Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons, Information Reporting and Backup Withholding on Payments Made to Certain U.S. Persons, and Portfolio Interest Treatment; Correction, 37181-37189 [2014-15466]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 126 (Tuesday, July 1, 2014)]
[Rules and Regulations]
[Pages 37181-37189]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15466]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[TD 9658]
RIN 1545-BL18


Withholding of Tax on Certain U.S. Source Income Paid to Foreign 
Persons, Information Reporting and Backup Withholding on Payments Made 
to Certain U.S. Persons, and Portfolio Interest Treatment; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to final and temporary 
regulations (TD 9658), which were published in the Federal Register on 
Thursday, March 6, 2014 (79 FR 12726). The regulations relate to the 
withholding of tax on certain U.S. source income paid to foreign 
persons, information reporting and backup withholding with respect to 
payments made to certain U.S. persons, and portfolio interest paid to 
nonresident alien individuals and foreign corporations.

DATES: Effective Date: These corrections are effective on July 1, 2014, 
and are applicable on March 6, 2014.

FOR FURTHER INFORMATION CONTACT: John Sweeney, (202) 317-6942 (not a 
toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under sections 871, 1441, 1461, 6041, and 6049 of the Code 
and the Employment Tax Regulations (26 CFR part 31) under section 3406 
of the Code. The final and temporary regulations that are the subject 
of these corrections are Sec. Sec.  1.871-14, 1.871-14T, 1.1441-1, 
1.1441-1T, 1.1441-5T, 1.1441-6T, 1.1441-7T, 1.1461-1, 1.1461-1T, 
1.6041-1, 1.6049-4T, 1.6049-5T, 31.3406(g)-1T, and 31.3406(h)-2T. These 
regulations affect persons making payments of U.S. source income to 
foreign persons, persons making payments to certain U.S. persons 
subject to reporting and backup withholding, and foreign persons 
claiming the exclusion from tax provided for portfolio interest.

Need for Correction

    As published, the final and temporary regulations contain a number 
of items that need to be corrected or clarified. Several citations and 
cross references are corrected. The correcting amendments also include 
the addition, deletion, or modification of regulatory language to 
clarify the relevant provisions to meet their intended purposes or for 
consistency with other related provisions of these regulations. The 
addition of final regulatory language only includes language that was 
inadvertently removed in the final and temporary regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social security, 
Unemployment compensation.

Correction of Publication

    Accordingly, 26 CFR parts 1 and 31 are corrected by making the 
following correcting amendments:

[[Page 37182]]

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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

0
Par. 2. Section 1.871-14 is amended by revising paragraphs (c)(2) 
through (c)(3)(i) to read as follows:


Sec.  1.871-14  Rules relating to repeal of tax on interest of 
nonresident alien individuals and foreign corporations received from 
certain portfolio debt investments.

* * * * *
    (c) * * *
    (2) through (c)(2)(iv) [Reserved]. For further guidance, see Sec.  
1.871-14T(c)(2) through (c)(2)(iv).
    (v) The U.S. person receives a statement from a securities clearing 
organization, a bank, or another financial institution that holds 
customers' securities in the ordinary course of its trade or business. 
In such case the statement must be signed under penalties of perjury by 
an authorized representative of the financial institution and must 
state that the institution has received from the beneficial owner a 
withholding certificate described in Sec.  1.1441-1(e)(2)(i) (a Form W-
8 or an acceptable substitute form as defined Sec.  1.1441-1(e)(4)(vi)) 
or that it has received from another financial institution a similar 
statement that it, or another financial institution acting on behalf of 
the beneficial owner, has received the Form W-8 from the beneficial 
owner. In the case of multiple financial institutions between the 
beneficial owner and the U.S. person, this statement must be given by 
each financial institution to the one above it in the chain. No 
particular form is required for the statement provided by the financial 
institutions. However, the statement must provide the name and address 
of the beneficial owner, and a copy of the Form W-8 provided by the 
beneficial owner must be attached. The statement is subject to the same 
rules described in Sec.  1.1441-1(e)(4) that apply to intermediary 
Forms W-8 described in Sec.  1.1441-1(e)(3)(iii). If the information on 
the Form W-8 changes, the beneficial owner must so notify the financial 
institution acting on its behalf within 30 days of such changes, and 
the financial institution must promptly so inform the U.S. person. This 
notice also must be given if the financial institution has actual 
knowledge that the information has changed but has not been so informed 
by the beneficial owner. In the case of multiple financial institutions 
between the beneficial owner and the U.S. person, this notice must be 
given by each financial institution to the institution above it in the 
chain.
    (vi) The U.S. person complies with procedures that the U.S. 
competent authority may agree to with the competent authority of a 
country with which the United States has an income tax treaty in 
effect.
    (3) [Reserved]. For further guidance, see Sec.  1.871-14T(c)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.871-14T(c)(3)(i).
* * * * *

0
Par. 3. Section 1.871-14T is amended by adding paragraphs (c)(2)(v) and 
(vi) to read as follows:


Sec.  1.871-14T  Rules relating to repeal of tax on interest of 
nonresident alien individuals and foreign corporations received from 
certain portfolio debt investments (temporary).

* * * * *
    (c) * * *
    (2) * * *
    (v) and (vi) [Reserved]. For further guidance, see Sec.  1.871-
14(c)(2)(v) and (vi).
* * * * *

