requires a
withholding agent to withhold 30 percent of any withholdable payment to
an NFFE if the payment is beneficially owned by the NFFE or another
NFFE, unless the requirements of section 1472(b) are met with respect
to the beneficial owner of the payment. Section 1472(d) defines an NFFE
as any foreign entity that is not a financial institution as defined in
section 1471(d)(5).
The requirements of section 1472(b) are met with respect to the
beneficial owner of a payment if: (i) the beneficial owner or payee
provides the withholding agent with either a certification that such
beneficial owner does not have any substantial U.S. owners, or the
name, address, and TIN of each substantial U.S. owner; (ii) the
withholding agent does not know or have reason to know that any
information provided by the beneficial owner or payee is incorrect; and
(iii) the withholding agent reports the information provided to the
Secretary.
Section 1472(c)(1) provides that withholding under section 1472(a)
does not apply to payments beneficially owned by certain classes of
persons, including any class of persons identified by the Secretary. In
addition, section 1472(c)(2) provides that withholding under section
1472(a) does not apply to any class of payment identified by the
Secretary for purposes of section 1472(c) as posing a low risk of tax
evasion.
Section 1474(a) provides that every person required to withhold and
deduct any tax under chapter 4 is made liable for such tax and is
indemnified against the claims and demands of any person for the amount
of any payments made in accordance with the provisions of chapter 4. In
general, the beneficial owner of a payment is entitled to a refund for
any overpayment of tax actually due under other provisions of the Code.
However, with respect to any tax properly deducted and withheld under
section 1471 from a payment beneficially owned by an FFI, section
1474(b)(2) provides that the FFI is not entitled to a credit or refund,
except to the extent required by a treaty obligation of the United
States (and, if a credit or refund is required by a treaty obligation
of the United States, no interest shall be allowed or paid with respect
to such credit or refund). In addition, section 1474(b)(3) provides
that no credit or refund shall be allowed or paid with respect to any
tax properly deducted and withheld under chapter 4 unless the
beneficial owner of the payment provides the Secretary with such
[[Page 5876]]
information as the Secretary may require to determine whether such
beneficial owner is a U.S. owned foreign entity and the identity of any
substantial U.S. owners of such entity.
Section 1474(c) provides that information provided under chapter 4
is confidential under rules similar to section 3406(f), except that the
identity of an FFI that meets the requirements of section 1471(b) is
not treated as return information for purposes of section 6103.
Section 1474(d) provides that the Secretary shall provide for the
coordination of chapter 4 with other withholding provisions under the
Code, including providing for the proper crediting of amounts deducted
and withheld under chapter 4 against amounts required to be deducted
and withheld under other provisions.
Section 1474(f) provides that the Secretary shall prescribe such
regulations or other guidance as may be necessary or appropriate to
carry out the purposes of, and prevent the avoidance of, chapter 4.
IV. Balanced and Integrated Approach to Implementing Chapter 4
Chapter 4 grants the Secretary of the Treasury broad regulatory
authority to prescribe rules and procedures relating to the diligence,
reporting, and withholding obligations of the statute. These final
regulations exercise this authority by providing specific operational
guidelines for implementing FATCA in a manner consistent with its
principal policy objectives. Recognizing that there are costs
associated with the implementation of any new withholding and reporting
regime, the Treasury Department and the IRS solicited comments and met
extensively with stakeholders to develop an implementation approach
that achieves an appropriate balance between fulfilling the important
policy objectives of chapter 4 and minimizing the burdens imposed on
stakeholders. This engagement resulted in hundreds of constructive
comments from and numerous productive meetings with stakeholders. While
the comments covered a broad range of issues relating to the
implementation of FATCA, the vast majority of commenters expressed
concerns regarding the costs and burdens associated with implementing
FATCA and the legal impediments to compliance in a number of
jurisdictions. Comments also expressed concerns regarding the
procedural and systems aspects of registering and reporting.
The Treasury Department and the IRS carefully considered these
comments and established three avenues for addressing the principal
concerns regarding burdens, legal impediments, and technical
implementation. The first avenue was to adopt a risk-based approach to
implementing the statute that effectively addresses policy
considerations, eliminates unnecessary burdens, and, to the extent
possible, builds on existing practices and obligations. The second
avenue was to collaborate with foreign governments to develop an
alternative intergovernmental approach to implementing chapter 4 that
removes legal impediments, allows for alignment and coordination with
local law reporting practices, and achieves further burden reductions.
The third avenue was to develop administrative approaches to simplify
the process for registering and entering into an agreement with the IRS
in order to minimize operational costs associated with collecting and
reporting FATCA information.
A. Targeted Regulations
These final regulations address potential administrative burdens
associated with FATCA compliance by adopting a risk-based and targeted
approach to implement the statute with respect to scope, diligence, and
timing. In particular, with respect to scope, consistent with the
objectives of the statute, the regulations limit the institutions,
obligations, and accounts subject to FATCA to more specifically target
concerns and address practical considerations. For example, the final
regulations refine the scope of FATCA in the following ways:
Expansion of Grandfather Rule for Certain Obligations. To
promote the orderly implementation of FATCA, the final regulations
exempt from chapter 4 withholding all obligations outstanding on
January 1, 2014, and any associated collateral. In addition, because
evolving areas of the law may create chapter 4 withholding obligations
in the future and create uncertainty and risk in the meantime, the
final regulations address obligations (and associated collateral) that
may give rise to withholdable payments through future regulations under
section 871(m) (relating to dividend equivalent payments) or to foreign
passthru payments under the chapter 4 foreign passthru payment rules.
Such obligations are grandfathered if the obligations are outstanding
at any point prior to six months after the implementing regulations are
published.
Scope of Covered Financial Institutions. In response to
comments, the final regulations treat passive entities that are not
professionally managed as NFFEs rather than as FFIs. The final
regulations also provide appropriate exemptions for financial
institutions and certain passive NFFEs that are part of a nonfinancial
group of companies and that support the operations of the group.
Expansion of Deemed Compliant and Other Exempt Categories.
The final regulations expand the categories of FFIs that are deemed to
comply with FATCA without the need to enter into an agreement with the
IRS in order to focus the application of FATCA on higher-risk financial
institutions that provide services to the global investment community.
In addition, the final regulations expand the scope of retirement funds
that are considered exempt beneficial owners the income of which is not
subject to chapter 4 withholding.
With respect to diligence, the final regulations reduce the
administrative burdens associated with identifying U.S. accounts by
calibrating due diligence requirements based on the value and risk
profile of the account, and by permitting FFIs in many cases to rely on
information they already collect. For example, the final regulations
reduce the burdens associated with identifying U.S. accounts in the
following ways:
Accounts exempt from review. The final regulations exempt
from review entirely all preexisting accounts held by individuals with
a balance or value of $50,000 or less. This threshold is raised to
$250,000 for preexisting accounts held by entities and for preexisting
accounts that are cash value insurance and annuity contracts. In
addition, the final regulations exempt insurance contracts with a
balance or value of $50,000 or less from treatment as financial
accounts.
Reduced diligence and documentation rules for lower value
preexisting accounts. In the case of preexisting accounts with a
balance or value of $1,000,000 or less, the final regulations permit a
participating FFI to determine whether any of its accounts held by
individuals are U.S. accounts based solely on a search of
electronically searchable account information for certain U.S. indicia.
In addition, for such accounts held by passive NFFEs, the final
regulations allow a withholding agent to rely on its review conducted
for anti-money laundering due diligence purposes to identify any
substantial U.S. owners of the payee in lieu of obtaining a
certification.
Reliance on self-certification. In the case of accounts
held by entities, the final regulations expand the ability of FFIs to
rely on a self-certification from
[[Page 5877]]
an account holder as to its chapter 4 status.
Finally, with respect to timing, the final regulations allow
reasonable timeframes to review existing accounts and implement FATCA's
obligations in stages to minimize burdens and costs consistent with
achieving the statute's compliance objectives. For example:
Time allowed for review of pre-existing accounts. The
final regulations treat all accounts maintained by an FFI prior to
January 1, 2014, as preexisting accounts. In addition, the final
regulations allow participating FFIs and withholding agents until
December 31, 2015, to document account holders and payees that are not
prima facie FFIs.
Phased implementation of reporting. The final regulations
modify the due date for the first information report by requiring
participating FFIs to file the first information reports with respect
to the 2013 and 2014 calendar years not later than March 31, 2015.
Phased implementation of withholding on passthru payments
and gross proceeds. The final regulations exempt from withholding
foreign passthru payments and gross proceeds from sales or dispositions
of property occurring before January 1, 2017.
B. Intergovernmental Agreements
1. In General
In many cases, foreign law would prevent an FFI from reporting
directly to the IRS the information required by the FATCA statutory
provisions and these regulations, thus potentially exposing the FFI to
withholding. Such an outcome would be inconsistent with FATCA's
objective to address offshore tax evasion through increased information
reporting. To overcome these legal impediments, the Treasury Department
has collaborated with foreign governments to develop two alternative
model intergovernmental agreements that facilitate the effective and
efficient implementation of FATCA in a manner that removes domestic
legal impediments to compliance, fulfills FATCA's policy objectives,
and further reduces burdens on FFIs located in partner jurisdictions.
The first model intergovernmental agreement was published on July
26, 2012. A partner jurisdiction signing an agreement with the United
States based on the first model (Model 1 IGA) agrees to adopt rules to
identify and report information about U.S. accounts that meet the
standards set out in the Model 1 IGA. FFIs covered by a Model 1 IGA
that are not otherwise excepted or exempt pursuant to the agreement
must identify U.S. accounts pursuant to due diligence rules adopted by
the partner jurisdiction and report specified information about the
U.S. accounts to the partner jurisdiction. The partner jurisdiction
then exchanges this information with the IRS on an automatic basis.
These standards ensure that the IRS will receive the same quality and
quantity of information about U.S. accounts from FFIs covered by a
Model 1 IGA as it receives from FFIs applying these final regulations.
A second model intergovernmental agreement was published on
November 14, 2012. A partner jurisdiction signing an agreement with the
United States based on the second model (Model 2 IGA) agrees to direct
and enable all FFIs that are located in the jurisdiction, and that are
not otherwise excepted or exempt pursuant to the Model 2 IGA, to
register with the IRS and report specified information about U.S.
accounts directly to the IRS in a manner consistent with chapter 4 and
these final regulations, except as expressly modified by the Model 2
IGA. In the case of certain recalcitrant account holders, the
information reported to the IRS by FFIs covered by a Model 2 IGA is
supplemented by government-to-government exchange of information.
Both Model 1 IGAs and Model 2 IGAs (together, IGAs) contemplate
that the partner jurisdiction will require all financial institutions
that are located in the jurisdiction, and that are not otherwise
excepted or exempt pursuant to the agreement, to identify and report
information about U.S. accounts. In consideration of the full
cooperation by the partner jurisdiction, the model agreements
contemplate a number of simplifications and burden reductions
associated with the application of FATCA in the partner jurisdiction.
The Treasury Department and the IRS believe that IGAs represent
efficient and effective ways of implementing the requirements of
chapter 4 and will continue to conclude bilateral agreements based on
the two models with interested jurisdictions. In addition, the Treasury
Department and the IRS continue to receive comments strongly supporting
the approach to FATCA implementation embodied in the IGAs. The Treasury
Department and the IRS remain committed to working cooperatively with
foreign jurisdictions on multilateral efforts to improve transparency
and information exchange on a global basis.
2. Interaction of IGAs With the Final Regulations
FFIs covered by a Model 1 IGA, and that are in compliance with
local laws implemented to identify and report U.S. accounts in
accordance with the terms of the Model 1 IGA, will be treated as
satisfying the due diligence and reporting requirements of chapter 4.
Accordingly, consistent with the terms of the Model 1 IGA, these FFIs
do not need to apply the final regulations for purposes of complying
with and avoiding withholding under FATCA. In certain cases prescribed
in the Model 1 IGA, the laws of the partner jurisdiction may allow the
resident FFI to elect to apply provisions of these regulations instead
of the rules otherwise prescribed in the Model 1 IGA.
FFIs covered by a Model 2 IGA with the United States will be
required to implement FATCA in the manner prescribed by these
regulations except to the extent expressly modified by the Model 2 IGA.
The final regulations accommodate such variations.
C. Streamlined Registration and Technical Implementation
FFIs registering with the IRS will be able to do so through a
secure online web portal, the FATCA Registration Portal (Portal), from
anywhere in the world. The Portal is designed to accomplish an entirely
paperless registration process. Registering FFIs will be able to use
the Portal to register their chapter 4 status (such as participating
FFI or reporting Model 1 FFI (both as defined in the final
regulations)), manage their registration information, and, as
appropriate, agree to the terms of or make the representations required
for their status. The Portal will also facilitate electronic
communication between the IRS and FFIs and other registrants.
Registered FFIs designated as leads of an expanded affiliated group
will be able to use the Portal to manage the registration status of
group members. The Portal will also be used by registering FFIs that
are already Qualified Intermediaries (QIs) to renew their QI status. An
FFI's submission and maintenance of registration information through
the Portal will maximize processing efficiencies, minimize errors, and
ensure expedient issuance of a Global Intermediary Identification
Number (``GIIN''). An FFI will use its GIIN to establish its chapter 4
status for withholding purposes and to identify the institution for
reporting purposes under the final regulations. The IRS currently
contemplates that the GIIN may also be used by reporting Model 1 FFIs
to satisfy reporting requirements under local law and is discussing
this possibility with its Model 1 IGA partners. With regard to
reporting, the IRS is also discussing with partner jurisdictions the
possibility of adopting
[[Page 5878]]
a single format for reporting FATCA information, whether that
information is reported directly to the IRS or to the tax
administration in a Model 1 IGA jurisdiction.
The IRS also anticipates that the certifications of compliance
required to be made by responsible officers pursuant to Sec. Sec.
1.1471-4(c)(7) and 1.1471-4(f)(3) will be made electronically through
the Portal, resulting in similar efficiencies.
Summary of Comments and Explanation of Revisions
I. In General
The Treasury Department and the IRS received a number of general
comments requesting improvements to the readability of the proposed
regulations. In response, the Treasury Department and the IRS made
substantial changes in the final regulations to simplify and clarify
the chapter 4 rules. In addition, the Treasury Department and the IRS
received numerous specific comments regarding the proposed regulations
and made numerous changes to the final regulations in response to those
comments.
The following discussion addresses the significant changes in the
final regulations from the proposed regulations. To facilitate this
discussion, the defined terms from Sec. 1.1471-1(b) are used
throughout.
II. Comments and Changes to Sec. 1.1471-1--Scope of Chapter 4 and
Definitions
The chapter 4 definitions have been revised to reflect the IGAs and
other changes adopted in the final regulations. Revisions of the
definitions are discussed as relevant in the succeeding sections of
this preamble.