0
Par. 4. Section 1.1441-1 is amended by revising paragraph (b)(2)(vii) 
and the introductory text of paragraph (e)(4)(ii)(B) to read as 
follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (vii) Rules for reliably associating a payment with a withholding 
certificate or other appropriate documentation--(A) Generally. The 
presumption rules of paragraph (b)(3) of this section and Sec. Sec.  
1.1441-5(d) and (e)(6) and 1.6049-5(d) apply to any payment, or portion 
of a payment, that a withholding agent cannot reliably associate with 
valid documentation. Generally, a withholding agent can reliably 
associate a payment with valid documentation if, prior to the payment, 
it holds valid documentation (either directly or through an agent), it 
can reliably determine how much of the payment relates to the valid 
documentation, and it has no actual knowledge or reason to know that 
any of the information, certifications, or statements in, or associated 
with, the documentation are incorrect. Special rules apply for payments 
made to intermediaries, flow-through entities, and certain U.S. 
branches. See paragraph (b)(2)(vii)(B) through (F) of this section. The 
documentation referred to in this paragraph (b)(2)(vii) is 
documentation described in paragraphs (c)(16) and (17) of this section 
upon which a withholding agent may rely to treat the payment as a 
payment made to a payee or beneficial owner, and to ascertain the 
characteristics of the payee or beneficial owner that are relevant to 
withholding or reporting under chapter 3 of the Internal Revenue Code 
and the regulations thereunder. A withholding agent that is not 
required to obtain documentation with respect to a payment is 
considered to lack documentation for purposes of this paragraph 
(b)(2)(vii). For example, a withholding agent paying U.S. source 
interest to a person that is an exempt recipient, as defined in Sec.  
1.6049-4(c)(1)(ii), is not required to obtain documentation from that 
person in order to determine whether an amount paid to that person is 
reportable under an applicable information reporting provision under 
chapter 61 of the Internal Revenue Code. The withholding agent must, 
however, treat the payment as made to an undocumented person for 
purposes of chapter 3 of the Internal Revenue Code. Therefore, the 
presumption rules of paragraph (b)(3)(iii) of this section apply to 
determine whether the person is presumed to be a U.S. person (in which 
case, no withholding is required under this section), or whether the 
person is presumed to be a foreign person (in which case 30-percent 
withholding is required under this section). See paragraph (b)(3)(v) of 
this section for special reliance rules in the case of a payment to a 
foreign intermediary and Sec.  1.1441-5(d) and (e)(6) for special 
reliance rules in the case of a payment to a flow-through entity.
    (B) through (F) [Reserved]. For further guidance, see Sec.  1.1441-
1T(b)(2)(vii)(B) through (F).
* * * * *
    (e) * * *
    (4) * * *
    (ii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1441-
1T(e)(4)(ii)(B).
* * * * *

0
Par. 5. Section 1.1441-1T is amended by:
0
1. Correcting the language ``Sec.  1.1471-1(b)(16)'' in the eighth 
sentence of paragraph (b)(2)(iv)(A) to read ``Sec.  1.1471-1(b)(18)''.
0
2. Correcting the language ``paragraphs (e)(5)(iv)(C)(1) and (2)'' in 
the last sentence of paragraph (b)(2)(vii)(C)(1) to read ``paragraphs 
(e)(5)(v)(C)(1) and (2)''.
0
3. Revising paragraphs (e)(2)(ii), (e)(3)(ii)(A), (e)(3)(ii)(D), 
(e)(3)(iii)(A), (e)(3)(iii)(D), (e)(3)(iv)(C)(2)(i), 
(e)(3)(iv)(C)(2)(iv), (e)(3)(iv)(D)(2)(ii).

[[Page 37183]]

0
4. Correcting the language ``paragraph (c)(3)(iv)(D)(2)(ii)'' in the 
first sentence of paragraph (e)(3)(iv)(D)(3) to read ``paragraph 
(e)(3)(iv)(D)(2)(ii)''.
0
5. Correcting the language ``Sec.  1.1471-1(d)(2)'' in the last 
sentence of paragraph (e)(3)(iv)(D)(6) to read ``Sec.  1.1474-
1(d)(2)''.
0
6. Revising paragraphs (e)(3)(v)(A), (e)(3)(v)(C), (e)(3)(v)(D), 
(e)(4)(ii)(B) introductory text, (e)(4)(ii)(B)(2), and 
(e)(4)(ix)(C)(1).
0
7. At the end of paragraphs (e)(4)(iv)(C) and (e)(4)(ix)(D), adding the 
language ``Notwithstanding the effective date of this section, the 
provisions of this paragraph apply for payments made on or after March 
6, 2014.''
0
8. Revising paragraphs (e)(5)(ii)(A), (e)(5)(iv), (e)(5)(v)(C)(1), and 
(e)(5)(v)(C)(2)(i).
    The revisions read as follows:


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

* * * * *
    (e) * * *
    (2) * * *
    (ii) Requirements for validity of certificate. A beneficial owner 
withholding certificate is valid for purposes of a payment of an amount 
subject to chapter 3 withholding only if it is provided on a Form W-8, 
or a Form 8233 in the case of personal services income described in 
Sec.  1.1441-4(b) or certain scholarship or grant amounts described in 
Sec.  1.1441-4(c) (or a substitute form described in paragraph 
(e)(4)(vi) of this section or such other form as the IRS may 
prescribe). A Form W-8 is valid only if its validity period has not 
expired, it is signed under penalties of perjury by the beneficial 
owner, and it contains all of the information required on the form. The 
required information is the beneficial owner's name, permanent 
residence address (as defined in Sec.  1.1441-1(c)(38)), TIN (if 
required), 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 beneficial owner is created, incorporated, or 
governed (if a person other than an individual), the classification of 
the entity, and such other information as may be required by the 
regulations under section 1441 or by the form or accompanying 
instructions in addition to, or in lieu of, the information described 
in this paragraph (e)(2)(ii) (including when a foreign TIN and an 
individual's date of birth are required). A beneficial owner 
withholding certificate must also include the chapter 4 status of a 
beneficial owner when required for chapter 4 purposes in order to be 
valid. See paragraph (e)(4)(vii) of this section for circumstances in 
which a TIN is required on a beneficial owner withholding certificate.
* * * * *
    (3) * * *
    (ii) * * *
    (A) The name, permanent residence address, qualified intermediary 
employer identification number (QI-EIN), and the country under the laws 
of which the intermediary is created, incorporated, or governed. If 
required for purposes of chapter 4 or if the qualified intermediary is 
a participating FFI or registered deemed-compliant FFI and certifies 
that it is providing (or will provide) a chapter 4 withholding rate 
pool of U.S. payees under Sec.  1.6049-4(c)(4) with respect to accounts 
that the qualified intermediary maintains, the withholding certificate 
must also include the chapter 4 status of the qualified intermediary 
and its GIIN (if applicable). See paragraph (e)(5)(ii) for the chapter 
4 status required of a qualified intermediary, including when a 
qualified intermediary withholding certificate may include a chapter 4 
status of limited FFI (as defined in Sec.  1.1471-1(b)(77)). A 
qualified intermediary that does not act in its capacity as a qualified 
intermediary must not use its QI-EIN. Rather, the intermediary should 
provide a nonqualified intermediary withholding certificate, if it is 
acting as an intermediary, and should use the taxpayer identification 
number (if any) and GIIN (if applicable) that it uses for all other 
purposes;
* * * * *
    (D) A certification that the qualified intermediary meets the 
requirements of Sec.  1.6049-4(c)(4) when the qualified intermediary 
provides (or will provide) a withholding statement associated with its 
Form W-8 that allocates a payment to a chapter 4 withholding rate pool 
of U.S. payees that hold accounts with the qualified intermediary. 
Additionally, when the qualified intermediary provides a chapter 4 
withholding rate pool of U.S. payees that do not hold accounts 
maintained by the qualified intermediary, the qualified intermediary 
provides a certification on the Form W-8 that the qualified 
intermediary has obtained (or will obtain) documentation from the 
intermediary or flow through entity allocating the payment to the pool 
to establish that the entity's status is as a participating FFI, 
registered deemed-compliant FFI, or qualified intermediary under Sec.  
1.1471-3(d)(4) (or, as applicable, Sec.  1.1471-3(e)(4)(vi)(B) or Sec.  
1.1441-1(b)(2)(vii)); and
* * * * *
    (iii) * * *
    (A) The name and permanent resident address of the nonqualified 
intermediary, chapter 4 status (if required for chapter 4 purposes or 
if the nonqualified intermediary provides the certification described 
in paragraph (e)(3)(iii)(D) of this section,), GIIN (if applicable), 
and the country under the laws of which the nonqualified intermediary 
is created, incorporated, or governed;
* * * * *
    (D) If the nonqualified intermediary provides a withholding 
statement associated with the Form W-8 allocating a payment to a 
chapter 4 withholding rate pool of U.S. payees, a certification that 
the nonqualified intermediary meets the requirements of Sec.  1.6049-
4(c)(4) with respect to any payees included in such pool that hold 
accounts maintained (as defined in Sec.  1.1471-5(b)(5)) by the 
nonqualified intermediary; and
* * * * *
    (iv) * * *
    (C) * * *
    (2) * * *
    (i) The withholding statement must include the chapter 4 status 
(using the applicable status code used for filing Form 1042-S) and GIIN 
(when required for chapter 4 purposes under Sec.  1.1471-3(d)) of each 
other intermediary or flow-through entity that is a foreign person and 
that receives the payment, excluding an intermediary or flow-through 
entity that is an account holder of or interest holder in a withholding 
foreign partnership, withholding foreign trust, or qualified 
intermediary;
* * * * *
    (iv) For a payment allocated to a payee that is a foreign person 
(other than a person included in a chapter 4 withholding rate pool 
described in paragraphs (e)(3)(iv)(C)(2)(ii) and (iii) of this section) 
that is reported on a withholding statement described in Sec.  1.1471-
3(c)(3)(iii)(B)(2) or (c)(3)(iii)(B)(3), the withholding statement must 
include the chapter 4 status of the payee (unless an exception applies 
for purposes of providing such status under chapter 4) and, for a payee 
other than an individual, the recipient code for chapter 4 purposes 
used for filing Form 1042-S.
    (D) * * *
    (2) * * *
    (ii) Withholding rate pools for chapter 4 purposes. This paragraph 
(e)(3)(iv)(D)(2)(ii) modifies the provisions of paragraph