III. Comments and Changes to Sec. 1.1471-2--Requirement To Deduct and
Withhold Tax on Withholdable Payments to Certain FFIs
A. Grandfathered Obligations
Comments requested modifications to the scope of grandfathered
obligations to facilitate market transition and allow time for adapting
master agreements and collateral arrangements in light of the IGAs, the
future issuance of guidance under section 871(m), and other systems
developments. In response, the final regulations provide that
grandfathered obligations consist of: (1) Any obligation outstanding on
January 1, 2014; (2) any obligation that produces withholdable payments
solely because the obligation is treated as giving rise to a dividend
equivalent pursuant to section 871(m) and the regulations thereunder
and that is executed on or before the date that is six months after the
date on which obligations of its type are first treated as giving rise
to dividend equivalents; and (3) any agreement requiring a secured
party to make payments with respect to collateral securing one or more
grandfathered obligations (even if the collateral is not itself a
grandfathered obligation). If collateral (or a pool of collateral)
secures both grandfathered obligations and obligations that are not
grandfathered, the collateral posted to secure the grandfathered
obligations must be determined by allocating (pro rata by value) the
collateral (or, in the case of a pool of collateral, each item
comprising the pool of collateral) to all outstanding obligations
secured by the collateral (or pool of collateral).
In addition, the final regulations provide that an obligation will
not give rise to a foreign passthru payment if it is executed on or
before the date that is six months after the date on which final
regulations defining the term foreign passthru payment are filed with
the Federal Register. Comments also requested clarification of the
outstanding date of a debt instrument that is reopened in a qualified
reopening under Sec. 1.1275-2(k). For debt obligations, the final
regulations determine the date the obligation is outstanding based on
the issue date of the debt. Thus, whether debt issued in a qualified
reopening will be treated as a grandfathered obligation depends on the
issue date of the original debt, which is the issue date of the debt
issued in the qualified reopening.
The final regulations also provide that the date a non-debt
obligation is outstanding is the date a legally binding agreement is
executed. Thus, a line of credit or a revolving credit facility for a
fixed term may qualify as an obligation provided that the agreement as
of its issue date fixes the material terms (including a stated maturity
date) under which the credit will be provided.
In response to comments regarding insurance contracts, the final
regulations provide that: (1) a life insurance contract payable no
later than upon the death of the insured individual(s) is an obligation
that may qualify as a grandfathered obligation; and (2) premiums paid
for an insurance contract or annuity contract that is treated as a
grandfathered obligation are treated as payments made under a
grandfathered obligation.
Finally, comments requested provisions to simplify a withholding
agent's determination of whether an obligation is grandfathered.
Accordingly, the final regulations provide that: (1) A withholding
agent, other than the issuer of the obligation (or an agent of the
issuer) may, absent actual knowledge, rely on a written statement by
the issuer of the obligation to determine whether such obligation meets
the requirements for grandfathered treatment; (2) a withholding agent
is required to treat a modification as material only if the withholding
agent knows or has reason to know that such modification was material;
and (3) a withholding agent, other than the issuer of the obligation
(or an agent of the issuer), absent actual knowledge, will have reason
to know of a material modification if it receives a disclosure thereof
from the issuer of the obligation (or from such issuer's agent).
B. Other Changes to the Withholding Provisions
Comments requested that the withholding provisions under chapter 4
conform with certain withholding provisions of chapter 3. In addition,
comments requested that the election to be withheld upon under section
1471(b)(3) and provided in the proposed regulations be available on an
account-by-account basis. In response to these comments, the final
regulations: (1) Clarify the exception to withholding when a
withholding agent lacks control, custody, or knowledge of a payment;
(2) treat a payment as a withholdable payment in the absence of
knowledge of its source or character, or allow for up to a one-year
escrow of 30 percent of the payment pending a determination of the
relevant facts; and (3) permit the election to be withheld upon
pursuant to Sec. 1.1471-2(a)(2)(iii) to be made on an account-by-
account basis, provided other applicable requirements are satisfied.
IV. Comments and Changes to Sec. 1.1471-3--Identification of Payee
A. Documentation Alternatives
1. In General
Comments requested that the final regulations generally permit a
withholding agent to rely upon a withholding certificate to establish
the chapter 4 status of a payee without obtaining additional
documentary evidence, unless such documentary evidence is required
under chapter 3. This comment was adopted. The final regulations
further expand the types of documentary evidence upon which a
withholding agent may rely with respect to offshore obligations,
including government Web sites and reports from government agencies.
For preexisting obligations, the final regulations permit a withholding
agent to rely on information previously recorded in the withholding
agent's files, in addition to
[[Page 5879]]
standardized industry codes, in determining the chapter 4 status of the
payee. For these purposes, a standardized industry code may be any
coding system employed by the withholding agent.
2. Written Statements
Comments requested that the final regulations permit reliance on
written statements without additional documentation for offshore
obligations that do not generate payments of U.S. source FDAP income
(such as a depository account maintained outside of the United States
by an FFI) and enumerate the elements they must contain. This comment
was adopted. A written statement may also be relied upon with respect
to an offshore obligation that generates payments of U.S. source FDAP
income if it is accompanied by documentary evidence establishing the
foreign status of the person named on the written statement.
Comments noted that signed documentation outside of the United
States generally does not require signature under penalties of perjury,
and that such a requirement would depart from current AML due diligence
procedures. The final regulations remove the penalties of perjury
requirement for written statements used as documentation for payments
made outside of the United States on offshore obligations, other than
for payments of U.S. source FDAP income.
3. Substitute and Non-IRS Forms
Comments requested the ability to use substitute forms, including
forms prepared or filled out in a foreign language. In response, the
final regulations provide that substitute forms may be both prepared in
and filled out in a foreign language, provided the withholding agent
furnishes the IRS with a translated version upon request. Such
substitute forms must contain the same certifications as the official
IRS form to the extent relevant. For this purpose, a substitute form
for individuals is acceptable, provided that the form contains the
required information, including the individual's permanent residence
address, all relevant tax identification numbers, and, if not signed
under penalties of perjury, the withholding agent has obtained
applicable documentary evidence that supports the person's claim of
foreign status. Qualifying non-IRS forms may be used within the United
States as well as for offshore obligations, and also may be used for
purposes of chapter 3 to the extent provided in Sec. 1.1441-
1(e)(4)(vi).
4. Reliance on Pre-FATCA Form W-8
In response to comments that FFIs would have difficulty obtaining
new documentation on all preexisting account holders in a compressed
time frame, the final regulations provide that a withholding agent may
rely upon a pre-FATCA Form W-8 in lieu of obtaining an updated version
of the withholding certificate in certain circumstances.
5. Curing Inconsequential Errors
Comments requested that a minor error in a withholding certificate
not invalidate the certificate if the error can be cured with
supplemental information already on file for the payee. In response,
the final regulations provide that a withholding agent may treat a
withholding certificate as valid, notwithstanding an inconsequential
error, if it otherwise has sufficient documentation to cure the error
that does not contradict the information on the withholding
certificate. A failure to make a required certification, or to provide
a country of residence (or country under which treaty benefits are
sought), is not an inconsequential error.
B. Continuing Validity of Documentation
Comments requested relief from the general requirement to refresh
documentation every three years. In response, the final regulations
permit documentation to remain valid indefinitely, subject to a change
in circumstances, if the chapter 4 status claimed is a specified low-
risk category. The Treasury Department and the IRS are considering
extending the final regulations' validity rule to chapter 3 in
appropriate circumstances (for example, when the payee does not make a
claim that withholding under chapter 3 is reduced pursuant to a
treaty).