[[Page 37184]]

(e)(3)(iv)(D)(2)(i) of this section with respect to the withholding 
rate pools permitted for the alternative procedures described in 
paragraph (e)(3)(iv)(D)(1) of this section in the case of a payment 
that is allocable on a withholding statement to a chapter 4 withholding 
rate pool as described in this paragraph. In the case of a withholdable 
payment, a nonqualified intermediary may include reportable amounts 
allocable to a chapter 4 withholding rate pool (other than a chapter 4 
withholding rate pool of U.S. payees) in a 30-percent rate pool 
together with a withholding rate pool for amounts subject to chapter 3 
withholding at the 30-percent rate. For a payment of a reportable 
amount that is allocable to a chapter 4 withholding rate pool of U.S. 
payees on a withholding statement, a nonqualified intermediary may 
include such amount in a single withholding rate pool with the amount 
of the payment that is exempt from withholding under chapter 3 instead 
of providing documentation regarding U.S. non-exempt recipients 
included in the pool or separately allocating the amount to the chapter 
4 withholding rate pool. To the extent that a nonqualified intermediary 
allocates an amount to any chapter 4 withholding rate pool, the 
nonqualified intermediary is required to notify the withholding agent 
of the allocation before receiving the payment and is not required to 
provide documentation with respect to the payees included in such pool. 
The nonqualified intermediary shall determine the chapter 4 withholding 
rate pools permitted to be used under this paragraph 
(e)(3)(iv)(D)(2)(ii) in accordance with the nonqualified intermediary's 
applicable chapter 4 status and under Sec.  1.1471-3(c)(3)(iii)(B)(2) 
(for an FFI withholding statement) or (c)(3)(iii)(B)(3) (for a chapter 
4 withholding statement) or under Sec.  1.6049-4(c)(4) for a chapter 4 
withholding rate pool of U.S. payees (or similar applicable 
coordination rule in chapter 61 for payments other than interest). 
Additionally, the nonqualified intermediary shall identify those payees 
to which withholding under chapter 4 applies that are not included in a 
chapter 4 reporting pool (including payees that could be included in a 
chapter 4 withholding rate pool for whom the nonqualified intermediary 
chooses to provide payee specific information).
* * * * *
    (v) * * *
    (A) The name of the territory financial institution or person of 
which the U.S. branch is a part, the address of the territory financial 
institution or U.S. branch, and, for a withholding certificate provided 
by a U.S. branch, a certification that the person of which the branch 
is a part is a participating FFI, registered deemed-compliant FFI, or 
NFFE;
* * * * *
    (C) The EIN of the U.S. branch or territory financial institution;
    (D) When required for chapter 4 purposes, the chapter 4 status and 
GIIN (if applicable) of the entity of which the U.S. branch is a part; 
and
* * * * *
    (4) * * *
    (ii) * * *
    (B) Indefinite validity period. Notwithstanding paragraph 
(e)(4)(ii)(A) of this section, the following certificates (or parts of 
certificates) and documentary evidence described in paragraphs 
(e)(4)(ii)(B)(1) through (11) of this section shall remain valid until 
a change in circumstances makes the information on the documentation 
incorrect under paragraph (e)(4)(ii)(D)(3). See, however, Sec.  1.1471-
3(c)(6)(ii) for when a withholding certificate or documentary evidence 
remains valid (or is subject to renewal) when also provided with 
respect to a withholdable payment made to an entity (including an 
intermediary) for purposes of whether a withholding agent may continue 
to rely on the entity's claim of chapter 4 status. Additionally, the 
provisions of paragraphs (e)(4)(ii)(B)(1), (2), and (12) of this 
section do not apply to documentary evidence or a withholding 
certificate furnished prior to July 1, 2014. (For documentary evidence 
or a withholding certificate furnished after December 31, 2000, and 
before July 1, 2014, see this section as in effect and contained in 26 
CFR part 1, as revised April 1, 2013.)
* * * * *
    (2) A beneficial owner withholding certificate (other than the 
portion of the certificate making a claim for treaty benefits) 
described in Sec.  1.1471-3(c)(6)(ii)(C)(2) and documentary evidence 
provided by an entity supporting the entity's claim of foreign status 
when both are provided together.
* * * * *
    (ix) * * *
    (C) * * *
    (1) Withholding agent as agent. A withholding agent that acts on 
behalf of a principal may rely upon documentation (or copies of 
documentation) obtained from the principal, and, with respect to a 
principal that is a U.S. withholding agent, a qualified intermediary 
(when acting as such for determining a payee's status), or a 
withholding foreign partnership or withholding foreign trust with 
respect to a partner, owner, or beneficiary in the partnership or 
trust, the withholding agent may rely upon certification provided by 
the principal for purposes of determining a payee's chapter 3 status. 
Thus an agent (such as a paying agent or transfer agent) may not rely 
upon a certification provided by a principal that is a participating 
FFI but is not also a qualified intermediary, withholding foreign 
partnership, or withholding foreign trust for purposes of this section, 
even though it may rely on the certification when provided solely for 
purposes of chapter 4 under Sec.  1.1471-3(c)(9)(iv).
* * * * *
    (5) * * *
    (ii) * * *
    (A) A foreign financial institution that is a participating FFI 
(including a reporting Model 2 FFI), a registered deemed-compliant FFI 
(including a reporting Model 1 FFI), an FFI treated as a deemed-
compliant FFI under an applicable IGA that is subject to due diligence 
and reporting requirements with respect to its U.S. accounts similar to 
those applicable to a registered deemed-compliant FFI under Sec.  
1.1471-5(f)(1), excluding a U.S. branch of any of the foregoing 
entities, or any other category of FFI identified in a qualified 
intermediary agreement as eligible to act as a qualified intermediary;
* * * * *
    (iv) Assignment of primary withholding responsibility. Any person 
who meets the definition of a withholding agent under Sec.  1.1441-7(a) 
(for payments subject to chapter 3 withholding) and Sec.  1.1473-1(d) 
(for withholdable payments) (whether a U.S. person or a foreign person) 
is required to withhold and deposit any amount withheld under 
Sec. Sec.  1.1461-1(a) and 1.1474-1(b) and to make the returns 
prescribed by Sec. Sec.  1.1461-1(b) and (c), and by 1.1474-1(c), and 
(d). Under its qualified intermediary agreement, a qualified 
intermediary may, however, inform a withholding agent from which it 
receives a payment that it will assume the primary obligation to 
withhold, deposit, and report amounts under chapters 3 and 4 of the 
Internal Revenue Code and/or under chapter 61 of the Internal Revenue 
Code and section 3406. For assuming withholding obligations as 
described in the previous sentence, a qualified intermediary that 
assumes primary withholding responsibility for payments made to an 
account under chapter 3 is also required to assume primary withholding 
responsibility under chapter 4 for