C. Owner-Documented FFIs
In response to comments requesting reduced documentation
requirements for the owner-documented FFI provisions, the final
regulations make several modifications that also take into account the
policy considerations presented by owner-documented FFIs. These
modifications include: (1) permitting transitional reliance, subject to
certain requirements, on documentation collected for AML due diligence
purposes for payments made prior to January 1, 2017, on preexisting
obligations; (2) allowing such entities to issue debt interests to an
expanded group of holders, provided such debt holders are reported in
the same manner as equity holders; (3) simplifying the withholding
statement provided for an owner-documented FFI; and (4) providing for
indefinite validity for withholding certificates and withholding
statements submitted with respect to obligations having an aggregate
value equal to or less than $1,000,000.
D. ``Eyeball Test'' and Effectively Connected Income Presumption
Comments requested that chapter 4 incorporate the so-called
``eyeball test'' under chapters 3 and 61 that treats payments inside
the United States to certain entities that have ``incorporated,''
``corporation,'' or an indication of status as a financial institution
in their names as made to U.S. exempt recipients. Moreover, comments
noted that withholding agents often already obtain documentary evidence
for these entities to satisfy AML due diligence requirements. In
response to these comments, the final regulations permit a withholding
agent to rely upon documentary evidence obtained with respect to the
payee, in lieu of a Form W-9, in order to establish the entity's status
as a U.S. person and rely on the ``eyeball test'' to determine (to the
extent applicable) the payee's status as other than a specified U.S.
person under chapter 4.
Comments also requested that the final regulations incorporate the
chapter 3 rules under which withholding agents are permitted to presume
that payments made to U.S. branches of certain banks and insurance
companies are payments of income that is effectively connected with the
conduct of a trade or business within the United States. In response,
the regulations permit a withholding agent to presume that a payment
made to a U.S. branch of certain banks and insurance companies is a
payment of income that is effectively connected with a trade or
business within the United States (and thus not a withholdable payment)
if the withholding agent obtains a GIIN that enables the withholding
agent to confirm that the FFI is a participating FFI or registered
deemed-compliant FFI, as well as an EIN for the U.S. branch that
enables the withholding agent to properly report the payment.
Conforming changes are anticipated to be made to the presumption rule
in chapter 3 to provide consistency with the rule set forth in these
regulations.
E. Rules for Offshore Obligations of Funds and New Accounts of
Preexisting Customers
Comments requested additional clarity regarding when an interest in
an investment fund should be treated as an offshore obligation.
Comments also
[[Page 5880]]
stated that, in general, an investment fund's office is not separate
from that of its manager or administrator, and shares issued by
investment funds are not ``maintained and executed'' at a particular
office. In response to these comments, the definition of an offshore
obligation has been amended to clarify that an offshore obligation also
includes an equity interest in a foreign entity if the owner of the
interest purchased the interest outside the United States either
directly from the foreign entity or from another entity located outside
the United States.
Comments also requested that a new account of a preexisting
customer be treated as a preexisting obligation. Comments stated that
in such cases, withholding agents and FFIs generally do not get
additional documentation from the customer because they are not
required to do so for AML due diligence purposes. In response to these
comments, the final regulations permit a new account of a customer that
has a preexisting obligation to be treated as a preexisting obligation,
provided that the withholding agent or FFI maintaining the account also
treats the new obligation and the prior obligation as one obligation
for purposes of applying AML due diligence, aggregating balances, and
applying the standards of knowledge for purposes of chapter 4. The
final regulations also permit this treatment to apply on a group basis
for expanded affiliated groups and sponsored FFI groups.
F. Standards of Knowledge
Under the final regulations, the standards of knowledge provisions
have been modified to allow withholding agents to rely on a claim of
status as a participating or registered-deemed compliant FFI based on
checking the payee's GIIN against the published IRS FFI list. Prior to
January 1, 2015, a withholding agent is not required to confirm GIINs
regarding an FFI's claim of status as a reporting Model 1 FFI. However,
an FFI will have reason to know that such claim is unreliable if the
withholding agent does not have a permanent residence address for the
FFI (or address of the relevant branch) in the relevant country that
has in effect a Model 1 IGA.
The final regulations further provide: (1) Limits, generally
conformed with the chapter 3 limits, on a withholding agent's reason to
know regarding a payee's claim of status as a foreign person; (2)
limits on the review that must be conducted with respect to particular
types of documentation, and in particular on the scope of review with
respect to preexisting obligations; and (3) further guidance regarding
when a payee has made a reasonable explanation regarding the presence
of U.S. indicia. The Treasury Department and the IRS intend to issue
guidance under chapter 3 that is consistent with the rules in these
regulations regarding such reasonable explanations.
G. Reliance on Presumptions in Lieu of Documentation
Under the final regulations, a withholding agent may choose to rely
on presumption rules in lieu of accepting and reviewing documentation
of payees. This accommodates withholding agents that are unsure whether
the documentation they have obtained is reliable or that do not wish to
accept the responsibility associated with the acceptance of the
documentation.
H. Consolidation and Sharing of Documentation, and Third-Party Reliance
Comments requested reduction of duplicative documentation
requirements, facilitation of documentation sharing, and more detailed
rules regarding reliance on agents or third-party service providers. In
response, the final regulations adopt the following provisions.
1. Multiple Accounts of the Same Payee
The final regulations provide rules (consistent with chapter 3 in
Sec. 1.1441-1(e)(4)(ix)(A)) for a withholding agent to rely on
documentation for multiple accounts of the same payee if the
withholding agent aggregates the balance or value of those accounts
(when relevant) and shares information across those accounts for
purposes of determining when the withholding agent has actual knowledge
or reason to know that the chapter 4 status claimed is inaccurate.
2. Mergers or Bulk Acquisitions
The final regulations provide a temporary six month period during
which withholding agents that acquire accounts in a merger or bulk
acquisition for value may rely, in the absence of contrary knowledge or
a change in circumstances, upon the chapter 4 statuses assigned by a
predecessor that is a U.S. withholding agent, a participating FFI, or a
reporting Model 1 FFI that has completed all due diligence required
under its agreement or pursuant to the applicable Model 1 IGA, provided
that the predecessor is not a member of the withholding agent's
expanded affiliated group prior to a merger or bulk acquisition, or
after a bulk acquisition. At the end of the temporary period, the
acquirer may continue to so rely only if the documentation it has,
including the acquired documentation, supports the chapter 4 statuses
claimed.
3. Common Agents
The final regulations provide rules (consistent with Sec. 1.1441-
1(e)(4)(ix)(A)(4) and (B)) with respect to sharing and relying upon
documentation that has been provided by a common agent for multiple
parties, including a fund advisor or principal underwriter that
collects documentation for a family of mutual funds. This reliance is
made contingent upon the agent also sharing any knowledge regarding
inaccuracy or unreliability of the chapter 4 status claims across all
the withholding agents with which the agent shares the documentation.
4. Third-Party Data Providers
The final regulations provide rules permitting a withholding agent
to rely upon documentation collected with respect to an entity by a
third-party data provider, subject to conditions including: (1) The
third-party data provider is in the business of collecting information
regarding entities and providing business reports or credit reports to
unrelated customers and must have reviewed all information it has for
the entity and verified that such additional information does not
conflict with the chapter 4 status claimed by the entity; (2) the
third-party data provider collects documentation sufficient to meet the
applicable documentation requirements; and (3) the third-party data
provider provides notice of changes in circumstances. This provision
permits withholding agents to rely upon documentation collected by a
third-party data provider, but does not relieve the withholding agent
of the obligation to determine whether that documentation is reliable
based on the information contained in the documentation and other
information in the withholding agent's files.