[[Page 37185]]

payments made to the account that are withholdable payments. 
Additionally, a qualified intermediary may represent that it assumes 
chapter 61 reporting and section 3406 obligations for a payment when 
the qualified intermediary meets the requirements to have provided a 
chapter 4 withholding rate pool of U.S. payees with respect to the 
payment under Sec.  1.6049-4(c)(4)(iii) had the qualified intermediary 
not assumed these obligations. If a withholding agent makes a payment 
of an amount subject to withholding under chapter 3, a reportable 
payment (as defined in section 3406(b)), or a withholdable payment to a 
qualified intermediary that represents to the withholding agent that it 
has assumed primary withholding responsibility for the payment, the 
withholding agent is not required to withhold on the payment. The 
withholding agent is not required to determine that the qualified 
intermediary actually performs its primary withholding 
responsibilities. A qualified intermediary that assumes primary 
withholding responsibility under chapters 3 and 4 or primary reporting 
and backup withholding responsibility under chapter 61 and section 3406 
is not required to assume primary withholding responsibility for all 
accounts it has with a withholding agent but must assume primary 
withholding responsibility for all payments made to any one account 
that it has with the withholding agent.
    (v) * * *
    (C) * * *
    (1) In general. Except to the extent it has assumed both primary 
withholding responsibility under chapters 3 and 4 of the Internal 
Revenue Code and primary reporting and backup withholding 
responsibility under chapter 61 and section 3406 with respect to a 
payment, a qualified intermediary shall provide as part of its 
withholding statement the chapter 3 withholding rate pool information 
that is required for the withholding agent to meet its withholding and 
reporting obligations under chapters 3 and 61 of the Internal Revenue 
Code and section 3406. See, however, paragraph (e)(5)(v)(C)(2) of this 
section for when a qualified intermediary may provide a chapter 4 
withholding rate pool (as described in paragraph (c)(48) of this 
section) with respect to a payment that is a withholdable payment. A 
chapter 3 withholding rate pool is a payment of a single type of 
income, determined in accordance with the categories of income reported 
on Form 1042-S, that is subject to a single rate of withholding paid to 
a payee that is a foreign person and for which withholding under 
chapter 4 does not apply. A chapter 3 withholding rate pool may be 
established by any reasonable method on which the qualified 
intermediary and a withholding agent agree (e.g., by establishing a 
separate account for a single chapter 3 withholding rate pool, or by 
dividing a payment made to a single account into portions allocable to 
each chapter 3 withholding rate pool). A qualified intermediary may 
include a separate pool for account holders that are U.S. exempt 
recipients or may include such accounts in a chapter 3 withholding rate 
pool to which withholding does not apply. The withholding statement 
must identify the chapter 4 exemption code (as provided in the 
instructions to Form 1042-S) applicable to the chapter 3 withholding 
rate pools contained on the withholding statement. To the extent a 
qualified intermediary does not assume primary reporting and backup 
withholding responsibility under chapter 61 and section 3406, a 
qualified intermediary's withholding statement must establish a 
separate withholding rate pool for each U.S. non-exempt recipient 
account holder that the qualified intermediary has disclosed to the 
withholding agent unless the qualified intermediary uses the 
alternative procedures in paragraph (e)(5)(v)(C)(3) of this section or 
the account holder is a payee that the qualified intermediary is 
permitted to include in a chapter 4 withholding rate pool of U.S. 
payees. A qualified intermediary that is a participating FFI or 
registered deemed-compliant FFI may include a chapter 4 withholding 
rate pool of U.S. payees on a withholding statement by applying the 
rules under paragraph (e)(3)(iv)(A) of this section (by substituting 
``qualified intermediary'' for ``nonqualified intermediary'') with 
respect to an account that it maintains (as described in Sec.  1.1471-
5(b)(5)) for the payee of the payment. A qualified intermediary shall 
determine withholding rate pools based on valid documentation that it 
obtains under its withholding agreement with the IRS, or if a payment 
cannot be reliably associated with valid documentation, under the 
applicable presumption rules. If a qualified intermediary has an 
account holder that is another intermediary (whether a qualified 
intermediary or a nonqualified intermediary) or a flow-through entity, 
the qualified intermediary may combine the account holder information 
provided by the other intermediary or flow-through entity with the 
qualified intermediary's direct account holder information to determine 
the qualified intermediary's chapter 3 withholding rate pools and each 
of the qualified intermediary's chapter 4 withholding rate pools to the 
extent provided in the agreement described in (e)(5)(iii) of this 
section.
    (2) * * *
    (i) If the qualified intermediary provides a withholding statement 
described in Sec.  1.1471-3(c)(3)(iii)(B)(2) (describing an FFI 
withholding statement), the withholding statement may include a chapter 
4 withholding rate pool with respect to the portion of the payment 
allocated to a single pool of recalcitrant account holders (without the 
need to subdivide into the pools described in Sec.  1.1471-4(d)(6)), 
including both account holders of the qualified intermediary and of any 
participating FFI, registered deemed-compliant FFI, or other qualified 
intermediary for whom the first-mentioned qualified intermediary 
receives the payment, and nonparticipating FFIs (to the extent 
permitted) in lieu of reporting chapter 3 withholding rate pools with 
respect to such persons as described in paragraph (e)(5)(v)(C)(1) of 
this section); or
* * * * *