5. Introducing Brokers
Comments requested that for purposes of chapter 4 a withholding
agent be permitted to rely upon certifications regarding a payee's
chapter 4 status provided by an introducing broker that is a QI or
participating FFI (in addition to introducing brokers who are U.S.
persons, as provided under the proposed regulations). In response to
these comments, the final regulations permit reliance upon a
certification provided by a participating FFI (which includes a QI that
is a financial institution) if the participating FFI is
[[Page 5881]]
acting as an agent of the payee with respect to an obligation and
receiving all payments made by the withholding agent with respect to
that obligation on behalf of the payee, provided that certain
requirements are met and the withholding agent does not know or have
reason to know that the broker has not obtained valid documentation as
represented or the information contained in the certification is
otherwise inaccurate.
6. Transfer Agents
Comments requested that a transfer agent's obligations as a
withholding agent be limited to the obligations of the principal on
behalf of which the transfer agent acts in order to avoid duplicative
efforts or conflicts between the standards applicable to the transfer
agent and the principal. In response, the final regulations provide
that merely acting as an agent with respect to a financial account
belonging to the principal will not cause the agent to also have a
financial account for that customer unless the agent would be treated
as having the financial account independent of its actions as an agent.
An agent that makes a payment on behalf of a principal is a withholding
agent with respect to the payment and, accordingly (as under chapter 3)
has a responsibility to determine the chapter 4 status of the payee and
withhold, if required. However, because the obligation belongs to the
principal, the level of due diligence that must be completed with
respect to the obligation is determined by the obligation's status with
respect to the principal. In order to minimize any duplicative
responsibilities, the final regulations permit the agent to rely
(absent contrary knowledge or reason to know) upon documentation
collected by the principal or a certification by the principal that
appropriate documentation has been collected.
I. Electronic Transmission of Documentation
Comments requested that a withholding agent be permitted to rely
upon withholding certificates that are signed with a handwritten
signature, scanned into an electronic device, and then emailed to the
withholding agent. The final regulations adopt the rule of the proposed
regulations, which permits the electronic transmission of a withholding
certificate that has been signed with a handwritten signature and then
scanned and emailed to the withholding agent if the requirements of
Sec. 1.1441-1(e)(4)(iv) are met. Further, the Treasury Department and
the IRS continue to consider whether to retain the confirmation
requirements in chapters 3 and 4. In addition, in response to comments,
the final regulations do not require that documentary evidence that has
been transmitted electronically be a certified or notarized copy.
J. Other Changes Made to Payee Identification Rules
Consistent with a risk-based approach to compliance under chapter
4, the final regulations adopt in whole or part several modifications
requested by comments, including modifications to:
(1) Permit documentary evidence that does not contain an address,
provided that the documentary evidence contains the person's country of
residence or citizenship, and the withholding agent has obtained a
permanent residence address for the person.
(2) Include a director, any foreign equivalent of an officer in the
United States, and any other person granted written authority as a
person authorized to sign a withholding certificate or written
statement.
(3) Permit, in lieu of retention of copies of documentation, the
retention of notations regarding documentation reviewed and (for
obligations that are not preexisting obligations) any U.S. indicia
identified, in the course of AML due diligence.
(4) Treat registered deemed-compliant FFIs as payees under the same
circumstances in which participating FFIs are treated as payees.
(5) Treat all excepted NFFEs in the same manner, and provide that
any excepted NFFE is the payee, unless it is acting as an agent or
intermediary (other than a QI accepting primary withholding
responsibility).
(6) Permit the submission of a withholding certificate within 30
days of payment (rather than the 15 days permitted in the proposed
regulations) without an affidavit of accuracy as of the time of
payment.
(7) Provide a definition for the term standing instructions to pay
amounts to include current payment instructions that will repeat
without further instructions being provided by the account holder.
(8) Clarify that a withholding statement submitted by a
participating FFI or registered deemed-compliant FFI can include pooled
information with respect to each class of payees unless payee-specific
information is provided for purposes of chapter 3, in which case a
chapter 4 status must be provided for each payee that is identified on
the withholding statement.
V. Comments and Changes to Sec. 1.1471-4--FFI Agreement
A. In General
1. FFI Agreement
The Treasury Department and the IRS received comments requesting
additional guidance on the requirements of the FFI agreement. In
response to these comments, the final regulations set forth all of the
substantive requirements applicable to an FFI under the FFI agreement.
The final regulations provide the requirements for verifying compliance
with the FFI agreement, define an event of default and procedures for
remediating of an event of default, allow participating FFIs to file
collective refund claims on behalf of certain account holders and
payees for amounts overwithheld, and provide procedural requirements if
a participating FFI is legally prohibited from reporting or withholding
as required under the FFI agreement. In addition, the final regulations
do not restrict a participating FFI's ability to terminate an FFI
agreement. This responds to comments concerning future withholding
requirements for foreign passthru payments, and allows an FFI the
flexibility to reconsider its status as further guidance is
promulgated.
The Treasury Department and the IRS expect to publish a revenue
procedure setting out the terms of an FFI agreement, consistent with
these final regulations, coordinating an FFI's obligations under the
FFI agreement with chapter 3 obligations and with the provisions of any
applicable IGA, and including administrative provisions such as those
relating to termination, renewal, and modification of the agreement.
2. Effective Date of the FFI Agreement
Many comments were received regarding the effective date provided
in the proposed regulations for implementing the chapter 4 rules.
Comments requested a delay of the effective date of the FFI agreement
to allow FFIs sufficient time to modify systems and to implement the
required account opening procedures. In response to comments, the final
regulations delay the effective date of the FFI agreement until
December 31, 2013, for all participating FFIs that receive a GIIN prior
to January 1, 2014. This change aligns the effective date of, and due
diligence periods under, the FFI agreement with the timelines provided
under the IGAs.
[[Page 5882]]
3. U.S. Branches of Participating FFIs
Comments requested further clarifications on the application of the
chapter 4 rules to U.S. branches of participating FFIs. In response to
these comments, the final regulations provide comprehensive rules for
U.S. branches of participating FFIs. A U.S. branch of a participating
FFI that is treated as a U.S. person, as provided in Sec. 1.1441-
1(b)(2)(iv), is subject to special requirements to fulfill the
withholding, due diligence, and reporting requirements of a U.S.
financial institution to the extent provided under chapters 4 and 61
and section 3406(a). Additionally, such a U.S. branch is required to
file a separate Form 1042 to report amounts subject to reporting under
chapter 4 and any taxes withheld.
A U.S. branch of a participating FFI that is not treated as a U.S.
person is required to fulfill the general requirements set forth in
Sec. 1.1471-4 for withholding, due diligence, and reporting.
B. Withholding by FFIs
The final regulations provide that an FFI is not required to
withhold on foreign passthru payments until the later of January 1,
2017, or six months after the date of publication in the Federal
Register of final regulations defining the term foreign passthru
payments.
Comments requested more comprehensive rules concerning the
withholding requirements of a participating FFI under the FFI
agreement. In response to these comments, the final regulations provide
that a participating FFI may apply the exceptions from withholding
provided in Sec. 1.1471-2, including the exception for grandfathered
obligations and the transitional withholding requirements for payments
made to prima facie FFIs. In addition, the proposed regulations did not
provide detail on the coordination of withholding under sections
1471(a) and 1472 with withholding under section 1471(b). The final
regulations provide that a participating FFI that satisfies its
obligations under Sec. 1.1471-4(b) to withhold on withholdable
payments made to payees that are nonparticipating FFIs and recalcitrant
account holders will be deemed to satisfy its obligations under
sections 1471(a) and 1472 with respect to such payees and account
holders.
C. Due Diligence
The final regulations adopt numerous comments intended to assist
participating FFIs in complying with their obligations to perform due
diligence to identify and document account holders.
1. General Requirements for Due Diligence
In response to comments, the final regulations modify the general
requirements for identifying and documenting account holders in a
number of ways. For example, the final regulations modify the record
retention requirements for offshore obligations to allow an FFI to
retain a notation in its files regarding the documentary evidence
examined, rather than retaining a copy of the documentary evidence
itself, unless the FFI is required pursuant to its AML due diligence to
retain copies of documentation reviewed. In such cases, the final
regulations no longer require a notation of the name of the person who
reviewed the documentary evidence.
The final regulations also provide special procedures to identify
and document accounts acquired in mergers or bulk acquisitions for
value from another financial institution. For accounts acquired from
nonparticipating FFIs or deemed-compliant FFIs that do not apply the
final regulations' due diligence procedures, the final regulations
allow a participating FFI to apply preexisting account identification
and documentation procedures. For accounts acquired from another
participating FFI, certain deemed-compliant FFIs, or U.S. financial
institutions, the final regulations allow a participating FFI to rely
on the chapter 4 determinations made by such transferor financial
institution, subject to certain conditions. Additionally, the final
regulations in Sec. 1.1471-4 incorporate by reference the revised
rules for documentation standards, validity periods of documentation,
and reliance on valid documentation collected by other withholding
agents provided in Sec. 1.1471-3(c).
2. Account of a Preexisting Customer and Sharing of Account
Documentation
Comments requested that a new account opened at an FFI by a
customer that has a preexisting account with the FFI be treated as a
preexisting account rather than a new account. Comments stated that in
such cases, FFIs generally do not obtain documentation from the
customer for AML due diligence purposes. Recognizing the substantial
burden for the FFI to separately document an existing customer, the
final regulations revise the definition of a preexisting obligation to
permit a new account of a customer that has a preexisting account to be
treated as a preexisting account provided that the FFI maintaining the
account also treats the new account and the preexisting account as one
account for purposes of applying AML due diligence, aggregating
balances, and applying the standards of knowledge for purposes of
chapter 4 to all such accounts. The final regulations allow this
treatment on a group basis for expanded affiliated groups and sponsored
FFI groups that share documentation within the group. In addition, to
address comments concerning the burden of documenting multiple accounts
of a customer generally (regardless of whether any such accounts are
preexisting accounts), the final regulations allow a participating FFI,
participating FFI group, or a sponsored FFI group to apply the
provisions for documentation sharing systems described in Sec. 1.1471-
3(c)(8).
3. Change in Circumstances
In response to comments that the obligations of a participating FFI
following a change in circumstances were unclear in the proposed
regulations, the final regulations provide that an FFI must retain a
record of documentation to establish the account holder's chapter 4
status within the earlier of 90 days from the date of a change in
circumstances or the date a withholdable payment or foreign passthru
payment is made to the account or, if unable to do so, must treat such
account as held by a recalcitrant account holder or nonparticipating
FFI (as applicable).
4. Entity Accounts
Comments indicated that for certain investment entities, direct
investment may be held in bearer form so that the investment entity is
unable to document such account holders until the time of payment. The
final regulations allow a participating FFI that is an investment
entity to document an account holder of a preexisting account that is
in bearer form at the time of payment.
The final regulations clarify that in addition to documenting the
entity account holder, a participating FFI is also required to document
the payee (if other than the account holder) to the extent necessary to
determine whether withholding applies. For example, if an account is
held by an NFFE that is a flow-through entity (other than a WP, WT, or
excepted NFFE), the participating FFI is also required to identify and
document the partners, owners, or beneficiaries of such entity to
determine if withholding is required
[[Page 5883]]
with respect to payments of U.S. source FDAP income made to such
account.
5. Individual Accounts
a. New Accounts
Comments requested alternative documentation options to address
difficulties in obtaining U.S. tax forms from account holders. In
response to these comments, the final regulations modify the
identification and documentation procedures of participating FFIs with
respect to individual accounts that are new accounts to permit certain
alternative forms of documentation. For example, the final regulations
permit a participating FFI to rely on information provided by a third-
party credit agency to establish an account holder's foreign status
when certain conditions are met.
The final regulations adopt the requirement in the proposed
regulations for a participating FFI to review all information collected
in connection with the opening or maintenance of each account,
including documentation collected as part of the participating FFI's
account opening procedures and documentation collected for other
regulatory purposes, to determine if an account holder's claim of
foreign status is unreliable or incorrect. The final regulations
clarify that a participating FFI is required in such reviews to apply
the standards of knowledge provided in Sec. 1.1471-3(e) for offshore
obligations held by individuals. If the participating FFI is not able
to establish an account holder's status as a foreign person, the final
regulations require the participating FFI to retain a record of a U.S.
TIN and, if necessary, a valid and effective waiver described in
section 1471(b)(1)(F)(i) to establish an account holder's status as a
U.S. person. The final regulations allow a participating FFI to retain
a record of a U.S. TIN by any means (that is, not exclusively by
retaining a record of a Form W-9).
The final regulations also provide alternative identification and
documentation procedures for certain cash value insurance or annuity
contracts. Comments noted that when a group life insurance contract or
group annuity contract is issued to an employer and individual
employees are the insured/beneficiaries, the insurance company does not
have a direct relationship with the employee/certificate holders at
inception of the contract. In response, the final regulations do not
require the insurance company to document each employee until the date
on which an amount is payable to an employee/certificate holder or
beneficiary if the participating FFI obtains a certification from an
employer that no employee/certificate holder (account holder) is a U.S.
person and certain other conditions are satisfied (for example, that
the number of employees covered under the contract exceeds 25).
Comments also requested relief from the requirement to identify and
document beneficiaries of cash value insurance contracts. In response,
the final regulations provide that a participating FFI may presume that
an individual beneficiary (other than the owner) receiving a death
benefit with respect to a life insurance contract that is a cash value
insurance contract is a foreign person, and is therefore not required
to retain a record of documentation from such person, unless the
participating FFI has actual knowledge or reason to know that the
beneficiary is a U.S. person. A participating FFI has reason to know
that a beneficiary of a cash value insurance contract is a U.S. person
if the information collected by the participating FFI and associated
with the beneficiary contains U.S. indicia.
b. Preexisting Accounts
Comments requested clarification with regard to procedures for
identifying and documenting preexisting accounts. In response to these
comments, the final regulations provide a more detailed explanation of
the application of these rules. For example, the final regulations
expressly provide that a participating FFI is not required to retain a
record of documentation from the account holder until there is a change
in circumstances if the identification and documentation procedure
specified for preexisting accounts is applied and no U.S. indicia are
identified. In addition, the final regulations expressly provide that
for preexisting accounts, a participating FFI may apply the
identification and documentation procedure for either new accounts or
preexisting accounts.
The proposed regulations did not coordinate the rules in Sec.
1.1471-3(e) (covering standards of knowledge) with the documentation
requirements under Sec. 1.1471-4(c) to establish an account holder's
foreign status when U.S. indicia are associated with the account. To
provide such coordination, Sec. 1.1471-4(c) incorporates by reference
the standards of knowledge in Sec. 1.1471-3(e).
c. Presumption of Status for Individual Accounts
Comments noted that the proposed regulations were unclear
concerning the application of the presumption rules to individual
account holders of participating FFIs. In response to these comments,
the final regulations clarify that the presumption rules of Sec.