0
Par. 6. Section 1.1441-5T is amended by revising paragraphs 
(c)(2)(iv)(A), (d)(2), (e)(5)(iii)(A), and (e)(6)(ii) to read as 
follows:


Sec.  1.1441-5T  Withholding on payments to partnerships, trusts, and 
estates (temporary).

* * * * *
    (c) * * *
    (2) * * *
    (iv) * * *
    (A) The name, permanent residence address (as described in Sec.  
1.1441-1(e)(2)(ii)), the employer identification number of the 
partnership, the country under the laws of which the partnership is 
created or governed, the chapter 4 status of the partnership if 
required for purposes of chapter 4 or if the partnership provides (or 
will provide) a withholding statement associated with the Form W-8 
allocating a payment to a chapter 4 withholding rate pool of U.S. 
payees under Sec.  1.6049-4(c)(4) with respect to its partners, and the 
GIIN of the partnership (if applicable). If the partnership provides 
(or will provide) a chapter 4 withholding rate pool of U.S. payees as 
described in the preceding sentence, the partnership must certify to 
its chapter 4 status as a participating FFI (including a reporting 
Model 2 FFI) or registered deemed-compliant FFI (including a reporting 
Model 1 FFI);
* * * * *
    (d) * * *
    (2) Determination of partnership status as U.S. or foreign in the 
absence

[[Page 37186]]

of documentation. In the absence of a valid representation of U.S. 
partnership status in accordance with paragraph (b)(1) of this section 
or of foreign partnership status in accordance with paragraph (c)(2)(i) 
or (c)(3)(i) of this section, the withholding agent shall determine the 
classification of the payee under the presumptions set forth in Sec.  
1.1441-1(b)(3)(ii). If the withholding agent treats the payee as a 
partnership under Sec.  1.1441-1(b)(3)(ii), the withholding agent shall 
apply the presumptions set forth in Sec.  1.1441-1(b)(3)(iii)(A)(1) 
(applied by substituting the term partnership for the term exempt 
recipient) to determine whether to treat the partnership as a U.S. 
person or foreign person. For rules regarding reliable association with 
a withholding certificate from a domestic or a foreign partnership, see 
Sec.  1.1441-1(b)(2)(vii).
* * * * *
    (e) * * *
    (5) * * *
    (iii) * * *
    (A) The name, permanent residence address (as described in Sec.  
1.1441-1(e)(2)(ii)), the employer identification number, if required, 
of the trust, the country under the laws of which the trust is created, 
the chapter 4 status of the trust if required for purposes of chapter 4 
or if the trust provides (or will provide) a withholding statement 
associated with the Form W-8 allocating a payment to a chapter 4 
withholding rate pool of U.S. payees under Sec.  1.6049-4(c)(4) with 
respect to the nonwithholding foreign trust's owners and beneficiaries, 
and the GIIN of the trust (if applicable). If a nonwithholding foreign 
trust provides (or will provide) a chapter 4 withholding rate pool of 
U.S. payees as described in the preceding sentence, the trust must 
certify to its chapter 4 status as a participating FFI (including a 
reporting Model 2 FFI) or registered deemed-compliant FFI (including a 
reporting Model 1 FFI);
* * * * *
    (6) * * *
    (ii) Determination of status as U.S. or foreign trust or estate in 
the absence of documentation. In the absence of valid documentation 
that establishes the U.S. status of a trust or estate under paragraph 
(b)(1) of this section and of documentation that establishes the 
foreign status of a trust or estate under paragraph (e)(4) or 
(e)(5)(iii) of this section, the withholding agent shall determine the 
classification of the payee based upon the presumptions set forth in 
Sec.  1.1441-1(b)(3)(ii). If, based upon those presumptions, the 
withholding agent classifies the payee as a trust or estate, the 
withholding agent shall apply the presumptions set forth in Sec.  
1.1441-1(b)(3)(iii)(A)(1) (applied by substituting the term trust for 
the term exempt recipient) to determine whether the trust or estate is 
a U.S. person or foreign person. An undocumented payee presumed to be a 
foreign trust shall be presumed to be a foreign complex trust. If a 
withholding agent has documentary evidence that establishes that an 
entity is a foreign trust, but the withholding agent cannot determine 
whether the foreign trust is a complex trust, a simple trust, or 
foreign grantor trust, the withholding agent shall presume that the 
trust is a foreign complex trust. Notwithstanding the preceding 
sentence, in the case of a foreign trust with a settlor that is a U.S. 
person for which a withholding agent has both a U.S. address and TIN, 
the withholding agent shall presume that the trust is a grantor trust 
when it cannot determine the status of the trust as a simple trust, 
complex trust, or grantor trust. See Sec.  1.1471-3(f)(4) and (5) to 
determine the status of the payee for purposes of chapter 4.
* * * * *

0
Par. 7. Section 1.1441-6T is amended by:
0
1. Revising paragraphs (a) and (b)(1).
0
2. At the end of paragraph (c)(1), adding the language 
``Notwithstanding the effective date of this section, the provisions of 
this paragraph apply for payments made on or after March 6, 2014.''
    The revisions read as follows:


Sec.  1.1441-6T  Claim of reduced withholding under an income tax 
treaty (temporary).

    (a) In general. The rate of withholding on a payment of income 
subject to withholding may be reduced to the extent provided under an 
income tax treaty in effect between the United States and a foreign 
country. Most benefits under income tax treaties are to foreign persons 
who reside in the treaty country. In some cases, benefits are available 
under an income tax treaty to U.S. citizens or U.S. residents or to 
residents of a third country. See paragraph (b)(5) of this section for 
claims of benefits by U.S. persons. If the requirements of this section 
are met, the amount withheld from the payment may be reduced at source 
to account for the treaty benefit. See, however, Sec.  1.1471-2(a) and 
Sec.  1.1472-1(b) for when withholding at source on a withholdable 
payment may not be reduced to account for a treaty benefit and the 
beneficial owner of the payment may need to file a claim for refund to 
obtain a refund for the overwithheld amount of tax. See also Sec.  
1.1441-4(b)(2) for rules regarding claims of a reduced rate of 
withholding under an income tax treaty in the case of compensation from 
personal services and Sec.  1.1441-4(c)(1) for rules regarding claims 
of a reduced rate of withholding under an income tax treaty in the case 
of scholarship and fellowship income.
    (b) * * *
    (1) In general. The withholding imposed under section 1441, 1442, 
or 1443 on any payment to a foreign person is eligible for reduction 
under the terms of an income tax treaty only to the extent that such 
payment is treated as derived by a resident of an applicable treaty 
jurisdiction, such resident is a beneficial owner, and all other 
requirements for benefits under the treaty are satisfied. See section 
894 and the regulations under section 894 to determine whether a 
resident of a treaty country derives the income. Absent actual 
knowledge or reason to know otherwise, a withholding agent may rely on 
a claim that a beneficial owner is entitled to a reduced rate of 
withholding based upon an income tax treaty if, prior to the payment, 
the withholding agent can reliably associate the payment with a 
beneficial owner withholding certificate, as described in Sec.  1.1441-
1(e)(2), that contains the information necessary to support the claim, 
or, in the case of a payment of income described in paragraph (c)(2) of 
this section made outside the United States with respect to an offshore 
obligation, documentary evidence described in paragraphs (c)(3), 
(c)(4), and (c)(5) of this section. See Sec.  1.6049-5(e) for the 
definition of payments made outside the United States and Sec.  1.6049-
5(c)(1) for the definition of an offshore obligation. For purposes of 
this paragraph (b)(1), a beneficial owner withholding certificate 
described in Sec.  1.1441-1(e)(2)(i) contains information necessary to 
support the claim for a treaty benefit only if it includes the 
beneficial owner's taxpayer identifying number (except as otherwise 
provided in paragraph (c)(1) and (g) of this section, or the beneficial 
owner provides its foreign tax identifying number issued by its country 
of residence and such country has with the United States an income tax 
treaty or information exchange agreement in effect) and the 
representations that the beneficial owner derives the income under 
section 894 and the regulations under section 894, if required, and 
meets the limitation on benefits provisions of the treaty, if any. For 
claims for treaty benefits for scholarship and fellowship income, the 
beneficial owner withholding certificate must contain the beneficial 
owner's U.S. taxpayer identifying number (not a foreign taxpayer 
identifying number).

[[Page 37187]]

The withholding certificate must also contain any other representations 
required by this section and any other information, certifications, or 
statements as may be required by the form or accompanying instructions 
in addition to, or in place of, the information and certifications 
described in this section. Absent actual knowledge or reason to know 
that the claims are incorrect (applying the standards of knowledge in 
Sec.  1.1441-7(b)), a withholding agent may rely on the claims made on 
a withholding certificate or on documentary evidence. A withholding 
agent may also rely on the information contained in a withholding 
statement provided under Sec. Sec.  1.1441-1(e)(3)(iv) and 1.1441-
5(c)(3)(iv) and (e)(5)(iv) to determine whether the appropriate 
statements regarding section 894 and limitation on benefits have been 
provided in connection with documentary evidence. The Internal Revenue 
Service (IRS) may apply the provisions of Sec.  1.1441-1(e)(1)(ii)(B) 
to notify the withholding agent that the certificate cannot be relied 
upon to grant benefits under an income tax treaty. See Sec.  1.1441-
1(e)(4)(viii) regarding reliance on a withholding certificate by a 
withholding agent. The provisions of Sec.  1.1441-1(b)(3)(iv) dealing 
with a 90-day grace period shall apply for purposes of this section.
* * * * *
0
Par. 8. Section 1.1441-7T is amended by revising paragraphs (b)(2), 
(b)(3)(i), and (b)(11)(ii) to read as follows:


Sec.  1.1441-7T  General provisions relating to withholding agents 
(temporary).

* * * * *
    (b) * * *
    (2) Reason to know. A withholding agent shall be considered to have 
reason to know if its knowledge of relevant facts or of statements 
contained in the withholding certificates or other documentation is 
such that a reasonably prudent person in the position of the 
withholding agent would question the chapter 3 claims made. For an 
obligation other than a preexisting obligation, a withholding agent 
will have reason to know that a chapter 3 claim made by the holder of 
the obligation (account holder) is unreliable or incorrect if any 
information contained in its account opening files or other files 
pertaining to the obligation (account information), including 
documentation collected for purposes of AML due diligence (as defined 
under Sec.  1.1471-1(b)(4)), conflicts with the account holder's claim. 
A withholding agent will not, however, be considered to have reason to 
know that a person's chapter 3 claim is unreliable or incorrect based 
on documentation collected for AML due diligence until the date that is 
30 days after the obligation is executed (or the account is opened for 
an obligation that is an account with a financial institution).
    (3) * * *
    (i) In general. For purposes of this paragraph (b)(3) and 
paragraphs (b)(4) through (10) of this section, the terms withholding 
certificate, documentary evidence, and documentation are defined in 
Sec.  1.1441-1(c)(16), (17) and (18). Except as otherwise provided in 
paragraphs (b)(4) through (9) of this section, a withholding agent that 
is a financial institution under Sec.  1.1471-5(e), an insurance 
company (without regard to whether such company is a specified 
insurance company), or a broker or dealer in securities that maintains 
or opens an account for a beneficial owner (a direct account holder) 
has reason to know that documentation provided by the direct account 
holder is unreliable or incorrect only if one or more of the 
circumstances described in paragraphs (b)(4) through (9) of this 
section exist. If a direct account holder has provided documentation 
that is unreliable or incorrect under the rules of paragraph (b)(4) 
through (9) of this section, the withholding agent may require new 
documentation. Alternatively, the withholding agent may rely on the 
documentation originally provided if the rules of paragraphs (b)(4) 
through (9) of this section permit such reliance based on additional 
statements and documentation obtained by the withholding agent from the 
beneficial owner. Paragraph (b)(10) of this section provides rules 
regarding reason to know for withholding agents that receive beneficial 
owner documentation from persons (indirect account holders) that have 
an account relationship with, or an ownership interest in, a direct 
account holder of the withholding agent. Paragraph (b)(11) of this 
section provides limitations on a withholding agent's reason to know 
for multiple obligations held by the same person. Paragraph (b)(12) of 
this section defines a reasonable explanation provided by an individual 
with respect to the individual's claim of foreign status. For rules 
regarding reliance on Form W-9, see Sec.  31.3406(g)-3(e)(2) of this 
chapter. For payments that are withholdable payments, see Sec.  1.1471-
3(e)(3) and (4) for additional rules regarding a withholding agent's 
reason to know with respect to a payee's claim of chapter 4 status and 
Sec.  1.1471-3(f) for presumption rules that apply when the claim of 
chapter 4 status is unreliable or incorrect.
* * * * *
    (11) * * *
    (ii) The withholding agent has treated the obligations as 
consolidated obligations for purposes of sharing documentation pursuant 
to Sec.  1.1441-1(e)(4)(ix).
* * * * *