1.1471-3(f) do not apply to individual account holders of a
participating FFI. A participating FFI must complete the requisite
identification and documentation procedures with respect to each
account within the time period provided by Sec. 1.1471-5(g)(3) (start
of recalcitrant account holder status), or, if unable to do so, must
treat such account as held by a recalcitrant account holder.
d. Preexisting Individual Accounts Previously Documented
With respect to the exception to the preexisting account
identification procedure (other than the relationship manager inquiry)
for an account documented as held by foreign individuals for purposes
of chapter 61 or the QI, WP, or WT agreement, the final regulations
clarify that an individual account holder's foreign status has been
documented under chapter 61 if the participating FFI has retained a
record of the documentation required under chapter 61 to establish the
individual's foreign status and the account received a reportable
payment (as defined under section 3406(b)) in any prior year. With
respect to QIs, WPs, and WTs, an account holder's foreign status has
been documented if the QI, WP, or WT has met the relevant documentation
requirements of its agreement with respect to an account holder that
received a reportable amount in any year in which the agreement was in
effect.
e. Certifications of Responsible Officer
The final regulations retain the requirement in the proposed
regulations for a responsible officer to certify, to the best of his/
her knowledge after conducting a reasonable inquiry, that the
participating FFI does not have any formal or informal practices or
procedures in place to assist account holders in avoiding chapter 4,
such as advising account holders to split up their accounts to avoid
reporting as high-value accounts. Comments requested additional
examples of policies that violate the certification. The final
regulations provide such additional examples, including: advising that
account holders of U.S. accounts close, transfer, or withdraw from
their account to avoid reporting; intentional failures to disclose a
known U.S. account; or advising that an account holder remove U.S.
indicia from its account information. In response to comments, the
final regulations also provide that an email requiring responses from
relevant
[[Page 5884]]
customer on-boarding and management personnel as to whether they
engaged in any such practices is considered a reasonable inquiry for
purposes of the certification.
Comments requested specific timing for making the certifications
regarding completion of required due diligence. The final regulations
respond to these comments and also simplify and consolidate the
certifications. The final regulations provide that these certifications
may be made concurrently and no later than 60 days following the date
that is two years after the effective date of the FFI agreement. See
section V.F.3 of this preamble for a discussion of a responsible
officer's periodic certification requirements.
Comments also requested clarification on a responsible officer's
responsibilities if he/she could not make the required certification.
The final regulations provide that a responsible officer may make a
qualified certification stating why the general certification cannot be
made and that corrective actions will be taken by the responsible
officer.
D. Account Reporting
1. In General
As in the proposed regulations, the final regulations indicate that
the FFI that maintains an account is generally responsible for
reporting the account in accordance with the reporting rules under
Sec. 1.1471-4(d). The final regulations add in Sec. 1.1471-5 a rule
to determine if an FFI is treated as maintaining an account.
The final regulations describe the reporting responsibilities of a
sponsoring entity that has agreed to fulfill the reporting requirements
of a sponsored FFI and generally require the sponsoring entity to
report accounts of the sponsored FFI in the manner the sponsored entity
would otherwise be required to report if it were a participating FFI.
2. Account Balance or Value
In response to comments generally requesting that the final
regulations accommodate current business practices of FFIs, the final
regulations provide that a participating FFI must report the average
balance or value of the account to the extent that the FFI reports
average balances or values to the account holder for a calendar year
and otherwise to report the balance or value of the account as of the
end of the calendar year.
3. Payments
The final regulations clarify that any distribution (including a
distribution that would be considered a redemption) made to an account
holder with respect to a cash value insurance contract or annuity
contract must be reported under Sec. 1.1471-4(d)(4)(iv)(C) without
regard to the U.S. tax treatment.
4. Section 953(d) Insurance Companies and Reporting in a Manner Similar
to Section 6047(d)
Comments requested that a foreign insurance company that has made
an election under section 953(d) be excluded from the definition of an
FFI. The final regulations do not adopt this comment when the foreign
insurance company is not licensed to do business in the United States.
How a foreign insurance company and its United States shareholders are
taxed is immaterial to the need for reporting with regard to insurance
or annuity contracts issued by the insurance company to its customers.
Therefore, the final regulations provide that the term U.S. person does
not include an insurance company that has made an election under
section 953(d) if the company is not licensed to do business in any
State. However, a foreign insurance company that has made an election
under section 953(d) and is licensed to do business in the United
States would be considered, for purposes of chapter 4, a U.S. person
and, therefore, would remain subject to reporting with respect to its
life insurance and annuity contracts under section 6047(d), not chapter
4.
Comments also requested that a foreign insurance company be
permitted to satisfy its chapter 4 reporting obligations by reporting
under section 6047(d). Permitting a foreign insurance company that is
not licensed to do business in the United States to report only the
information required under section 6047(d) would provide insufficient
reporting for FATCA purposes because section 6047(d) reporting applies
only to distributions made under a contract issued by an insurance
company licensed to do business under the laws of a State.
In response to the comments, however, the final regulations permit
an insurance company participating FFI that is not licensed to do
business in the United States to elect to report its chapter 4 account
information with respect to its life insurance and annuity contracts in
a manner similar to section 6047(d) reporting. Under this election, an
insurance company participating FFI reports the sum of: (1) a cash
value or annuity contract's account balance or value; and (2) any
amount paid under the contract as a ``gross distribution'' in Box 1 of
Form 1099-R. The participating FFI could then check box 2b to indicate
the taxable amount is not determined.
5. Special Reporting for Calendar Year 2013
The final regulations incorporate the reporting requirements in
Announcement 2012-42, 2012-47 I.R.B. 561 with respect to calendar year
2013. The final regulations provide that if an FFI agreement has an
effective date that is on or before December 31, 2014, the
participating FFI is required to report U.S. accounts that it
maintained during 2013 that are outstanding on December 31, 2013. The
final regulations adopt the streamlined reporting rules provided in the
proposed regulations. The final regulations also eliminate the proposed
regulations' requirement for reporting by September 30, 2014, and
instead permit participating FFIs to report for both calendar years
2013 and 2014 on or before March 31, 2015.
E. Expanded Affiliated Group Requirements
The final regulations do not incorporate comments suggesting the
sunset date for limited branches and limited FFIs be extended beyond
December 31, 2015. The final regulations also do not adopt suggestions
to relax the requirement that all members of an expanded affiliated
group be participating FFIs, deemed-compliant FFIs, or limited FFIs.
The Treasury Department and the IRS believe that IGAs are the
appropriate vehicle to address these concerns.
F. Verification
1. In General
The final regulations include the verification and certification
requirements for participating FFIs. These verification procedures rely
on a responsible officer (or designee) to establish a compliance
program that includes policies, procedures, and processes sufficient
for the participating FFI to satisfy the requirements of the FFI
agreement. The participating FFI must subject its compliance program to
periodic review. The responsible officer may be any officer of any
participating FFI or reporting Model 1 FFI in the participating FFI's
expanded affiliated group with sufficient authority to fulfill the
duties of a responsible officer described in the final regulations. The
responsible officer may designate others to implement and oversee the
compliance with the verification requirements, but must make any
required certifications to the IRS (as described below).
[[Page 5885]]
2. Consolidated Compliance Program
In response to comments supporting the approach set forth in Notice
2011-34 for an optional consolidated compliance program, the final
regulations provide for such a program. Under the final regulations, a
participating FFI, reporting Model 1 FFI, or U.S. financial institution
(compliance FI) may agree to establish and maintain a consolidated
compliance program and perform a consolidated periodic review on behalf
of one or more FFIs in the same expanded affiliated group that elect
this option (the consolidated compliance group). The consolidated
compliance group is not required to include every FFI in the expanded
affiliated group, and an expanded affiliated group may have multiple
consolidated compliance groups organized under different or the same
compliance FI. The final regulations also require a sponsoring entity
to act as the compliance FI for all of the FFIs that it sponsors
(including any certified deemed-compliant FFIs that it sponsors).