0
Par. 9. Section 1.1461-1 is amended by revising paragraph (i) to read 
as follows:


Sec.  1.1461-1  Payments and returns of tax withheld.

* * * * *
    (i) Effective/applicability date. (1) Unless otherwise provided in 
this section, this section shall apply to returns required for payments 
made after December 31, 2000.
    (2) [Reserved]. For further guidance, see Sec.  1.1461-1T(i)(2).

0
Par. 10. Section 1.1461-1T is amended by:
0
1. Revising paragraphs (c)(1)(ii)(A)(6) and (c)(1)(ii)(B)(1).
0
2. Correcting the language ``(c)(1)(ii)(9) or (c)(1)(ii)(10)'' in 
paragraphs (c)(1)(ii)(B)(3) and (4) to read ``(c)(1)(ii)(A)(9) or 
(c)(1)(ii)(A)(10)''.
0
3. Revising paragraphs (d) through (i).
    The revisions read as follows:


Sec.  1.1461-1T  Payments and returns of tax withheld (temporary).

* * * * *
    (c) * * *
    (1) * * *
    (ii) * * *
    (A) * * *
    (6) A nonwithholding foreign partnership or a foreign simple trust 
as defined in Sec.  1.1441-1(c)(24), but only to the extent the income 
is (or is treated as) effectively connected with the conduct of a trade 
or business in the United States by such entity, or if the 
nonwithholding foreign partnership or foreign simple trust is also 
described in paragraph (c)(1)(ii)(A)(9) or (c)(1)(ii)(A)(10) of this 
section;
* * * * *
    (B) * * *
    (1) A nonqualified intermediary, except with respect to a payment 
(or portion of a payment) for which a nonqualified intermediary that is 
an FFI is a recipient reporting as described in Sec.  1.1474-
1(d)(1)(ii)(A)(1)(iii), or if the nonqualified intermediary is also 
described in paragraph (c)(1)(ii)(A)(9) or (c)(1)(ii)(A)(10) of this 
section;
* * * * *
    (d) through (i)(1) [Reserved]. For further guidance, see Sec.  
1.1461-1(d) through (i)(1).

[[Page 37188]]

    (2) Unless otherwise provided in this section, this section shall 
apply to payments made after June 30, 2014.
* * * * *
0
Par. 11. Section 1.6041-1 is amended by adding paragraphs (d)(5)(ii)(A) 
and (B) to read as follows:


Sec.  1.6041-1  Return of information as to payments of $600 or more.

* * * * *
    (d) * * *
    (5) * * *
    (i) and (ii) * * *
    (A) A U.S. payor or U.S. middleman that is not a U.S. person (such 
as a controlled foreign corporation defined in section 957(a) or 
certain foreign corporations or foreign partnerships engaged in a U.S. 
trade or business); or
    (B) A foreign branch of a U.S. bank. See Sec.  1.6049-5(c)(5) for a 
definition of a U.S. payor, a U.S. middleman, a non-U.S. payor, and a 
non-U.S. middleman.
* * * * *
0
Par. 12. Section 1.6049-4T is amended by revising paragraph (c)(4)(i) 
introductory text and (c)(4)(ii) introductory text to read as follows:


Sec.  1.6049-4T  Return of information as to interest paid and original 
issue discount includible in gross income after December 31, 1982 
(temporary).

* * * * *
    (c) * * *
    (4) * * *
    (i) U.S. accounts reported by FFIs that are non-U.S. payors. An 
information return shall not be required with respect to an interest 
payment made by a participating FFI (including a reporting Model 2 
FFI), or registered deemed-compliant FFI (including a reporting Model 1 
FFI), that is a non-U.S. payor (as defined in Sec.  1.6049-5(c)(5)) to 
an account holder of an account maintained by the FFI, when the payment 
is not subject to withholding under chapter 4 or to backup withholding 
under section 3406, and the conditions of paragraphs (c)(4)(i)(A), (B), 
or (C), as applicable, are met. See paragraph (c)(4)(iii) of this 
section for circumstances in which an FFI may allocate a payment 
described in this paragraph (c)(4)(i) to a chapter 4 withholding rate 
pool of U.S. payees.
* * * * *
    (ii) Other accounts reported by FFIs under chapter 4. An 
information return shall not be required under this section with 
respect to a payment that is not subject to withholding under chapter 3 
(as defined in Sec.  1.1441-2(a)) or backup withholding under Sec.  
31.3406(g)-1(e) and that is made to a recalcitrant account holder of a 
participating FFI or registered deemed-compliant FFI (or non-consenting 
U.S. account of a reporting Model 2 FFI), provided that the FFI reports 
such account holder in accordance with the classes of account holders 
described in Sec.  1.1471-4(d)(6) for the year in which the payment is 
made. See paragraph (c)(4)(iii) of this section for circumstances in 
which an FFI may allocate a payment described in this paragraph 
(c)(4)(ii) to a chapter 4 withholding rate pool of U.S. payees. In the 
case of a payment made by an FFI that is a reporting Model 1 FFI, an 
information return shall not be required with respect to a payment that 
is not subject to withholding under chapter 3 or backup withholding 
under Sec.  31.3406(g)-1(e) and that is made to an account holder of 
the FFI if the account--
* * * * *

0
Par. 13. Section 1.6049-5T is amended by revising paragraph (b)(14) and 
paragraph (d)(4) Example 11 to read as follows:


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

* * * * *
    (b) * * *
    (14) Payments that a payor or middleman can, prior to payment, 
reliably associate with documentation upon which it may rely to treat 
as made to a foreign intermediary or flow-through entity in accordance 
with Sec.  1.1441-1(b) if it obtains from the foreign intermediary or 
flow-through entity a withholding statement under Sec.  1.1471-
3(c)(3)(iii)(B)(2) (describing an FFI withholding statement), Sec.  
1.1471-3(c)(3)(iii)(B)(3) (describing a chapter 4 withholding 
statement), Sec.  1.1441-1(e)(3)(iv) (describing a withholding 
statement provided by a non-qualified intermediary), Sec.  1.1441-
1(e)(5)(v) (describing a withholding statement provided by a qualified 
intermediary), or under Sec.  1.1441-5 (describing a withholding 
statement provided by a foreign partnership, foreign simple trust, or 
foreign grantor trust), that allocates the payment (or portion of a 
payment) to a chapter 4 withholding rate pool or specific payees to 
which withholding applies under chapter 4. The provisions of each of 
the foregoing sections shall apply by substituting the term payor for 
the term withholding agent. A payor or middleman may rely on a 
withholding statement provided by a foreign intermediary or flow-
through entity that identifies a chapter 4 withholding rate pool of 
U.S. payees (as described in Sec.  1.6049-4(c)(4)) or, with respect to 
a withholdable payment, a chapter 4 withholding rate pool of 
recalcitrant account holders (as described in Sec.  1.1471-4(d)(6)) 
provided that the payor or middleman identifies the foreign 
intermediary or flow-through entity that maintains the accounts (as 
described in Sec.  1.1471-5(b)(5)) included in the chapter 4 
withholding rate pool as a participating FFI (including a reporting 
Model 2 FFI) or registered deemed-compliant FFI (including a reporting 
Model 1 FFI) by applying the rules in Sec.  1.1471-3(d)(4) or in Sec.  
1.1471-3(e)(4)(vi)(B), as applicable, for identifying the payee of a 
payment (by substituting the term payor with the term withholding 
agent). See, however, Sec.  1.1441-1(e)(5)(v)(C)(2)(i) for when a 
qualified intermediary may provide a single pool of recalcitrant 
account holders (without the need to subdivide into the pools described 
in Sec.  1.1471-4(d)(6)). Additionally, when a foreign intermediary or 
flow-through entity provides to a payor or middleman a withholding 
statement that allocates the payment (or portion of a payment) to a 
chapter 4 withholding rate pool of U.S. payees, the payor or middleman 
may also rely on the withholding statement if the payor or middleman 
identifies the intermediary or flow-through entity as a qualified 
intermediary (as defined in Sec.  1.1441-1(c)(15) by applying the rules 
described in Sec.  1.1441-1(b)(2)(vii)) that provides the certification 
described in Sec.  1.1441-1(e)(3)(ii)(D) with respect to U.S. payees 
that hold accounts with a foreign intermediary or flow-through entity 
other than the qualified intermediary providing the certification.
* * * * *
    (d) * * *
    (4) * * *

    Example 11. (i) Facts. USP is a U.S. payor as defined in 
paragraph (c)(5) of this section that is a bank. USP pays U.S. 
source original issue discount from the redemption of an obligation 
described in section 871(g)(1)(B) to NQI, a foreign corporation that 
is a nonqualified intermediary as defined in Sec.  1.1441-1(c)(14). 
The redemption proceeds are not paid outside of the United States as 
they are paid with respect to an account NQI has with a branch of a 
bank in the United States. See Sec.  1.6049-5(e)(2). NQI provides a 
nonqualified intermediary withholding certificate as described in 
Sec.  1.1441-1(e)(3)(iii) that includes a certification of its 
status as a registered deemed-compliant FFI but does not attach any 
payee documentation or a withholding statement described in Sec.  
1.1441-1(e)(3)(iv).
    (ii) Analysis. Under paragraph (d)(3)(ii)(A) of this section, 
USP must treat the payment as made to an undocumented U.S. payee 
that is not an exempt recipient and report the payment on Form 1099. 
Further, because the payment is made inside the United States, the 
exception to backup withholding with respect to offshore obligations 
contained in Sec.  31.3406(g)-1(e) of this chapter does not

[[Page 37189]]

apply, and the payment is subject to backup withholding.

* * * * *

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

0
 Par. 14. The authority citation for part 31 continues to read in part 
as follows:

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


0
Par. 15. Section 31.3406(g)-1T is amended by revising paragraph (e) to 
read as follows:


Sec.  31.3406(g)-1T  Exception for payments to certain payees and 
certain other payments (temporary).

* * * * *
    (e) Certain reportable payments made outside the United States by 
foreign persons, foreign offices of United States banks and brokers, 
and others. For reportable payments made after June 30, 2014, a payor 
is not required to backup withhold under section 3406 on a reportable 
payment that is paid and received outside the United States (as defined 
in Sec.  1.6049-4(f)(16)) with respect to an offshore obligation (as 
defined in Sec.  1.6049-5(c)(1)) or on gross proceeds from a sale 
effected outside the United States (as defined in Sec.  1.6045-
1(g)(3)(iii)), unless the payor has actual knowledge that the payee is 
a United States person. Further, no backup withholding is required on a 
reportable payment of an amount already withheld upon by a 
participating FFI (as defined in Sec.  1.1471-1(b)(91)) or another 
payor in accordance with the withholding provisions under chapters 3 or 
4 of the Code and the regulations under those chapters even if the 
payee is a known U.S. person. For example, a participating FFI is not 
required to backup withhold on a reportable payment allocable to its 
chapter 4 withholding rate pool (as defined in Sec.  1.6049-4(f)(5)) of 
recalcitrant account holders (as described in Sec.  1.6049-4(f)(11)), 
if withholding was applied to the payment (either by the participating 
FFI or another payor) pursuant to Sec.  1.1471-4(b) or Sec.  1.1471-
2(a). For rules applicable to notional principal contracts, see Sec.  
1.6041-1(d)(5) of this chapter. For rules applicable to reportable 
payments made before July 1, 2014, see this paragraph (e) as in effect 
and contained in 26 CFR part 1 revised April 1, 2013.)
* * * * *

0
Par. 16. Section 31.3406(h)-2T is amended by revising paragraph (i) and 
adding paragraph (j) to read as follows:


Sec.  31.3406(h)-2T  Special rules (temporary).

* * * * *
    (i) Effective/applicability date. The provisions of paragraph 
(a)(3)(i) of this section apply to payments made after June 30, 2014. 
(For payments made before July 1, 2014, see this section as in effect 
and contained in 26 CFR part 1 revised April 1, 2013.)
    (j) Expiration date. The applicability of this section expires on 
February 28, 2017.

 Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
[FR Doc. 2014-15466 Filed 6-30-14; 8:45 am]
BILLING CODE 4830-01-P