It is anticipated that additional guidance will be provided in
either the instructions to the registration system or the FFI agreement
for an electing FFI to identify itself as part of a consolidated
compliance group and procedures for the responsible officer of the
compliance FI to make the required certifications on behalf of the
consolidated compliance group.
3. Certification of Compliance
The final regulations require the responsible officer, on behalf of
the participating FFI, to periodically certify to the IRS that the FFI
is in compliance with the requirements of the FFI agreement. Such
certification is required once every three years. In advance of such
certification, a participating FFI is required to review its compliance
program and its compliance with the requirements of the FFI agreement.
In consideration of the results of this review, the responsible officer
is required to certify to the IRS that it maintains effective internal
controls and that there were no material failures during the
certification period, or any material failures that did occur were
corrected. A material failure is a failure of the participating FFI to
fulfill the requirements of the FFI agreement if the failure was the
result of a deliberate action by the participating FFI to avoid the
requirements of the FFI agreement or was an error attributable to a
failure to implement sufficient internal controls. The final
regulations provide that a material failure that occurs in limited
circumstances will not result in an event of default. If a material
failure occurring during the certification period has not been
corrected, or if an event of default has occurred, the final
regulations provide that a responsible officer may instead make a
qualified certification.
4. IRS Review of Compliance
Comments requested guidance on the standards the IRS would apply
when requesting additional information from a participating FFI to
determine its compliance with its FFI agreement. The final regulations
provide for general inquiries under which the IRS contacts the
participating FFI to request additional information regarding the
information reported on the returns filed by the participating FFI, and
for inquiries when the IRS determines in its discretion that there may
have been substantial non-compliance with an FFI agreement. The IRS
expects that inquiries regarding substantial non-compliance will not be
made on a routine basis. If a determination that there may have been
substantial non-compliance is made, the IRS may inquire as to the FFI's
compliance with certain requirements of the FFI agreement and may
request information necessary to verify the participating FFI's
compliance with the FFI agreement, such as a description of the
participating FFI's procedures for conducting its periodic review. The
IRS may also request the performance of specified review procedures
(including an external audit). If the IRS determines, based upon its
review, that the FFI has not substantially complied with the
requirements of an FFI agreement, it will deliver a notice of event of
default.
G. Event of Default
The final regulations define an event of default of the FFI
agreement and describe procedures for a participating FFI to remediate
an event of default. Comments expressed concern that any failure to
comply with an FFI agreement would result in termination of that
agreement. In response to these comments, the final regulations clarify
that an event of default does not result in automatic termination of
the FFI agreement. The final regulations provide that if the IRS
becomes aware of an event of default, it will deliver a notice of
default to the participating FFI and allow the participating FFI to
develop a plan to remediate the event of default. If the participating
FFI fails to respond to the notice of default or comply with an agreed-
upon remediation plan, the IRS may terminate the FFI's participating
FFI status within a reasonable period of time, subject to an FFI's
request for reconsideration of termination by written request to the
LB&I Director for Foreign Payments Practice.
H. Collective Refunds
The final regulations provide that a participating FFI (or a
reporting Model 1 FFI) may file a collective refund claim on behalf of
its account holders and payees that were overwithheld upon under
chapter 4, subject to certain conditions and procedural requirements.
I. Legal Prohibitions on Reporting U.S. Accounts and Withholding
In response to comments requesting clarification on whether an FFI
can enter into an FFI agreement if foreign law imposes prohibitions on
the FFI's ability to report or withhold, the final regulations clarify
that an FFI may enter into an FFI agreement if it can meet the
requirements of Sec. 1.1471-4(i). The final regulations require,
however, that if foreign law prohibits a participating FFI from
fulfilling its withholding obligations with respect to an account, the
participating FFI must close the account within a reasonable time or,
if local law prohibits closing the account, the participating FFI must
block or transfer the account. Similarly, if a participating FFI is
prohibited by foreign law, absent a waiver, from reporting information
on an account that it must treat as a U.S. account, the final
regulations provide that the participating FFI must request a waiver of
foreign law from such account holder and if such waiver is not obtained
within a reasonable period of time, the participating FFI must close or
transfer such account.
VI. Comments and Changes to Sec. 1.1471-5--Definitions Applicable to
Section 1471
A. U.S. Account
Comments requested additional exceptions from the definition of
U.S. account for low-value accounts other than preexisting accounts and
the depository account exception provided by section 1471(d)(1)(B). In
response to these comments, the Treasury Department and the IRS have
provided a $50,000 exception for cash value insurance contracts by
amending the definition of financial account, discussed below.
B. Account Holder
Comments requested clarification of whether an entity that is
disregarded as an entity separate from its owner under Sec. 301.7701-
2(c)(2)(i) (disregarded entity)
[[Page 5886]]
is treated as an account holder. In response to these comments, because
the definition of person excludes a disregarded entity, the final
regulations clarify that an account held by a disregarded entity shall
be treated as held by the person owning such entity.
Comments expressed concern regarding the identification of the
account holder of insurance and annuity contracts. The final
regulations provide that an insurance or annuity contract that is a
financial account is treated as held by each person that can access the
contract value (for example, through a loan, withdrawal, or surrender)
or change a beneficiary under the contract. If no person can access the
contract value or change a beneficiary under the contract, then the
contract is treated as held by both the person(s) named in the contract
as the owner(s) of the contract and each beneficiary under the
contract. When the obligation to pay any benefit under the contract
becomes fixed, the person entitled to such benefit is treated as a
holder of the contract.
C. Financial Accounts
1. Depository Accounts
In response to comments, the final regulations limit the scope of
the term depository account in a number of ways. For example, the final
regulations exclude certain escrow accounts established for commercial
transactions from treatment as financial accounts. The final
regulations also exclude negotiable debt instruments that are traded on
a regulated market or over-the-counter market and distributed through
financial institutions. In response to comments, the final regulations
also clarify the meaning of ``any other similar instrument'' in the
definition of a depository account. The final regulations limit the
scope of a depository account to an account for the placing of money
(as opposed to the holding of property) in the custody of an entity
engaged in a banking or similar business. The final regulations also
clarify that a credit balance with respect to a credit card account
issued by a credit card company is a depository account.
Comments requested guidance regarding the specific circumstances in
which an amount held by an insurance company would be treated as a
depository account. The final regulations provide that a depository
account includes an amount that an insurance company holds under a
guaranteed investment contract or under a similar agreement to pay or
credit interest thereon. The final regulations also provide that a
depository account does not include an advance premium or premium
deposit received by an insurance company, provided the prepayment or
deposit relates to an insurance contract for which the premium is
payable annually and the amount of the prepayment or deposit does not
exceed the annual premium for the contract. Such amounts are also
excluded from cash value for purposes of determining whether a contract
is a cash value insurance contract.
2. Equity and Debt Interests
With regard to equity or debt interests in investment entities, the
final regulations revise the financial account definition to correspond
to the changes discussed below to the definition of FFI for investment
entities. Accordingly, the final regulations generally remove from the
financial account definition debt or equity interests in investment
entities that are described solely in Sec. 1.1471-5(e)(4)(i)(A), which
are generally investment advisors or asset managers. This treatment
parallels the treatment of equity and debt interests in entities that
act solely as depository institutions or custodial institutions.
Comments requested that bank holding companies should be treated
like depository institutions for purposes of the financial account
exclusion for non-regularly traded debt and equity interests to cover
cases in which the holding company raises funds for its subsidiaries.
Comments noted that these interests are often held through custodial
institutions that are in a better position to document the holders and
report and withh